Percentage Beneficial
                                                                                       Ownership of Beta
                                                                                        After the Merger
                                                                                        ----------------


        Beta shares pre-merger...............................             0,000,000

        Red River shares outstanding pre-merger..............                 1,000

        Total Beta shares post-merger...........................          0,000,000           100%

        Rolf N. Hufnagel                                                  1,440,000          0.00%
        Robert E. Davis, Jr.                                                360,000          0.00%
        Stephen J. Vogel                                                     90,000          0.00%
        Janet L. McGehee                                                     90,000          0.00%
        Billy L. Basinger, Jr.                                               90,000          0.00%
        Brent A. Biggs                                                       90,000          0.00%
        Mark A. Biggs                                                        90,000          0.00%

        Beta shares issued to Red River shareholders.........             2,250,000          0.00%

        Percentage beneficial ownership of pre-merger Red
                  River shareholders                                                         0.00%

     Under the terms of the first amendment to the merger agreement, dated as of January 19, 2000, stock certificates representing the number of shares of Beta common stock to be transferred to the Red River shareholders upon the closing of the merger as stated in the foregoing table have been issued and are currently being held in escrow by an escrow agent. If the merger is not completed, the escrow agent will release the shares of Beta common stock from escrow and return these shares to Beta for cancellation.

Appraisal Rights

     Under Nevada law, Beta shareholders are not entitled to appraisal rights with respect to approval of the share issuance. The Red River shareholders are all parties to the merger agreement and have committed to approve the merger. Consequently, they will not have any dissenters' appraisal rights.

Resales of Beta Common Stock

     The shares of Beta common stock issued in connection with the merger have not been registered under the Securities Act of 1933. Subject to the registration rights granted to the Red River shareholders, the Red River shareholders may not offer, sell, assign or otherwise dispose of the 2,250,000 shares of Beta common stock received in the merger unless the shares are subsequently registered under the Securities Act or unless an exemption from registration is available. The stock certificates representing the shares of Beta common stock which will be transferred to the Red River Shareholders at closing and which are being held in escrow as provided under the merger agreement, as amended, will contain a legend restricting the transferability of the shares of Beta common stock as provided therein and stop order instructions may be imposed by Beta's transfer agent restricting the transferability of such shares.

     Beta has granted the Red River shareholders certain registration rights in connection with the 2,250,000 shares received in the merger. Under the second amendment to the merger agreement, dated as of February 14, 2000, Beta is required, after the filing of this proxy statement with the SEC and by no later than June 30, 2000, to prepare and file with the Commission a shelf registration statement for the purpose of registering the 2,250,000 shares for resale in the market from time to time.

     Once the registration statement is declared effective, and so long as it remains effective and current, these shares may be traded freely and without restriction by those shareholders following the effective time of the merger.

THE MERGER AGREEMENT

     The following summarizes the material provisions of the merger agreement, a copy of which is attached as Annex A to this proxy statement. This summary is qualified in its entirety by reference to the merger agreement. You are urged to read the merger agreement in its entirety for a complete description of the merger.

          General. The merger agreement provides for the merger of a wholly owned subsidiary of Beta into Red River. As a result of the merger, Red River will become a wholly owned subsidiary of Beta. The merger will be consummated and effective under Oklahoma law upon the filing of a certificate of merger with the Oklahoma Secretary of State, which is expected to occur as soon as practicable after the last condition precedent to the merger set forth in the merger agreement has been satisfied or waived, but not later than December 31, 2000. Following the merger, the certificate of incorporation of Red River will be amended to change Red River's to Beta Operating Company.

          Manner and Basis of Converting Shares. As a result of the merger, each share of Red River common stock will be converted into the right to receive 2,250 shares of Beta common stock. A total of 2,250,000 shares of Beta common stock will be issued pursuant to the merger.

          Conditions to the Merger. As amended by the second amendment to merger agreement, the obligation of Beta to consummate the merger is subject to only to the following 3 conditions:

•       the holders of a majority of the issued and outstanding shares of Beta common stock shall have approved the merger agreement and the merger;
  
  
•      neither party shall have intentionally and fraudulently misrepresented or willfully breached any material representation or warranty made by such party to the other party under the merger agreement; and
  
  
•      no suit, action or other proceeding shall be pending, or threatened, before any court or governmental agency seeking to restrain or prohibit the merger; or obtain damages or other relief under the merger agreement or as regards the merger or the consummation of the merger.
  

•      the absence of any litigation against Red River which would materially and adversely affect the value of the business, assets, or properties of Red River;
  
  
•      the resignation of all the officers and directors of Red River as requested by Beta;
  
  
•      the receipt of all consents from third parties and governmental authorities which are required in connection with the merger;
  
  
•      the receipt of an opinion of Red River's counsel in form or substance as reasonably requested by Beta; and
  
•      the absence of any material adverse change in the financial condition, business, property or assets of Red River since September 30, 1999.
  
       The conditions to be performed by Beta and Merger Sub including the following :
  
•       the absence of any litigation against Beta which would materially and adversely affect the value of the business, assets, or properties of Beta or the value of Beta common stock;
  
  
•      the receipt of all consents from third parties and governmental authorities required in connection with the merger;
  
  
•      the receipt of an opinion of Beta's counsel in form or substance as may reasonably be requested by Red River and the Red River shareholders;
  
  
•      the execution of employment agreements between Red River and certain Red River shareholders;
  
  
•      the absence of any material adverse change in the financial condition, business, property or assets of Beta since November 11, 1999;
  
  
•      the listing by Beta of the shares of Beta common stock to be issued to the Red River shareholders on The Nasdaq Stock Market; and
  
  
  
  •      the appointment of Rolf N. Hufnagel as a director of Beta as of the effective time of the merger.
              Representations and Warranties. The merger agreement contains numerous representations and warranties by Red River and the Red River shareholders to Beta as to various matters, such as:
    
    •     Red River's due organization and good standing;
    
    •     binding effect of the merger agreement upon Red River and the Red River shareholders;
    
    •     absence of any conflict with any of Red River's organizational documents and agreements as a result of the merger;
    
    •     Red River's corporate authorization with respect to the merger;
    
    •     Red River's capitalization;
    
    •     title to the outstanding shares of Red River common stock;
    
    •     Red River's financial statements;
    
    •     absence of undisclosed material liabilities of Red River;
    
    •     absence of material changes with respect to Red River since September 30, 1999;
    
    •     tax matters with respect to Red River;
    
    •     condition of Red River's tangible assets;
    
    •     title to and status and operation of Red River's oil and gas properties;
    
    •     Red River's insurance coverage;
    
    •     Red River's intellectual property rights;
    
    •     litigation involving Red River;
    
    •     Red River's compliance with laws and orders;
    
    •     consents and approvals required in connection with the merger;,
    
    •     contracts binding upon Red River;
    
    •     Red River employee matters;
    
    •     investment intent of the Red River shareholders with respect to the Beta common stock to be issued pursuant to the merger;
    
    •     Red River's licenses, facilities and permits; and
    
    •     Red River's accounts receivable and accounts payable.
    
         The merger agreement contains numerous representations and warranties by Beta to Red River and the Red River shareholders as to various matters, such as:
    
    •     Beta's due organization and good standing;
    
    •     binding effect of the merger agreement upon Beta;
    
    •     absence of any conflict with any of Beta's organizational documents and agreements as a result of the merger;
    
    •     Beta's corporate authorization with respect to the merger;
    
    •     Beta's capitalization;
    
    •     Beta's SEC filings;
    
    •     litigation involving Beta;
    
    •     Beta's compliance with laws and orders; and
    •     shareholder votes required in connection with the merger;

         Survival.  The representations, warranties and covenants under the merger agreement will survive the closing of the merger for a period which ends on the earlier of one year after the closing date or the date Beta's first consolidated audit report is issued after the closing date which includes audited financial information concerning Red River.
    
         Conduct of Business Prior to Closing Date.  Except as otherwise contemplated by the merger agreement, Red River and the Red River shareholders have agreed in the merger agreement that from the date of the merger agreement until the closing date of the merger that Red River will conduct its business in the ordinary course, consistent with past practices, and in particular, Red River will not, among other things:
    
    

  •      amend its certificate of incorporation or bylaws;
    
    
  •      increase any employee's, officer's or directors compensation except for increases in non-management employees consistent with past practices;
    
    
  •      merge or consolidate with, acquire or be acquired by any other entity without Beta's consent;
    
    
  •      increase the amount of any indebtedness other than in the ordinary course without Beta's consent;
    
    
  •      sell or dispose of any of its assets or properties or abandon any wells or equipment other than in the ordinary course of business without Beta's consent;
    
    
  •      fail to maintain all leases, licenses, contracts and permits;
    
    
  •      issue any of its capital stock or options or rights to purchase its capital stock or pay any dividend or make a distribution with respect to shares of its capital stock;
    
    
  •      elect not to participate in the drilling of any new wells or the fracturing or completion of a new well without Beta's consent; or
    
    
  •      establish or implement a new employee benefit plan of any kind.

         Pre-Closing Mutual Covenants. The merger agreement contains mutual covenants of the parties regarding each party's obligation to:
    
    

  •      provide the other party and its advisors full access to books, records, financial information, contracts, licenses, leases, permits and information pertaining to its properties and assets; and
    
    
  •      maintain and refrain from disclosing confidential information obtained from the other party.

         No Solicitation of Other Proposals.  The merger agreement provides that unless it is terminated prior to the closing date as permitted under the merger agreement, neither Red River nor the Red River shareholders will solicit or engage in any discussions, negotiations, understandings or agreements with any person or entity other than Beta relating to the merger, consolidation or sale of Red River's stock or properties other than in the ordinary course of business.

         Remedies for Misrepresentation or Breach.  In the event of any breach by Red River or the Red River shareholders of their representations, warranties or covenants under the merger agreement, the merger agreement provides that the Red River shareholders will be required to return to Beta the number of shares of Beta common stock determined by dividing the dollar amount of loss incurred by Beta on account of the breach by the closing price of a share of Beta common stock as quoted on the Nasdaq Stock Market as of the closing date of the merger agreement, even though the nonbreaching party's claim against the other party is not discovered until after such date. The Red River shareholders will not be required to return any shares until such time as the amount of losses incurred by Beta on account of breaches exceeds $100,000 and will not in any event be required to return more than 225,000 shares.
    
         In the event of any breach by Beta of its representations, warranties or covenants under the merger agreement, the merger agreement provides that Beta will be required to issue to the Red River shareholders the number of shares of Beta common stock determined by dividing the dollar amount of loss incurred by the Red River shareholders on account of the breach by the closing price of a share of Beta common stock as of the closing date of the merger agreement, even though the nonbreaching party's claim against the other party is not discovered until after such date. Beta will not be required to issue any additional shares until such time as the amount of losses incurred by the Red River shareholders on account of breaches exceeds $100,000 and will not in any event be required to issue more than 225,000 additional shares.
    
         For purposes of determining the number of shares to be returned by the Red River shareholders or to be issued by Beta, the dollar amount of the loss sustained by the nonbreaching party as a result of a breach of, or misrepresentation made under, the merger agreement will be the amount of losses, damages, costs, expenses, pre- and post-judgment interest, penalties, court costs, investigation costs and attorneys' fees determined by any court in a judicial proceeding or an arbitrator or arbitration panel in any arbitration proceeding as reflected in a judgment or award, or by the parties pursuant to a settlement of any such proceeding or any demand of claim made against the breaching party or by any governmental agency as a result of an assessment against the nonbreaching party.

         Arbitration.  The merger agreement provides for the settlement of all disputes arising pursuant to or in any way related to the merger agreement by arbitration conducted in accordance with the rules of the American Arbitration Association by three arbitrators.

         Termination.  The merger agreement may be terminated and the merger abandoned at any time prior to the closing date by:
    

  •      mutual consent of Red River and Beta;
    
    
  •      either Red River or Beta if the other party has fraudulently and intentionally misrepresented any representation of a material nature or willfully breached any material warranty contained in the merger agreement and such misrepresentation or breach is not cured by the earlier of the closing date or 30 days after the giving of the such misrepresentation or breach or misstatement; or
    
    
  •      either party if the merger is not consummated on or prior to December 31, 2000, so long as the terminating party did not cause the merger to be delayed.

         Consequences of Termination.  If the merger agreement is validly terminated, no party will be relieved from any liability resulting from a breach of its representations, warranties and covenants under the merger agreement occurring prior to the termination. In addition, provisions of the merger agreement related to the following will survive:
    
    

  •      confidentiality;
    
    
  •      brokers' and finders' fees and commissions; and
    
    
  •      transaction costs and expenses.

         Termination Expenses and Costs.  Each party to the merger agreement will pay its own costs and expenses, including its attorneys' fees and costs, if the merger as contemplated under the merger agreement
    •     cannot be consummated for reasons beyond the control of the parties and they have used their best efforts to obtain requisite approvals and consents,
    
    •     is terminated by mutual consent of the parties, or
    
    •     is not closed prior to December 31, 2000.

         Otherwise, if the merger agreement is terminated prior to the closing date by a party not making any misstatement or not in breach of any covenant or warranty under the merger agreement, the party making the misstatement or breach will be obligated to pay in addition to its costs and expenses the other party's costs and expenses, including actual attorney's fees.

         Specific Performance.  Any failure to perform or breach of any provision of the merger agreement or any misrepresentation under the merger agreement which does not involve a fraudulent or intentional misrepresentation of a material fact or a willful breach of a material warranty will not result in the termination of the merger agreement. Instead, the nonbreaching party's only recourse, in addition to its right to obtain additional shares of Beta common stock if Beta is the breaching party or recover shares of common stock if Red River and its shareholders are in breach of the merger agreement, is its right to seek specific performance of such provision in a court proceeding.

         Amendments.  The merger agreement may be amended or modified, and any provision of the merger agreement may be waived, only by a writing executed and delivered by the parties.

              Post Closing Covenants.  The merger agreement provides that following the consummation of the merger:
    
    •          The directors, officers and shareholders of Red River will reasonably cooperate in effecting the merger, the orderly transfer of assets and control of Red River to Beta, obtaining any governmental or third party approvals or consents necessary to effect such transfer and keeping existing contracts of Red River intact.
    •          The officers, directors and shareholders of Red River will treat as confidential and refrain from using or disclosing all information of a confidential nature and notify Beta promptly of any request, subpoena or demand to disclose such confidential information .
    
    •          The officers, directors and shareholders of Red River will refrain from any action having the effect of discouraging any lessor, licensor, customer, supplier or other person having a business relationship with Red River from continuing its business relationship with Red River.
    
    •          Beta will provide to Red River employees, who are employed by Beta or any of its subsidiaries at the effective time of the merger, so long as they remain so employed, the same employee benefits (other than salary or incentive compensation) and coverage under employee benefit plans which in the aggregate are generally comparable to those provided to Beta employees in comparable positions.
    
    •          Each party, including the officers, directors and shareholders of Red River, will take such further action as another party may reasonably request to accomplish the merger.
    •          The combined company will continue Red River's business or use a significant portion of itsRed River's assets in a business.
    
    •          Beta will use its best efforts to obtain the release of the Red River shareholders' personal guarantees securing Red River's approximately $3,000,000 of the indebtedness to the Bank of Oklahoma, N.A. to the extent the bank is willing to release the personal guarantees As an inducement to the bank, Beta will give its guarantee in substitution of the personal guarantees. Beta will also indemnify the Red River shareholders as to any funds they may be required to pay with respect to their personal guarantees.
    
    •          Beta will not take or fail to take any action which would reasonably be likely to prevent the merger from qualifying as a reorganization under Section 368 of the Code.
    
    

         Registration of Shares of Beta Common Stock.  In the event the merger is consummated, under the merger agreement, we are obligated by no later than June 30, 2000 to prepare and file with the SEC, a shelf registration statement. We expect to file this registration statement shortly after this proxy statement is first mailed to our shareholders. The purpose of the shelf registration statement will be to register the resale of the shares of Beta common stock to be received by the Red River shareholders upon consummation of the merger. We are required to use our best efforts to have the shelf registration statement promptly declared effective by the SEC on or after its filing. We are also required to maintain the information contained in the shelf registration statement current at all times as required under the applicable provisions of the Securities Act of 1933 until the termination of the shelf registration statement. The shelf registration statement is required to be maintained until two years after the date that the SEC first declares the shelf registration statement effective.
    
         If we determine that a condition exists which would make it significantly disadvantageous for the shares of Beta common stock to be offered and sold under the shelf registration statement, the Red River Shareholders have agreed to suspend any sales of their shares under the shelf registration statement for up to 60 consecutive days or an aggregate of 180 days within any 12 month period. Disadvantageous conditions include the unavailability of our required financial statements for reasons beyond our control, the existence or anticipation of a material financing, merger, acquisition or material transaction involving us or other similar events or conditions involving us or our subsidiaries that have not been publicly disclosed.
    
         Under the terms of the merger agreement, the Red River shareholders are also entitled to piggy-back registration rights relating to their shares of Beta common stock to be received in the merger. If we propose to file a registration statement in connection with an offering (with the exception of certain offerings such as the registration of stock options or debt or preferred stock financing) for our own account or the account of any other person, we are required in each such instance to notify the Red River shareholders at least 20 days prior to such filing and give them the opportunity to register the number of their shares of Beta common stock which they request us to include in such registration statement The piggy-back registration is subject to the permission of the managing underwriter or underwriters of the offering. If the underwriter(s) determine(s) that the amount of shares of Beta common stock is so large as to materially and adversely affect the success of the offering, the total amount of the securities included in the offering will be reduced. As a result of such reduction, the shares of Beta common stock requested by the Red River shareholders to be included in such registration statement will be proportionately reduced with all securities of holders having rights to include their securities in such registration statement. We may withdraw any such registration statement and abandon any proposed offering which we initialized without the consent of the Red River shareholders or any other person, if we determine in our sole discretion that such action is in our best interest and the best interest of our shareholders.
    
         The merger agreement contains cross indemnification provisions relating to the indemnification of the other party by a party violating any rules or regulations under federal securities laws or making a misrepresentation of or omitting to state a material fact necessary to make the statements in any such registration statement not misleading.
    
    We will be responsible for paying all of the expenses, fees and costs, including legal and accounting fees and expenses incurred in connection with each registration (whether a shelf registration or a piggy-back registration) involving the shares of Beta common stock to be received upon consummation of the merger.

    PRINCIPAL SHAREHOLDERS OF BETA

    Security Ownership Of Certain Beneficial Owners And Management
         The following table will inform you, as of March 8, 2000, about the beneficial ownership of shares of Beta's common stock held by each person who beneficially owns more than 5% of the outstanding shares of the common stock, each person who is a director or officer of Beta and all persons as a group who are officers and directors of Beta, and as to the percentage of outstanding shares held.

    
                                                                               Approximate Percent           Approximate
                                                      Shares                   of Class Before the        Percent of Class
    Name of Beneficial Owner                          Beneficially Owned            Merger(2)            After the Merger(3)
                                                      (1)
    ---------------------------------------------     --------------------    ----------------------     --------------------
    
    Mr. Steve Antry
    Mrs. Lisa Antry, Jointly
    901 Dove Street, #230
    Newport Beach, CA  92660                                 1,565,000(4)            15.79%                    12.87%
    
    Mr. R. Thomas Fetters
    901 Dove Street, #230
    Newport Beach, CA  92660                                   375,000(5)             3.78%                     3.08%
    
    Mr. Lawrence W. Horwitz
    2 Venture Plaza,
    Suite 350
    Irvine, CA  92618                                           90,000(6)             0.91%                     0.74%
    
    Mr. Joe C. Richardson Jr.
    901 Dove Street, #230
    Newport Beach, CA  92660                                   400,000(7)             4.04%                     3.29%
    
    Mr. Stephen L. Fischer
    901 Dove St., #230
    Newport Beach, CA  92660                                   390,000(8)             3.93%                     3.21%
    
    Mr. J. Chris Steinhauser
    901 Dove Street, #230
    Newport Beach, CA  92660                                   140,000(9)             1.41%                     1.15%
    
    Mr. John P. Tatum
    901 Dove Street, #230
    Newport Beach, CA  92660                                   68,500(10)             0.69%                     0.56%
                                                      --------------------    ----------------------     --------------------
    All officers, key persons and directors as
    a group    (8 persons)                                  3,028,500(11)            30.55%                    24.90%
                                                      ====================    ======================     ====================
    
    

    Certain of the shareholders in this table have agreed that they will not sell their shares representing 2,670,000 of the 3,028,500 of the total beneficial shares held until July 1, 2000.

    (1)	Unless otherwise indicated, all shares of common stock are held directly with sole voting and investment powers. Securities not outstanding, but included in the beneficial ownership of each such person are deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by such person, but are not deemed to be outstanding for the purpose of computing percentage of the class owned by any other person.
    (2)	This column represents the approximate percentage of beneficial ownership prior to the issuance of the 2,250,000 shares.
    (3)	Assumes the issuance of the 2,250,000 shares in the merger.
    (4)	Mr. Steve Antry and Mrs. Lisa Antry, husband and wife, own 1,500,000 shares as community property. This also includes 25,000 shares of common stock underlying presently exercisable stock warrants. The warrants are exercisable at $5.00 per share and expire on March 12, 2003. In addition, this includes 40,000 shares of common stock underlying stock options which are expected to become exercisable within 60 days. The options are exercisable at $6.00 per share and expire on December 31, 2004.
    (5)	Mr. Fetters owns directly 350,000 shares of Beta's common stock. In addition, this includes 25,000 shares of common stock underlying stock options which are expected to become exercisable within 60 days. The options are exercisable at $6.00 per share and expire on December 31, 2004.
    (6)	Mr. Horwitz owns directly 50,000 shares. In addition, Horwitz & Beam with whom the director is a shareholder, owns 20,000 shares. In addition, this includes 20,000 shares of common stock underlying presently exercisable stock warrants. The warrants are exercisable at $6.00 per share and expire on September 1, 2004.
    (7)	Mr. Richardson owns directly 400,000 shares.
    (8)	Mr. Fischer owns directly 350,000 shares. This also includes 25,000 shares of common stock underlying presently exercisable stock warrants. The warrants are exercisable at $5.00 per share and expire on March 12, 2003. In addition, this includes 15,000 shares of common stock underlying stock options which are expected to become exercisable within 60 days. The options are exercisable at $6.00 per share and expire on December 31, 2004.
    (9)	This represents 100,000 shares of common stock underlying stock warrants which shall expire on January 27, 2003. On January 27, 1998, Beta issued 100,000 common stock purchase warrants exercisable at a price of $3.75 per share to J. Chris Steinhauser, the chief financial officer of Beta. This also includes 25,000 shares underlying presently exercisable stock warrants which were granted to Mr. Steinhauser. The warrants are exercisable at $5.00 per share and expire on March 12, 2003. In addition, this includes 15,000 shares of common stock underlying stock options which are expected to become exercisable within 60 days. The options are exercisable at $6.00 per share and expire on December 31, 2004.
    (10)	Mr. Tatum owns 18,500 shares of common stock and 50,000 shares underlying common stock warrants which are exercisable at a price of $5.00 and which expire April 1, 2004.
    (11)	Includes 340,000 shares of common stock underlying stock warrants.

    DESCRIPTION OF BETA'S CAPITAL STOCK

         The statements set forth under this heading generally describe Nevada General Corporation Law, Beta's certificate of incorporation and Beta's by-laws ; the statements are subject to the detailed provisions of the Nevada General Corporation Law, the Beta certificate of incorporation and the Beta by- laws.
    
         Beta is authorized to issue 50,000,000 shares of common stock, $0.001 par value. As of the date of this proxy statement, Beta had _____ shares of common stock outstanding and an additional 2,250,000 shares of common stock being held in escrow.

    Common Stock
    
         Each holder of common stock is entitled to one vote per share on all matters to be voted upon by Beta's shareholders. Shareholders are entitled to as many votes as equal to the number of shares multiplied by the number of directors to be elected and may cast all votes for a single director or may distribute them among the number to be voted for any two or more of them in the election of directors. These are called cumulative voting rights. The holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. Beta has not paid, and does not presently intend to pay, dividends on its common stock. In the event of a liquidation, dissolution or winding up of Beta, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of holders of preferred stock, if any, then outstanding. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions available to the common stock. All outstanding shares of common stock are validly authorized and issued and are fully paid and non-assessable, and the shares of common stock to be issued upon exercise of warrants as described in this proxy statement will be validly authorized and issued, fully paid and non-assessable. As of ______, 2000 there were approximately 400 record holders of Beta's common stock.
    
          During the period from inception, June 6, 1997, through December 31, 1997, Beta issued 797,245 callable and 730,977 non-callable common stock purchase warrants entitling the holders to purchase 1,528,222 shares of Beta common stock at prices ranging from $2.00 to $5.00 per share. During the year ended December 31, 1998, Beta issued 415,958 callable and 553,483 non-callable common stock purchase warrants entitling the holders to purchase 969,441 shares of Beta common stock at prices ranging from $3.75 to $7.50 per share.
    
         Because its common stock has traded at a market price exceeding $7.00 per share for 10 consecutive days, Beta is entitled to call 442,000 of the 797,245 callable $5 warrants at any time. Beta has not yet issued a call for these warrants as of the date of this proxy statement, but may do so at any time in its sole discretion. The 442,000 warrants are exercisable at a price of $5.00 per share. The remaining 355,000 callable $5 warrants have already been exercised.
    
         In addition, Beta will be entitled to call 415,958 warrants at any time on and after the date that its common stock is traded on any exchange, including the the Nasdaq Stock Market or the Over-the-Counter Bulletin Board, at a market price equal or exceeding $10.00 per share for 10 consecutive trading days. All common stock Purchase warrants expire 5 years from their date of issuance.

    Stockholder Action
    
         According to Beta's bylaws, concerning any act or action required of or by the holders of the common stock, the affirmative vote of the holders of a majority of the issued and outstanding common stock entitled to vote thereon is sufficient to authorize, affirm, ratify or consent to such act or action, except as otherwise provided by law. Officers, directors and holders of 5% or more of outstanding shares of Beta common stock do not constitute a majority and thus do not control the voting upon all actions required or permitted to be taken by shareholders of Beta, including the election of directors.

    Possible Anti-Takeover Effects of Authorized but Unissued Stock
    
         As of the date of this proxy statement, Beta's authorized but unissued capital stock consists of 40,584,343______ shares of common stock. One of the effects of the existence of authorized but unissued capital stock may be to enable the board of directors to render more difficult or to discourage an attempt to obtain control of Beta by means of a merger, tender offer, proxy contest or otherwise, and to protect the continuity of Beta's management. If in the due exercise of its fiduciary obligations, for example, the board of directors were to determine that a takeover proposal was not in Beta's best interests, such shares could be issued by the board of directors without stockholder approval in one or more private placements or other transactions that might prevent or render more difficult or costly the completion of the takeover transaction by diluting the voting or other rights of the proposed acquiring or insurgent stockholder or stockholder group, by creating a substantial voting block in institutional or other hands that might undertake to support the position of the incumbent board of directors, by effecting an acquisition that might complicate or preclude the takeover, or otherwise.

    Other Anti-Takeover Provisions
    
         Beta executed a contract of employment with the president and chairman of the board of directors, Steve A. Antry, dated June 23, 1997. The contract provides for an indefinite term of employment at an annual salary of $150,000, commencing in October 1997, and an annual car allowance of up to $12,000. The contract may be terminated by Beta without cause upon the payment of the following:

    termination notice, such amount not to exceed $3.00 per share.

    (a)	Options to acquire the common stock of Beta in an amount equal to 10% of the then issued and outstanding shares containing a five year term, piggyback registration rights and an exercise price equal to 60% of the fair market value of the shares during the sixty day period of time preceding the
    (b)	A cash payment equal to two times the aggregate annual compensation.
    (c)	In the event of termination without cause, all unvested securities issued by Beta to the Employee shall immediately vest and Beta shall not have the right to terminate or otherwise cancel any securities issued by Beta to Mr. Antry.

         The termination provisions of this employment contract were designed, in part, to impede and discourage a hostile takeover attempt and to protect the continuity of management./p>

    Certain Charter and Bylaws Provisions
    
         Limitation of Liability and Indemnification
    
         Beta's Articles of Incorporation and its Bylaws limit the liability of directors and officers to the extent permitted by Nevada law. Specifically, the Articles of Incorporation provide that the directors and officers of Beta will not be personally liable to Beta or its shareholders for monetary damages for breach of their fiduciary duties as directors, including gross negligence, except liability for acts or omissions “which involve intentional misconduct, fraud or a knowing violation of law not in good faith, or the payment of dividends in violation of Section 78.300 of the Nevada Revised Statutes.”
    
         Beta has obtained a directors and officers liability insurance policy for the purposes of indemnification which shall cover all elected and appointed directors and officers of Beta up to $1,000,000 for each claim and $3,000,000 in the aggregate. Beta believes that the limitation of liability provision in its Articles of Incorporation, and the directors and officers liability insurance will facilitate Beta's ability to continue to attract and retain qualified individuals to serve as directors and officers of Beta.
    
         Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of Beta, Beta has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore unenforceable. Except for the payment by Beta of expenses incurred or paid by a director, officer, or controlling person of Beta in the successful defense of any action, suitor proceeding, if a claim for indemnification against such liabilities is asserted by such director, officer or controlling person of Beta in connection with the securities being registered, Beta will, unless in the opinion of its counsel the matter has been settled by a 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 issues.
    
         At present, there is no pending litigation or proceeding involving any director, officer, employee or agent for which indemnification will be required or permitted under Beta's Articles of Incorporation. Beta is not aware of any threatened litigation or proceeding which may result in a claim for such indemnification.

    Stockholder Meetings and Other Provisions
    
         Under the Bylaws, special meetings of the shareholders of Beta may be called only by a majority of the members of the board of directors, the chairman of the board, the president, or by one or more shareholders holding shares in the aggregate entitled to cast not less than 10% of the votes at any such meeting. The annual meeting shall be held each year on May 15 at 10:00 A.M., or at such other date that is convenient as determined by the Directors, at a place to be designated by the board of directors.

    Transfer Agent and Registrar
    
         The transfer agent and registrar for the common stock is Oxford Transfer & Registrar, 317 S.W. Alder, Portland, OR 97204.

    Certain Provisions of the Beta Bylaws
         Beta needs to obtain shareholder approval of a plan or arrangement under paragraph 1 below, or prior to the issuance of common stock under paragraph 2, 3, or 4 below:
              1.     when a stock option or purchase plan is to be established or other arrangement made pursuant to which stock may be acquired by officers or directors, except for warrants or rights issued generally to security holders of Beta or broadly based plans or arrangements including other employees (e.g., ESOPs). In the case where shares are issued to a person not previously employed by Beta, as an inducement essential to the individual's entering into an employment contract with Beta, shareholder approval will generally not be required. The establishment of a plan or arrangement under which the amount of securities which may be issued does not exceed the lesser of 1 percent of the number of shares of common stock, 1 percent of the voting power outstanding, or 25,000 shares will not generally require shareholder approval;
    
              2.     when the issuance will result in a change of control of Beta;
    
              3.     in connection with the acquisition of the stock or assets of another company if:
    
                   a.     any director, officer, or substantial shareholder of Beta has a 5 percent or greater interest (or such persons collectively have a 10 percent or greater interest), directly or indirectly, in the company or assets to be acquired or in the consideration to be paid in the transaction or series of related transactions and the present or potential issuance of common stock, or securities convertible into or exercisable for common stock, could result in an increase in outstanding common shares or voting power of 5 percent or more; or
    
                   b.     where, due to the present or potential issuance of common stock, or securities convertible into or exercisable for common stock, other than a public offering for cash:
    
                        €     the common stock has or will have upon issuance voting power equal to or in excess of 20 percent of the voting power outstanding before the issuance of stock or securities convertible into or exercisable for common stock; or
    
                        €     the number of shares of common stock to be issued is or will be equal to or in excess of 20 percent of the number of shares or common stock outstanding before the issuance of the stock or securities; or
    
              4.     in connection with a transaction other than a public offering involving:
    
              a.     the sale or issuance by Beta of common stock (or securities convertible into or exercisable for common stock) at a price less than the greater of book or market value which together with sales by officers, directors, or substantial shareholders of the company equals 20 percent or more of common stock or 20 percent or more of the voting power outstanding before the issuance; or
    
              b.     the sale or issuance by Beta of common stock (or securities convertible into or exercisable common stock) equal to 20 percent or more of the common stock or 20 percent or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.
    
         Exceptions to those conditions requiring shareholder approval may be made upon application to Nasdaq when:
    
         €     the delay in securing stockholder approval would seriously jeopardize the financial viability of Beta; and
    
         €     reliance by Beta on this exception is expressly approved by the audit committee or a comparable body of the board of directors.
    
         If Beta is relying on this exception it must mail to all shareholders not later than 10 days before issuance of the securities a letter alerting them to its omission to seek the shareholder approval that would otherwise be required and indicating that the audit committee or a comparable body of the board of directors has expressly approved the exception.
    
         The issuance of the shares of Beta common stock in the names of the Red River shareholders, which shares are being held in escrow by a third party escrow agent, is subject to shareholder approval of the merger agreement and merger. If the Beta shareholders do not approve the merger, the escrow agent is required to release all of these shares from escrow and return them to Beta for cancellation. As such, these shares will not be transferred and therefore will not be issued to the Red River shareholders if the Beta shareholders do not approve the merger agreement.
    
         Only shares actually issued and outstanding, excluding treasury shares or shares held by a subsidiary, are to be used in making any calculation provided for in determining whether shareholder approval is required. Unissued shares reserved for issuance upon conversion of securities or upon exercise of options or warrants will not be regarded as outstanding.
    
         Where shareholder approval is required, the minimum vote which will constitute shareholder approval shall be a majority of the total votes cast on the proposal in person or by proxy.

    MARKET PRICES OF BETA COMMON STOCK

         Beta common stock began trading July 9, 1999 on the Nasdaq Small Cap Market under the symbol "BETA". The following table sets forth for the fiscal period indicated the range of the high and low sale prices of Beta common stock as reported on the Nasdaq Small Cap Market. Beta has not paid any cash or other dividends since its inception. For the foreseeable future, Beta intends to retain any funds otherwise available for dividends for use in the expansion of its business.

    Beta Common Stock
    Nasdaq Small Cap Market

                    Fiscal Year Ending December 31, 1999:               High        Low
                    -------------------------------------               ----        ---
    
                    1st Quarter..........................                N/A        N/A
                    2nd Quarter..........................                N/A        N/A
                    3rd Quarter..........................               6-11/16     4-1/4
                    4th Quarter..........................                8-5/8     5-15/16
    
    
    
                    Fiscal Year Ending December 31, 2000:                High        Low
                    -------------------------------------                ----        ---
    
                    1st Quarter..........................              10-13/16     6-1/2
    
    

         Set forth below is the last reported sale price of Beta common stock on November 19, 1999, the last trading day prior to the public announcement of the execution of the merger agreement, and on ______, 2000, the last trading day prior to the date of this proxy statement, both as reported on the Nasdaq Small Cap Market:
    
              November 19, 1999.......... $ 8 1/8
              March , 2000............ $0.00

    BETA OIL & GAS, INC.
    
    UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

    The following unaudited pro forma combining, condensed financial information is presented to reflect the Agreement and Plan of Merger on (1) the unaudited historical condensed balance sheet as of December 31, 1999, and (2) the unaudited historical condensed statements of operations for the years ended December 31, 1997, 1998 and 1999 of Beta Oil & Gas, Inc. and subsidiaries ("Beta") and Red River Energy, Inc. and subsidiaries ("Red River").
    
    For financial accounting purposes, it is expected that the merger will be accounted for using the pooling-of-interests method of accounting. Accordingly, it is expected that (1) the recorded historical cost basis of the assets and liabilities of Beta and Red River will be carried forward to the combined company, (2) results of operations of the combined company will include results of operations of Beta and Red River for the entire fiscal period in which the combination occurs and (3) the historical results of operations of the separate companies for fiscal years before the merger will be combined and reported as the results of operations of the combined company. No adjustments have been made to the historical financial statements of Beta or Red River to conform the accounting policies of the combining companies as the nature and amounts of such adjustments are not expected to be significant.
    
    The assumptions used in preparing the pro forma adjustments are described in the footnotes to the pro forma combining, condensed financial statements. However, due to the uncertainties inherent in the assumption process, it is at least reasonably possible that the assumptions might require further revision and that such revision could be material.
    
    The unaudited pro forma combining, condensed financial information should be read in conjunction with the historical financial statements and related notes of Beta and Red River contained herein, which were used to prepare the pro forma combining, condensed financial statements.
    
    The pro forma financial information presented is not necessarily indicative of future operations or the actual results that would have occurred had the transactions been consummated at the beginning of the periods indicated. The unaudited pro forma combined, condensed statements of operations do not include the impact of nonrecurring charges or credits directly attributable to the transaction.
    

    BETA OIL & GAS, INC.
    
    UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF
    DECEMBER 31, 1999

    The following Unaudited Pro Forma Combined Condensed Balance Sheet combines the financial position of Beta and Red River as of December 31, 1999. This statement has been prepared under the assumptions set forth in the accompanying notes. This statement should be read in conjunction with the separate unaudited condensed consolidated financial statements and notes thereto of Beta and of Red River included in this proxy statement. The Unaudited Pro Forma Combined Condensed Balance Sheet is not necessarily indicative of the financial position of the combined companies as they may be in the future or as they might have been had the merger been effective December 31, 1999.

    
    
                                                                                                         MERGER
                                                                                                        PRO FORMA              COMBINED PRO-FORMA
                                                             BETA                 RED RIVER             ADJUSTMENTS
                                                        -----------------      ------------------     -------------------     --------------------
    
                                                                      ASSETS
                                                                      ------
    CURRENT ASSETS:
        Cash and cash equivalents                     $      1,448,655       $        366,653       $        -                $      1,815,308
        Accounts receivable                                    746,671                308,572                -                       1,055,243
        Prepaid expenses                                       104,241                   -                   -                         104,241
        Advance on drilling contract                           -                          600                -                             600
                                                      ----------------       ----------------       ----------------          ----------------
             Total current assets                            2,299,567                675,825                -                       2,975,392
    
    OIL AND GAS PROPERTIES, at cost     (full cost
    method)
        Evaluated properties                                 9,810,198              5,897,603                  -                    15,707,801
        Unevaluated properties                              12,091,627              2,708,661                  -                    14,800,288
        Less-accumulated amortization
             and impairments of full cost
             pool                                           (3,797,227)              (461,030)                 -                    (4,258,257)
                                                      -----------------      -----------------      ----------------          -----------------
             Net oil and gas properties                     18,104,598              8,145,234                  -                    26,249,832
    
    OTHER OPERATING PROPERTY AND        EQUIPMENT
        Gas gathering system                                   -                    1,303,160                  -                     1,303,160
        Support equipment                                      -                    1,096,415                  -                     1,096,415
        Less-accumulated depreciation                          -                     (201,315)                 -                      (201,315)
                                                      ----------------       -----------------      ----------------          -----------------
            Net other operating property                       -                    2,198,260                  -                     2,198,260
    and equipment
    
    FURNITURE, FIXTURES AND    EQUIPMENT, net
                                                              12,231                   28,194                  -                       40,425
    OTHER ASSETS                                             465,079                    8,818                  -                       473,897
                                                      ----------------       ----------------       ----------------          ----------------
    
                      TOTAL ASSETS                    $   20,881,475           $   11,056,331       $              -          $     31,937,806
                                                      ================       ================       ================          ================
    
    
                                                        (Continued)
    

    BETA OIL & GAS, INC.
    
    UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF
    DECEMBER 31, 1999

    (Continued)

    The following Unaudited Pro Forma Combined Condensed Balance Sheet combines the financial position of Beta and Red River as of December 31, 1999. This statement has been prepared under the assumptions set forth in the accompanying notes. This statement should be read in conjunction with the separate unaudited condensed consolidated financial statements and notes thereto of Beta and of Red River included in this proxy statement. The Unaudited Pro Forma Combined Condensed Balance Sheet is not necessarily indicative of the financial position of the combined companies as they may be in the future or as they might have been had the merger been effective December 31, 1999.

    
                                                       LIABILITIES AND STOCKHOLDERS' EQUITY
    
                                                                                                           MERGER
                                                                                                          PRO FORMA                COMBINED
                                                            BETA                 RED RIVER               ADJUSTMENTS               PRO-FORMA
                                                      ----------------       -----------------      -------------------       -----------------
    CURRENT LIABILITIES:
        Premiums payable - current portion            $         28,224       $        -             $         -               $         28,224
        Current portion of long-term debt                      -                    2,233,176                 -                      2,233,176
        Accounts payable, trade                                225,174                161,329                 -                        386,503
        Accounts payable, related party                        -                       57,023                 -                         57,023
        Accrued interest                                       -                      126,989                 -                        126,989
        Accrued liabilities                                     11,901                 60,855                 -                         72,756
                                                      ----------------       ----------------       ----------------          ----------------
             Total current liabilities                         265,299              2,639,372                 -                      2,904,671
    
    LONG-TERM DEBT, less current portion                        27,939              7,767,386                 -                      7,795,325
                                                      -----------------      ----------------       ----------------          ----------------
    
             Total liabilities                                 293,238             10,406,758                 -                     10,699,996
    
                  STOCKHOLDERS' EQUITY                      20,588,237                649,573                 -                     21,237,810
                                                      ----------------       ----------------       ----------------          ----------------
    
    TOTAL LIABILITIES AND      STOCKHOLDERS' EQUITY   $     20,881,475       $     11,056,331       $         -               $     31,937,806
                                                      ================       ================          ================      =================
    

    BETA OIL & GAS, INC.
    UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
    FOR THE YEAR ENDED DECEMBER 31, 1997
    (Unaudited)

    The following Unaudited Pro Forma Combined Condensed Statement of Earnings combines the operations of Beta and Red River for the year ended December 31, 1997. This statement has been prepared under the assumptions set forth in the accompanying notes. This statement should be read in conjunction with the separate audited consolidated financial statements and notes thereto of Beta and of Red River included in this proxy statement. The Unaudited Pro Forma Combined Condensed Statement of Earnings is not necessarily indicative of the results of operations of the combined companies as they may be in the future or as they might have been had the merger been effective June 6, 1997.

    
                                                                                                       MERGER
                                                                                                     PRO FORMA             COMBINED PRO-FORMA
                                                         BETA                 RED RIVER             ADJUSTMENTS
                                                   ------------------    --------------------     -----------------        --------------------
    
    REVENUES                                       $         -           $         -              $         -              $         -
    
    COSTS AND EXPENSES                                      246,982                -                        -                       246,982
                                                   ----------------      ----------------         ----------------         ----------------
    
    INCOME (LOSS) FROM OPERATIONS                          (246,982)               -                        -                      (246,982)
    
    OTHER INCOME (EXPENSE), net                              45,409                -                        -                        45,409
                                                   ----------------      ----------------         ----------------         ----------------
    
    NET (LOSS)                                     $       (201,573)     $         -              $         -              $       (201,573)
                                                   =================     ================         ================         =================
    
    
    
    BASIC AND DILUTED LOSS PER SHARE               $         (.05)                                                         $          (.03)
                                                   ===============                                                         ================
    
    WEIGHTED AVERAGE NUMBER OF          COMMON
    SHARES OUTSTANDING                                    4,172,662                                      2,250,000  (1)         6,422,662
                                                   ================                               ================              =========
    
    
    

    BETA OIL & GAS, INC.
    UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
    FOR THE YEAR ENDED DECEMBER 31, 1998
    (Unaudited)
    

    The following Unaudited Pro Forma Combined Condensed Statement of Earnings combines the operations of Beta and Red River for the year ended December 31, 1998. This statement has been prepared under the assumptions set forth in the accompanying notes. This statement should be read in conjunction with the separate audited consolidated financial statements and notes thereto of Beta and of Red River included in this proxy statement. The Unaudited Pro Forma Combined Condensed Statement of Earnings is not necessarily indicative of the results of operations of the combined companies as they may be in the future or as they might have been had the merger been effective June 6 , 1997 .

    
    
                                                                                                     MERGER
                                                                                                    PRO FORMA
                                                         BETA                 RED RIVER            ADJUSTMENTS             COMBINED PRO-FORMA
                                                  ------------------    --------------------    -------------------        --------------------
    REVENUES:                                     $        -            $        865,356        $          -               $        865,356
    
    COSTS AND EXPENSES                                   2,429,343             1,184,853                   -                      3,614,196
                                                  ----------------      ----------------        ----------------           ----------------
    
    LOSS FROM OPERATIONS                                (2,429,343)             (319,497)                  -                     (2,748,840)
    
    OTHER INCOME (EXPENSE), net                             44,843              (190,169)                  -                       (145,326)
                                                  ----------------      ----------------        ----------------           ----------------
    
                     NET (LOSS)                   $     (2,384,500)     $       (509,666)       $          -               $     (2,894,166)
                                                  ================      ================        ================           ================
    
    
    BASIC AND DILUTED LOSS PER SHARE              $          (0.37)                                                        $          (0.34)
                                                  ================                                                         ================
    
      WEIGHTED AVERAGE NUMBER OF COMMON SHARES
                    OUTSTANDING                          6,366,923                                     2,250,000    (2)           8,616,923
                                                  ================                                ================         ================
    
    

    BETA OIL & GAS, INC.
    UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
    FOR THE YEAR ENDED DECEMBER 31, 1999
    (Unaudited)

    The following Unaudited Pro Forma Combined Condensed Statement of Earnings combines the operations of Beta and Red River for the year ended December 31, 1999. This statement has been prepared under the assumptions set forth in the accompanying notes. This statement should be read in conjunction with the separate unaudited condensed consolidated financial statements and notes thereto of Beta and of Red River included in this proxy statement. The Unaudited Pro Forma Combined Condensed Statement of Earnings is not necessarily indicative of the results of operations of the combined companies as they may be in the future or as they might have been had the merger been effective June 6 , 1997 .

    
                                                                                                       MERGER
                                                                                                     PRO FORMA             COMBINED PRO-FORMA
                                                         BETA                 RED RIVER             ADJUSTMENTS
                                                   ------------------    --------------------     -----------------        --------------------
    
    
    REVENUES                                       $      1,199,480      $      3,188,758         $            -           $      4,388,238
    
    COSTS AND EXPENSES                                    3,638,973             2,776,193                       -                 6,415,166
                                                   ----------------      ----------------         ---------------          ----------------
    
    INCOME (LOSS) FROM OPERATIONS                        (2,439,493)              412,565                    -                   (2,026,928)
    
    OTHER INCOME (EXPENSE), net                          (2,944,910)             (509,826)                   -                   (3,454,736)
                                                   ----------------      ----------------         ----------------         -----------------
    
    NET (LOSS)                                     $     (5,384,403)     $        (97,261)        $             -          $     (5,481,664)
                                                   ================      ================         ===============          ================
    
    
    
    BASIC AND DILUTED LOSS PER SHARE               $          (.66)                                                        $          (.53)
                                                   ===============                                                         ===============
    
    WEIGHTED AVERAGE NUMBER OF          COMMON
    SHARES OUTSTANDING                                    8,160,000                                      2,250,000  (1)          10,410,000
                                                   ================                               ================         ================
    
    
    

    BETA OIL & GAS, INC. AND SUBSIDIARIES
    NOTES TO UNAUDITED PRO FORMA CONDENSED
    COMBINED FINANCIAL STATEMENTS

    (1)     The pro forma combined weighted average common shares reflect the adjustment for the issuance of 2.25 million shares of Beta common stock to Red River members, per Agreement and Plan of the Merger.

    GLOSSARY

    As used in this proxy statement:
    
          "Acquisition of properties" are the costs incurred to obtain rights to production of oil and gas. These costs include the costs of acquiring oil and gas leases and other interests. These costs include lease costs, finder's fees, brokerage fees, title costs, legal costs, recording costs, options to purchase or lease interests and any other costs associated with the acquisitions of an interest in current or possible production.
    
          "Area of mutual interest" means, generally, an agreed upon area of land, varying in size, included and described in an oil and gas exploration agreement which participants agree will be subject to rights of first refusal as among themselves, such that any participant acquiring any minerals, royalty, overriding royalty, oil and gas leasehold estates or similar interests in the designated area, is obligated to offer the other participants the opportunity to purchase their agreed upon percentage share of the interest so acquired on the same basis and cost as purchased by the acquiring participant. If the other participants, after a specific time period, elect not to acquire their pro-rata share, the acquiring participant is typically then free to retain or sell such interests.
    
          "Back-in interests" also referred to as a carried interest, involve the transfer of interest in a property, with provision to the transferor to receive a reversionary interest in the property after the occurrence of certain events.
    
          "Bbl" means barrel, 42 U.S. gallons liquid volume, used in this proxy statement in reference to crude oil or other liquid hydrocarbons.
    
          "Bcf" means billion cubic feet, used in this proxy statement in reference to gaseous hydrocarbons.
    
          "BCFEQ" means billions of cubic feet of gas equivalent, determined using the ratio of six thousand cubic feet of gas to one barrel of oil, condensate or gas liquids.
    
          "Casing Point" means the point in time at which an election is made by participants in a well whether to proceed with an attempt to complete the well as a producer or to plug and abandon the well as a non-commercial dry hole. The election is generally made after a well has been drilled to its objective depth and an evaluation has been made from drill cutting samples, well logs, cores, drill stem tests and other methods. If an affirmative election is made to complete the well for production, production casing is then generally cemented in the hole and completion operations are then commenced.
    
          "Development costs" are costs incurred to drill, equip, or obtain access to proved reserves. They include costs of drilling and equipment necessary to get products to the point of sale and may entail on-site processing.
    
          "Exploration costs" are costs incurred, either before or after the acquisition of a property, to identify areas that may have potential reserves, to examine specific areas considered to have potential reserves, to drill test wells, and drill exploratory wells. Exploratory wells are wells drilled in unproven areas. The identification of properties and examination of specific areas will typically include geological and geophysical costs, also referred to as G&G, which include topological studies, geographical and geophysical studies, and costs to obtain access to properties under study. Depreciation of support equipment, and the costs of carrying unproved acreage, delay rentals, ad valorem property taxes, title defense costs, and lease or land record maintenance are also classified as exploratory costs.
    
          "Farmout" involves an entity's assignment of all or a part of its interest in a property in exchange for the assignee's obligation to expend all or part of the funds to drill and equip the property.
    
          "Future net revenues, before income taxes" means an estimate of future net revenues from a property at a specified date, after deducting production and ad valorem taxes, future capital costs and operating expenses, before deducting income taxes. Future net revenues, before income taxes, should not be construed as being the fair market value of the property.
    
          "Future net revenues, net of income taxes" means an estimate of future net revenues from a property at a specified date, after deducting production and ad valorem taxes, future capital costs and operating expenses, net of income taxes. Future net revenues, net of income taxes, should not be construed as being the fair market value of the property.
    
          "Mcf" means thousand cubic feet, used in this proxy statement to refer to gaseous hydrocarbons.
    
          "MMcf" means million cubic feet, used in this proxy statement to refer to gaseous hydrocarbons.
    
          "MBbl" means thousand barrels, used in this proxy statement to refer to crude oil or other liquid hydrocarbons.
    
          "Gross" oil and gas wells or "gross" acres is the total number of wells or acres in which Beta has an interest.
    
          "Net" oil and gas wells or "net" acres are determined by multiplying "gross" wells or acres by Beta's interest in such wells or acres.
    
          "Oil and gas lease" or "Lease" means an agreement between a mineral owner, the lessor, and a lessee which conveys the right to the lessee to explore for and produce oil and gas from the leased lands. Oil and gas leases usually have a primary term during which the lessee must establish production of oil and or gas. If production is established within the primary term, the term of the lease generally continues in effect so long as production occurs on the lease. Leases generally provide for a royalty to be paid to the lessor from the gross proceeds from the sale of production.
    
          "Overpressured reservoir" are reservoirs subject to abnormally high pressure as a result of certain types of subsurface conditions.
    
          "Present value of future net revenues, before income taxes" means future net revenues, before income taxes, discounted at an annual rate of 10% to determine their "present value." The present value is shown to indicate the effect of time on the value of the revenue stream and should not be construed as being the fair market value of the properties.
    
          "Present value of future net revenues, net of income taxes" means future net revenues, net of income taxes discounted at an annual rate of 10% to determine their "present value." The present value is shown to indicate the effect of time on the value of the revenue stream and should not be construed as being the fair market value of the properties.
    
          "Production costs" means operating expenses and severance and ad valorem taxes on oil and gas production.
    
          "Prospect" means a geologic anomaly which may contain hydrocarbons that has been identified through the use of 3-D and/or 2-D seismic surveys and/or other methods.
    
         "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 reasonably be 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.
    
          "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 reserves 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" 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.
    
          "Reserve target" means a geologic anomaly which may contain hydrocarbons that has been identified through the use of 3-D and 2-D seismic surveys and other methods.
    
          "Royalty interest" is a right to oil, gas, or other minerals that is not burdened by the costs to develop or operate the related property. The basic royalty interest is retained by the owner of mineral rights when his property is leased for purposes of development.
    
          "Trend" means a geographical area where similar geological, geophysical, or oil and gas reservoir and production characteristics may exist.
    
          "Seismic Option" generally means an agreement in which the mineral owner grants the right to acquire seismic data on the subject lands and grants an option to acquire an oil and gas lease on the lands at a predetermined price.
    
          "Working interest" is an interest in an oil and gas property that is burdened with the costs of development and operation of the property.

    BUSINESS OF BETA

    General
    
          Beta Oil & Gas, Inc. is an oil and gas company organized in June 1997 to engage in the exploration, development, exploitation and production of natural gas and crude oil. Beta's operations are currently focused in proven oil and gas producing trends primarily in South Texas, Louisiana and Central California.
    
         Beta believes that the availability of economic 3-D seismic surveys has fundamentally changed the risk profile of oil and gas exploration in certain regions, specifically South Texas and Louisiana.
    
         Recognizing this change in risk profile, Beta has aggressively sought to acquire significant prospective acreage blocks for targeted, proprietary, 3-D seismic surveys. As of December 31, 1999, Beta had assembled approximately 38,000 gross acres under lease or option.
    
          Approximately 94% of Beta's current acreage position is evaluated by proprietary 3-D seismic data that Beta has acquired through joint participation with operating oil and gas companies. From the data generated by its initial proprietary seismic surveys, covering over 300 square miles, in excess of 200 potential drillsites have been identified.
    
          Approximately $11,000,000 has been utilized to acquire working interests in lands and seismic data in the onshore Texas Gulf Coast region. Beta's interests in the onshore Texas properties are operated by Parallel Petroleum Corporation, Allegro Investments, Inc. and Sue Ann Production, Inc. Drilling commenced on these projects during 1999 and has resulted in eight discoveries of oil and gas to date. Representatives of Parallel, Allegro and Sue Ann have informed Beta that drilling will continue in these projects throughout the year 2000. Beta anticipates that participation in exploratory and drilling projects in South Texas will constitute its primary activity during 2000.
    
          Approximately $ 7,000,000 has been invested in leases, seismic and drilling in Louisiana. Drilling commenced on these prospects in 1998 and has resulted in five oil and gas discoveries so far. It is expected that Beta will participate in the drilling of a minimum of six wells in Louisiana during 2000.
    
          The balance of funds raised to date have been utilized primarily to fund various domestic and international exploratory activities. Beta's exploratory activities in areas outside of Texas have resulted in two natural gas discoveries located in Central California. It is anticipated that Beta will expend additional funds to explore these areas during 2000 and future periods.
    
         Beta has to rely on joint ventures with qualified operating oil and gas companies to operate its projects through the exploratory and production phases. This has reduced general and administrative costs necessary to conduct operations. As of the date of this proxy statement, Beta is operating only one of the oil and gas wells or prospects in which it owns an interest. The balance of Beta's wells or prospects are being operated by third parties.
    
    Technology
    
          Beta participates in projects utilizing economically feasible advanced technology in their exploration and development activities to reduce risks, lower costs, and more efficiently produce oil and gas. Beta believes that the availability of cost effective 3-D seismic surveys makes its use in exploration and development activities attractive from a risk management perspective in certain areas such as South Texas and Louisiana. In certain instances, 3-D seismic surveys more accurately inform Beta in evaluating drilling prospects than do conventional 2-D seismic and traditional evaluation methods. During 1999, Beta participated in the drilling of ten South Texas exploratory wells utilizing 3-D seismic. Seven of the Texas wells have been completed for production. During the same period, Beta participated in the drilling of seven Louisiana exploratory wells identified from 3-D seismic, of which four have been completed for production. None of the Texas or Louisiana prospects had been identified prior to the use of 3-D seismic. Beta management believes that the use of 3-D seismic resulted in higher number of completions of producing wells than would otherwise be the case without the use of the 3-D seismic. 3-D seismic allows Beta and its partners to better image the potential size of an exploratory target and distinguish between larger more profitable targets and smaller less attractive targets.
    
          Briefly, a seismic survey sends pulses of sound from the surface, down into the earth, and records the echoes reflected back to the surface. By calculating the speed at which sound travels through the various layers of rock, it is possible to estimate the depth to the reflecting surface. It then becomes possible to infer the structure of rock deep below the earth's surface. Beta has focused its exploration activity in the Gulf of Mexico region due to affordable and available seismic data, and the affordability of the software and computer hardware necessary to peer through the layers of rock and salt to locate heretofore undiscovered hydrocarbons. Beta evaluates substantially all of its exploratory prospects using 3-D or enhanced 2-D seismic surveys.
    
          In evaluating certain of its exploratory prospects, Beta also uses amplitude versus offset "AVO" technology. AVO analysis can show the high contrast between the sand and shales and provides for better interpretation of the reservoir sands to determine the presence of gas.
    
          Beta retains experienced third-party consultants and participates with experienced joint working interest owners to acquire, process and interpret 3-D seismic surveys. Beta attempts to ensure the integrity of the 3-D seismic analysis in each of its projects by emphasizing quality control throughout the data acquisition, processing and interpretation. Whenever possible, Beta also attempts to correlate or "model" the interpretations of 3-D seismic surveys with wells previously drilled on or near the prospect being evaluated.
    
          Beta may supplement its exploration efforts with acquisitions of producing oil and gas properties. Beta would seek to acquire producing properties that either are underperforming relative to their potential or are candidates for 3-D seismic analysis.
    
    Summary of Oil and Gas Operations
    
    Capitalized costs at December 31 1998, and 1999 relating to Beta's oil and gas activities are summarized as follows:

    
                                                      December 31, 1998        December 31, 1999
                                                      -----------------        -----------------
                                                  United States   Foreign   United States  Foreign
                                                     -------      -------     -------      -------
    
                   Capitalized costs-
                     Evaluated properties          $  1,763,082 $ 1,624,218  $ 8,128,928 $ 1,681,270
                     Unevaluated properties          11,426,732      39,963   11,973,532     118,095
                     Less- Accumulated
                   depreciation,depletion,
                   amortization and impairment          (46,473) (1,624,218)  (2,115,957) (1,681,270)
                                                    ------------ ----------- ------------ -----------
                                                   $ 13,143,341 $    39,963  $17,986,503  $  118,095
                                                    ============ =========== ============ ===========
    
    

    Unevaluated oil and gas properties - United States
    
          As Beta's properties are evaluated through exploration, they will be included in the amortization base. Costs of unevaluated properties in the United States at December 31, 1997 and 1998, and December 31, 1999 represent property acquisition and exploration costs in connection with Beta's Louisiana, Texas and California prospects. The prospects and their related costs in unevaluated properties have been assessed individually and no impairment charges were considered necessary for the United States properties for any of the periods presented. The current status of these prospects is that seismic has been acquired, processed and is currently being interpreted on the subject lands within the prospects. Drilling commenced on the prospects in the first quarter of 1999 and will continue in future periods. As the prospects are evaluated through drilling in future periods, the property acquisition and exploration costs associated with the wells drilled will be transferred to evaluated properties where they will be subject to amortization.

    Unevaluated oil and gas properties - Foreign
         Unevaluated costs as of December 31, 1999, outside the United States represent costs in connection with the evaluation and proposed acquisition of one or more exploration blocks in Australia.

    Evaluated Properties - United States
         During the year ended December 31, 1998 Beta participated in the drilling of 6 wells within the United States. The property acquisition and exploration costs associated with the wells totaling $1,763,082 were transferred to evaluated properties and were evaluated for impairment. It was determined that the capitalized costs associated with the drilling of these properties exceed their net realizable value by $46,473. Accordingly, an impairment write-down of $46,473 was recorded for the year ended December 31, 1998. Since all of the proved reserves associated with the wells were non-producing or behind pipe and no production had occurred as of December 31, 1998, no depletion expense was recorded during the year ended December 31, 1998.
    
         During the year ended December 31, 1999, Beta participated in the drilling of 19 wells within the United States. The property acquisition and exploration costs associated with the wells were transferred to evaluated properties. It was determined that the total costs in evaluated properties of $8,128,928 as of December 31, 1999 exceeded their net realizable value by $1,167,910. Accordingly, an impairment charge for this amount was considered necessary for the year ended December 31, 1999. Production commenced during the period and depletion expense of $901,573 was recorded.

    Evaluated Properties - Foreign
    
          During 1998, Beta, through its wholly owned subsidiary, BETAustralia, LLC secured an option to participate for a 5% working interest in two petroleum licenses covering 2,798,000 acres (approximately 4,372 square miles). Per the terms of the option agreement, Beta exercised its option to earn a 5% working interest by participating in the drilling of two offshore test wells in the license areas. The wells were completed as dry holes. The property acquisition and exploration costs associated therewith totaling $1,624,218 were transferred to evaluated properties and charged to impairment expense during the year ended December 31, 1998. The exploration licenses expired in December 1998. Property acquisition and exploration costs associated with a Brazilian prospect totaling $ 57,052 were transferred to evaluated properties and charged to impairment expense during the year ended December 31, 1999.

    PROPERTIES OF BETA

         Beta's current oil and gas exploration activities are focused in four distinct project areas as follows:
    
    1.     Yegua and Frio Trend 3-D Seismic Joint Venture - Onshore Gulf Coast Region, Jackson County, Texas;
    2.     Transition Zone Project - Offshore and Onshore Gulf Coast Region, Texas and Louisiana;
    3.     Norcal Project - Onshore San Joaquin and Sacramento Basins, California; and
    4.     International - Onshore Australia and Brazil.
    
         In substantially all of its project areas, Beta has entered into joint ventures with operators who have extensive experience and expertise in those areas. This has allowed Beta to obtain working interests in a number of prospects with minimal associated overhead.
    
         The following discussion contains forward looking statements. The projects discussed in this section may never yield any additional commercial discoveries of hydrocarbons and, even if they do, they could result in a loss to Beta. See "Risk Factors" for a discussion of the risk factors associated with the projects.
    
    YEGUA/FRIO/WILCOX TREND 3-D SEISMIC JOINT VENTURE, JACKSON COUNTY, TEXAS
    
         Beta presently owns working interests in four Onshore Gulf Coast exploration projects located in Jackson County, Texas. The projects are operated by Parallel Petroleum Corporation, Allegro Investments, Inc. and Sue-Ann Production Company . Approximately 15,000 gross acres, approximately 3,900 acres net to Beta's working interest, of oil and gas leases have been acquired in these four projects as of December 31, 1998. As of December 31, 1999 , the operators had completed 3-D seismic surveys over an area totaling 286 square miles within which these projects are located and were evaluating seismic data to select drilling locations. Drilling commenced on Beta's project areas in the first quarter of 1999.
    
          The following projects in which Beta is participating will use the same seismic techniques that Parallel has previously used to identify potential drill sites. The status of the projects is as follows:
    
    1)     Texana Project.   Approximately 25,000 gross acres under seismic coverage; 294 gross acres under lease; 74 acres under lease net to Beta's 25% working interest as of December 31, 1999 :
    
          Approximately 40 square miles of 3-D seismic data has been acquired and processed. "Amplitude Versus Offset" analysis and data interpretation has been completed. Approximately 10 potential locations have been identified for drilling in 2000 and future periods. Drilling of exploratory wells is expected to commence in the year 2000.
    
    2)     Formosa Grande Project. Approximately 92,000 gross acres under seismic coverage; 6,471 gross acres under lease; 1,618 acres under lease net to Beta's 25% working interest at December 31, 1999 :
    
         Approximately 140 square miles of 3-D seismic data has been acquired. The seismic data has been interpreted and prospects identified. Drilling of exploratory wells commenced in the fourth quarter of 1999 and has resulted in one dry hole to date. Approximately 46 additional potential locations have been identified for drilling in 2000 and future periods. A minimum of two wells are expected to be drilled in the second quarter.
    
    3)     Ganado Project. Approximately 25,000 gross acres under seismic coverage, 4,965 gross acres under lease; 993 acres under lease net to Beta's 20% working interest at December 31, 1999 :
    
          Approximately 40 square miles of 3-D seismic data has been acquired and is in the interpretive stages. Three exploratory wells have been drilled in this project this year. Two wells were dry holes and the third well was completed for production. Approximately 91 additional locations have been identified for drilling during 2000 and future periods.
    
    4)     BWC Project. Approximately 42,440 gross acres under seismic coverage, 3,561 gross acres under lease; 1,175 acres under lease net to Beta's 12.5% working interest at December 31, 1999 :
    
          Approximately 66 square miles of 3-D seismic data has been acquired and is in the interpretive stages. Drilling of exploratory wells commenced in the first quarter of 1999 and has resulted in seven oil and gas discoveries out of eight wells drilled to date. Approximately 100 additional potential locations have been identified for drilling in 2000 and future periods. Additional drilling is scheduled for the second quarter of 2000.
    
    Terms of Participation
    
          All of the lands covered by the exploration agreements are subject to "area of mutual interest" provisions described in the glossary preceding the "Business" section. The exploration agreements generally provide, among other things, for participation by Beta and other participants on the following terms and conditions:
    
    €     Participants were required to pay 133% of actual cost of initial land costs, consisting mainly of seismic options, and the costs of acquiring, processing and interpreting seismic data. The 33% premium was paid to unrelated parties as compensation for assembling the leases and conducting the seismic operations. All costs incurred after the interpretation phase are billed to the participants at actual cost. The post interpretation costs include the cost of drilling, completing and equipping wells and the costs of acquiring leases. All of the projects are now in the post-interpretive stage.
    
    €     Once the seismic data has been acquired and interpreted, prospects will be designated within the seismic survey areas. The parties to the agreement then have the option to participate in the prospect according to their pro-rata working interest. Those parties who elect not to participate forfeit their rights of participation in the specific prospect but retain the right to participate in other prospects proposed in the seismic survey area which are outside of the specific prospect.
    
    €     Those parties who elect to participate in a specific prospect then proceed to acquire oil and gas leases within the prospect by exercising seismic options. The seismic options were acquired in advance of seismic acquisition and convey the right to conduct seismic operations as well as the option to enter into an oil and gas lease on the subject lands at a pre-determined price per acre. The seismic option allows Beta and its partners to acquire and evaluate seismic data before actually acquiring leases. After the seismic data has been evaluated, Beta and its partners can then selectively acquire leases by exercising on acreage which is determined to be prospective from seismic evaluation. Seismic options covering lands which are determined not to have oil and gas potential are allowed to expire at no further cost to the participants. The cost of a seismic option is usually much lower than the cost of acquiring a lease and it also prevents the mineral owner lessor from leasing the oil and gas rights to another party during the term of the option.
    
    Geological and Economic Overview of the Yegua/Frio/Wilcox Trend 3-D Joint Venture
    
          The subject lands lie in close proximity to productive oil and gas fields which produce from the Yegua/Frio/Wilcox intervals. Beta wishes to emphasize that the historical production results in the area are not necessarily indicative of the results that Beta may obtain from its oil and gas prospects.
    
          Within Beta's project areas, there are high potential exploration opportunities that are being defined with the use of 3-D seismic. The Jackson County, Texas area has proven to be suitable for 3-D seismic as faulting and structures are easily identified and many stratigraphic reservoirs exhibit hydrocarbon indicators from the shallowest Miocene sands, throughout the Frio, and into the Vicksburg, Yegua, and Wilcox intervals. The Formosa Grande Prospect Area has numerous regional down-to-the-coast faults that are easily identified at the top of the Frio, but also has deep seated faulting that does not exhibit displacement at the shallower horizons. Very often, these deep faults do create hydrocarbon traps. Most fields in this trend area exhibit multiple stacked reservoirs.
    
          A Frio level structure map exhibits numerous large four-way closures, primarily down-thrown to regional growth faulting. These large structures have, for the most part, been exploited, some as early as the 1930s and 1940s. Although it is not readily apparent in regional mapping, much of the Frio production is stratigraphic in nature, that is, trapped in channel sands that traverse structures, or in sands that "pinch out" up onto the flanks of these large structures. Significant reserves may remain in similar traps which have not been developed to date. Such traps should be readily defined with 3-D seismic data.
    
          Beta's project areas appear to be located in a suitable "trend" area to apply 3-D seismic technology to identify reserves that have been passed over in existing fields as well as to discover new reserves in deeper pools and undrained fault segments in compartmentalized fields.
    
    TRANSITION ZONE PROJECT
    
          Beta has entered into several joint exploration agreements in southern Louisiana and Texas in an area which is generally described as the Transition Zone.
    
    The Transition Zone
    
          The Transition Zone of Southern Louisiana and Texas covers the shoreline and near shore environments in the Gulf of Mexico region. This region has been under-explored because acquisition of seismic data in the area was very expensive and has historically been of less than ideal quality due to the problems inherent in gathering data in the wide variety of environments encountered between land and deeper water offshore. Innovative techniques have been utilized to acquire and process 3-D seismic data and quality data that provides the opportunity to accurately interpret the structural and stratigraphic framework of the area.
    
          All of the reserve targets will lie in the shallow waters or onshore. Depths of the reserve targets will typically range from 3,000 to 15,000 feet. The average dry hole costs for these wells are expected to be $1,500,000 for a straight hole and $2,000,000 for a directional hole to the 100% working interest. The completion cost per well is estimated at $1,000,000 to $1,500,000 to the 100% working interest. Beta's prospects in the Transition Zone are located within or adjacent to existing pipeline infrastructure. This will enable wells drilled in the prospects to be connected to existing pipelines to transport oil and gas to markets.
    
    The Cheniere Exploration Agreements
    
         During 1999, Beta entered into joint exploration agreements with Cheniere Energy, Inc. on five natural gas prospects located in Louisiana.
    
          The following prospects in which Beta is participating have been identified from a proprietary 3-D seismic survey acquired by Cheniere. The status of the prospects is as follows:
    
    1)     Cobra Prospect. All of the leases associated with this prospect were allowed to expire :,br>
         This prospect is located onshore in Cameron Parish, Louisiana. A well commenced drilling on this prospect to a total depth of 12,500 feet in February 1999 and was determined to be non-commercial.
    
    2)      Shark Prospect. Approximately 752 gross acres under lease; 113 acres net to Beta's 15% working interest:
    
          This prospect is located offshore in West Cameron Block 49, Louisiana. A 9,900 foot test well commenced drilling on this prospect in April 1999 and was completed as a dry hole. A separate deeper 11,000 foot test is planned for this prospect in the year 2000.
    
    3)      Redfish Prospect. Approximately 732 gross acres under lease; 110 acres net to Beta's 15% working interest:
    
         This prospect is located offshore in West Cameron Block 49, Louisiana. A 10,000 foot test well was drilled on this prospect in March 1999 and completed for production at an initial stabilized production rate in excess of 15,000 mcf and 100 barrels of condensate per day. The well is currently producing at a rate in excess of 198,000 mcf and 70 barrels of condensate per day.
    
    
    4)     Stingray Prospect. Approximately 691 gross acres under lease; 104 acres net to Beta's 15% working interest:
    
         This prospect is located offshore in West Cameron Block 49, Louisiana. A test well was drilled on this prospect in May of 1999. The well was completed for production in September at a stabilized rate in excess of 8,000 mcf and 60 barrels of condensate per day. The initial producing zone has been depleted and the well has been re-completed in another producing zone in a shallower interval. The well is currently producing approximately 9,800 mcf of natural gas and 40 barrels of condensate per day.
    
    5)      Heron Prospect. Approximately 1,139 gross acres under lease; 142 acres net to Beta's 12.5% working interest
    
          This prospect is located onshore in Cameron Parish, Louisiana. An 11,700 foot Planulina test was commenced in September 1999 and completed as a dry hole.
    
    The Rozel Exploration Agreement
    
          Beta entered into a joint exploration agreement with Rozel Energy in 1998 to explore for oil and gas in the Transition Zone of South Louisiana. Under this agreement, which expired on February 23, 1999, Rozel identified prospects on the basis of a 3-D seismic survey completed by Fairfield Industries, one of the leading providers of 3-D seismic data for the Gulf of Mexico. Although the agreement with Rozel has expired, Beta continues to have participation rights in acreage acquired and wells drilled before the expiration of the agreement.
    
          Under the terms of the Rozel agreement, Beta provided a total of $480,000 of lease acquisition funding for prospects before expiration of the agreement. Rozel identified the prospects utilizing the 3-D seismic data from the Fairfield survey. In consideration for providing the lease acquisition funds, Beta is entitled, but not obligated, to participate on a prospect by prospect basis in leases that were acquired by Rozel Energy during the term of the agreement.
    
          There are currently three remaining undrilled prospects in which Beta has rights of participation. Beta's terms of participation shall require it to pay approximately 12.5% of the costs of drilling and completing the first well in each prospect to earn approximately a 9.375% working interest in the initial well and prospect acreage, a "third for a quarter" basis. Beta's 9.375% working interest shall be further reduced to 8.8% after the costs of the prospect have been recouped. Beta is obligated to pay a $50,000 fee on those prospects in which it elects to participate. Beta shall be entitled to reimbursement of lease funds advanced for prospects in which it elects not to participate. Beta shall be entitled to such reimbursement if and when Rozel either sells or otherwise conveys, i.e. farmouts, its interest in, or drills, the prospect.
    
         In addition to the three undrilled prospects, Beta owns a 9.375% working interest in three producing wells and 5,000 acres surrounding it. The OCS-G-13825 Minkfish #1, West Cameron Blk. 39, was drilled to a depth of approximately 10,500 feet. The well commenced production in January 1999 and is currently producing at a rate in excess of 9,000 mcf and 30 barrels of condensate per day. A second well, the Minkfish #2, was drilled and completed in 1999 and the well is currently producing at rate in excess of 10,000 mcf and 100 barrels of condensate per day. A third well has been drilled and completed and is currently producing at a rate in excess of 5,000 mcf per day.
    
    The Lapeyrouse 3-D Prospect
    
          This prospect is in Terrebone Parish, South Louisiana, an area specifically targeted by Beta for its high reserve potential based on historical production results that have been published for this area. Although the main objective, the Duval, will be reached with a 14,800' test well, a total of twenty-one objectives will be tested with one well bore. These consist of fourteen smaller objectives from 10,000' to 14,000' to pressure point and seven larger objectives in abnormal pressure, over-pressured reservoir, through 16,000'.
    
          Beta's working interest was purchased after detailed 3-D seismic was completed and interpreted. A total of 7,000 mineral acres have been leased to drill the multiple objectives stated above. Beta's working interest varies between 2.5% and 6.25% in the project leases. Beta has acquired additional working interests from participants who have declined to participate, which has increased Beta's working interest in the initial exploratory well to 19%. Estimated drilling costs to casing point for a proposed 14,800 foot test are $3,304,302 of which Beta shall pay $627,817 for its proportionate 19% working interest. Estimated completion costs are $1,051,683 of which Beta shall pay $199,819 for its proportionate 19% working interest, provided Beta elects to participate in the completion. A well is expected to be drilled in 2000.
    
    The Greens Lake Prospect
    
         This prospect is in Galveston County, Texas on trend with the Eagel Point Vicksburg Sand discovery. The 2900 acre prospect lies within a proprietary 24 square mile S-D survey. Prospective sands include the Miocene, Lower Frio and Vicksburg which are upthrown to a major regional fault. . Two wells, both to be drilled to a depth of approximately 14,000 feet, are planned in this prospect. Beta has a 25% working interest in this prospect.
    
    The Esterwood Prospect
    
         The Estherwood Prospect is located onshore Acadia Parish, Louisiana within the Field Limits of the Lawson Field. The operation involved the re-entry of the Sandefer #1 Pelto originally drilled in 1989. In December 1999 Beta re-entered the well. The Marg tex sand at 11,720' was tested and determined to non-commercial. Beta has a 50% working interest in this prospect and is the operator.
    
    NORCAL PROJECT, ONSHORE SAN JOAQUIN AND SACRAMENTO BASINS
    
          Beta had entered into an exclusive eighteen month contract, which expired in April of 1999, to utilize 3-D and 2-D seismic technology in a 500 square mile area of mutual interest with Source Energy LLC. Beta has maintained a between a 30 to 75% working interest in certain prospects generated by FrimodigSource Energy LLC in the San Joaquin and Sacramento Basins in Central and Northern California. As of December 31, 1999, Beta has participated in the drilling of five wells in the Norcal Project. Two of the wells have been completed for production:
    
    1)     The N.W. Buttonwillow #1 was completed in July 1998 flowing at a rate of 415 mcf per day and is currently shut in due to high water production. The well is being evaluated by the operator for abandonment. No decision has been reached at this time. Beta has a 75% working interest in this well.
    
    2)     The S.E. Garrison City #1 was completed and tested at a rate of 2,400 mcf per day. The well is awaiting a pipeline hookup. Beta has a 30% working interest in this well.
    
          In addition, Beta participated in the drilling of the S. Shafter #1, the Bowerbank #1 and the Buttonwillow #1, all three of which were completed as dry holes. The Buttonwillow #1 is a different well than the N.W. Buttonwillow #1.
    
    INTERNATIONAL
    
          Although the majority of Beta's exploration efforts are focused in the United States, management believes that international exposure can reduce the business risks commonly associated with having operational activities confined to one country.
    
    Australian Projects
    
         Beta has reviewed a number of exploration projects in the Asia Pacific Region and elected to participate in two exploration areas covering four separate exploration permits in Eastern Australia. A description of the areas is as follows:
    
    1)     Toko Syncline Project
    
          Beta's wholly owned subsidiary BETAustralia LLC has signed an agreement with Dyad Australia, Inc. of Midland, Texas to participate for a 20% working interest, 16.4% net revenue interest, in Dyad's rights to the Toko Syncline Project. Dyad is the holder of exploration permits covering approximately 918,000 contiguous acres, 1,434 square miles, in the Georgina and Eromanga Basins of Western Queensland. Since the acquisition of the permits, Dyad has acquired, analyzed, and reprocessed 400 miles of existing 2-D seismic data and identified four potentially significant geological structures encompassing approximately 55,000 acres or 86 square miles. During the period from 1964 to 1980, there were six wells drilled in the Toko Syncline that went deep enough to provide meaningful subsurface control. Four were exploratory and two were full core tests by the Geological Survey of Queensland. Of these six, only one well failed to identify oil or gas shows. At the time the wells were drilled, there were no gas pipelines in the prospect areas available to transport natural gas, if commercial amounts of gas could be discovered. The lack of pipelines in the area discouraged further exploration in the area until now.
    
          One of the structures is of particular interest due to a well, the Ethabuka #1 drilled on the structure in 1973 by Alliance Oil Development. The well encountered a persistent gas flow of 200 MCF of gas per day while drilling. The well was abandoned 3,500 feet short of the initial target depth after twisting off the drill pipe and making several unsuccessful efforts to reclaim the hole. This very significant show of gas was documented by the Queensland Department of Minerals and Energy. At the time, there was no gas pipeline in the area.
    
          The market for natural gas has increased significantly since then in the area. Western Queensland has a large mining industry centered in the city of Mt. Isa. This area holds some of the world's largest deposits of copper, lead, zinc, and phosphate. Previously, the mines and the associated processing and smelting plants were fueled entirely by coal, which was shipped approximately 750 miles by rail. The Queensland government is encouraging the introduction of natural gas as an energy source. Construction of a 14 inch gas transmission line from southwest Queensland to Mt. Isa is now complete and transporting gas. The pipeline crosses the Toko Syncline project area, exposing the project to a viable market for natural gas.
    
          Dyad has entered into an agreement with a major U.S. concern for the funding of additional seismic data acquisition and the drilling of an exploration well. Under the terms of the agreement, Dyad will have the opportunity to buy into the exploratory well by reimbursing its proportionate share of actual costs after the well has been drilled and evaluated. Dyad also has the option of postponing its buy-in until later stages in the development program. Per the terms of the Beta-Dyad agreement, Beta has paid $100,000 to acquire 20% of Dyad's working interest buy-in rights in the project area. If Dyad buys into the program after the initial exploratory well has been drilled and evaluated, Beta will at that point, have the option of acquiring a net 10% working interest at cost. If Dyad postpones its buy-in option until the later stages of the project, then its option to purchase an interest will be incrementally reduced. Beta's working and net revenue interest in the Toko Syncline project area will depend on if and when Dyad and its partners elect to buy-in to the project and will be reduced in the later stages of the project if the buy-in option is not exercised and additional expenditures are incurred by the funding partner. The funding partner will have exclusive marketing rights to hydrocarbons in the project area, subject to an agreed minimum floor price to be received for hydrocarbons produced and sold.
    
          Beta anticipates that the initial exploratory well could be drilled in the second quarter of 2000.
    
    2)      Stansbury Basin Project
    
          In March 1998, Beta formed a wholly owned subsidiary called BETAustralia, LLC, a limited liability company organized under the laws of California, for the purposes of participating in the Stansbury Basin Project and other Australian projects. Beta made an initial cash advance of $320,000 to secure an option to participate for a 5% working interest in two petroleum licenses covering 2,798,000 acres or approximately 4,372 square miles. Per the terms of the option agreement, Beta exercised its option to earn a 5% working interest by participating in the drilling of two offshore test wells in the license areas. Beta incurred costs of $1,305,445 in the drilling of the two wells. The wells were completed as dry holes. The costs associated therewith totaling $1,625,000 have been transferred to evaluated properties and charged to impairment expense during the year ended December 31, 1998. Beta has no current plans to conduct additional exploration activities in the Australian, Stansbury Basin, license areas. The exploration licenses expired in December of 1998.
    
          Additional Projects Under Review
    
          Although Beta's initial international focus is Australia, management is currently reviewing several other opportunities. However, there is no guarantee that any of these projects will ever reach fruition.
    
          These are forward looking statements. The projects discussed in this section may never materialize and, even if they do materialize, they could result in a loss to Beta. No formal agreements have been reached and there can be no assurance that such a purchase will ever be completed and this potential acquisition should not be relied upon in making an investment decision.
    
    GENERAL
    
          Beta holds interests in producing properties and undeveloped acreage in three states within the United States.
    
    COMPANY RESERVES
    
          Beta had no proved reserves as of December 31, 1997. Beta's total net ownership in oil and gas reserves as of December 31, 1998 and 1999 are based on independent engineering reports. The reserve quantities and valuations for fiscal 1998 are based upon estimates by Veazey & Associates, Inc. The reserve quantities and valuations for fiscal 1999 are based upon estimates by Ryder Scott Company.
          Proved developed reserves are those that can be recovered through existing wells with existing equipment and existing operating or tested recovery techniques. All of Beta's reserves are classified as proved developed reserves. These reserves are located entirely within the United States.

    
                                                   Beta Oil & Gas, Inc.
                                              Historical Reserve Information
                                             as of December 31, 1998 and 1999
    
                    ---------------------------------------------- ---------------- ----------------
                    DESCRIPTION                                           1998             1999
                    ---------------------------------------------- ---------------- ----------------
    
                                        Proved Developed Reserves
                                                       Oil (bbls)           1,461         13,201
                                                        Gas (mcf)       1,596,740      4,170,000
    
                     ---------------------------------------------- ---------------- ----------------
                                                  Proved Reserves
                                                       Oil (bbls)           1,461         13,201
                                                        Gas (mcf)       1,596,740      4,170,000
                    ----------------------------------------------  ---------------- ----------------
                                            Future Net Cash Flows
                                                Before Income Tax       $2,553,762       $7,534,646
                    ---------------------------------------------- ---------------- ----------------
                                          Standardized Measure of
                                 Discounted Future Net Cash Flows       $1,716,608       $6,012,972
                    ---------------------------------------------- ---------------- ----------------
    
    WELL STATISTICS
    
    
    
              As of December 31, 1997, Beta did not own working interest in any productive wells.  As of December 31, 1998
    Beta owned working interests in two,  .84 net, wells which have been completed for production but which have not
    yet commenced production. As of December 31, 1999 Beta owned working interests in thirteen,  1.84 net, wells
    which have been completed and commenced production.
    
    
    
    
    
    ACREAGE STATISTICS
    
    
    
    
          The following tables set forth the undeveloped and developed acreage of Beta as of December 31, 1998 and
    1999:
    
    
                                           Beta Oil & Gas, Inc. Acreage Holdings
                                             As of December 31, 1998 and 1999
    
                                                                   1998                   1999
                                                          ----------------------- ----------------------
                         UNDEVELOPED ACREAGE                   GROSS        NET       GROSS       NET
                                                               ACRES       ACRES      ACRES      ACRES
                    ------------------------------------- ----------- -- --------- ----------- ----------
                                              California         200         150         520        156
                                               Louisiana       7,502         485      11,680      1,460
                                                   Texas      59,038      10,955      18,167      4,435
                    ------------------------------------- ----------- ----------- ----------- ----------
                                     UNDEVELOPED ACREAGE      66,740      11,590      30,367      6,051
                    ===================================== =========== =========== =========== ==========
    
    
    
                                                                   1998                   1999
                    ------------------------------------- ----------- ----------- ----------- ----------
                    DEVELOPED ACREAGE                          GROSS        NET       GROSS       NET
                                                               ACRES       ACRES      ACRES      ACRES
                    ------------------------------------- ----------- ----------- ----------- ----------
                                              California         600         450         580        300
                                               Louisiana       5,000         470       6,423        682
                                                   Texas           0          00       1,058        141
                    ------------------------------------- ----------- ----------- ----------- ----------
                                       DEVELOPED ACREAGE       5,600         920       8,061      1,123
                    ===================================== =========== =========== =========== ==========
    
    
    
    
    
    
    
    DRILLING ACTIVITY
    
    
    
          The following table sets forth the results of Beta's drilling activities in the fiscal years ended
    December 31, 1997, 1998 and 1999:
    
    
                                                   Beta Oil & Gas, Inc.
                                               Summary of Drilling Activity
                                 For Fiscal Years Ending December 31, 1997, 1998 and 1999
                                 --------------------------------------- ------------- ------------- ------------
                                 EXPLORATORY WELLS                               1997          1998         1999
                                 --------------------------------------- ------------- ------------- ------------
    
                                 GROSS
                                                             Productive             0             2           12
                                                             Dry                    0             6            9
                                 --------------------------------------- ------------- ------------- ------------
                                                                  TOTAL             0             8           21
                                 ======================================= ============= ============= ============
                                 NET
                                                             Productive             0           .84         1.75
                                                             Dry                    0          1.13         2.42
                                 --------------------------------------- ------------- ------------- ------------
                                                                  TOTAL             0          1.97         4.17
                                 ======================================= ============= ============= ============
    
                                 --------------------------------------- ------------- ------------- ------------
                                 DEVELOPMENT WELLS                               1997          1998         1999
                                 --------------------------------------- ------------- ------------- ------------
                                 GROSS
                                                             Productive             0             0            0
                                                             Dry                    0             0            0
                                 --------------------------------------- ------------- ------------- ------------
                                                                  TOTAL             0             0            0
                                 ======================================= ============= ============= ============
                                 NET
                                                             Productive             0             0            0
                                                             Dry                    0             0            0
    
                                 --------------------------------------- ------------- ------------- ------------
                                                                  TOTAL             0             0            0
                                 ======================================= ============= ============= ============
    
    
    
    
    Competition
    
    
    
         The oil and gas industry is highly competitive.  Beta competes with a number of other companies, including
    large oil and gas companies and other independent operators with greater financial resources and, in some cases,
    with more experience. Companies that are active in the same geographic areas as Beta include, but are not limited
    to, Basin Exploration Inc., Unocal Corp.,  Fina Inc., Kerr-McGee Corp., St. Mary Land & Exploration, Esenjay
    Exploration and Cheniere Energy Inc.
    
    
    
    Employees
    
    
    
    
         As of the date of this proxy statement, Beta employs      7 full-time employees. Beta hires independent
    contractors on an "as needed" basis only.  Beta has no collective bargaining agreements with its employees.  Beta
    believes that its employee relationships are satisfactory.  Due to its current level of growth, Beta anticipates
    increasing its number of full-time employees to eight by the March of 2000.
    
    
    
    
    Premises
    
    
    
    
         Beta leases slightly over 2,000 square feet in Newport Beach, California, which includes offices and storage
    space.  All of Beta's operations are conducted from this site.  The lease expires September 2002, and requires
    monthly payments of $     3,300 per month.
    
    
    
    
    Litigation
    
    
    
          There is no litigation currently pending or threatened against Beta.
    
    
    
    
    Beta Management's Discussion and Analysis of Financial Condition and Results of Operations.
    
              The following discussion is to inform you about the financial position, liquidity and capital resources of
    Beta as of December 31, 1999 and December 31, 1998 and 1997, and the results of operations for the period from
    inception (June 6, 1997) through December 31, 1997, the years ended December 31, 1998 and 1999.
    
    
    
    Disclosure Regarding Forward-Looking Statements
    
    
    
          Included in this report are forward-looking statements within the meaning of Section 27A of the Securities
    Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Although the
    company believes that the expectations reflected in such forward-looking statements are reasonable, it can give
    no assurance that such expectations reflected in such forward-looking statements will prove to have been correct.
    
    
    
         All forward looking statements contained in this section are based on assumptions believed to be reasonable.
    
    
    
          These forward looking statements include statements regarding:
    
    
    
         Beta's financial position
    
         Proved or possible reserve quantities and net present values of those reserves
    
          Business  strategy
    
          Plans and objectives of management of Beta for future operations and capital expenditures
    
    
    
          Beta can give no assurance that such  expectations  and assumptions  will prove to be correct.  Reserve
    estimates of oil and gas properties  are generally  different from the  quantities  of oil and natural gas that
    are  ultimately  recovered  or found. This is particularly true for estimates applied to exploratory prospects.
    Additionally,  any statements contained in this report regarding forward-looking statements  are subject to
    various known and unknown  risks,  uncertainties  and contingencies,  many of which are beyond the control of
    Beta. Such things may cause actual  results,  performance,  achievements or expectations to differ materially
    from the anticipated results, performance, achievements or expectations.
    
    
    
          Factors that may affect such forward-looking  statements include, but are not limited to:
    
    
    
         Beta's ability to generate additional capital to complete its planned drilling and exploration activities
    
          Risks inherent in oil and gas acquisitions,  exploration,  drilling, development and production; price
         volatility of oil and gas
    
          Competition from other oil and gas companies
    
          Shortages of  equipment,  services and supplies
    
          Government regulation
    
          Environmental matters
    
          Financial condition and operating performance of the other companies participating in the exploration,
         development and production of oil and gas ventures that Beta is involved in
    
    
    
         In addition, since substantially all of Beta's prospects are currently operated by third parties, Beta may
    not be in a position to control costs, safety and timeliness of work as well as other critical factors  affecting
    a producing well or exploration and development activities.
    
    
    
    
    
     Financial Condition, Liquidity and Capital Resources
    
    
    
    
         Beta's working capital was a surplus of $2,034,268 at December 31, 1999 compared to a deficit of ($96,457)
    at December 31, 1998 and a surplus of $3,117,351 at December 31, 1997.  Beta's working capital increased between
    December 31, 1998 and December 31, 1999,  primarily due to Beta's completion of its initial public offering and
    the exercise of Beta common stock warrants.  In order to fund capital expenditures in early 1999, Beta obtained
    short term debt financing in the form of $3,000,000 in bridge note financing which is discussed below under
    "Bridge Note" and completed an initial public offering in July 1999 which is discussed below under "Initial Public
    Offering."
    
    
    
    
    Historical Cash Used In and Provided  by Operating, Investing and Financing Activities
    
    
    
         Beta financed all of its business activities through December 31, 1998  through issuances of its common stock
    in private placements.  Beta raised net proceeds of $9,221,783 during 1997 and $6,548,632 during 1998 in these
    private placements.  During the year ended December 31, 1999 Beta realized net proceeds of $2,835,000 from a
    bridge note financing, net proceeds of $7,733,553 from an initial public offering and net proceeds of $2,052,620
    from exercise of Beta common stock warrants.  The $3,000,000 face amount of the bridge notes was repaid in full
    on July 7, 1999 from the proceeds of the initial public offering.
    
    
    
         The net proceeds of the private placements, the bridge note financing and the initial public offering have
    been primarily invested in oil and gas properties totaling $6,945,695, $8,928,201,  and $5,900,794 for the years
    ended December 31, 1999, 1998 and 1997, respectively.
    
    
    
         Beta's cash balance at December 31, 1999 was $1,448,655 compared to a cash balance of $198,043 at December
    31, 1998.  The change in Beta's cash balance is summarized as follows:
              Cash balance at December 31, 1998                                                $  198,043
              Sources of cash:
                   Cash provided by operating activities                                       (1,262,655)
                   Cash provided by financing activities                                        9,759,960
                                                                                          ----------------
                                  Total sources of cash                                         8,497,305
              Uses of cash:
                    Oil and gas property expenditures                                          (6,945,695)
                    Other assets (increase in advances to industry partners)                     (299,051)
                     Furniture, fixtures and equipment                                             (1,947)
                                                                                          ----------------
                                                                                               (7,246,693)
    
                                                                                          ----------------
              Cash balance at December 31, 1999                                                 1,448,655
                                                                                          ================
    
    
    Long Term Liquidity and Capital Resources
    
    
    
    
             The timing of most of Beta's capital expenditures is discretionary.  Beta has no material long-term
    commitments associated with its capital expenditure plans or operating agreements.  Consequently, Beta has a
    significant degree of flexibility to adjust the level of such expenditures as circumstances warrant.  The level
    of capital expenditures will vary in future periods depending on the success it experiences on planned
    exploratory drilling activities in future periods, gas and oil price conditions and other related economic
    factors.  Accordingly, Beta has not yet prepared an estimate of capital expenditures for                  future
    periods beyond 2000.
    
    
    
         Upon completion of the proposed merger with Red River, Beta will guarantee approximately $3,000,000 of Red
    River's total $7,700,000 indebtedness at December 31, 1999 with the Bank of Oklahoma.  In the opinion of Beta
    management, the estimated future net cash flow from the Red River oil and gas properties will be sufficient to
    repay the principal and interest associated with the Bank of Oklahoma debt.  This assessment is based on current
    oil and gas prices in effect and current reserve estimates, all of which are subject to change.  In the event of
    substantial reductions in the prices received for oil and gas and/or downward revisions of oil and gas reserve
    estimates, the cash flow from the Red River properties may not be sufficient to service the Bank of Oklahoma
    debt.  In this event, Beta may be required to dedicate significant amounts of cash to service debt requirements.
    The funds will have to come from one of the sources discussed below under "Plan of Operation 2000."  In the event
    that such funds are not available, Beta will be compelled to sell oil and gas properties to repay the debt.
    
    
    
         Red River's 80% owned subsidiary, TCM, L.L.C., also has $2,165,000 of debt associated with its coal bed
    methane properties as of December 31, 1999.  The debt is not guaranteed by Red River and TCM has no material
    amount of assets or properties othre than the coal bed methane properties.  These are currently classified as
    unevaluated since they are still in the testing phase.  The lender's recourse for repayment of the debt is
    limited to its mortgage on the coal bed methane properties and the proceeds of production from those properties.
    At present, Beta does not intend to dedicate any of its cash resources to the repayment of this debt since the
    lender's recourse is limited.
    
    
    
    
          Red River also has no material long-term commitments associated with its capital expenditure plans or
    operating agreements other than its planned activities in the "WEHLU"  unit in Central Oklahoma. The level of Red
    River's capital expenditures will vary in future periods depending on the results it experiences in the "WEHLU"
    unit.   Effective February 18, 2000 Red River entered into an agreement with Avalon Exploration, Inc. of Tulsa to
    jointly test and develop additional production in the Company's 30,000 acre producing WEHLU Unit in Central
    Oklahoma.
    
    
    
          The terms of the agreement call for Avalon to drill wells and expend an estimated $4.4 million.  Red River
    has retained an option to purchase a 25% "look back" working interest in these same wells, whereby Red River can
    elect to reimburse Avalon for 25% of the actual costs incurred depending on the success of these pilot wells.
    The option to purchase must be exercised within 120 days of the completion of the drilling activities.  It is
    currently estimated that the option to purchase will need to be exercised sometime in the first half of 2001
    should Red River elect to participate.  If Red River exercises its option to purchase the pilot program interest,
    it will be required to advance its 25% share of the estimated $4.4 million capital costs associated with the
    pilot program, or $1.1 million.  In the event funds are unavailable, Red River will have to forfeit the 25% look
    back interest.  If Red River is unable to utilize its existing line of credit with the Bank of Oklahoma, then
    Beta may be required to advance funds on Red River's behalf to allow Red River to exercise its option.  In this
    event, Beta will have to secure funds from one of the sources discussed below under "Plan of Operation 2000."
    There is no assurance that these funds will be available.
    
    
    
          If the WEHLU pilot program is successful, the ongoing development of the field will commence in the year
    2001 with approximately 200 to 300 potential locations to be drilled on the 30,000 acres.  Red River will retain
    a 40% working interest by paying for 36.3% of the development costs.  It is estimated that this development could
    take place over a three to five year period commencing in the second half of 2001.  Preliminary estimates are
    that Red River's net share of development cost will range between $36,000,000 and $54,000,000 over the 3 to 5
    year period. Red River will seek to fund these capital expenditures utilizing bank financing.  Beta may also seek
    to provide additional funding through the issuance of its common stock in a public offering.  If funds are
    unavailable to Red River, either through a bank line of credit or cash advances provided by Beta, Red River will
    be compelled to reduce its interest in the development of the 200 to 300 potential locations.
    
    
    
    
    
    Bridge Note
    
    
    
          During 1999 Beta completed the private placement of a $3,000,000 bridge note financing to three
    institutional investors referred to as the "1999 bridge financing."  Beta issued promissory notes having a
    maturity date of one year and bearing an interest rate of 10%.  In addition, a total of 459,000 shares of Beta
    common stock were issued in connection with the 1999 bridge financing. The $3,000,000 in bridge notes was repaid
    in full with accrued interest on July 7, 1999 from the proceeds of Beta's initial public offering.
    
    
    
    
         Beta received net cash proceeds of $2,835,000 from the bridge notes.  The estimated fair market value of
    429,000 shares of common stock issued in connection with the bridge note of $2,574,000 was treated as a discount
    and was amortized over the term of the promissory notes using the interest method. The estimated fair market
    value of 30,000 additional shares of common stock issued per the terms of the bridge note of $180,000 was
    immediately expensed as interest during                                           1999.   Accordingly, Beta
    incurred additional interest expense of $2,754,000 because of the shares of Beta common stock issued in
    connection with the bridge notes. The debt issuance costs of the 1999 bridge financing of $89,100 were amortized
    as additional interest expense during the                                year ended December 31, 1999.
    
    
    
    
        Plan of Operation for 2000
    
    
    
    
         In the opinion of Beta's management, the existing working capital of Beta, net cash flow from operations and
    the exercise of common stock purchase warrants subsequent to December 31, 1999 will be sufficient to fund the
    operations and projected capital requirements of Beta throughout 2000.  Beta is allocating its cash resources
    from all sources, including the net proceeds of the initial public offering,  to the following categories of
    expenditures:
    
    
    1)
           
    Drilling and completion costs for wells on Beta's prospects which are estimated to be approximately
          $4,100,000 for 2000.  While it is difficult to predict the exact timing of when these wells will be
          proposed for drilling, Beta's operating agreements generally provide a       30 day period in which to
          elect participation in a proposed well.  Generally funds must be advanced within        30 days or less
          after the       30 day election period;
    
    
    2)
           
    Costs of $750,000 estimated during 2000 to drill new wells, convert certain producing wells to saltwater
          disposal wells, reactivate certain wells and fracture treat certain wells associated with the Red River
          properties;
    
    
    
    3)
           
    Leasehold acquisition costs which are estimated to be $665,000;
    
    
    4)
           
    3-D seismic acquisition costs only if funds are available; and
    
    
    5)
           
    General and administrative overhead.
    
    
    
             Other than item 2) above, Beta does not anticipate the Red River merger will impact its year 2000 capital
    budget or financing plans. As discussed above under "Long Term Liquidity and Capital Resources,"   Beta may have
    to advance additional funds to Red River in future periods to facilitate development of the Red River properties
    and this may impact Beta's planned capital expenditures and financing plans.
    
    
    
    
         Beta's planned capital expenditures and administrative expenses could exceed those amounts budgeted and
    could exceed Beta's cash from all sources.   If this happens, it may be necessary for Beta to raise additional
    funds.   It is anticipated that additional funds will be raised from one or more of the following sources:
    
    
    
    1)
           
    Beta has approximately 347,000 callable common stock purchase warrants outstanding exercisable at a
         price of $5.00 per share.  Beta has issued a call for these warrants since its common stock has traded on
         Nasdaq at a market price equal to or exceeding $7.00 per share for 10 consecutive days. Beta will receive
         proceeds equal to the exercise price times the number of shares which are issued from the exercise of
         warrants.  Beta has realized net proceeds in excess of $2,200,000 from the exercise of these warrants to
         date.  Beta could realize additional net proceeds of approximately $1,735,000 from the exercise of the
         remaining warrants.
    
    
    2)
           
    Beta has approximately 388,000 callable common stock purchase warrants outstanding exercisable at a
         price of $7.50 per share.  Beta is able to call these warrants at any time after its common stock has traded
         on Nasdaq at a market price equal to or exceeding $10.00 per share for 10 consecutive days.  It is Beta's
         intent to call all  of these warrants at such time, if and when,  the $10.00 trading price is achieved and
         cash is needed to fund capital requirements.  Beta will receive proceeds equal to the exercise price times
         the number of shares which are issued from the exercise of warrants net of commission to the broker of
         record, if any.  Beta could realize net proceeds of approximately $2,900,000 from the exercise of these
         warrants.  There is no assurance that Beta will ever realize any proceeds from the $7.50 warrant calls.
    
    
    3)
           
    Beta may seek bank or other debt financing at such time that cash flow from operations is established.
         Beta is not able to predict when, if ever, such financing will be available. Beta is currently seeking bank
         financing in the range of $1,000,000 to $5,000,000.
    
    
    
    4)
           
    Beta may seek mezzanine financing, if available, on terms acceptable to Beta.  Mezzanine financing
         usually involves debt with a higher cost of capital as compared to conventional bank financing.  Beta
                          would seek mezzanine financing in the range of $1,000,000 to $5,000,000.   Beta would seek
         to use this means of financing in the event that a particular acquisition did not have sufficient proved
         producing reserve collateral to support a conventional bank loan.
    
    
    
    5)
           
    Beta may realize additional cash flow from oil and gas wells to be drilled, if found to be productive.
         Beta owns a working interest in wells that are currently producing and in additional wells which are
         presently being completed and equipped for production.  Beta currently estimates that during 2000 it will
         generate approximately $3,400,000 of net cash flow after deducting lease operating expenses.
    
    
    If the above additional sources of cash are insufficient or are unavailable on terms acceptable to Beta,
    Beta will be compelled to reduce the scope of its business activities.   If Beta is unable to fund planned
    expenditures within a thirty to sixty day period after a well is proposed for drilling, it may be necessary to:
    
    
    1)
           
    Forfeit its interest in wells that are proposed to be drilled;
    
    
    2)
           
    Farm-out its interest in proposed wells;
    
    
    3)
           
    Sell a portion of its interest in proposed wells and use the sale proceeds to fund its  participation  for
         a lesser interest; and
    
    
    4)
           
    Reduce general and administrative expenses.
    
    
             As stated above, Beta believes it has sufficient working capital to fund its capital expenditure requirements
    throughout 2000.  In the event that Beta cannot raise additional capital, it may be necessary for Beta to curtail
    its business activities until other financing is available.
    
    
    
         These are forward looking statements that are based on assumptions which in the future may not prove to be
    accurate.  Although Beta's management believes that the expectations reflected in such forward looking statements
    are based on reasonable assumptions, it can give no assurance that its expectations will be achieved.
    
    
    
    Comparison of Results of Operations for the Period from Inception,  June 6, 1997,  through December 31, 1997 and
    the year ended December 31, 1998
    
    
    
          During the period from inception, June 6, 1997, through December 31, 1997 and the year ended December 31,
    1998 Beta generated no revenues.
    
    
    
          General and administrative expenses for the period from inception, June 6, 1997, through December 31, 1997
    were $245,452 compared to $746,769 for the year ended December 31, 1998.  This represents a $501,317 or a 204%
    increase.  The primary reasons for the increase were due to:
    
    
    
    (1)      A full year of operations in 1998 as compared to a partial year in 1997 .
    
    (2)     An increase in the number of employees from three in 1997 to five in 1998.
    
    (3)     Costs related to Beta's initial public offering.
    
    
    
         Loss from operations totaled $(246,982) for the period from inception, June 6, 1997, through December
    31, 1997 compared to $(2,429,343) for the year ended 1998.  The primary reason for the increase in the loss was
    due to an impairment expense of $1,670,691 recorded in 1998. During 1998 Beta participated in the drilling of two
    offshore test wells in Australia. The drilling resulted in two dry holes. All of the property acquisition and
    exploration costs associated with the Australian full cost pool totaling  $1,624,218 have been transferred to
    evaluated properties and charged to impairment expense during 1998.   In addition, it was determined that the
    capitalized costs associated with the U.S. full cost pool exceeded their net realizable value by $46,473.
    Accordingly, an impairment write-down of $46,473 was recorded as of December 31, 1998.
    
    
    
          Other income for the period from inception, June 6, 1997,  through December 31, 1997 consisted of interest
    income in the amount of $45,409.  Beta realized $44,843 of interest income for 1998.
    
    
    
          Net loss for the period from inception, June 6, 1997,  through December 31, 1997 was $(201,573) compared to
    $(2,384,500)  for the year ended December 31, 1998.  The increase in net loss was primarily due to the impairment
    writedown of oil and gas properties.
    
    
    
    
    Comparison of Results of Operations for the Years Ended December 31, 1998 and 1999
    
    
    
          During the year ended December 31, 1999 Beta had oil and gas revenues of $1,199,480.  Beta's net production
    was 475,065 mcf at an average price of $2.44 per mcf and 1,822 barrels of oil at an average price of $23.03 per
    barrel. During the year ended December 31, 1998 Beta generated no revenues.
    
    
    
          During the year ended December 31, 1999 Beta incurred lease operating expenses of $81,538.  Beta's average
    lifting cost for this period was $.17 per mcf equivalent. During the year ended December 31, 1998 Beta incurred
    no lease operating expense.
    
    
    
          General and administrative expenses for the year ended December 31, 1999 were $1,418,240 compared to
    $746,769 for the year ended December 31, 1998.  This represents a $671,471 or a 90% increase over the prior year
    period.  The primary reasons for the increase were due to:
    
    
    
    (1)     An increase in operational activities in 1999 versus 1998;
    
    (2)     An increase in the number of employees from     5 in 1998 to    6 in 1999; and
    
    (3)     General and administrative Costs related to Beta's initial public offering and filing the S-1
         registration statement which are not readily identifiable as offering costs.
    
    
    
         Impairment expense for the year ended 1999 was $1,224,962 compared to $1,670,691 for the 1998 year.  The
    impairments for both years are as follows:
    
    
    
                                                       1998            1999            Total
                                                       ----            ----            -----
    
                      Foreign cost pool         $     1,624,218  $       57,052  $     1,681,270
                      U.S. cost pool                     46,473       1,167,910        1,214,383
                                                   -------------    ------------    -------------
                                                $     1,670,691  $    1,224,962  $     2,895,653
                                                   =============    ============    =============
    
    
    
         As of December 31, 1999, it was determined that the total costs in the U.S. evaluated properties cost pool
    exceeded their net realizable value. Accordingly, an impairment write-down of $1,167,910 was recorded for the
    year ended December 31, 1999.  The impairment was due mainly to downward revisions of reserve estimates
    associated with two wells drilled in 1998.  The downward revisions were due to disappointing production results
    from the wells experienced in the fourth quarter of 1999 when the producing zones in the wells began producing
    large amounts of water in place of gas and oil.
    
    
    
         Depreciation and depletion expense for the year ended December 31, 1999 was $914,233 compared to $11,883 for
    the year ended December 31, 1998.  This represents a $902,350 increase over the prior year period.  The primary
    reason for the increase is due to the fact Beta had no oil or gas production in the prior year period that would
    give rise to depletion expense.
    
    
    
         Loss from operations totaled $(2,439,493) for the year ended December 31, 1999 compared to $(2,429,343) for
    the year ended December 31, 1998.
    
    
    
          Other income for the year ended December 31, 1999 consisted of interest income in the amount of $21,741.
    Beta realized $44,843 of interest income for the year 1998.  The reason for the decrease was lower average cash
    and cash equivalents balances for the 1999 period as compared to the 1998 period.
    
    
    
    
          During the year ended December 31, 1999, Beta incurred interest expense of $2,966,651, substantially all of
    which related to the bridge notes.  Interest expense related to the bridge notes for the 1999 period consists of
    the following:
    
    
    
                                                                                              --------------
    
                                                                                              ==============
    
    
    Cash interest expense
                                                       
      $        120,555
    
    
    Amortization of note discount and fair market value of 459,000 shares
        
            2,754,000
    
    
    Amortization of deferred loan costs
                                         
                89,100
    
     Bridge note interest expense for the year ended December 31, 1999
          
      $      2,963,655
    
    
    
    _     During the year ended December 31, 1998, Beta incurred no interest expense.
    
    
    
          Net loss for the year ended December 31, 1999  was $(5,384,403) compared to $(2,384,500) for the year ended
    December 31, 1998.  The increase in net loss was primarily due to the interest expense related to the bridge note.
    
    
    
    
    Income Taxes
    
    
    
    
          As of December 31, 1999, Beta had available, to reduce future taxable income,   tax net operating loss
    carryforwards of approximately $9,500,000 which expire in the years 2012 through 2019. As of December 31, 1999,
    Beta has a deferred tax asset of approximately $3,293,830 which is fully reserved for with a valuation allowance.
    Utilization of the tax net operating loss carryforward may be limited in the event a 50% or more change of
    ownership occurs within a three year period.  The tax net operating loss carryforward may be limited by other
    factors as well.
    
    
    
    
    Cancellation of Warrants
    
    
    
          On June 21, 1999, certain warrant holders agreed to cancel 87,296 warrants to purchase common stock
    consisting of 20,000 warrants exercisable at $5.00 per share and 67,296 warrants exercisable at $7.00 per share.
    All of  the cancelled warrants were non-callable with expiration dates on March 12, 2003.  The warrants were
    cancelled for no consideration pursuant to a request by the National Association of Securities Dealers, the
    "NASD". The warrant holders were certain NASD member firms and their employees who participated in Beta's 1998
    private placement, as well as Beta's legal counsel.  The cancellation request was made and complied with because
    the NASD determined that these warrants could be deemed "underwriter's compensation" and the continued existence
    of these warrants could result in the compensation for the initial public offering exceeding the NASD
    guidelines.  Therefore, all such warrants which could be deemed "underwriter's compensation" in excess of NASD
    guidelines have been cancelled for no consideration.
    
    
    
    
    Initial Public Offering
    
    
    
         On July 30, 1999, Beta completed its initial public offering of common stock.  Beta sold 1,465,490 shares of
    common stock at $6.00 per share out of the 1,500,000 maximum number of shares offered pursuant to its S-1
    Registration Statement which was declared effective July 1, 1999.  Beta withdrew from registration the 34,510
    unsold shares, the 150,000 shares registered to satisfy an "Over-Allotment Option," and a total of 31,878 shares
    issuable upon exercise of Selected Dealer Warrants in connection with the unsold portion of the offering,
    including the Over-allotment Option.
    
    
    
          Beta realized gross proceeds of $8,792,948 from the sale of its common stock in the initial public offering,
    before deducting commissions and offering expenses.  On July 7, 1999, Beta applied $3,070,000 of the proceeds
    from the offering towards the full repayment of the bridge notes and accrued interest.
    
    
    
    Stock Option Plan
    
    
    
         On August 27, 1999, the board of directors approved an incentive and non-statutory stock option plan which
    authorizes the Compensation Committee to grant stock option awards to officers, directors and employees.  The
    plan provides, among other things, the following:
    
    
    
    €     The maximum number of shares which may be optioned and sold under the plan is 700,000 shares.
    
    €     The per share exercise price for common shares to be issued pursuant to the exercise of an option shall
         be no less than the fair market value of Beta's common stock as of the date of grant.
    
    €     The per share exercise price for common shares to be issued to persons owning more than 10% of the
         voting stock of Beta at the date of grant, shall be no less than 110% of the fair market value of Beta's
         common stock as of the date of grant.
    
    
    €     The maximum term of the options shall be a maximum of    10 years or such lesser time period as the
         board of directors determines. The maximum time period for options to be issued to persons owning more than
         10% of the voting stock of Beta at the date of grant shall be     5 years from the date of grant.
    
    
    
         The Compensation Committee of the board of directors granted 97,500 options to officers, directors and
    employees as of August 27, 1999 at an exercise price of $6.00 per share.  All of the 97,500 options will expire
    on or before December 31, 2004.   None of the 97,500 options, or any additional options issued under the plan
    shall become exercisable until such time as the shareholders of Beta have approved the plan as provided in Beta's
    bylaws.
    
    
    
    Beta Acquisition of Red River Energy, Inc.
    
    
    
    
         Beta has entered into an agreement to purchase Red River Energy, Inc. of Tulsa, Oklahoma, a private oil and
    natural gas company.  The purchase price will be paid by the assumption of approximately $7.7  million existing
    debt and the issuance of approximately 2.25 million shares of Beta common stock.  The purchase is subject to
    approval by Beta shareholders.
    
    
    
    
         The assets of Red River Energy, Inc. consist of four components:  1) a 97.4% working interest (80% net
    revenue interest) in a 30,160 acre unit which is currently producing approximately 3.65 MMBTU/d and 120 Bopd from
    22 active wells in the Hunton Limestone formation in Central Oklahoma; 2) an 85% working interest (68% net
    revenue interest) in 7,500 acres which are currently producing 960 MMBTU/d from 45 wells in the Atoka and
    Gilcrease formations in Eastern Oklahoma; 3) a gas gathering system consisting of 40 miles of pipeline which is
    currently transporting approximately 1650 MMBTU/d in Eastern Oklahoma; and 4) a 46 well coal bed methane project
    also located in Eastern Oklahoma which is currently under development and producing approximately 600 MMBTU/d.
    Red River Energy, Inc. is the operator of all its properties.
    
    
    
    
    Subsequent Events
    
    
    
    
         Exercise of Warrants
    
    
    
         During 1997 Beta issued 797,245 callable common stock purchase warrants entitling the holders to purchase
    797,245 shares of Beta's common stock at an exercise price of $5.00 per share. Beta is entitled to call these
    warrants at any time on and after the date that its common stock is traded on any exchange, including the NASD
    Over-the-Counter Bulletin Board, at a market price equal to or exceeding $7.00 per share for 10 consecutive
    trading days.
    
    
    
         Because its common stock has now  traded at a market price exceeding $7.00 per share for 10 consecutive days,
    Beta is entitled to call the callable $5 warrants at any time. Beta issued a call for these warrants as of
    February 23, 2000, the record date.  Of the 797,245 callable $5 warrants originally issued, approximately 381,000
    had already been exercised prior to the issuance of the call.  The closing price for Beta common stock on
    February 23, 2000 on the Nasdaq Stock Market was $9.00 per share.
    
    
    
    
    Impact of Recently Issued Standards
    
    
    
          Beta intends to adopt SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," issued in
    June 1998 effective with its fiscal year beginning January 1, 2000 as required by the Statement.  Due to Beta's
    current and anticipated limited use of derivative instruments, management anticipates that adoption of SFAS 133
    will not have any significant impact on Beta's financial position or results of operations.  SFAS 132,
    "Employees' Disclosures about Pensions and other Postretirement Benefits," and SFAS 134, "Accounting for
    Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage
    Banking Enterprise" were issued in 1998 and are not expected to impact Beta regarding future financial statement
    disclosures, results of operations and financial position.
    
    
    Year 2000“Y2K” Problem
    
    
    
         Beta has experienced no disruption in its operations that management can
    attribute to Year 2000 issues.  In addition, Beta has seen no Year 2000 related problems
    or received any reports of such problems from entities with which Beta transacts business.
    
    
    
    
    
    
    INFORMATION ABOUT RED RIVER
    
         This section of the proxy statement provides you with certain information regarding Red River and its
    business.  You should read this information in connection with the other information provided to you in this
    proxy statement.
    
    
    
         Red River was formed in 1997 and commenced operations in early 1998.  It was originally formed as a limited
    liability company under Oklahoma law and named Red River Energy, L.L.C.  Subsequent to September 30, 1999, the
    members of the limited liability company exchanged their member interests for shares of Red River Energy, Inc.,
    which is an Oklahoma corporation formed in 1999 but which had no activities, assets or shareholders prior to its
    acquisition of the Red River Energy L.L.C. member interests from the Red River Shareholders. Red River Energy,
    Inc. has elected to be taxed under subchapter S of the Internal Revenue Code.  This restructuring was undertaken
    due to the desire of the Red River Shareholders to have an S corporation as the parent company of their related
    business activities..   Red River Energy, L.L.C. continues to hold title to the assets and operations of Red
    River as a wholly owned subsidiary.  The coal bed methane exploration, development and production operations of
    Red River are conducted through TCM, L.L.C., an Oklahoma limited liability company which is 80% owned by Red
    River.
    
    
    
         Business of Red River
    
    
    
          Red River engages in the oil and gas business in the continental United States. It acquires, develops,
    operates and sells oil and gas property interests of all types.  Red River also focuses on the acquisition of gas
    gathering systems associated with the producing fields in which it has an interest.  It owns and operates the
    West Edmond Hunton Lime Field Unit in central Oklahoma, the Hitchita Field in Okmulgee and McIntosh Counties,
    and  through its 80% owned subsidiary, TCM, L.L.C., coal bed methane gas wells in Tulsa and Okmulgee Counties in
    Oklahoma.  Red River also owns and operates a gas gathering system located primarily in McIntosh County, Oklahoma.
    
    
    
          Red River's headquarters are located in Tulsa, Oklahoma. At December 31, 1999 Red River employed 14 persons
    on a full time basis.
    
    
    
          Red River's principal line of business is oil and gas acquisition, exploration, development and production.
    Red River evaluates producing oil and gas prospects from several perspectives.  It reviews the opportunities to
    produce and market the oil and gas production from the properties, to participate in drilling activities on
    development locations and to rework the wells to improve production and further develop the area.
    
    
    
          Red River faces strong competition from many other companies and individuals engaged in the oil and gas
    business, many of which are very large, well-capitalized energy companies with substantial capabilities. Red
    River may be at a competitive disadvantage in acquiring oil and gas prospects since it must compete with these
    individuals and companies, many of which have greater financial resources and larger technical staffs.
    
    
    
          Red River's business is not dependent on a single customer and its management does not believe that it will
    be in the foreseeable future since oil and gas purchasers are readily available in today's markets.
    
    
    
          Red River's search for oil and gas is concentrated in the continental United States, primarily in Oklahoma
    and Texas. However, the acquisition, exploration, development, production and sale of oil and gas are subject to
    many factors that are outside Red River's control. These factors include worldwide and domestic economic
    conditions; oil import quotas; availability of drilling rigs, casing and other supplies; proximity to pipelines;
    the supply and price of other fuels and the regulation of prices, production, transportation and marketing by
    federal and state government authorities. The oil and gas industry has at times been faced with shortages in
    tubular steel, increased prices in used steel casing and a shortage of drilling rigs which have in the past
    delayed drilling activities by oil and gas operators. Pumping units and other wellhead equipment have also been
    in short supply from time to time.
    
    
    
          Red River is subject to various federal, state and local laws and regulations regarding environmental and
    ecological matters.  Environmental laws may necessitate significant capital outlays, which may materially affect
    Red River's earnings potential and could cause material changes in Red River's business. At the present time,
    however, environmental laws have not materially hindered nor adversely affected Red River's business.
    
    
    
          Working capital is needed in the oil and gas industry to finance the drilling and completion of wells, to
    finance major workovers to enhance existing production,  and to acquire undeveloped leasehold interests and
    proved producing properties. At present, Red River is generating sufficient revenue from operations and has
    sufficient credit lines to supply current working capital requirements.
    
    
    
          Oil and Gas Properties
    
    
    
          West Edmond Hunton Lime Unit. The principal properties of Red River are the oil and gas leases
    comprising the West Edmond Hunton Lime Unit which covers parts of Canadian, Logan, Kingfisher and Oklahoma
    Counties in central Oklahoma.  The production from this 30,160 acre field is from the Hunton Limestone formation
    (located at depths of 6,600 to 7,100 feet) and was first discovered in 1943.  Approximately 80% of the production
    from this field is natural gas.  Red River is the operator of these properties.
    
    
    
         There are 22 gross (21 net) producing wells in the field, 16 (15 net) of which produce natural gas and
    six (six net) of which produce crude oil. Most of the wells have pumps or other forms of artificial lift to aid
    production of the reserves.  There are 33 additional shut in wells that are being evaluated to be returned to
    production.
    
    
    
         Approximately 80% of Red River's sales of natural gas from the West Edmond Hunton Lime Unit are made to
    GPM Gas Corporation under a contract that expires on March 31, 2001 but which will be extended on a year to year
    basis unless one of the parties elects to terminate it at the end of a term.  The price paid for the gas sold
    under this contract is based on a formula tied to several monthly published index prices. Sales of all of Red
    River's production of crude oil from the field are made to Sunoco Inc. under a contract that runs month to month
    and provides for a price based on a $1.25 per barrel bonus over Sunoco's posted price for "Oklahoma Sweet" crude
    oil. Red River believes that other purchasers of production from this field are readily available if the
    arrangements with the current purchasers were to terminate for any reason.
    
    
    
          Red River believes that there are a number of potential locations to drill additional development wells
    on the properties.  It is anticipated that during 2000 Red River will drill additional wells in this unit, but
    the extent of this activity will be not be decided until Red River has reviewed the results of a pilot project
    scheduled to commence second quarter of 2000.  As described under Red River Management's Discussion and Analysis
    of Financial Condition and Results of Operations - Plan of Operation 2000, Red River has entered into an
    agreement with Avalon Exploration, Inc. of Tulsa, Oklahoma to jointly test for and develop additional production
    on these properties.
    
    
    
          Hitchita Field.   Red River owns approximately 7,800 acres (6,000 net acres) of oil and gas leases in the
    Hitchita Field which is located in Okmulgee and McIntosh Counties in Oklahoma.  It has interests in 44 wells (34
    net) and operates 38 of those wells.  These wells produce dry gas from various formations with depths ranging
    from 1700 to 2600'.  Gas is sold into Red River Field Services low pressure gathering system.  Red River
    anticipates drilling at least two different prospects in early 2000.  Subsequent development operations in the
    area will depend in largely on the results achieved from these two prospects.
    
    
    
         Gas Gathering System. Through its wholly owned subsidiary, Red River Field Services, L.L.C., Red
    River owns a low pressure gathering system in the Hitchita Field which comprises approximately 40 miles of
    pipeline and is connected to 46 wells.   The system currently gathers approximately 1,700 Mcf of natural gas per
    day.  Red River is actively seeking new well connections.
    
    
    
          These properties secure a mortgage loan which had an outstanding principal balance at December 1, 1999
    of $7,694,229 and which bears interest at the variable annual rate based on the prime rate of the lender or
    LIBOR, whichever Red River elects from time to time, currently  8.25%.  This mortgage loan is a revolving credit
    facility.
    
    
    
          Red River also has field equipment securing an installment loan with an outstanding balance at December
    1, 1999 of $152,723 and which bears interest at the annual rate of 8.25%.  The loan  matures on October 31, 2001.
    
    
    
          Hedging Transactions.       From time to time, Red River engages in hedging transactions in order to
    increase to some extent the stability and reliability of the prices that it receives for its natural gas
    production.  Red River has committed to sell 2,500_    Mmbtus per day of natural gas at a price of $2.46     per
    Mmbtu and 1,200_     Mmbtus per day at a price of $2.49     per Mmbtu through June_    2000.  Approximately 70%
    of Red River's average daily gas production is subject to hedging arrangements.  Red River expects to continue to
    engage in hedging transactions at times it believes are opportune as part of its overall natural gas marketing
    strategy.  While hedging arrangements may protect Red River to some extent during the period of the hedging
    contract from the detrimental effects of declining market prices in natural gas, they will also limit the benefit
    that Red River would otherwise realize as a result of increases in market prices during the period.
    
    
    
         Leasehold and Well Data.   The following tables set forth information with respect to Red River's oil and
    gas interests. This information is as of December 31, 1999, unless otherwise indicated.  Red River's interests
    are all located in the State of Oklahoma:
    
    
                                                        Gross Acres               Net Acres
                                                        -----------               ---------
    Total Developed leasehold acreage                   37,960                     35,389
    Total Undeveloped leasehold acreage                      0                          0
    
                                                      Total              Oil               Gas
                                                      -----              ---               ---
    Gross productive wells...................           99                39                60
    Net productive wells.....................           88                38                50
    
    
         Wells drilled:                                     Total         Oil          Gas          Dry
                                                            -----         ---          ---          ---
             1999 (through December 31)...............        1            0            1            0
             1998.....................................        0            0            0            0
    
    
                                                                                Year Ended     Year Ended
                                                                                ----------     ----------
                                                                                    1998          1999
                                                                                    ------        ----
         Type of Wells Drilled:
               Net productive exploratory                                            0             0
             Net productive development......                                        0           0.165
             Net dry development.............                                        0             0
    
         Price and Production Data.  Red River's average sales price, oil and natural gas production volumes and
    average production cost for each Mcf equivalent of production for the periods indicated were as follows:
    
                                                                             Year Ended    Year Ended
                                                                             -----------   ----------
                                                                            December 31,    December
                                                                            -------------   --------
                                                                                1998         31, 1999
                                                                                ----         --------
    
    Oil production (Bbl).....................                                  13,470         33,584
    Gas production (Mcf).....................                                 336,537      1,064,050
    Average sales price:
        Oil (per Bbl)........................                                  $12.38         $17.86
        Gas (per Mcf)........................                                  $ 2.08          $2.20
    Average production cost per
       Mcfe..................................                                  $ 0.76          $1.02
    
    
    
         Reserves.   The following table sets forth certain information regarding Red River's proved oil and gas
    reserves at the end of the period indicated.  The reports were prepared by Ryder Scott Company Petroleum
    Engineers in accordance with the guidelines established by the Securities and Exchange Commission and the
    Financial Accounting Standards Board, using prices received as of the effective date of each report.  The reserve
    information for the December 31, 1998 report was calculated using a gas price of $2.06/mmbtu and oil price of
    $10.50/bbl and the reserve information for the December 31, 1999 report was calculated using a gas price of
    $2.26/mmbtu and an oil price of $24.00 per barrel. Prices and operating costs are unescalated.  The estimated
    cash flows are reduced to present value amounts by applying a 10% per year discount factor.  The standardized
    measure of future discounted net cash flows reflects estimated future income taxes using current statutory income
    tax rates including consideration for estimated future statutory depletion and tax credits.
    
    
    
          There are numerous uncertainties inherent in estimating quantities of proved reserves, including many
    factors beyond the control of Red River. Reservoir engineering is a subjective process of estimating subsurface
    accumulations of oil and gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate
    is a function of the quality of available data and the interpretation of that data. As a result, estimates by
    different engineers often vary, sometimes significantly. In addition, physical factors, such as changes in
    product price, may justify revision of these estimates. Accordingly, oil and gas quantities ultimately recovered
    will vary from reserve estimates.
    
    
                                                            December 31, 1998          December 31, 1999
                                                            -----------------          -----------------
         Proved reserves:
             Oil (Bbls)...............................              434,070                   410,086
             Gas (Mcf)................................           15,542,000                16,593,000
    
         Estimated future net revenues from oil
             and gas reserves before income taxes:....         $ 26,427,079              $ 35,277,780
         Standardized Measure of Discounted
             Future Net Cash Flows:...................         $  8,365,009              $ 11,059,104
    
    
    
          Coal Bed Methane.   Red River, through TCM, is in the process of testing wells drilled during late 1998
    and early 1999 in Tulsa and Okmulgee Counties  to develop the coal bed methane reserves  believed to be there.
    At December 31, 1999, TCM had drilled a total of 47 wells covering approximately 2800 acres to test the commercial
    viability of the coal bed methane reserves.  Some wells began producing in early 1999 and the last few wells
    began selling gas in July 1999.  The project is still in the testing phase and Red River estimates that it takes
    approximately 12 to 24  months of production of water and gas from each well to determine if it will produce
    methane in commercial quantities.  The proved reserves attributable to this project have not been fully
    determined.  At this time, this project is classified as unevaluated.
    
    
    
          The coal bed methane development operations have been financed primarily under a non-recourse credit
    facility with Duke Energy Financial Services, Inc.   The total amount of the principal due under that facility at
    December 31, 1999 was $2,165,234 and the indebtedness bears interest at prime plus one percentage point, which
    currently is 10%.  Under the terms of the credit facility, Duke Financial Services is entitled to receive
    overriding royalty interests in these properties.
    
    
    
    
         Legal Proceedings
    
    
    
          Red River has no pending legal proceedings and, to the knowledge of its management, no legal proceedings are
    threatened.
    
    
    
          Management of Red River
    
    
    
          Mr. Rolf N. Hufnagel, age 52, is the Chairman, President and Chief Executive Officer of Red River
    Energy, Inc., which he cofounded in 1997.  His function at Red River is to set the course for Red River's
    activities, while providing significant interaction within the oil and gas industry so as to maintain sizeable
    deal flow for acquisition purposes.  Mr. Hufnagel is also directly involved with finding, evaluating, negotiating
    and closing acquisition opportunities and Red River's capital needs.  Prior to forming Red River, Mr. Hufnagel
    founded and served as Chairman, President and Chief Executive Officer of Carlton Resources Corporation, an oil
    and gas acquisition company, from 1994 to 1998.  From 1986 to 1992, Mr. Hufnagel served as Senior Vice President
    of RAMCO Oil & Gas, Inc., a privately held property acquisition company.  Mr. Hufnagel's experience encompasses
    over 25 years.  Mr. Hufnagel received his Bachelor of Science from Cameron University and his Master of Business
    Administration from the University of Oklahoma in 1974.
    
    
    
          Mr. Robert E. Davis Jr. . age 48,  is Executive Vice President and Chief Financial Officer of Red
    River.  He is responsible for the Company's financing and accounting activities as well as assisting in economic
    evaluations of potential acquisition targets.  Prior to cofounding Red River, Mr. Davis served as Executive Vice
    President and Chief Financial Officer of Carlton Resources Corporation, an oil and gas acquisition company, from
    1996 to 1998.  From 1994 to 1996, Mr. Davis served as Executive Vice President and Chief Financial Officer of
    American Central Gas Company in Tulsa, a natural gas gathering and processing company.   In 1983, Mr. Davis
    co-founded and served as Executive Vice President and Chief Financial Officer of Vesta Energy Company, a
    nationally recognized natural gas marketing company.  From 1986 through 1992, he also served as President and
    Chief Executive Officer of Esco Energy, Inc., the holding company of Vesta Energy Co., Omega Pipeline Co. and
    Esco Exploration Company.  During his 25 years in the oil and gas industry, Mr. Davis also served as CPA with
    Arthur Young & Company (now Ernst & Young LLP) in Tulsa, specializing in oil and gas taxation and accounting, a
    commercial loan officer at United Oklahoma Bank in Oklahoma City and manager of drilling program sales and
    administration with Andover Oil Company of Tulsa.   Mr. Davis has a B.S. degree  in finance and accounting from
    the University of Oklahoma.  He is a licensed certified public accountant in the state of Oklahoma.
    
    
    
          Mr. Bill L. Baysinger, Jr., age 36,  is Senior Vice President of Acquisitions for Red River.  He is
    responsible for identifying strategic acquisition candidates and coordinating the evaluation process of each
    property set.  In addition, Mr. Baysinger oversees the office administration and production land functions.  From
    1997 until 1998, Mr. Baysinger was employed by Carlton Resources Corporation and, its wholly owned subsidiary,
    Magic Circle Energy Corporation as Vice President, Business Development.  Prior to his employment with Carlton
    Resources, Mr. Baysinger spent five years in the midstream sector of the oil and gas industry working for
    Associated Natural Gas (PanEnergy Field Services and now Duke Energy).  He has been active in the oil and gas
    industry for nearly 15 years starting in 1985 as a geologist with Lynan Energy, Inc., a small private oil and gas
    company.  He managed gas marketing, contract administration and volume control functions during another five year
    span.  Mr. Baysinger received a Bachelor of Science degree in Geology from Oklahoma State University in 1985 and
    his Master of Business Administration from Central State University in 1989.  He is a member of the American
    Association of Petroleum Geologists, Gas Processors Association and the Natural Gas Association of Oklahoma.
    
    
    
          Mr. Brent A. Biggs, age 33, is the Vice President of Marketing for Red River.  He is responsible for
    managing Red River's product marketing efforts including the sale of natural gas, crude oil and liquids.  He is
    also a member of the acquisitions team.  Prior to joining Red River in 1998, he was the Manager of Product
    Marketing and Gas Supply for Carlton Resources Corporation from 1997 to 1998.  Prior to joining Carlton
    Resources, Mr. Biggs was Product-Marketing Manager for RAMCO Operating Company and RB Operating Company from 92
    to 97.  He has more than nine years experience in the oil and gas business and is a member of the Natural Gas
    Association of Oklahoma.  Mr. Biggs attended the University of Central Oklahoma and majored in Business
    Management.
    
    
    
          Ms. Janet L. McGehee, age 39, is Vice President of Engineering and is responsible for all the
    engineering functions of Red River.  She evaluates properties for acquisition opportunities and once a property
    base is established she will be responsible for operations, development and enhancement of the properties.  Prior
    to the formation of Red River, she served as Engineering Manager for Carlton Resources from 1997 to 1998,
    providing property evaluations to the bank and coordinating evaluations with third party engineering groups.  She
    also provided property enhancement with workover and recompletion proposals on the Magic Circle properties.
    Prior to joining Carlton in 1997, she was a district engineer for Samson Resources from 1993 to 1996.  In
    addition, Ms. McGehee served as a petroleum engineer for Hawkins Oil & Gas, Inc. from 1983 to 1989, and a senior
    engineer for Geodyne Resources, Inc. from 1990 to 1992, both in Tulsa.  Ms. McGehee received a Bachelor of
    Science in Petroleum Engineering from Texas A&M University.  She is a Licensed Professional Engineer and a member
    and director of the MidContinent Section of the Society of Petroleum Engineers.
    
    
    
          Mr. Stephen J. Vogel, age 53, is the minority owner and President of TCM. L.L.C., an 80%-owned
    subsidiary of Red River, which was created to operate Red River's coal bed methane projects.  Mr. Vogel brings 25
    years of oil and gas experience to Red River Energy.  Prior to the formation of Red River, Mr. Vogel served as
    Vice President of Operations for Carlton Resources from 1996 to 1998.  Before joining Carlton Resources, Mr.
    Vogel owned Star Production Corporation and worked as Senior Vice President of Operations and Chief Operating
    Officer of RAMCO Oil & Gas, Inc. in Tulsa from 1987 to 1992.  Mr. Vogel has worked in oil and gas engineering and
    operations in the United States, the Pacific Rim, South America, and the Middle East.  Mr. Vogel has served as a
    senior engineer for Phillips Petroleum from 1974 to 1978, the Executive Vice President and Chief Operating
    Officer of Texas International Petroleum from 1978 to 1981, President and Chief Operating Officer of Graceland
    Petroleum in Oklahoma City from 1981 to 1982, Vice President of production for Eason Oil from 1983 to 1984, and
    Vice President of Engineering and Acquisitions for Samson Resources in Tulsa in 1984.  Mr. Vogel received both a
    Bachelor of Science and Masters of Science in Mechanical Engineering from Oklahoma State University in 1968 and
    1973, respectively.  Mr. Vogel is a member of the Society of Petroleum Engineers and the American Society of
    Mechanical Engineers.  From 1968 to 1971, Mr. Vogel served in the United States Army in Germany and Vietnam.
    
    
    
    
          Principal Shareholders Of Red River
    
    
    
          The following table sets forth certain information concerning the number of shares of Red River common stock
    owned beneficially, as of December 1, 1999 by each of the Red River shareholders.  No shares of any other class
    of equity securities are outstanding.   All of the shares are beneficially owned by the named owners directly.
    
    
                                                                         Beneficial Ownership
                                                                         --------------------
                                                                                       Percent
                                                                           Shares     Of Total
                                                                           ------     --------
               Name Of Beneficial Owner
    
    
               Rolf N. Hufnagel                                               640          64%
               Robert E. Davis, Jr.                                           160          16%
               Billy L. Baysinger, Jr.                                         40           4%
               Brent A. Biggs                                                  40           4%
               Janet L. McGehee                                                40           4%
               Stephen J. Vogel                                                40           4%
               Mark Biggs                                                      40           4%
                                                                       ----------- ------------
               All directors and officers as a group (7 persons).....       1,000       100.0%
                                                                       =========== ============
    
    
    
    
    
    
    
    RED RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS
    
                                   OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS
    
    
         The following discussion should be read in conjunction with Red River's consolidated financial
    statements and related notes to the financial statements appearing elsewhere in this proxy statement.  The
    following discussion is to inform you about the financial position, liquidity and capital resources of Red River
    as of December 31, 1998 and December 31, 1999 as well as for the results of operations for the year ended
    December 31, 1998,  and during the year ended December 31, 1999.
    
    
    
    FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
    
    
    
         Red River's working capital was a deficit of ($92,758) at December 31, 1998 and ($1,963,547) at December
    31, 1999.  Red River's working capital decreased due to expenditures for drilling and completing coal bed methane wells
    on coal bed leases owned by Red River's 80% owned subsidiary, TCM, L.L.C., and associated operating and general
    and administrative costs of TCM.
    
    
    
         Red River has no material long-term commitments associated with its capital expenditure plans or
    operating agreements other than its planned activity on its properties in the West Edmond Hunton Lime Unit
    ("WEHLU") in Central Oklahoma.  As discussed below in the Plan of Operation for 2000, Red River intends to fund
    its $1.1 million capital cost of its 25% option to purchase on interest in the pilot program with bank
    borrowing.  Red River's bank has indicated a willingness to fund this $1.1 million purchase price, but there is
    no guarantee that it will.  Red River could look to Beta for this funding.  Additionally, Red River has budgeted
    $1.5 million for  workovers on existing wellbores in WEHLU to enhance production.  Red River currently intends to
    use borrowed funds from it's bank and capital contributions from Beta to fund this development work.
    
    
    
         Red River has certain debt service requirements over the next seven years which are triggered if certain
    oil and gas reserve values are not maintained in excess of Red River's borrowing base.   If, in the future, the
    reserve values are insufficient to support the borrowing base, the scheduled principle payments would average
    approximately $1.3 million per year for the next seven years, beginning as early as July of 2000, plus interest
    on the outstanding principle at LIBOR + 1.8%, currently approximately 7.6%.  Red River anticipates that it will
    have sufficient cash flow from its existing oil and gas properties to make these debt payments.
    
    
    
         Included in Red River's consolidated current liabilities of December 31, 1999 is the current portion of
    long-term debt owned by its subsidiary TCM to its lender under a revolving line of credit.  This debt, which was
    used to fund TCM's drilling of coal bed wells is recourse only to the assets of TCM.  At March 31, 2000, 10% of
    the outstanding principle of the approximate $2.2 million of total indebtedness of TCM, or $220,000, was due.
    TCM does not have available funds to make this principal payment and Red River has no plans to make any advances
    to TCM for this purpose.  TCM is in negotiations with the lender to reduce the amount due or extend the due date
    to allow the coal bed methane properties sufficient time to dewater and begin generating additional cash flow.
    Should the lender choose not to renegotiate the loan repayment terms, TCM would be forced to assign the existing
    coal bed properties to the lender in lieu of foreclosure as payment on the note.
    
    
    
    
    HISTORICAL CASH USED IN AND PROVIDED BY OPERATING, INVESTING AND FINANCING ACTIVITIES
    
    
         Red River financed its business activities through a combination of contributions of equity by its
    members, bank debt, and cash flow from operations.  Red River received cash contributions from members of
    $380,000 during the year ended December 31, 1998.  In addition, Red River borrowed $6,274,734 of long and short
    term debt during the year ended December 31, 1998 and $3,584,729 during the year ended December 31, 1999.  Red
    River generated net revenues of $865,356 in the year ended December 31, 1998 and $3,188,758 for the year ended
    December 31, 1999.
    
    
    
         The net proceeds of equity contributions, borrowings and net revenues have been primarily invested in
    oil and gas properties, drilling activities and gas gathering systems totaling $6,625,836 in 1998 and $3,649,157
    in 1999.
    
    
    
         The general and administrative expense of $685,573 in 1998 and $980,627 in 1999 include non-cash expenses of $217,800 in 1998 and $151,200 in 1999 representing
    salary contributed to Red River in lieu of cash compensation.
    
    
    
    LONG TERM LIQUIDITY AND CAPITAL RESOURCES
    
    
    
         The timing of most of Red River's capital expenditures is discretionary.  Red River has no material
    long-term commitments associated with its capital expenditure plans or operating agreements other than with the
    WEHLU properties discussed below under PLAN OF OPERATION FOR 2000.  Consequently, Red River has a significant
    degree of flexibility to adjust the level of such expenditures as circumstances warrant.  The level of capital
    expenditures will vary in future periods depending on the success it experiences on planned development drilling
    activities, oil and gas price conditions and other related economic factors.
    
    
    
         Red River expects significant opportunities to invest significant capital in development drilling,
    recompletions of existing wells, investments in coal bed methane drilling and oil and gas property acquisitions.
    Red River expects to finance these opportunities through internally generated cash flow, bank borrowings, equity
    contributions and funds generated from partners participating in these projects.
    
    
    
    PLAN OF OPERATION FOR 2000
    
    
    
         Red River will rely on the same strategy for the next 12 months that it had employed in 1998
    and 1999, Red River was able to fund its operations and acquisitions out of member contributions, debt and
    internally generated cash flow.  The opportunities for growth and increased cash flow will come primarily from
    four areas of focus.
    
    
    
    1.     Further enhancement of the                                WEHLU   properties,
    Red River currently owns and operates 30,000 acres of leasehold which it purchased as a producing property in
    September of 1998.  These properties currently account for approximately 85% of Red River's total daily oil and
    gas production.
    
    
    
         A newly designed recompletion technique has resulted in a significant Hunton formation recompletion
    program in the State of Oklahoma.  This program has resulted in significantly higher production rates on old
    Hunton formation wells and the drilling of successful new wells once thought to be wet and incapable of economic
    production.  Red River believes its 30,000 acres of leasehold held by production is a major candidate for this
    procedure.
    
    
    
          Red River also has no material long-term commitments associated with its capital expenditure plans or
    operating agreements other than its planned expenditureson its WEHLU properties.  The level of Red River's capital
    expenditures will vary in future periods depending on the results it experiences  on the WEHLU properties.
    Effective February 18, 2000 Red River entered into an agreement with Avalon Exploration, Inc. of Tulsa to jointly
    test and develop additional production in the Company's 30,000 acre producing WEHLU Unit in Central Oklahoma.
    
    
    
          The terms of the agreement call for Avalon to drill wells and expend an estimated $4.4 million.  Red
    River has retained an option to purchase a 25% "look back" working interest in these same wells, whereby Red
    River can elect to reimburse Avalon for 25% of actual costs incurred depending on the success of these pilot wells.
    The option to purchase must be exercised within 120 days of the completion of the drilling activities.  It is
    currently estimated that the option to purchase will need to be exercised sometime in the first half of 2001
    should Red River elect to participate.  If Red River exercises its option to purchase the pilot program interest,
    it will be required to advance its 25% share of the estimated $4.4 million capital costs associated with the
    pilot program, or $1.1 million.  In the event funds are unavailable, Red River will have to forfeit the 25% look
    back interest.  If Red River is unable to utilize its existing line of credit with the Bank of Oklahoma, then it
    must obtain other obtain financing from another source in order to fund this obligation.  If the merger is
    consummated, Red River may seek the financing from Beta, but there is no assurance that the financing will be
    available.
    
    
    
          If the WEHLU pilot program is successful, the ongoing development of the field will commence in the year
    2001 with approximately 200 to 300 potential locations to be drilled on the 30,000 acres.  Red River will retain
    a 40% working interest by paying for 36% of the development costs.  It is estimated that this development could
    take place over a three to five year period commencing in the second half of 2001.  Preliminary estimates are
    that Red River's net share of development cost will range between $36,000,000 and $54,000,000 over the three to
    five year period.  Red River will seek to fund these capital expenditures utilizing bank financing.  If the
    merger is consummated, Beta may also seek to provide additional funding through the issuance of its common stock
    in a public offering.  If funds are unavailable to Red River, either through a bank line of credit or cash
    advances provided by Beta, Red River will be compelled to reduce its interest in the development of the 200 to
    300 potential locations.
    
    
    
                  In addition to the joint venture with Avalon, Red River Energy has budgeted $1.5 million for workovers
    on existing wellbores which are in the WEHLU area but which are excluded from the joint venture with Avalon.
    These expenditures to enhance production are expected to be expended in 2000 and 2001.
    
    
    
    2.      Further enhancement and development drilling within the McIntosh prospect is planned,
    as well as expansion of the existing gas gathering system.  Three new developmental wells in theMcIntosh prospect
    are planned for the first half of 2000 at an estimated cost to Red River of approximately $125,000.  Red River
    has budgeted $20,000 for expansion of the gas gathering system.  Drilling has commenced on two of the wells in
    the prospect area and results are pending.
    
    
    
    3.     The coal bed methane drilling program of Red River's 80% owned subsidiary, TCM,
    L.L.C. has been underway since February of 1998, financed from internal cash flow and a loan from a major gas and
    electric utility company which is nonrecourse to any of the assets of Red River other than its interest in TCM.
    This project has involved the drilling of 47 wells to date, including a saltwater disposal well, and also
    included the installation of a gas and a saltwater gathering system.  The wells are currently in a state of
    de-watering and the economic results of the project are considered unevaluated at December 31, 1999.
    
    
    
    4.     It is the intent of Red River to pursue oil and gas producing property acquisitions in the
    $20 million to $50 million dollar range during 2000.  Red River continues to evaluate oil and gas acquisition
    targets and submit bids when merited.  Red River currently has no binding agreements in place.
    
    
    
          Red River's planned capital expenditures and administrative expenses could exceed those amounts budgeted
    and could exceed Red River's cash from all sources.   If this happens, it may be necessary for Red River to raise
    additional funds.   It is anticipated that additional funds will be raised from one or more of the following
    sources:
    
    
    
    1)     Red River has approximately $1,500,000 of borrowing capacity under its revolving line of credit with the
         Bank of Oklahoma.   This borrowing base may increase to the extent Red River is successful in adding proved
         reserves from its activities.
    
    
    2)      Red River currently estimates that during 2000 it will generate approximately $2,500,000 of net cash
         flow from its producing wells after deducting lease operating expenses.
    
    
    3)      In the event the merger with Beta is consummated, Beta will advance funds to Red River to cover certain
         capital expenditures.  Beta has already budgeted $750,000 for the current year to advance to Red River in
         connection with Red River's planned activities in the WEHLU and McIntosh properties.
    
    
         If the above additional sources of cash are insufficient or are unavailable on terms acceptable to Red
    River, Red River will be compelled to reduce the scope of its business activities.   If Red River is unable to
    fund planned expenditures, it may be necessary to:
    
    
    
    1)      Defer or cancel planned exploitation and development activities;
    
    
    
    2)     Farm-out its interest in proposed activities;
    
    
    
    3)      Sell a portion of its interest in proposed wells and use the sale proceeds to fund its  participation  for
         a lesser interest; and
    
    
    
    4)      Reduce general and administrative expenses.
    
    
    
         Red River believes it will have sufficient working capital to fund its capital expenditure requirements
    throughout 2000.  In the event that Red River cannot raise additional capital, it may be necessary for Red River
    to curtail its business activities until other financing is available.
    
    
    
         These are forward looking statements that are based on assumptions which in the future may not prove to be
    accurate.  Although Red River's management believes that the expectations reflected in such forward looking
    statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved.
    
    
    
    
    Results of Operations
    
    
    
          Red River Energy, L.L.C. is a limited liability company which  elected to be taxed as a partnership for
    federal income tax purposes.  As a consequence, prior to the acquisition of Red River Energy, L.L.C. by Red River
    Energy, Inc. on November 8, 1999, the taxable income of Red River was taxed to its members in proportion to their
    individual ownership interests, and the payment of federal income taxes on such proportionate share of Red
    River's taxable income is the personal obligation of each member.  Red River Energy, Inc., which acquired all of
    the membership interests of the Red River management, is an S Corporation for federal income tax purposes. Like a
    limited liability company, an S corporation is not a taxpayer as its income is included in the taxable income of
    its shareholders.  As a consequence of the merger, Red River's status as an S Corporation will automatically
    terminate.  The taxable year of Red River will end on the day of the merger and a tax return will be due for the
    short taxable year ending then.  Thereafter Red River will be treated as a C Corporation for income tax purposes
    and its income will be reported on a consolidated tax return filed by Beta, its parent corporation.
    
    
    
    Year Ended December 31, 1999 compared to Year Ended  December 31, 1998
    
    
    
          Oil and gas sales increased from $865,356 for the year ended December 31, 1998 to $3,188,758 for the year
    ended December 31, 1999, an increase of 368%, primarily due to acquisition of the
    ("WEHLU   producing oil and gas properties in September of 1998.  Additionally, the McIntosh producing oil and gas
    properties and gathering system were purchased in July of 1999, resulting in six months of revenues from these
    properties in 1999 compared to no revenues in 1998. Also contributing to the increase were the higher oil and gas
    prices in 1999.
    
    
    
          Price and Production Data. Red River's average sales price, oil and natural gas production volumes and
    average production cost for each Mcf equivalent of production for the years 1998 and 1999 were as follows:
    
    
                                                    Year Ended    Year Ended
                                                    -----------   ----------
                                                     December      December
                                                     ---------     --------
                                                      31, 1998     31, 1999
                                                      --------     --------
    
    Oil production (Bbl).....................          13,470       33,584
    Gas production (Mcf).....................         336,537    1,064,050
    Average sales price:
        Oil (per Bbl)........................          $12.38       $17.86
        Gas (per Mcf)........................          $ 2.08        $2.20
    Average production cost per
       Mcfe..................................          $ 0.76        $1.02
    
    
    
          The price received by Red River for its gas sales in 1999 were     negatively affected by its hedging
    arrangements.  Without those arrangements, Red River would have realized average natural gas prices of $2.31
    per mcf.
    
    
    
          Operating expenses for the year ended December 31, 1999 were $1,296,775, or $1.02 per mcf equivalent
    compared to $316,533, or $.76 per mcf equivalent for the comparable period in 1998, for an increase of 409%, and
    depreciation  and depletion expense  increased to $498,791 in 1999 compared to $182,747 for the same period of
    1998, principally because of the producing property acquisitions in September 1998 and March 1999.   Interest
    expense was significantly higher for the year ended December 31, 1999, $512,264, compared to $168,851 for the
    same period in 1998, an increase of 203%, because bank borrowings totaling approximately $5,383,000 in September
    1998 and $2,100,000 in March 1999 were incurred to finance the acquisition of the WEHLU and McIntosh properties.
    General and administrative expenses increased 43%, from $685,573 for the year  ended December 31, 1998 to
    $980,627 for the same period in 1999, due primarily to addition of three employees.
    
    
    
    
    
    
    
    
    
     ADDITIONAL PROPOSAL FOR THE BETA SHAREHOLDERS'
    
                                          CONSENT TO THE ADOPTION OF THE AMENDED
    
                                     1999 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
    
         Effective as of  August 27, 1999, our board of directors adopted the 1999 Incentive and Nonstatutory
    Stock Option Plan, a copy of which is appended to this proxy statement on Appendix D.  The Plan was subsequently
    amended and restated by our board of directors effective as of January 6,  2000.
    
    
    
    
         The Plan as amended and restated is referred to as the "stock option plan."  The stock option plan is
    subject to approval by the written consent of the holders of a majority of the Beta common stock.  We are
    presenting the stock option plan for approval by the written consent of the holders of a majority of the issued
    and outstanding shares of the Beta common stock.  Our management currently   _____%  of the issued and
    outstanding shares of Beta common stock.  ALL SUCH SHARES OVER WHICH OUR MANAGEMENT EXERCISES VOTING POWER WILL
    CONSENT TO THE APPROVAL OF THE STOCK OPTION PLAN.  It will be necessary to secure the written consent of the
    holders of a majority of the issued and outstanding shares of Beta common stock to obtain the required approval
    of  the stock option plan.
    
    
    
    
         The stock option plan provides for the granting to employees of incentive stock options within the
    meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and for the granting of nonstatutory
    stock options to directors who are not employees and consultants.  In the case of employees who receive incentive
    stock options which are first exercisable in a particular calendar year whose aggregate fair market value exceeds
    $100,000, the excess of the $100,000 limitation shall be treated as a nonstatutory stock option under the stock
    option plan.
    
    
    
          The stock option plan is being administered by the Compensation Committee appointed by our board of
    directors.  This committee consists of two directors, Joe C. Richardson, Jr. and John Tatum, neither of whom is
    an employee of Beta.  As such, under Rule 16b-3, the grant of such stock options under the stock option plan to
    officers and directors who are our employees is exempt from the short swing profits provisions under Section
    16(b) of the Securities Exchange Act of 1934 ("1934 Act").
    
    
    
          This committee has the power, subject to the approval of our board of directors, to determine the terms
    of the options granted, including the number of shares subject to each option, the exercisability and vesting
    requirements of each option, and the form of consideration payable upon the exercise of such option (i.e.,
    whether cash or exchange of existing shares of Beta common stock in a cashless transaction or a combination
    thereof).
    
    
    
          A maximum of 700,000 shares of Beta common stock (which amount is subject to adjustment for stock
    splits, stock dividends, combinations or reclassification of the Beta common stock) are reserved for issuance
    under the stock option plan.  As of the date of this proxy statement, stock options exercisable for a total of
    97,500 shares of Beta common stock have been granted to a total of six employees as incentive stock options.  Of
    this amount, stock options for a total of 95,000 shares of Beta common stock have been granted to officers and
    directors who are employees.  The average exercise price of such stock options is $6.00 per share, which
    represented an amount in excess of 110% of the fair market value of the average of the last reported highest bid
    and lowest asked prices quoted on the Nasdaq Small Cap Market on August 27, 1999, which was the date such stock
    options were granted.  In the event that the stock option plan is not approved by a majority of the Beta
    shareholders, the 97,500 stock options will be cancelled.
    
    
    
          The stock option plan requires that the exercise price of the stock options granted under such plan
    shall not be less than,  but may be higher than, 100% of the fair market value per share as determined on the
    date of grant.  However, if an employee who is granted a Stock Option owns, at the time of grant, stock
    representing move than 10% of the voting power of all classes of Beta Stock, the exercise price for options which
    are incentive stock options may not be less than 110% of the fair market value per share on the date of grant.
    
    
    
          So long as our stock is reported on The Nasdaq Stock Market, the fair market value per share on the date
    of grant of a stock option under the stock option plan shall be the average of the last reported highest bid and
    the lowest asked prices quoted on the Nasdaq Small Cap Market System on such date.  If the Company's shares
    qualify in the future for designation on the Nasdaq National Market System, the fair market value per share shall
    be the closing price of the Beta common stock as reported on such system on the date of grant, or if our price is
    not quoted on such date, then the closing price as of the last immediately preceding day on which the closing
    price is so reported.
    
    
    
          The stock option plan will continue in effect for 10 years from August 20, 1999 (i.e., the date first
    adopted by our board of directors), unless sooner terminated by our board of directors.  Unless otherwise
    provided by our board of directors, the stock options granted under the stock option plan will terminate
    immediately prior to the consummation of a proposed dissolution or liquidation of Beta.
    
    
    
          The options granted under the stock option plan are for a period of not more than 10 years after the
    date of grant.  However, in the case of an optionee who owns, at the time of grant, stock representing more than
    10% of the combined voting power of all classes of Beta stock, the term of the options shall not be for more than
    five (5) years.
    
    
    
          Upon the termination of an optionee as our employee, he/she must exercise his/her option within three
    (3) months (as set forth in such stock option) after he/she ceases to be our employee.  If an optionee becomes
    disabled and due to such disability ceases to be our employee, he/she must exercise his/her option within the
    period of time not exceeding 12 months (as set forth in such stock option).  Upon the death of an optionee whose
    employment by us was not terminated prior to such event, the optionee's estate or person acquiring the right to
    exercise such option by bequest or inheritance may exercise such option at any time within 12 months following
    the date of such optionee's death but only to the extent that the optionee could have exercised such option
    (under its terms) if his/her employment had continued uninterrupted for such 12 month period.
    
    
    
          The options granted under the stock option plan may only be exercised by the optionee during his/her
    lifetime and are not transferable except by will or by the laws of descent and distribution.  The shares of Beta
    common stock transferred to an optionee as a result of the exercise of a stock option are "restricted securities"
    under Rule 144 as promulgated under the 1933 Act and may only be resold or transferred in compliance with such
    rule and the registration requirements or an exemption from such requirements under the 1933 Act.
    
    
    
    
    
    
    
    
    SHAREHOLDER PROPOSALS
    
    Shareholders of Beta may submit proposals to be considered for stockholder action at the 2000 Annual Meeting of
    Shareholders of Beta if they do so in accordance with applicable regulations of the SEC and with the requirements
    of the Beta by-laws. Any stockholder proposal must be submitted to the secretary of Beta no later than January
    30, 2000 in order to be considered for inclusion in Beta's 2000 proxy materials.  The proxies named in the proxy
    solicitation for the 2000 Annual Meeting of shareholders will have discretionary authority to vote on any matters
    proposed at the meeting by any shareholders if Beta was not given written notice of the matter no later than
    March 15, 2000.
    
    
    INDEPENDENT ACCOUNTANTS
    
    The consolidated financial statements of Beta as of December 31, 1999 and for each of the three years in
    the period ended December 31, 1999, included in this proxy statement  have been included in reliance on the
    report of Hein + Associates, LLP, independent accountants, given on the authority of said firm as experts in
    accounting and auditing.
    
    
    
    The consolidated financial statements of Red River as of December 31, 1998 and 1999, and for the two years ended
    December 31, 1999, included in this proxy statement, have been included in reliance on the report of Hein +
    Associates LLP, independent accountants, given on the authority of said firm as experts in accounting and
    auditing.
    
    
    EXPERTS
    
    
    The unaudited supplementary oil and gas reserve information of Beta included in this proxy statement has been
    included in reliance of the report of Veazey & Associates, Inc.  The unaudited supplementary oil and gas reserve
    information appears elsewhere in this proxy statement on the authority of Veazey & Associates, Inc.
    
    
    
    The unaudited supplementary oil and gas reserve information of Red River included in this proxy statement has
    been included in reliance of the report of Ryder Scott Company, L.P.  The unaudited supplementary oil and gas
    reserve information appears elsewhere in this proxy statement on the authority of Ryder Scott Company, L.P.
    
    
    LEGAL OPINIONS
    
    The validity of the shares of Beta common stock being offered hereby is being passed upon for Beta by Clanahan,
    Tanner, Downing and Knowlton, P.C.  Shareholders of this law firm do not own shares of Beta common stock.
    
    
    
    
    
    
    
    ANNEX A
    
    
    (AGREEMENT AND PLAN OF MERGER)
    
    
    
    
    
                                                         AGREEMENT AND PLAN OF MERGER
                                                         ----------------------------
    
    
              THIS AGREEMENT AND PLAN OF MERGER  ("Agreement") is made this 19th day of November,  1999, by and among Beta Oil& Gas, Inc.,
    a Nevada corporation  ("Purchaser"),  Beta Acquisition  Company,  Inc., an Oklahoma  corporation  ("Merger Sub"), and Red River Energy,
    Inc.,  an  Oklahoma  corporation  ("Company")  and the  shareholders  listed in  Schedule A attached  to this  Agreement,  individually
                                                                                     ----------
    (collectively, "Red River Shareholders".
    
                                                                   RECITALS
    
             A. The Company is engaged in the  ownership,  leasing,  acquisition,  exploration,  drilling  and  development  of oil and gas
    property,  located in Oklahoma and the  production  and sale of oil and gas; B. The Purchaser  owns 100% of the issued and  outstanding
    capital stock of Merger Sub;
    
             B.  The Purchaser owns 100% of the issued and outstanding capital stock of Merger Sub:;and
    
             C.  Purchaser  desires to acquire the  Company's  business  by merging the Merger Sub with and into the Company in  accordance
    with the terms and  conditions  of this  Agreement in a  transaction  designed and intended to meet the  requirements  of Section ("ss.")
    368(a)(l)(A)  andss.368(a)(2)(E)  of the Internal  Revenue Code of 1986, as amended  ("Code") and as a result of such  transaction  the
    Company,  following  the merger of Merger Sub with and into the Company which shall be the Surviving  Corporation  and, as such,  shall
    become a subsidiary of the Purchaser.
    
             NOW,  THEREFORE,  in  consideration  of the mutual  covenants and agreements  contained  herein and other good and valuable
    consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
    
    1.       Certain  Definitions.  The  definitions  set forth  below  shall  apply to the  meaning of the terms as used  throughout  this
    -----------------------------
    Agreement.  All other capitalized terms shall have the meaning as defined in other sections of this Agreement.
    
    1.1      "Affiliate" shall mean with reference to a particular Person (i) any Person,  directly or indirectly,  owning,  controlling or
    holding with power to vote 10% or more of the outstanding voting securities of such particular  Person;  (ii) any Person 10% or more of
    whose  outstanding  voting  securities  are directly or  indirectly  owned,  controlled  or held with power to vote by such  particular
    Person; or (iii) any Person, directly or indirectly, controlled by, controlling or under common control with such particular Person
    
    1.1      "Agreement" shall mean this Agreement and Plan of Merger.
    
    1.1      "Beta Common Stock" shall mean the $.001 par value voting common stock of the Purchaser.
    
    1.1      "Closing" shall mean the consummation of the transactions contemplated by this Agreement.
    
    1.1      "Closing Date" shall mean the date on which the Closing occurs pursuant to Section 2.4 hereof.
    
    1.1      "Commission" shall mean the United States Securities and Exchange Commission.
    
    1.1      "Company" shall mean Red River Energy,  Inc., an Oklahoma  corporation,  and its predecessor,  Red River Energy,  L.L.C. which
    became a wholly owned subsidiary of Red River Energy, Inc. in a reorganization underss.351 of the Code.
    
    1.1      "Effective  Time"  shall mean the time when the  Certificate  of Merger is filed as  provided  in  Section  2.5 hereof and the
    Merger of Merger Sub with and into the Company becomes effective under applicable law.
    
    1.1      "Red River  Shareholders"  shall mean the shareholders set forth in Schedule A attached to this Agreement,  who  collectively,
                                                                                 ----------
    as of the date of this Agreement, own all of the issued and outstanding Red River Stock.
    
    1.1      "Red River Stock" shall mean the $1.00 par value voting  common  stock of the Company,  which is the only  authorized  capital
    stock of the Company.
    
    1.1      "Employment Agreements" shall mean those Employment Agreements attached hereto as Exhibit 7.1.9.
                                                                                               -------------
    
    1.1      "Merger" shall have the same meaning as set forth in Section 2.2 hereof.
    
    1.1      "Person" shall mean an individual,  partnership,  corporation,  trust, limited liability company, unincorporated organization,
    association or joint venture or a government, or an agency, political subdivision or instrumentality thereof.
    
    1.1      "Purchaser" shall mean Beta Oil & Gas, Inc., a Nevada corporation.
    
    1.1      "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations thereunder.
    
    1.1      "Surviving Corporation" shall have the same meaning as set forth in Section 2.2 of this Agreement.
    
    1.1      "Year  2000  Compliance"  shall  mean that (a) no value  for  current  date will  cause any  interruption  in  operation;  (b)
    date-based  functionality  will behave  consistently  for dates prior to, during and after Year 2000;  (c) in all  interfaces  and data
    storage,  the first two digits in the year of any date are specified  either  explicitly or by  unambiguous  algorithms;  (d) year 2000
    will be recognized as a leap year; and (e) the year "00" will be read and correctly interpreted as the year "2000."
    
             All other capitalized terms shall have the meanings as specified elsewhere in this Agreement.
    
    1.       The Merger and Consideration
             ----------------------------
    
    1.1      Red River  Consideration.  On the Closing Date, the shares of Red River Stock owned by the Red River Shareholders,  consisting
    of 1,000 shares of Red River Stock which  constitutes all of the issued and outstanding  shares of the Company's  capital stock,  shall
    be converted into and become,  and there shall be paid and issued, in exchange for such shares,  Two Million Two Hundred Fifty Thousand
    (2,250,000)  shares of Beta Common  Stock which shall be issued by the  Purchaser  to the Red River  Shareholders.  Such shares of Beta
    Common Stock shall be divided and issued to each Red River  Shareholder in proportion to their  respective  ownership  interests in the
    Red River Stock as set forth in Schedule A attached hereto.
                                    ----------
    
    1.1      Merger.  At the  Effective  Time and subject to and upon the terms and  conditions of this  Agreement  and in accordance  with
    Oklahoma  law,  Merger Sub shall be merged  with and into the  Company  (the  "Merger")  and as a result of such  Merger  the  separate
    corporate  existence of the Merger Sub shall cease and the Company  shall  continue as the  surviving  corporation.  The Company as the
    surviving corporation after the Merger is hereafter sometimes referred to as the "Surviving Corporation".
    
             The Merger will have the effect set forth in the Oklahoma  General  Corporation  Act. The Surviving  Corporation  may, at any
    time after the Effective  Time, take any action,  including  executing and delivering any  certificates,  instruments and documents as
    shall be  determined  by the Board of Directors of the  Surviving  Corporation  to be necessary  and  appropriate,  in the name and on
    behalf of either the Company or Merger Sub in order to carry out and effectuate the transactions contemplated by this Agreement.
    
    1.1      Shareholder  Approvals.  Subsequent to the date of this  Agreement and prior to the Effective  Time,  the parties hereto shall
    obtain the requisite  shareholder  approval as required under their respective  Articles or Certificate of Incorporation and Bylaws and
    under Nevada and Oklahoma law as follows:
    
    a        Purchaser  Approval.  Pursuant to Section 1.4b of Article XII of the Purchaser's  Bylaws, the Purchaser,  through its Board of
    Directors,  shall duly call, give notice of, convene  shareholders for the approval of this Agreement and the issuance of the shares of
    Beta Common Stock for the number of shares as  contemplated  under Section 2.1 hereof,  all in accordance with Nevada law, its Articles
    of  Incorporation  and Bylaws.  In addition,  the Purchaser as the holder of 100% of Merger Sub's issued and  outstanding  Common Stock
    shall approve,  by written  consent of its Board of Directors,  this Agreement and the Merger  contemplated  hereby in accordance  with
    Oklahoma law and the  Certificate of Incorporation of Merger Sub; and
    
    a        Company  Approval.  The Company,  acting  through its Board of Directors  shall duly call,  give notice of, convene and hold a
    special meeting of its shareholders  (the "Special  Meeting") to consider and vote upon the approval and adoption of this Agreement and
    the Merger  contemplated  hereby, or shall seek the requisite written consent of its shareholders,  all in accordance with Oklahoma law
    and its  Certificate of  Incorporation  and Bylaws.  The Company shall hold the Special  Meeting or obtain such written consent as soon
    as practicable after the date hereof.
    
    1.1      Closing.  The Closing  Date shall occur on that date which is on or before three (3) days after the  satisfaction  and receipt
    of any and all required  conditions and approvals,  including any required  approval of the shareholders of Purchaser;  but in no event
    later than March 31, 2000.  The  Purchaser  and the Company will use best efforts to close as soon as possible  upon  execution of this
    Agreement.  In the event that the Closing Date falls on a Saturday,  Sunday or Federal holiday,  then the next succeeding date which is
    not a Saturday,  Sunday or Federal  holiday  shall be the Closing  Date.  The Closing  shall take place at the offices of the  Company,
    6120 S. Yale,  Suite 813,  Tulsa,  Oklahoma,  10:00 a.m.  Central  Standard Time on the Closing Date, or at such other time or place as
    mutually agreed by the parties hereto.  Such Closing may be accomplished by facsimile  transmission of Closing  Documents and facsimile
    signatures,  provided  that the original of such signed  documents  are  transmitted  to the party or parties  entitled to receive such
    documents  within three (3) business days  following  the Closing  Date.  The Closing shall be effective as of the close of business of
    the Closing  Date.  At the Closing,  (a) the Company and the Red River  Shareholders  will deliver to Merger Sub and the  Purchaser the
    various  certificates  and  instruments and documents  referred to in Section 7.1 hereof,  (b) Purchaser and Merger Sub will deliver to
    the Company and the Red River Shareholders the various  certificates,  instruments and documents referred to in Section 7.2 hereof, and
    (c)  Purchaser  and Merger Sub will  deliver to the Red River  Shareholders  in the manner  provided  below in Section  7.2.1 the Stock
    Certificates evidencing the consideration issued in the Merger.
    
    1.1      Consummation  of the  Transaction  at the Closing.  Purchaser,  Merger Sub and the Company will each carry out the  procedures
    specified  under the applicable  provisions of Oklahoma law as shall be necessary and  appropriate to assure the  effectiveness  of the
    Merger.  The Merger shall be  consummated  by filing the  Certificate of Merger with the Secretary of State of Oklahoma in such form as
    required by, and executed in  accordance  with the relevant  provisions of Oklahoma law to the extent  required.  Such  Certificate  of
    Merger shall provide for an amendment to the Company's Certificate of Incorporation to change its name to "Beta Operating Company."
    
    1.1      Effect of Merger.  At the Effective Time:
    
    1.1.1    Surviving  Corporation.  Merger Sub shall be merged with and into the Company, with the Company as the Surviving  Corporation,
    and the  separate  existence  of Merger  Sub shall  cease.  As a result  of the  Merger,  the Red  River  Shareholders  who held  stock
    certificates  representing  the Red River Stock prior to the Merger  shall cease to have any rights with  respect to such stock and all
    rights,  privileges,  powers,  franchises and interests of the Company and all of its properties,  whether real, personal or mixed, all
    debts due on whatever account,  and every other interest of the Company,  whether tangible or intangible shall be deemed to vest in the
    Surviving  Corporation  without  further act or deed,  and all claims,  demands,  property and every other  interest shall be as of the
    Effective Time the property of the Surviving Corporation to the same extent as previously owned or held by the Company.
    
    1.1.1    Certificate of  Incorporation.  Except as  contemplated  by Section 2.5, the  Certificate of  Incorporation  of the Company in
    effect at and as of the Effective Time shall remain the Certificate of  Incorporation  of the Surviving  Corporation  until  thereafter
    amended as provided by law.
    
    1.1.1    Bylaws.  The  Bylaws  of the  Company,  as in effect  immediately  prior to the  Effective  Time,  shall be the  bylaws of the
    Surviving Corporation until thereafter amended as provided by law and provisions of such Bylaws.
    
    1.1.1    Directors and Officers.  Immediately  prior to the Effective Time of the Merger,  the directors and officers of the Company as
    constituted  immediately  prior to the Effective Time shall tender their  resignations  to the Company as agreed upon in Exhibit 2.6.4.
                                                                                                                             -------------
    The number of directors of the  Surviving  Corporation  and the persons  serving as Directors of the Surviving  Corporation  shall be a
    minimum of three (3) directors  and a maximum of six (6) directors  (the exact number of which shall be determined by resolution of the
    directors of the  Surviving  Corporation).  The number of directors and the  individuals  who shall serve as directors of the Surviving
    Corporation  shall be determined by the Purchaser,  as the sole  shareholder  of the Surviving  Corporation  immediately  following the
    Effective  Time and such  persons as so  appointed  shall  continue to hold office  until their  successors  have been duly  nominated,
    elected or appointed as provided  under the  Surviving  Corporation's  Bylaws as may  subsequently  be amended in  accordance  with the
    provisions  thereof.  The officers of the Surviving  Corporation shall be appointed,  immediately  following the Effective Time and the
    election by the Purchaser of the directors of its Board of Directors,  by the directors of the Surviving  Corporation and such officers
    as so  appointed  shall  hold such  offices  in the  Surviving  Corporation  following  the  Effective  Time,  until such time as their
    successors have been duly appointed and qualified.
    
    1.1.2    The Merger.  From and after the Effective  Time,  the Merger shall have all the effects  provided for a merger under  Oklahoma
    law, , which law shall govern the Surviving Corporation.
    
    1.2      Effect on Capital Stock.
    
    1.2.1    Conversion  of Red River  Stock.  At the  Effective  Time,  as a result of the  Merger and  without  any action on the part of
    Purchaser,  Merger Sub, the Company or the holders of any of their  securities,  all of the issued and outstanding  shares of Red River
    Stock  immediately  prior to the Effective Time, held by the Red River  Shareholders  shall be delivered for surrender to the Purchaser
    on the Closing  Date and at the  Effective  Time  converted  into the right to receive all of the shares of Beta Common  Stock  payable
    under this Agreement.
    
                                The  certificate  or  certificates  representing  Red River Stock shall after the Effective  Time cease to
    have any rights  with  respect to such  shares of Red River  Stock  except the right to the  issuance  of the number of shares of Beta
    Common  Stock as  provided  in  Schedule  A  attached  hereto  for such Red River  Stock upon the  surrender  of such  certificate  or
                                    -----------
    certificates  in accordance  with this Section 2.7 hereof.  Upon the filing of the  Certificate  of Merger with the Secretary of State
    of Oklahoma,  as a consequence  of the Merger and without any other action on the part of the parties to this  Agreement,  each of the
    issued and  outstanding  shares of Red River Stock shall be cancelled  and retired by the  Surviving  Corporation  in exchange for the
    shares of Beta Common  Stock as provided in Section 2.1 hereof and as set forth in Schedule A attached  hereto and all other shares of
                                                                                       ----------
    the Company's  capital stock shall  automatically be cancelled and retired and no payment by the Purchaser or Merger Sub shall be made
    with respect to any such other  capital  stock,  if any, of the Company.  At the Closing,  the Company  shall issue to the Purchaser a
    stock  certificate,  registered on the Company's stock transfer  records,  in the Purchaser's  name  representing  1,000 shares of the
    Surviving  Corporation's  Common Stock,  which shall have been duly authorized by the Board of Directors of the Company as constituted
    immediately  prior to the Closing Date and such shares as so issued shall  constitute  the only issued and  outstanding  shares of the
    Surviving Corporation.
    
    1.2.2    Subsequent  Transfer:  Loss,  Stolen or Destroyed  Certificates.  After the Effective Time,  there shall be no transfer on the
    stock transfer books of the Surviving  Corporation of shares of Red River Stock that were registered as outstanding  immediately  prior
    to the  Effective  Time other than the  shares  issued in the name of the  Purchaser  as  required  in  Section  2.7.1  hereof.  If any
    registered  certificate  for the Company  shall have been lost,  stolen or  destroyed,  the  Surviving  Corporation,  upon making of an
    Affidavit signed by the person claiming such  certificate to have been lost,  stolen or destroyed and setting forth the facts and other
    information  relating to such loss or destruction shall,  subject to the provisions of this Section 2.7.2,  deliver a stock certificate
    for the  appropriate  shares of Beta Common Stock for the Red River Stock  represented by such  certificate in accordance  with Section
    2.1.1 hereof to the Person(s) legally entitled  thereto.  The Surviving  Corporation,  in the sole discretion of its Board of Directors
    and as a  condition  precedent  to the  delivery  of the shares of Beta  Common  Stock in  exchange  for the shares of Red River  Stock
    represented  by such  certificate,  may  require the owner of such lost,  stolen or  destroyed  certificate  to provide a bond or other
    security in such sum as it  reasonably  may direct as indemnity  against any claim that may be made against the  Surviving  Corporation
    with respect to the certificate alleged to have been so lost, stolen or destroyed.
    
    1.2.3    Merger Sub Stock.  Each share of the $.001 par value common stock of Merger Sub issued and  outstanding  immediately  prior to
    the Effective  Time shall be cancelled and converted into the 1,000 shares of the Surviving  Corporation's  Common Stock as provided in
    Section 2.7.1 hereof, all of which shares shall be owned and held of record in the name of the Purchaser.
    
    1.2.4    Dissenting  Shares. As provided in Section 3.1.4 hereof,  the Red River  Shareholders  shall take whatever action is necessary
    and  appropriate  effectively  to waive under the  applicable  provision of the  Oklahoma  General  Corporation  Act their rights to an
    appraisal of the shares of Red River Stock held by each of them, which represent all the authorized,  issued and outstanding  shares of
    the Red River Stock on and prior to the Closing Date.
    
    2.       Conditions Precedent to Obligations
             -----------------------------------
    
    2.1      Conditions  Precedent to the  Purchaser's  and Merger Sub's  Obligations.  The  obligations  of Purchaser and Merger Sub to be
    performed under this Agreement on or before the Closing Date are subject to each and all of the following  conditions,  any one or more
    of which may, however, be waived in whole or in part by Purchaser.
    
    2.1.1    Representations  and Warranties.  The  representations  and warranties of the Company herein contained shall be true on and as
    of the date  hereof and as of the  Closing  Date in all  material  respects  with the same force and effect as though made on and as of
    said date.
    
    2.1.2    Performance  of  Obligations.  The Company  shall have  performed in all material  respects  all of the  Company's  covenants,
    undertakings, obligations, conditions and agreements required to be performed by it under this Agreement.
    
    2.1.3    Performance  at Closing.  The Company shall have  performed  each of the acts it is required to perform and delivered  each of
    the certificates and other documents it is required to deliver,  or appeared at Closing ready,  willing and able to perform each of the
    acts it is required to perform and deliver each of the certificates and other documents it is required to deliver.
    
    2.1.4    Waiver of Dissenter's  Rights.  The Red River  Shareholders shall have provided the Company prior to Closing a legally binding
    instrument  executed  by such  Shareholders  waiving  all of their  rights for an  appraisal  of the Red River  Stock  owned by them in
    accordance  with the  Oklahoma  General  Corporation  Act and any other  applicable  provisions  under  Oklahoma  law and to the extent
    applicable under Nevada law.
    
    2.1.5    Absence of Restraining  Action.  No suit,  action or other  proceeding  shall be pending,  or threatened,  before any court or
    governmental  agency in which it will be, or it is,  sought to restrain or prohibit or to obtain  damages or other relief in connection
    with this Agreement or the consummation of the transactions contemplated hereunder.
    
    2.1.6    Absence  of  Litigation.  The  Company  shall have  disclosed  to  Purchaser  in  Exhibit  4.1.20 all suits,  actions or other
                                                                                               ---------------
    proceedings  pending before any court or  governmental  agency,  or threatened  against or affecting the Company and Purchaser shall be
    satisfied that no such suit, action or other  proceeding,  if adversely  determined,  would have a material adverse effect on the value
    of the business, assets, or properties of the Company, or the value of the Red River Stock.
    
    2.1.7    No  Attachment.  None of the Company's  assets or properties  shall have been attached or levied upon or passed into the hands
    of a receiver or assignee for the benefit of  creditors.  No petition or similar  instrument  shall have been filed with respect to the
    Company under any bankruptcy or insolvency law, and no injunction or restraining  order shall have been instituted  against the Company
    that would have a material adverse effect on the Company.
    
    2.1.8    No Liens,  Indebtedness.  Except as set forth in Exhibit  3.1.8,  the  Company  shall not be subject to  indebtedness  nor its
                                                              --------------
    properties or assets subject to liens or encumbrances of any kind, other than (i)  indebtedness and liens for current taxes,  wages and
    operating  expenses in the normal course of business,  payment of which at the time of Closing shall not yet be due; (ii)  indebtedness
    identified in the Company's  Financial  Statements as set forth in Exhibit 4.1.7 attached  hereto;  (iii) any accounts payable or loans
                                                                       -------------
    advanced to the Company  subsequent to the Financial  Statement Date which were incurred in the ordinary  course of its business;  (iv)
    any other indebtedness approved by the Purchaser; or (v) Permitted Encumbrances (as hereinafter defined).
    
    2.1.9    Resignations.  Purchaser and Merger Sub shall have received the  resignation  dated as of the Closing Date of each director of
    the Company and the officers of the Company as agreed upon in Exhibit 2.6.4 that Purchaser requests so resign prior to the Closing.
                                                                  -------------
    
    2.1.10   Corporate  Records.  Purchaser and Merger Sub shall have received the stock books,  minute books,  and corporate seal (if any)
    of the Company and its subsidiaries, if any.
    
    2.1.11   Consents and Waivers.  All consents from third parties,  including  without  limitation the  Notification and Report Form only
    to the extent required to be filed under the  Hart-Scott-Rodino  Antitrust  Improvements  Act of 1976, as amended,  and the regulations
    thereunder  ("HSR Act"),  as well as any other consent or waiver  required  under any other  Licenses,  Leases,  Permits,  Approvals or
    Contracts set forth in Exhibits  4.1.17,  4.1.22,  4.1.24 and 4.1.28  attached  hereto and as provided in Section 4.1.31 hereof and any
                           ----------------   ------   -------    ------
    other person or governmental bodies, necessary for the consummation of the transactions contemplated hereby shall have been obtained.
    
    2.1.12   Absence of Adverse  Changes.  The Company shall not have  suffered any material  adverse  change in its  financial  condition,
    business, property or assets since the date of the Company's Financial Statements as set forth in Exhibit 4.1.7 attached hereto
                                                                                                      -------------
    
    2.1.13   Opinion of  Counsel.  Purchaser  and Merger Sub shall have  received  an opinion of counsel  for the  Company  dated as of the
    Closing Date in form or substance as may reasonably requested by Purchaser.
    
    2.1.14   Certificates.  Purchaser  and Merger Sub shall have  received the  certificates  and other  closing  documents  required to be
    received under Section 7.1.6 and otherwise under Section 7.1 hereof on or prior to the Closing Date.
    
    2.1.15   Shareholder  Approval.  The  shareholders  of  the  Company  shall  have  approved  the  Merger  and  the  other  transactions
    contemplated by this Agreement in accordance with the Oklahoma General Corporation Act.
    
    2.2      Conditions  Precedent to the Company's and Red River  Shareholders'  Obligations.  The  obligations of the Company and the Red
    River  Shareholders  to be performed under this Agreement at Closing are subject to each and all of the following  conditions,  any one
    or more of which may, however, be waived in whole or in part by the Company or the Red River Shareholders.
    
    2.2.1    Representations  and Warranties.  The  representations  and warranties of Purchaser and Merger Sub set forth in this Agreement
    shall be true and correct in all  material  respects on and as of the date hereof and as of the Closing Date with the same effect as if
    made on and as of the said date.
    
    2.2.2
    
    
    
    
                               Performance  of  Obligations.  Purchaser  and  Merger  Sub shall  have  performed  or  complied  with all of
    Purchaser's  and Merger Sub's  covenants,  undertakings,  obligations,  conditions and  agreements  herein to be performed on or before
    Closing as contained in this  Agreement,  including,  but not limited to,  Purchaser's  obligation to undertake the filing of the Shelf
    Registration  pursuant to the  requirements  of and by no later than the date set forth in Section 9.15 and  execution by the Surviving
    Corporation and Purchaser of the Employment Agreements.
    
    2.2.3    Performance  at Closing.  Each of  Purchaser  and Merger Sub shall have  performed  each of the acts it is required to perform
    and delivered each of the  certificates and other documents it is required to deliver,  or appeared at Closing ready,  willing and able
    to perform  each of the acts it is required  to perform and deliver  each of the  certificates  and other  documents  it is required to
    deliver.
    
    2.2.4    Absence of Restraining  Action.  No suit,  action or other  proceeding  shall be pending,  or threatened,  before any court or
    governmental  agency in which it will be, or it is,  sought to restrain or prohibit or to obtain  damages or other relief in connection
    with this Agreement or the consummation of the transactions contemplated hereunder.
    
    2.2.5    Absence of Litigation.  Purchaser  shall have disclosed to the Company and the Red River  Shareholders  all suits,  actions or
    other proceedings  pending before any court or governmental  agency, or threatened against or affecting Purchaser or Merger Sub and the
    Company  and the Red  River  Shareholders  shall be  satisfied  that no such  suit,  action or other  proceeding  which,  if  adversely
    determined,  would have a material  adverse effect on the value of the business,  assets,  or properties of the Purchaser or Merger Sub
    or the value of the Beta Common Stock.
    
    2.2.6    Certificates.  The Company shall have received  such  certificates  as are required by Section 7.2.3 hereof on or prior to the
    Closing Date.
    
    2.2.7    Opinion of Counsel.  An opinion of counsel for Purchaser  and Merger Sub shall have been  delivered to the Company and the Red
    River  Shareholders  dated as of the Closing Date,  substantially  in the form or substance as may reasonably  requested by the Company
    and the Red River Shareholders.
    
    2.2.8    Purchaser  Shareholder  Approval.  The shareholders of the Purchaser shall have approved the Merger and the other transactions
    contemplated by this Agreement in accordance with the  General Corporation Law of Nevada.
    
    2.2.9    Employment Agreements.  Purchaser shall have caused the Company to execute and deliver the Employment Agreements.
    
    2.2.10   Absence  of  Adverse  Changes.  Neither  Purchaser  nor Merger Sub shall have  suffered  any  material  adverse  change in its
    financial condition, business, property or assets since the date of this Agreement.
    
    2.2.11   Consents and Waivers.  All consents from third parties,  including  without  limitation the  Notification and Report Form only
    to the extent required to be filed under the  Hart-Scott-Rodino  Antitrust  Improvements  Act of 1976, as amended,  and the regulations
    thereunder  ("HSR Act"),  as well as any other consent or waiver  required  under any other  Licenses,  Leases,  Permits,  Approvals or
    Contracts set forth in Exhibits  4.1.17,  4.1.22,  4.1.24 and 4.1.28  attached  hereto and as provided in Section 4.1.31 hereof and any
                           ----------------   ------   -------    ------
    other person or governmental bodies, necessary for the consummation of the transactions contemplated hereby shall have been obtained.
    
    2.2.12   Filing of Shelf  Registration.  Purchaser  shall undertake to file a Shelf  Registration  Statement with the Commission to the
    extent and within the time period  required by Section  9.15  relating  to the future  resale of the shares of Beta Common  Stock to be
    received by the Red River Shareholders.
    
    2.2.13   Nasdaq  Listing of Shares.  Purchaser  shall  undertake to file the  necessary  documents  requesting  that the shares of Beta
    Common Stock to be issued to the Red River Shareholders be listed on and available for trading on The Nasdaq Stock Market.
    
    2.2.14   Director  Appointment.  Rolf N.  Hufnagel  shall have been  appointed as a director of the  Purchaser,  effective  immediately
    after the Effective Time.
    
    3.       Representations and Warranties
    
    3.1      Representations  and  Warranties  of Seller.  The Company and the Red River  Shareholders,  represent and warrant to Purchaser
    and Merger Sub as of the date hereof and as of the Closing Date, as follows:
    
    3.1.1    Good  Standing.  The Company is a corporation  duly  organized,  validly  existing and in good standing  under the laws of the
    State of Oklahoma,  with full  corporate  power and authority to own,  operate and lease its properties and its interests in properties
    (including its interests in oil and gas  properties) and to carry on its business as now being  conducted.  The Company is qualified to
    do business and is in good standing in all  jurisdictions  where its  properties,  assets and/or  activities and operations so require,
    which  states are listed in Exhibit  4.1.1  attached  hereto,  except  where the failure to qualify  would not have a material  adverse
                                --------------
    effect on the  Company.  True and  correct  copies of the  Company's  Certificate  of  Incorporation  and all  amendments  thereto  and
    restatements  thereof,  and the Company's  Bylaws and all amendments  thereof and  restatements  thereto are set forth in Exhibit 4.1.1
                                                                                                                              -------------
    attached hereto.
    
    3.1.2    Binding  Agreement.  This Agreement has been executed and delivered by the Company and each of the Red River  Shareholders  as
    set forth above,  constitutes the valid and binding obligation of the Company and the Red River Shareholders  enforceable in accordance
    with its terms,  except as such enforcement may be limited by applicable  bankruptcy,  insolvency,  moratorium,  general  principles of
    equity,  or similar laws  affecting the rights of creditors  generally,  and will not conflict with,  cause a breach,  violate or be in
    contravention  of or result in a default  under the Company's  Certificate  of  Incorporation,  Bylaws or any other  organizational  or
    governing instrument of the Company, or of any Contract,  Lease, indenture,  promissory notes, agreement,  mortgage or other instrument
    to which the  Company  is a party or by which any of its  assets or  property  is bound or  affected  or, to the best of the  Company's
    knowledge,  any law,  rule,  License,  regulation,  judgment,  decree  or order  of any  court,  agency  or  other  authority  to which
    jurisdiction the Company is subject.  All corporate  action  necessary for the approval and/or  ratification of this Agreement has been
    taken or will have been taken on or before the Closing.
    
    3.1.3    Authorized  Stock The only  authorized  capital stock of the Company is 50,000 shares of its $1.00 par value common stock,  of
    which,  as of the date  hereof,  1,000  shares of Red River  Stock are  issued and  outstanding.  The Red River  Shareholders  own such
    portions of the issued and outstanding  shares of Red River Stock as set forth in Schedule A attached  hereto.  No other person has any
                                                                                      ----------
    legal ownership interest in and to any shares of the Red River Stock.
    
    3.1.4    Stock  Fully  Paid and  Ownership  of  Securities.  All issued and  outstanding  shares of the Red River  Stock have been duly
    authorized  and validly  issued and are fully paid and  non-assessable.  As of the date  hereof,  there are not,  and as of the Closing
    Date there will not be, any (i) options,  warrants,  purchase  rights,  subscription  rights or other contract  rights or  commitments,
    stock  appreciation  rights,  phantom stock or other any rights to purchase any shares of the Red River Stock or any debt or securities
    convertible  into such shares or (ii)  obligations  of the Company,  contractual or  contingent,  to issue any such options,  warrants,
    rights or shares.  As of the date  hereof,  record  ownership  of the Red River Stock is held 100% by the Red River  Shareholders,  and
    each such Shareholder owns of record and  beneficially  the number of shares set forth opposite such  Shareholder's  name in Schedule A
                                                                                                                                 ----------
    attached to this  Agreement.  The Red River  Shareholders  represent  and warrant that as of the Closing Date such Red River Stock will
    be free and clear of all pledges,  liens,  security interests,  encumbrances or other restrictions  (excluding  restrictions imposed on
    the transfer of the Red River Stock under the Securities  Act) and of all voting trusts,  voting  agreements,  proxies and other voting
    restrictions.
    
    3.1.5    Indefeasible.  The Red  River  Shareholders  have good and  indefeasible  title to the  shares  of the Red  River  Stock to be
    transferred  pursuant to the terms  hereof and such shares at the Closing  will be presented  to the  Surviving  Corporation,  free and
    clear of all pledges,  liens,  security  interests,  encumbrances,  equities,  claims or other  restrictions  (other than  restrictions
    imposed under the  Securities  Act),  and such  Shareholders  have full power and authority to consummate  the  transactions  described
    herein.
    
    3.1.6    No Agreements.  There are no agreements  with any person with respect to (i) the sale,  lease,  exchange or other  disposition
    of any of the Company's properties or assets, except in the ordinary course of its business;  or (ii) the sale, pledge,  hypothecation,
    transfer,  assignment or other  disposition  of the  ownership,  direct or indirect,  of any of the shares of the Red River Stock,  the
    operation of which may in the future result in a change in control of the Company.
    
    3.1.7    Financial  Representations.  To be attached  hereto within 15 days from the date hereof as Exhibit 4.1.7 are a Balance  Sheet,
                                                                                                        -------------
    Statement of Income (Loss and Deficit) and Statement of Changes in Financial  Position  (including notes to such financial  statements)
    as of September  30, 1999,  and for the Nine (9) month period then ended  (collectively  the  "Financial  Statements").  The  Financial
    Statements will have been prepared in accordance with generally accepted  accounting  principles applied on a consistent basis,  except
    as disclosed  therein,  and will present fairly the financial position of the Company as of September 30, 1999,  ("Financial  Statement
    Date") and the results of operations for the Nine (9) month period then ended.
    
    3.1.8
    
    
    
    
                               No  Liabilities.  As  of  the  Financial  Statement  Date,  the  Company  had  no  material  liabilities  or
    obligations of any nature (whether  accrued,  absolute,  contingent,  and due or to become due) except as disclosed or reflected in the
    Financial Statements, or as set forth in Exhibit 4.1.8 attached hereto.
                                             -------------
    
    3.1.9    No Change In Financial  Condition.  Except as set forth in Exhibit 4.1.9 attached hereto,  since the Financial Statement Date,
                                                                        -------------
    there has not been,  and neither the Red River  Shareholders  nor the Company  know of (i) any event,  condition or state of facts that
    has resulted or may  reasonably be expected to result in any material  adverse  change in the  financial  condition,  business,  sales,
    income,  properties,  assets or liabilities of the Company from that shown on the Financial  Statements;  or (ii) any material  adverse
    change with respect to any contracts to which the Company is a party or any event,  circumstance,  fact or other  occurrence  which may
    result in any material adverse change to the financial  condition,  business,  sales,  income,  properties or assets of the Company; or
    (iii) any  material  damage,  destruction  or loss to the  properties,  assets or  business of the  Company,  whether or not covered by
    insurance,  as the result of any fire,  explosion,  accident,  casualty,  labor  disturbance or interruption,  requisition or taking of
    property by any  governmental  body or agency,  flood,  embargo,  or act of God or the public  enemy,  or  cessation,  interruption  or
    diminution of operations,  which has materially  and adversely  affected or impaired or which may be reasonably  expected to materially
    or adversely  affect or impair the conduct of the  Company's  operations  or  business;  or (iv) any labor  trouble  other than routine
    grievances  (including  without limitation any negotiation,  or request for negotiation,  for any representation or any labor contract)
    or to the Red River  Shareholders'  and the  Company's  knowledge  any event or condition of any  character  which has  materially  and
    adversely  affected or which may be  reasonably  expected to  materially  and  adversely  affect or impair the conduct of the Company's
    operations or business; or (v) any declaration,  setting aside or payment of any dividend,  or any distribution,  in respect of the Red
    River Stock;  or (vi) any redemption,  purchase or other  acquisition by the Company of any shares of the Red River Stock; or (vii) any
    significant loss of customers of the Company.
    
    3.1.10   Certain Tax Matters.  The Company has, or shall have,  prepared and duly filed (and to the best of its  knowledge  has done so
    accurately and correctly) all federal,  state,  county and local income,  franchise,  sales, use, real property personal  property,  ad
    valorem,  production and severance tax returns and reports  required to be filed as of the date hereof,  and which shall be required to
    be filed on or before the Closing  Date,  with  respect to the Company and has, or shall have duly paid,  withheld or reserved  for all
    taxes,  penalties and other  governmental  charges  required to be paid as of the date hereof that have been assessed or levied against
    or upon it or its properties,  assets, income, franchises,  licenses or sales, including,  without limitations,  federal, state, county
    and local income taxes, gross receipt property taxes franchise, sales, use, real property,  personal property, ad valorem,  production,
    severance and similar taxes and assessments  (based on production of  hydrocarbons or receipt of proceeds  therefrom on the oil and gas
    properties  or other  assets and the business  owned and  operated by the  Company,  or to the extent that they relate to periods on or
    prior to the Financial  Statement  Date are reflected as a liability on the Financial  Statements,  or if not paid, is contesting  such
    amounts in good faith by the  appropriate  proceedings.  All such taxes and  assessment,  which have become due prior to the  Effective
    Time have been or will have been timely and properly  paid.  In the event the Company is  contesting  such  amounts in good faith,  the
    Company has  established  a reserve for  financial  accounting  purposes in  connection  with the business  currently  conducted by the
    Company,  neither the Red River  Shareholders  nor the Company know of any proposal by any taxing  authority  for  additional  taxes or
    assessments  against or upon the Company.  To the best of the  knowledge  of the Red River  Shareholders  and the  Company,  all monies
    required to be withheld by the Company from employees for income taxes,  social security and  unemployment  insurance taxes have, as of
    the date hereof,  been  collected or withheld,  and as of the Closing Date shall have been  collected and withheld,  and either paid to
    the  appropriate  governmental  agencies or set aside in cash for such purpose.  The Company has not entered into any agreement for the
    extension of time or the assessment of any tax or tax delinquency,  nor has the Company received any outstanding or unresolved  notices
    from the Internal  Revenue  Service or any taxing body of any proposed  examination  or of any proposed  deficiency or assessment or of
    any tax returns or tax  liabilities  due and  payable.  The Company  has or will  within ten (10) days of the date  hereof,  deliver to
    Purchaser  an  accurate,  correct and complete  copy of each return or  statement  filed by, on behalf of or including  the Company for
    federal  income tax  purposes or state and local  income or  franchise  tax purposes for the last three (3) tax years of the Company or
    for such period as the Company has been in  existence.  All material  elections  with respect to the taxes  affecting the Company as of
    the date hereof are set forth in Exhibit 4.1.10.  After the date hereof,  no written election  permitted under federal,  state or local
                                     --------------
    income,  property,  franchise  or  other  tax  laws,  ordinances,  codes,  rules or  regulations  will be made by the  Company  without
    Purchaser's  and Merger Sub's express  written  consent.  The provisions of this Section 4.1.10 shall not apply to any federal or state
    income tax returns  that may be due for a short  period as a result of the Merger but rather shall be subject to filing by the existing
    officers of the Company within the time period normally required for any such filings following the Effective Date.
    
    3.1.11   Financial  Disclosure.  The Company has made  available to Purchaser  and Merger Sub, all  information  known to the Red River
    Shareholders  or the Company with respect to (i) accounts,  borrowing  resolutions  and deposit boxes  maintained by the Company at any
    bank or other  financial  institution  and the account  numbers and the names and addresses of all of the persons  authorized to effect
    transactions  in such  accounts  and  pursuant to such  resolutions  and with access to such boxes;  and (ii) the names of all persons,
    firms,  associations,  corporations  or business  organizations  holding  general or special  powers of attorney from the Company and a
    summary of the terms thereof.
    
    3.1.12   Condition  of Tangible  Assets.  To the best of the  knowledge  of the Company and the Red River  Shareholders,  all  material
    tangible  portions of the assets,  and  properties  owned by the Company or in which the Company has a leasehold  interest or a working
    interest,  royalty  interest,  farmout or farmin interest or any other leasehold or mineral  interest of any kind whatsoever in oil and
    gas or mineral properties,  including the well equipment,  pipe and other structures located thereon,  including all real properties or
    leasehold  interests in real property and  structures  thereon,  are in good operating  condition and repair,  subject only to ordinary
    wear and tear in light of their  respective  ages and the respective  uses for which they are currently  used, and that the use of such
    tangible  properties and assets conform and comply in all material  respects with all rules,  regulations  and standards  applicable to
    the Company or its assets or  property,  imposed by  applicable  federal,  state or local laws,  ordinances,  codes,  orders,  rules or
    regulations.
    
    3.1.13   All Assets.  The properties  and assets of the Company as of the date hereof  include (i) all  properties and assets,  whether
    or not reflected on the balance sheet included in the Financial Statements,  including Licenses,  Permits, Leases, Contracts,  customer
    lists,  goodwill and any other tangible or intangible assets disclosed in the Exhibits attached to this Agreement,  and (ii) assets and
    properties  acquired by the Company  after the  Financial  Statement  Date and on or before the date hereof in the  ordinary  course of
    business  or as  disclosed  in the  Exhibits  attached  to this  Agreement,  other than such  properties  and assets as shall have been
    transferred or otherwise disposed of by the Company in the ordinary course of business.
    
    3.1.14   Stock  Transfer  Records and Minute  Books.  The stock  transfer  records and  corporate  minutes books of the Company and its
    subsidiaries  will be furnished to the  Purchaser  and Merger Sub at least ten (10) days prior to the Closing Date and will be complete
    and correct in all respects.  The minutes books will accurately  reflect all meetings,  consents and other actions of the  shareholders
    and Board of Directors of the Company since its incorporation.
    
    3.1.15   Defensible  Title.  Except for Permitted  Encumbrances (as defined  herein),  the Company has good and defensible title to all
    of its assets and  properties,  including fee interests in real property and title to all its other  properties  and assets owned as of
    the date hereof,  free and clear of all mortgages,  liens,  pledges,  charges,  claims (real or asserted) or encumbrances of any nature
    whatsoever.  Title to the oil and gas  interests  included in the  Company's  assets and  properties is not subject to being reduced by
    virtue of any reversionary or back-in  interests or reassignments  or payments  required of the Company;  the oil and gas interests are
    not subject to any joint venture agreements,  farmout agreements,  operating agreements,  oil and or gas sales or processing contracts,
    preferential  rights of purchase,  consents to  assignment,  drilling and or development  obligations  or other burden,  restriction or
    limitation with respect to the ownership interest of the Company therein,  the operation thereof,  or the disposition and processing of
    production  attributable  thereto  which are not  ordinary  and  customary  in the oil and gas  industry,  or which  contain any terms,
    provisions,  conditions or agreements  which are not ordinary and customary in the oil and gas industry or which decrease the Company's
    net revenue  interest or increase the  Company's  working  interest  from the working  interest and net revenue  interests set forth in
    Exhibit 4.1.28.  The Company owns the Working  interest and net revenue  interest shown in Exhibit 4.1.28 in the oil and gas properties
    --------------                                                                             --------------
    in which it has an interest.  (b) Except as set forth in Exhibit  4.1.15 with respect to the oil, gas and other  mineral  leases,  unit
                                                             ---------------
    agreements,  pooling agreements,  communization agreements,  and other documents creating oil, gas and mineral interest included in the
    oil and gas interests,  (a) the Company has fulfilled all requirements for filings,  certificates,  disclosures of parties in interest,
    and other similar  matters  contained in (or otherwise  applicable  thereto by law, rule or regulation)  the Leases or other  documents
    applicable to it and is fully  qualified to own and hold all such Leases or other  interests;  (b) there are no obligations  (excluding
    implied  covenants,  if any) to engage in continuous  development  operations in order to maintain any such Lease or other  interest in
    force and effect for the areas and depths covered  thereby;  (c) there are no provisions  applicable to such Leases or other  documents
    which  increase the royalty share of the lessor  thereunder,  except where such  increase  would not decrease the Company's net revenue
    interest  below  those  shown on Exhibit  4.1.28;  and (d)  subject to any  express or implied  covenants,  upon the  establishment  of
                                     ---------------
    production in commercial  quantities,  the Leases and other  interests are to be in full force and effect over the economic life of the
    property  involved and do not have terms fixed by a certain  number of years.  With respect to tangible  personal  property held by the
    Company under lease,  all such  agreements are valid,  binding and in full force and effect and the Company is not in default under any
    such Lease.  As used in this Agreement with respect to an oil and gas property,  the term "good and defensible  title" shall mean title
    to such oil and gas property which is free and clear of liens and encumbrances  (other than Permitted  Encumbrances) and which entitles
    the Company to a net revenue  interest in such oil and gas property that is no less than the net revenue  interest that is set forth in
    Exhibit  4.1.28 and to a working  interest in such oil and gas property that is no greater than the working  interest shown in Exhibit
    ---------------                                                                                                                -------
    4.1.28 without a corresponding increase in net revenue interest.
    ------
    
    3.1.16   Permitted  Encumbrances.  The following liens, charges and other encumbrances of a similar nature are collectively referred to
    herein as the "Permitted Encumbrances" with respect to the properties and assets of the Company:
    
                                        (i) liens  for  current  state or local  property  taxes not yet due and  payable  or  subject  to
    penalties;  zoning ordinances,  building laws, restrictions and regulations imposed by governmental authorities, if any, none of which
    is materially violated by existing buildings and uses by the Company;
    
                                        (ii) any  assessment for local benefits  levied by any  governmental  authority and not now a lien
    upon all or any portion of such real property;  provided,  however,  neither the Red River  Shareholders  nor the Company know or have
    reason to know of any such assessment;
    
                                        (iii) liens of  carriers,  warehousemen,  mechanics,  laborers,  materialmen,  landlords,  vendors,
    workmen,  and operators  arising by operation of law in the ordinary  course of business or by a written  agreement  existing as of the
    date hereof and necessary or incident to the  exploration,  development,  operation,  and maintenance of oil and natural gas properties
    and related facilities and assets for sums not yet due or being contested in good faith by appropriate  proceedings,  which proceedings
    are  disclosed in Exhibit 4.1.16  attached hereto and which liens Purchaser has approved as Permitted Encumbrances;
                      ---------------
    
                                        (iv) any mortgage,  deeds of trust or other encumbrances on leasehold  properties which the Company
    is  leasing  from a third  party and which is from the owner of the  property.  and does not  adversely  affect the  Company's  working
    interest or net revenue interest in the oil and gas properties;
    
                                        (v) Liens  incurred in the ordinary  course of business in connection  with worker's  compensation,
    unemployment insurance, and other social security legislation (other than ERISA) to the extent such liens are for amounts not yet due;
    
                                        (vi) liens, easements,  rights-of-way,  restrictions,  servitude,  permits, conditions,  covenants,
    exceptions,  reservations,  and other similar encumbrances  incurred in the ordinary course of business or existing on property and not
    materially  impairing the value of the assets of the Company or  interfering  with the ordinary  conduct of the  Company's  business or
    rights to their assets,
    
                                        (vii)  all  rights  to  consent  by,  required  notices  to,  filings  with,  or other  actions  by
    governmental authorities to the extent customarily obtained subsequent to closing,
    
                                        (viii)  farmout,  carried working  interest,  joint  operating,  unitization,  royalty,  overriding
    royalty,  sales,  and similar  agreements  relating to the  exploration  or  development  of, or production  from,  oil and natural gas
    properties  entered into in the ordinary  course of business,  unless such  agreements  decrease the Company's net revenue  interest or
    increase the Company's working interest from the interests set forth in Exhibit 4.1.28 attached hereto,
                                                                            --------------
    
                                       (ix) any defects,  irregularities,  or deficiencies in title to easements,  rights-of-way,  or other
    surface use agreements that do not adversely affect the value of any asset of the Company,
    
                                       (x)  preferential  rights to  purchase  and  third-party  consents  that would not be  activated  or
    triggered by the Merger and the other  transactions  contemplated by this Agreement,  except that any such rights which affect the West
    Hunton Lime Unit shall be Permitted  Encumbrances  if they are listed in Exhibit  4.1.16  attached  hereto and approved by Purchaser as
    Permitted Encumbrances;
    
                                        (xi) liens approved in writing by or on behalf of Purchaser,
    
                                        (xii) any liens,  mortgages or security  interests  disclosed  in the  Financial  Statements  or on
    Exhibit 4.1. 16,
    ----------------
    
                                        (xiii) such imprefections of title, liens,  easements or encumbrances,  if any, as are not material
    in  character,  amount or extent and do not,  severally  or in the  aggregate,  materially  detract  from the value or  materially  and
    adversely  interfere  with the present use of the  property  subject  thereto or affected  thereby or otherwise  materially  impair the
    business and operations of the Company (for purposes of this subsection  only,  "material"  shall mean the foregoing title defects with
    a cumulative value which in the aggregate exceeds $100,000).
    
    3.1.17   Leases and Licenses.  Exhibit  4.1.17  attached  hereto sets forth,  as of the date hereof and which shall set forth as of the
                                   ---------------
    Closing Date, an accurate and complete list of all leases and purchases of real property or leases,  including  without  limitation oil
    and gas leases or mineral interests and agreement  relating thereto,  license  agreements and purchases of personal property  (covering
    property  with a purchase  price as of the date hereof  greater than  $25,000) to which the Company is a party  (whether as  purchaser,
    lessor, lessee, licenser or licensee)  (collectively,  the "Leases and Licenses").  The Company, as purchaser,  lessee or licensee, has
    entered into all such Leases and Licenses  which the Company  reasonably  believes may be necessary for the conduct of the business and
    operation  as now  conducted.  The Company has  furnished to Purchaser  accurate and complete  copies of all such Leases and  Licenses.
    The Company has good and defensible  title to each of the leasehold and other  interests  created by the Leases and Licenses,  free and
    clear of all security  interests,  claims,  liens and encumbrances of any nature,  other than Permitted  Encumbrances.  Each such Lease
    and License is in full force and effect.  Each such Lease and  License  constitutes  the legal,  valid and  binding  obligation  of the
    Company  and,  to the best of the  knowledge  of the  Company  and the Red River  Shareholders,  the other  party or  parties  thereto,
    enforceable  against the Company in  accordance  with its  respective  terms of each such lease or license  except as may be limited by
    bankruptcy,  insolvency,  reorganization,  readjustment  of debt,  moratorium,  general  principles  of equity or other laws of general
    application  related  to or  affecting  the  enforcement  of  creditor's  rights  generally.  Neither  the  Company  nor the Red  River
    Shareholders  have  received  notice or have any reason to know,  of any claimed  material  default  under any such Leases and Licenses
    except as set forth in Exhibit 4.1.17.
                           --------------
    
    3.1.18   Insurance.  Exhibit  4.1.18  attached  hereto sets forth,  as of the date  hereof,  an accurate  and  complete  list and brief
                         ---------------
    description of the terms of all policies of insurance  carried by the Company and  designating  the Company as the insured  thereunder.
    The  description of each policy  consists of a description of the subject  property,  the insurance  coverage,  the deductibles and the
    additional  insureds.  The Company has furnished to the  Purchaser  and Merger Sub an accurate and complete copy of all such  insurance
    policies.  Except as set forth in Exhibit  4.1.18,  to the best of the  knowledge of the Red River  Shareholders  and the  Company,  no
                                      ---------------
    insurance  carrier has refused any  application  for insurance by the Company or any other person on behalf of the Company with respect
    to any of its properties or assets or any of its Leases and Licenses.
    
    3.1.19   Intellectual  Property  Rights.  Exhibit 4.1.19 attached  hereto sets forth,  as of the date hereof,  an accurate and complete
                                              --------------
    list of all letters patent, patent applications,  trademarks,  service marks, trade names, brands, logos,  copyrights and licenses both
    domestic  and foreign,  and rights with respect to the  foregoing,  whether or not  registered  or  registrable  with any  governmental
    authority,  now owned or used by the Company.  Neither the Red River  Shareholders nor the Company have received  notice,  or otherwise
    have any reason to know, of any claimed or  threatened  infringement  of the rights of others with respect to any patents,  trademarks,
    service  marks,  trade names,  brands,  logos,  copyrights  and licenses  used or owned by the Company,  the loss of which would have a
    material adverse effect upon the business, operations, assets or financial condition of the Company.
    
    3.1.20   No Litigation.  Except as set forth in Exhibit  4.1.20  attached  hereto,  there are no existing or pending or, to the best of
                                                    ---------------
    the  knowledge of the Company and the Red River  Shareholders,  threatened  suits,  actions,  claims,  or  litigation,  administrative,
    arbitration or other proceedings or governmental  investigations or inquiries to which the Company or the Red River  Shareholders are a
    party or to which any of the properties or assets thereof is subject.
    
    3.1.21   No  Violation  of Laws or  Regulations.  To the best  knowledge  of the  Company and Red River  Shareholders,  the Company has
    materially complied with, and is not in any material respect in default under or in violation of, any laws,  ordinances,  requirements,
    regulations  or orders  applicable to its  businesses  and  properties,  nor is the Company in violation of or in default of any order,
    writ, injunction,  judgment or decree of any court, arbitrator, or federal, state or local department official, commission,  authority,
    board,  bureau,  agency or other  instrumentality  issued or pending against the Company which might adversely  affect the Company's or
    the Red River  Shareholders'  ability to execute,  deliver and perform their  obligations  under this  Agreement or to  consummate  the
    transactions  contemplated  hereby or which challenges or seeks to prevent,  enjoin,  alter or materially delay any such  transactions.
    Neither the Red River  Shareholders nor the Company have received notice,  or otherwise have any reason to know, of any claimed default
    or violation with respect to any of the foregoing.  There have been no illegal payments,  kickbacks,  bribes or political contributions
    made by the Company to any person,  entity or  governmental or regulatory body in the United States or any foreign country or political
    subdivision.
    
    3.1.22   Approvals.  All  consents  necessary  or required to be obtained  by the  Company  for the  consummation  of the  transactions
    contemplated  hereby are set forth in Exhibit 4.1.22 attached  hereto.  The Company will have obtained,  on or before the Closing Date,
                                          --------------
    all such consents,  approvals and  authorizations  of all  designations,  declarations and notices required to be obtained or given, as
    the case may be,  pursuant to the Certificate of  Incorporation  or the Bylaws of the Company or under or in accordance with any Lease,
    License, Permit, Contract,  agreement,  indenture or other instrument to which the Company is a party or by which the Company or any of
    its properties or assets are bound in connection with the execution,  delivery and  performance of this Agreement and the  consummation
    of each  transaction  referred to in this Agreement.  Subject to obtaining the approvals set forth in Exhibit 4.1.22,  attached hereto,
                                                                                                          --------------
    neither the execution,  delivery or performance of this Agreement nor the conclusion of any transaction  contemplated by this Agreement
    will result in any  violation  of, be in conflict  with or  constitute  a default  under any term or provision  of the  Certificate  of
    Incorporation or the Bylaws of the Company or any such Lease,  License,  Permit,  Contract,  indenture or other agreement or instrument
    or the rules and regulations of any regulatory body.
    
    3.1.23   Labor  Agreements.  There are (i) no  collective  bargaining  agreements  between  the  Company  and any labor  union or other
    representative of employees, including local agreements.  amendments,  supplements, letters and memoranda of understanding of all kinds
    and (ii) no employment or consulting contracts which are not terminable at will without penalty to which the Company is a party.
    
    3.1.24   Contracts.  Exhibit  4.1.24  attached  hereto sets  forth,  as of the date hereof and as of the  Closing  Date,  accurate  and
                         ---------------
    complete lists of the following:
    
    (i)      except for the Leases and Licenses,  all agreements,  contracts,  arrangements,  commitments,  understandings  or obligations,
    oral or written,  of the Company  which are to be performed  in whole or in part on or after the date hereof and which  require or may
    require  the payment by the  Company in an amount,  or under  which the  Company is  required  or may be required to provide  goods or
    services of a value, greater than twenty-five thousand dollars ($25,000) during any period of twelve (12) consecutive months;
    
    (ii)     any  agreement to which the Company is a party or by which its  properties or assets are bound that limits the freedom of such
    corporation to compete in any line of business or with any person; and
    
    (iii)    all other agreements, contracts,  arrangements,  commitments,  understandings or obligations, oral or written (other than oral
    contracts  of  employment),  between  the  Company on the one part and one or more or all of the Red River  Shareholders  or any other
    officer or director of the Company on the other part, or in which any of such persons or entities has any financial  interest,  direct
    or indirect (including without limitation any agreements affecting the Company's properties or assets and agreements to make loans).
    
             The Red River  Shareholders  have  furnished to the extent  requested by Purchaser or Merger Sub or have made  available  for
    inspection  by Purchaser  and Merger Sub a copy of each  agreement,  contract,  arrangement,  commitment  or  obligation  set forth on
    Exhibit 4.1.24, attached hereto. Collectively the contracts,  agreements,  arrangements,  commitments or obligations set forth in this
    --------------
    Section and listed in Exhibit 4.1.24,  attached hereto,  are referred to throughout this Agreement as the  "Contracts."  Except as set
                          --------------
    forth in  Exhibit  4.1.24,  each  such  Contract  is in full  force  and  effect  and to the best of the  Company's  and the Red River
              ------------------
    Shareholders'  knowledge the Company has performed in all material  respects all of the obligations under each Contract required to be
    performed  by it as of the date hereof and as of the Closing  Date and no such  Contract  is in default,  nor has any event  occurred,
    which with the passage of time or giving of notice or both, will result in the occurrence of a default under any such Contract.
    
    3.1.25   Employees.  The Company is not a party to any agreement,  contract,  arrangement,  plan, commitment or understanding which has
    resulted or would result,  upon the consummation of the transactions  contemplated under this Agreement or otherwise,  separately or in
    the aggregate,  in the payment of any "excess  parachute  payment" within the meaning of Codess.280G nor is the Company obligated to pay
    any  severance  arrangements  with any  current or former  employees  of the  Company or any of its  subsidiaries.  Attached  hereto as
    Exhibit 4.1.25 is a true and complete list of all employees of the Company  compensated  by the Company.  There are no employees of the
    --------------
    Company who have  employment  contracts or employee  benefit rights which cannot be terminated upon  reasonable  notice,  except to the
    extent employment benefit rights must be continued as required by state and federal law.
    
    3.1.26   Environmental  Matters.  To the best  knowledge of the Company and the Red River  Shareholders,  the Company has duly complied
    with,  and the  operation  of its  business,  equipment  and other  assets in the  facilities  owned or leased by the  Company  and its
    subsidiaries,  if any, are in compliance  with the  provisions of all applicable  federal,  state and local  environmental,  health and
    safety  laws,  statutes,  ordinances,  rules and  regulations  of any  governmental  or quasi  governmental  authority  relating to (i)
    omissions,  (ii) discharges,  release or seepage to surface water or ground water, (iii) solid or liquid waste disposal,  (iv) the use,
    storage,  generation,  handling,  transport,  discharge,  release or disposal of toxic or hazardous  substances or waste, or (vi) other
    environmental,  health or safety matters,  including,  without limitation,  the Comprehensive  Environmental  Response Compensation and
    Liability Act of 1980, as amended by the Superfund  Amendments and Authorization  Act of 1986; the Occupational  Safety and Health Act,
    as amended;  the Resource  Conservation and Recovery Act of 1976; the Federal Water Pollution Control Act of 1970, as amended; the Safe
    Drinking Water Act of 1974; the Toxic Substances  Control Act of 1976; the Emergency  Planning and Community Right to Know Act of 1986,
    as amended;  and the Clean Air Act, as amended;  the Federal Water Pollution Control Act, as amended; the Oil Pollution Act of 1990, as
    amended;  the Rivers and Harbors Act of 1899;  the Hazardous  and Solid Waste  Amendments  Act of 1984,  as amended;  and the Hazardous
    Materials  Transportation  Act, as amended  (collectively  "Environmental  and Health Laws").  To the best knowledge of the Company and
    the Red River  Shareholders,  there are no investigations,  administrative  proceedings,  judicial actions,  orders,  claims or notices
    which are pending,  anticipated or threatened  against the Company,  relating to violations of the  Environmental  and Health Laws. The
    Company has not  received a notice of, and does not know or have any reason to suspect,  any facts which might  constitute  a violation
    of any  Environmental or Health Laws which relate to the use,  ownership or occupancy of any property or facilities used by the Company
    in  connection  with the  operation  of its  business or any activity of the  Company's  business  which would result in a violation or
    threatened violation of any Environmental or Health Laws.
    
    3.1.27   Stock  Representations.  Subject to the rights of the Red River  Shareholders  under Section 9.15, the Red River  Shareholders
    (i) intend to acquire the shares of the Beta Common Stock  pursuant to Section 2.1 hereof solely for the purpose of investment  and not
    for the resale and distribution  thereof,  and has no present  intention to offer,  sell, assign or otherwise dispose of the same; (ii)
    are either  accredited  investors within the meaning of Rule 501(a) of Regulation D as promulgated under the Securities Act of 1933, as
    amended  ("Securities Act") or sophisticated  investors within the meaning of the judicial and regulatory  rulings and  interpretations
    of Section 4(2) of the Securities Act and Rule  506(b)(2)(ii)  of Regulation D as promulgated  under the Securities  Act; (iii) will be
    required in  connection  with any reoffer or resale of the Beta Common  Stock to (a) comply with Rule 144 and, in the case of those Red
    River  Shareholders who are Affiliates of the Company,  with Rule 145(d),  as shall be applicable,  (b) comply with any other exemption
    from  registration  under the  Securities  Act,  or (c) offer and sell their  shares of Beta  Common  Stock  pursuant  to an  effective
    registration statement under the Securities Act; (iv) agree that they will not offer, sell.,  transfer,  assign or otherwise dispose of
    ("disposition")  any such shares of Beta Common  Stock  unless any such  disposition  shall comply with either Rule 145 or Rule 144, as
    the case may be, of the Securities Act or be registered or be exempt from  registration  under the Securities Act and shall comply with
    Rule 144, all applicable  federal and state  securities laws, and (v) agree and acknowledge  that the stock  certificates  representing
    the shares of Beta Common  Stock  which will be  acquired by the Red River  Shareholders  under this  Agreement  will  contain a legend
    restricting the  transferability  of the shares of Beta Common Stock as provided herein and that stop order instructions may be imposed
    by the Purchaser's transfer agent restricting the transferability of such shares.
    
    3.1.28   Licenses, Facilities.
    
    (i)      All licenses and  authorizations  material to the  operation of the Company's  oil and gas wells and other  facilities  owned,
    operated or leased by the Company,  such oil and gas wells and other facilities  being identified at Exhibit 4.1.28,  attached hereto,
                                                                                                         --------------
    and/or to the conduct of the Company's  business are listed at Exhibit 4.1.28  attached  hereto.  The Company is operating the oil and
                                                                   --------------
    gas wells and other facilities  identified in full compliance with the authorizations  identified;  neither the Red River Shareholders
    nor the Company have any knowledge of any matters which might result in the supervision or revocation of such  authorizations,  or the
    issuance of any citation or  forfeiture to the Company.  To the best of the  knowledge of the Company and the Red River  Shareholders,
    there are no  unsatisfied  citations  or notices of  apparent  liability  issued or  investigations  ongoing,  by any federal or state
    government agency,  commission or other authority with respect to the oil and as wells and other facilities owned,  operated or leased
    by the Company or their operation.
    
    (ii)     The Company owns all of the equipment  necessary or useful in the  operation of the oil and gas wells and other  facilities in
    accordance  with their licenses and with the Company  obligations  under any agreements  now in effect (the  "Equipment").  All of the
    Equipment is in good repair and operable  condition,  ordinary wear and tear  excepted,  and have been, and will be, prior to Closing,
    operated in accordance  with the  authorizations  for the oil and gas wells and other  facilities and the rules and regulations of the
    federal  and  state  regulatory  agency,  commission  or other  authority  having  jurisdiction  over such oil and gas wells and other
    facilities.
    
    (iii)    Purchaser,  Merger Sub, the Red River  Shareholders  and the Company will cooperate in seeking  authorizations  or consents to
    the  transfer  of  control  to the  Surviving  Corporation,  and each  party  will  bear its  expenses  incurred  in  requesting  such
    authorizations  or consents required to be obtained under the provisions of this Agreement by such party.  Purchaser,  Merger Sub, the
    Red River  Shareholders  and the Company shall cooperate fully in responding  promptly to any inquiries or objections  related to such
    requests for authorizations or consents.
    
    3.1.29   Accounts  Receivable.  All of the  accounts  receivable  of the Company as disclosed in the  Financial  Statements  constitute
    valid  receivables  deemed  collectible,  have been incurred in the ordinary course of business  consistent with past practices and, to
    the Company's and the Red River  Shareholders'  knowledge are collectible in the ordinary course of the Company's  business,  except to
    the extent of the reserve  for bad debts or doubtful  accounts as set forth in the  Financial  Statements  attached  hereto as Exhibit
                                                                                                                                   -------
    4.1.7, and are not subject to any setoffs or  counterclaims.  To the knowledge of the Company and the Red River  Shareholders,  no part
    of such accounts  receivable is contingent upon the  performance by the Company of any  obligation,  and no agreements for deduction or
    discounts have been made with respect to any part of such receivables.
    
    3.1.30   Payables.  The list of itemized  accounts  payable of the  Company as shown on Exhibit  4.1.30 as of the  Financial  Statement
                                                                                            ---------------
    Date attached  hereto  represent a complete list of all of the Company's  accounts  payable to its creditors as of such date,  are true
    and  correct  and are not  currently  in default as of the date hereof and as of the  Closing  Date.  The  Company  shall not incur any
    additional  accounts  payable  between the date  hereof and the  Closing  Date other than in the  ordinary  course of business  without
    Purchaser's express written consent.
    
    3.1.31   Permits.  To the best  knowledge  of the  Company  and the Red River  Shareholders,  the Company  has  obtained  all  permits,
    licenses and any other approvals or authorizations  (collectively  "Permits") in connection with the ownership,  operation,  or leasing
    of the oil and gas wells and  facilities  in which the Company has an interest and the drilling and  completion,  or proposed  drilling
    and completion,  of oil and gas wells and the extraction,  removal,  transportation and gathering of oil and gas under any existing oil
    and gas leases or other Leases,  Licenses or Contracts  relating to the operation of its oil and gas properties or leasehold  interests
    which are  presently  being  operated or which are  currently  in effect.  All such Permits are  presently  valid and in full force and
    effect and no  revocation,  cancellation,  or withdrawal  thereof has been effective or to the best of the knowledge of the Company and
    the Red River  Shareholders,  threatened.  Except as disclosed  herein,  the execution,  delivery and performance of this Agreement and
    the consummation of the transactions contemplated hereby will not result in the termination of, or change in, any such Permits.
    
    3.1.32
    
    
    
    
                               Employee Benefit Matters.
    
    (i)      Employee  Salaries and Benefits.  Exhibit 4.1.32  consists of a true and complete list of all of the salaries of all employees
                                               --------------
    of the Company and a true and complete list of the plans,  programs and arrangements  providing profit sharing,  retirement,  pension,
    savings,  thrift, deferred compensation,  stock options, stock purchases,  group insurance,  accident,  sickness,  medical, dental and
    disability benefits, and all vacation pay, severance pay, incentive  compensation,  consulting agreements,  bonuses and other employee
    benefits or fringe  benefits  maintained  currently or at any time in the past three (3) years by the Company or with respect to which
    contributions  are made or have been made at any time in the past six (6)  years by the  Company  (including  health  insurance,  life
    insurance and other benefit plans  maintained for retirees)  whether or not such plans,  programs and arrangements  consist  "employee
    benefit  plans"  within the meaning of Section 3(3) of the Employees  Retirement  Income  Security Act of 1974, as amended  ("ERISA"),
    whether or not such plans, programs and arrangements are in the nature of formal or informal  understandings,  and whether or not such
    plans,  programs and arrangements are pursuant to any collective  bargaining  arrangements.  Such plans, programs and arrangements are
    collectively referred to herein as "Benefit Plans".
    
    (ii)     Compliance  with ERISA.  To the best  knowledge  of the  Company  and the Red River  Shareholders,  each  Benefit  Plan of the
    Company which is covered by ERISA complies in all material  respects and has been  administered in all material respects in accordance
    with the applicable  provisions of ERISA and the Code, including,  without limitations,  the satisfaction of all applicable recording,
    disclosure,  fiduciary and tax qualification  requirements  under ERISA and the Code. The Company has filed or caused to be filed with
    the Internal  Revenue  Service annual reports on form 5500 or 5500C or 5500R,  as applicable,  for each Benefit Plan for all years and
    periods for which such reports were  required.  To the best  knowledge of the Company and the Red River  Shareholders,  all statements
    and disclosures made on the documents or forms filed or distributed pursuant to the applicable  reporting and disclosure  requirements
    under ERISA and the Code have been true and complete in all material  respects and have been filed or distributed  timely.  No Benefit
    Plan has incurred any excise tax liability.
    
    (iii)    Funding.  The Company has made all  payments  and  contributions  to all  Benefit  Plans on a timely  basis as required by the
    terms of each such Plan,  ERISA and the Code.  All such  payments  and  contributions  have been  deducted  fully by the  Company  for
    federal income tax purposes.  Such  deductions have not been  challenged or disallowed by any  governmental  authority and the Company
    has no reason to believe that such  deductions  are not properly  allowable.  The Company has funded or will fund each Benefit Plan in
    accordance  with the terms of each Benefit Plan and,  with respect to the current plan year for benefits  accrued  through the Closing
    Date,  including the payment of applicable  premiums on any insurance  contract  funding a Benefit Plan for coverage  provided through
    the date hereof.
    
    (iv)     Prohibited  Transactions.  To the best knowledge of the Company and the Red River  Shareholders,  no "prohibited  transaction"
    as defined inss.406 of ERISA orss.4975 of the Code,  has  occurred  with  respect to any  Benefit  Plan other than any such  transaction
    which is exempt  underss.408 of ERISA orss.4975(d) of the Code.  No fiduciary  violations,  as defined inss.404 of ERISA,  have  occurred
    with  respect to which the Company  could have any present or future  liability  or  obligations.  Each Benefit Plan is, and has been,
    operated and administered in accordance with the appropriate written plan documents.
    
    (v)      Determination  Letters.  The Internal  Revenue  Service has issued to the Company  letters  determining  that any Benefit Plan
    operated by the Company is qualified  underss.401(a) and related  sections of the Code to the extent  applicable  and the related trust
    of such  Benefit  Plans  operated  as  qualified  plans are exempt  from  federal  income tax underss.501(a) of the Code.  To the best
    knowledge  of the Company and the Red River  Shareholders,  there have been no  occurrences  since the date of any such  determination
    letter which have adversely affected or which could adversely affect such qualification.
    
    (vi)     Medical  Plans.  Each  Benefit  Plan that  provides  medical and related  benefits has been  operated in  compliance  with all
    requirements ofss.ss.601 through 608 of ERISA and either (i)ss.ss.162(i)(2) and (k) of the Code and the regulations  promulgated  thereunder
    (prior to 1989) or (ii)ss.4980(B) of the Code and the regulations  promulgated  thereunder (after 1988) relating to the continuation of
    coverage under certain  circumstances  in which coverage could  otherwise  cease.  Exhibit 4.1.  32(vi)  attached hereto is a true and
                                                                                       --------------------
    complete list of all former employees of the Company and their respective  beneficiaries  who, as of the date hereof, are receiving or
    who are eligible to elect to receive benefits pursuant to such plans and the provisions of ERISA and the Code.
    
    (vii)    Post Retirement  Benefits.  No Plan,  program or arrangement  maintained by the Company provides for  post-retirement  medical
    benefits,  post-retirement  death  benefits  or other  post-retirement  welfare  benefits,  except to the  extent of the  continuation
    coverage rules as provided under the provisions ofss.4980B of the Code andss.ss.601 through 608 of ERISA.
    
    (viii)   Communications.  All  communications  with respect to each Benefit Plan by any person having the  requisite  authority to make
    such  communications  reflect and always have reflected  accurately the plan documents and operations of each such Benefit Plan. There
    have been no written statements or communications,  and to the best knowledge of the Company and the Red River  Shareholders,  no oral
    statements or  communications  made to any employee or former  employee of the Company in any form by any person  (including,  without
    limitation,  any officer,  director or any other  employee of the Company  having the  requisite  power to do so) which provide for or
    could be construed as a contract or promise by the Company to provide for any pension,  welfare or other  insurance  type  benefits to
    any such employee or former  employee,  whether  before or after  retirement,  other than  benefits  under the Benefit Plans listed in
    Exhibit 4.1.32 attached hereto.
    --------------
    
    (ix)     Severance.  The  Company  has no  severance  arrangements  with any  current or former  employee  of the  Company  and neither
    Purchaser  nor Merger Sub shall have any  liability  for  severance  payments to  employees  of the Company  who  voluntarily  incur a
    separation from service prior to and including the Closing Date or as a result of the  consummation of the  transactions  contemplated
    by this Agreement.
    
    3.1.33   Directors and  Officers.  Exhibit  4.1.33  attached  hereto is a correct and complete  list as of the date hereof  showing the
                                       -----------------
    names of each of the Officers and Directors of the Company, each of whom has been duly elected or appointed.
    
    3.1.34   No Subsidiary.  Except as set forth in Exhibit 4.1.34,  the Company does not have any  subsidiaries and does not own shares of
                                                    --------------
    common  stock or capital  stock in any other  corporation  or a  participating  interest or other  interest  in any  limited  liability
    company, partnership, joint venture, strategic alliance or any other entity, association or business arrangement.
    
    3.1.35   Sale of  Production.  Except  as set  forth in  Exhibit  4.1.35,  no  hydrocarbons  produced  from the  Company's  oil and gas
                                                             ---------------
    properties are subject to a sales contract (other than a contract or division order  terminable upon no more than 30 days notice),  and
    no person  has any call  upon,  option to  purchase  or similar  rights  with  respect to  production  from the  Company's  oil and gas
    properties.  The Company is receiving  proceeds from the sale of production  from the properties in a timely  manner,  and the proceeds
    payable to Company are not being held in suspense by any production purchaser or operator and are not subject to refund.
    
    3.1.36   Prepayments and  Imbalances.  The Company is not obligated by virtue of a production  payment,  prepayment  arrangement  under
    any contract  containing a "take or pay",  advance  payment or similar  provision,  gas  balancing  agreement or other  arrangement  to
    deliver hydrocarbons at some time after the Effective Time, without then or thereafter receiving full payment therefor.
    
    3.1.37   Demands for Release.  The Company has not received any  currently  pending  demands for release  regarding  any portion of any
    oil and gas leases or demands for reconveyance of any interest in any of the oil and gas properties.
    
    3.1.38   Operating  Agreements.  With  respect  to any  and  all  operating  agreements  affecting  any of the  Company's  oil  and gas
    properties:  (1) there are no outstanding  calls or payments in excess of $25,000 under  authorities for expenditures for payment which
    are due from Company and have not been paid;  (2) there are no  operations  with respect to which  either  Company is a  non-consenting
    party or is subject to a prior  non-consent  election  the effect of which is not  reflected  in the working  interest  and net revenue
    interest of the Company reflected in Exhibit 4.1.28.
    
    3.1.39   Plugging  Operations.  There are no pending  governmental  or other  requests  or demands to plug,  replug or abandon any well
    which have not been satisfied.
    
    3.1.40   Surface  Rights.  The Company has obtained the surface  leases and  rights-of-way  necessary to conduct its  operations on the
    Company's oil and gas properties in the manner in which they have been conducted prior to the Effective Time.
    
    3.1.41   Suspense  Accounts.  Suspense  accounts for  production  proceeds  payable to third parties that are maintained by Company are
    adequate for the purposes for which they were created,  and will contain  sufficient monies at the Closing Date to satisfy  obligations
    to such third parties for the payment of their proceeds of production as of the Closing Date.
    
    3.1.42   ""Full Disclosure".  None of the written  information  provided by the Company and the Red River Shareholders to Purchaser and
    Merger Sub in connection with the negotiation of this Agreement  contains any  intentionally  misleading  statement of a material fact.
    No  representation  or warranty of the Red River  Shareholders set forth in this Agreement  contains any untrue statement of a material
    fact or omits to state a material fact necessary in order to make the statements contained herein not misleading.
    
    3.2      Representations  and Warranties of Purchaser and Merger Sub.  Purchaser and Merger Sub,  jointly and  severally,  represent to
    the Company and the Red River Shareholders as follows:
    
    3.2.1    Good Standing.  Purchaser and Merger Sub are both  corporations  duly organized,  validly  existing and in good standing under
    the laws of Nevada and Oklahoma,  respectively,  with full corporate power and authority to own, operate and lease their properties and
    to carry on their  respective  businesses as now being  conducted.  Purchaser  and Merger Sub are both  qualified to do business and in
    good  standing in all  jurisdictions  where their  properties,  assets and  operations  so require.  Purchaser  and Merger Sub have all
    requisite  power and authority to enter into this  Agreement and perform their  obligations  under this  Agreement.  A true and correct
    copy of Merger  Sub's  Articles of  Incorporation  and all  amendments  thereto and  restatements  thereof,  certified  by the Oklahoma
    Secretary  of State and Merger  Sub's Bylaws and all  amendments  thereof and  restatements  thereto,  certified as true,  complete and
    accurate by the Secretary of Merger Sub are set forth in Exhibit 4.2.1 attached hereto.
                                                             -------------
    
    3.2.2    Binding  Agreement.  This Agreement has been executed and delivered by each of Purchaser and Merger Sub, and  constitutes  the
    valid and binding  obligation of Purchaser and Merger Sub enforceable in accordance with its terms,  except as such  enforcement may be
    limited by  applicable  bankruptcy,  insolvency,  moratorium,  general  principles  of equity or similar laws  affecting  the rights of
    creditors  generally.  This  Agreement  and the  performance  of this  Agreement  by Purchaser  and Merger Sub will not conflict  with,
    breach,  violate or be in  contravention  of or result in a default  under  Purchaser's  or Merger  Sub's  Articles or  Certificate  of
    Incorporation,  By-laws or any other organizational or governing  instrument of Purchaser or Merger Sub, or of any agreement,  mortgage
    or other  instrument to which either  Purchaser or Merger Sub is a party or by which any of its assets or property is bound or affected
    or, to the best of Purchaser's knowledge, any law, rule, license,  regulation,  judgment, decree or order of any court, agency or other
    authority  which has  jurisdiction  over the  business,  properties,  assets and  activities  of Purchaser or Merger Sub. All corporate
    action  necessary for the approval  and/or  ratification  of this  Agreement has been taken,  or in the case of the  submission of this
    Agreement for approval by Purchaser's  shareholders  in accordance  with  Purchaser's  Bylaws will have been taken on or before Closing
    Date.
    
    3.2.3    Litigation.  There are no pending or to the best of  Purchaser's  and  Merger  Sub's  knowledge,  threatened  suits,  actions,
    inquiries,  claims,  arbitrations,  administrative  or legal or other  proceedings or  governmental  investigations  or to which either
    Purchaser or Merger Sub is a party or to which any of its properties or assets thereof is subject.
    
    3.2.4    No Violation of Laws or Regulations.  To the best knowledge of the Purchaser,  Purchaser has materially  complied with, and is
    not in any material respect in default under or in violation of, any laws, ordinances.  requirements,  regulations or orders applicable
    to its businesses and properties,  nor is Purchaser in violation of or in default of any order,  writ,  injunction,  judgment or decree
    of any court,  arbitrator,  or federal,  state or local department official,  commission,  authority,  board,  bureau,  agency or other
    instrumentality  issued or pending against the Purchaser which might adversely affect the Purchaser's  ability to execute,  deliver and
    perform its obligations  under this Agreement or to consummate the  transactions  contemplated  hereby or which  challenges or seeks to
    prevent,  enjoin,  alter or materially delay any such  transactions.  Purchaser has not received notice, or otherwise has any reason to
    know,  of any claimed  default or  violation  with respect to any of the  foregoing.  There have been no illegal  payments,  kickbacks,
    bribes or political  contributions made by the Purchaser to any person,  entity or governmental or regulatory body in the United States
    or any foreign country or political subdivision.
    
    3.2.5    Current  Filings  With SEC.  Purchaser  has filed all Annual  Reports on Form 10-K,  Quarterly  Reports on Form 10-Q and other
    applications and reports  required to be filed by Purchaser with the Commission  under the Securities  Exchange Act of 1934, as amended
    ("Exchange  Act").  The  Company  and the Red River  Shareholders  have  access  under  the EDGAR  system  and have  reviewed  (i) each
    registration  statement,  report on Form 8-K, proxy statement or information statement prepared by it since December 1, 1998, and (ii)
    Purchaser's  Quarterly  Reports on Form 10-Q for the quarterly  periods  ended June 30, and  September 30, each in the form  (including
    exhibits)  filed with the Commission  (collectively,  the "Purchaser SEC Reports").  As of their  respective  dates,  the Purchaser SEC
    Reports did not contain any untrue  statement  of a material  fact or omit to state a material  fact  required to be stated  therein or
    necessary to make the statements  made therein,  in light of the  circumstances  in which they were made, not  misleading.  Each of the
    consolidated  balance sheets  included in the Purchaser SEC Reports  (including the related notes and  schedules)  fairly  presents the
    consolidated  financial  position of Purchaser and its Subsidiaries as of its date and each of the  consolidated  statements of income,
    of  stockholders'  equity and of cash flows  included in or  incorporated  by reference  into the Purchaser SEC Reports  (including any
    related notes and schedules)  fairly  presents the results of  operations,  stockholders'  equity and cash flows,  of Purchaser and its
    Subsidiaries for the periods set forth therein  (subject,  in the case of unaudited  statements,  to normal year-end audit  adjustments
    which will not be material to Purchaser and its  subsidiaries  taken as a whole in amount or effect),  in each case in accordance  with
    generally  accepted  accounting  principles  consistently  applied during the periods involved,  except as may be noted therein.  Other
    than the  Purchaser  SEC  Reports,  Purchaser  has not filed any other  definitive  reports or  statements  with the  Commission  since
    January 1, 1999.
    
    3.2.6    Purchaser's  Stock.  The only  authorized  capital  stock of Purchaser is fifty million  (50,000,000)  shares of its $.001 par
    value  voting  common  stock,  which is the Beta  Common  Stock.  The  number of shares  of Beta  Common  Stock  which are  issued  and
    outstanding  as of the date hereof is as set forth in Exhibit 4.2.6 attached  hereto.  All  outstanding  shares of capital stock of the
                                                          -------------
    Purchaser have been duly  authorized  and validly issued and are fully paid and  nonassessable.  Except as  specifically  stated in the
    SEC Reports and Exhibit 4.2.6 attached hereto,  as of the date of this Agreement,  there are outstanding (a) no shares of capital stock
                    ------- -----
    or other voting  securities of Purchaser,  (b) no securities of Purchaser  convertible into or exchangeable for shares of capital stock
    or voting  securities  of  Purchaser,  and (c) no options,  warrants or other rights to acquire from  Purchaser,  and no  preemptive or
    similar  rights,  subscription  or other rights,  convertible  securities,  agreements,  arrangements  or commitments of any character,
    relating to the capital stock of Purchaser,  obligating  Purchaser to issue,  transfer or sell, any capital stock, voting securities or
    securities  convertible  into or  exchangeable  for capital stock or voting  securities of Purchaser or obligating  Purchaser to grant,
    extend  or enter  into any such  option,  warrant,  subscription  or other  right,  convertible  security,  agreement,  arrangement  or
    commitment  (the items in clauses  4.2.6(a),  4.2.6(b) and 4.2.6(c) being  referred to  collectively  as the  "Purchaser  Securities").
                                                                                                                   ---------------------
    There are no outstanding  obligations of Purchaser to repurchase,  redeem or otherwise acquire any Purchaser Securities.  Upon issuance
    of the 2,250,000  shares of Beta Common Stock to the Red River  Shareholders,  such shares of Beta Common Stock will be validly issued,
    fully paid and nonassessable.  The Beta Common Stock is currently listed on the Nasdaq Small Cap Market.
    
    3.2.7    Year 2000 Compliance.The Purchaser will not suffer a material adverse effect attributable to a lack of Year 2000 Compliance
    in any system, process or equipment owned or utilized by the Purchaser, or any other aspect of its business and operations, or any
    system, process or equipment of any of its material customers, suppliers or vendors.
    
    3.2.8    Vote Required.The affirmative vote of the holders of a majority of the outstanding shares of Beta Common Stock is the only
    vote of the holders of any class or series of Purchaser Securities or other voting securities necessary to approve this Agreement,
    the Merger and the transactions contemplated hereby.
    
    4.       Activities Prior to the Closing Date
             ------------------------------------
    
    4.1      Operation of Company's  Business.  The Red River  Shareholders and the Company (for purposes of this Section 5, all references
    to the  "Company"  shall include each of the  Company's  subsidiaries,  if any) hereby agree that from and after the date hereof to the
    Closing Date,  except as otherwise  contemplated  by this  Agreement,  the Company  shall  conduct its business  solely in the ordinary
    course consistent with past practices, and the Company shall, and the Red River Shareholders shall cause the Company to:
    
    4.1.1    Organizational  Documents.  Not amend its  Certificate of  Incorporation  or Charter or Bylaws,  except as may be necessary to
    carry out this Agreement or as required by law;
    
    4.1.2    Corporate Name.  Not change its corporate name or permit the use thereof by any other corporation, person or entity;
    
    4.1.3    Compensation.  Not pay or agree to pay any employee,  officer,  or director,  without the consent of Purchaser and Merger Sub,
    compensation which is in excess of the current compensation level of each employee,  officer or director,  except for standard periodic
    increases to non-management employees consistent with past practices in terms of timing and amount;
    
    4.1.4    Management.  Not make any changes in management without the prior written consent of Purchaser and Merger Sub;
    
    4.1.5    Reorganizations  or Other Related  Transactions.  Not merge or consolidate with any other  corporation,  or acquire,  agree to
    acquire or be acquired by any corporation,  association,  partnership,  joint venture or other entity without the prior written consent
    of Purchaser and Merger Sub;
    
    4.1.6    Disposition  or  Abandonment  of Assets.  Not sell,  transfer or otherwise  dispose of any of its  properties or assets or its
    interests  in oil and gas  properties  or other  mineral  properties  nor  abandon  any of its oil and gas  wells,  Equipment  or other
    facilities without the prior written consent of Purchaser and Merger Sub, except in the ordinary course of business;
    
    4.1.7    Indebtedness.  Not  create,  incur,  assume or  guarantee  any  indebtedness  for money  borrowed  except  for trade and other
    indebtedness  incurred in the  ordinary  course of  business,  unless the Company  first  advises  Purchaser  and  receives its consent
    thereto.
    
    4.1.8    Encumbrances.  Not  create  or  suffer  to exist  any  Encumbrance  on any of its  properties  or  assets,  including  without
    limitation its interests in oil and gas properties or other mineral  properties,  equipment or other  facilities,  except for Permitted
    Encumbrances and those in existence on the date hereof;
    
    4.1.9    Increase of  Indebtedness.  Not increase the amount of any  indebtedness  outstanding  under any loan  agreement,  mortgage or
    borrowing  arrangement  in existence on the date hereof,  unless the Company first advises  Purchaser and Merger Sub and receives their
    consent  thereto except for additional  borrowings  required to fund the working capital needs of the Company in the ordinary course of
    business  under any line of credit loan  identified in the Company's  Financial  Statements to the extent  permitted  thereunder by the
    documentation  relating  thereto in effect as of the date  hereof  and then only to the  extent  that the  Company  has first  notified
    Purchaser of any such  borrowings  under the line of credit  subsequent  to the date hereof and both  Purchaser  and Merger Sub approve
    such borrowings;
    
    4.1.10   Payables.  Pay when due, in accordance with past practices, all of its accounts payables and trade obligations;
    
    4.1.11   Maintenance of Assets.  Maintain its facilities,  assets and properties,  including  without  limitation the Equipment in good
    operating repair,  order and condition,  reasonable wear and tear excepted,  and notify Purchaser and Merger Sub promptly upon any loss
    of, damage to or destruction of any of its facilities, properties or assets;
    
    4.1.12   Insurance.  Not allow to lapse and  maintain in full force and effect all  insurance  coverage of the types and in the amounts
    set forth in the Exhibits  attached  hereto and apply the proceeds  received under any insurance  policy or as a result of any loss of,
    damage to, or  destruction of any of its  facilities,  properties or assets,  including the Equipment,  to the repair or replacement of
    such facilities, properties or assets, including the Equipment;
    
    4.1.13   Contracts  and Permits.  Maintain in full force and effect all Leases,  Licenses,  Contracts and Permits for or related to the
    operation of its business in all respects and in all places as its business is now conducted;
    
    4.1.14   Goodwill.  Use its best efforts to preserve its business  organization  in tact, to keep available the services of its present
    employees and to preserve the goodwill of its customers and others having business relations with it;
    
    4.1.15   Issuance of  Securities.  Not issue any additional  capital  stock,  options,  warrants,  or other rights to purchase  capital
    stock or securities  convertible into or exchangeable for capital stock of the Company;  not declare,  set aside or pay any dividend or
    make any other distributions in respect of any of the Company's shares of capital stock;
    
    4.1.16   Repurchase of Securities  and Repayment of  Indebtedness.  Except as approved by Purchaser  after first being  notified of any
    such event,  not make any direct or indirect  redemption,  purchase or other  acquisition  of shares of the Company's  capital stock or
    make any direct or indirect  repurchase,  repayment or  retirement of any  principal  of, or interest on, any  indebtedness  other than
    regularly  scheduled  payments  of  principal  and  interest  as  provided  in the  promissory  note  evidencing  any of the  Company's
    indebtedness;
    
    4.1.17   Litigation.  Promptly  advise  Purchaser  and  Merger  Sub in  writing  of the  commencement  of,  and of any known  threat to
    commence, any suit, claim, action, arbitration,  legal or administrative  proceedings,  governmental investigation or tax audit against
    the Company;
    
    4.1.18   Monthly  Financial  Statements.  Deliver to  Purchaser  and  Merger  Sub as soon as  available  monthly  financial  statements
    ("Monthly  Financial  Statements") of the Company  commencing with the month of October,  1999, and for each calendar month  thereafter
    prior to the Closing Date;
    
    4.1.19   Elections to Participate  and  Nonconsents.  Not to elect to not participate in operations for the drilling of any new well or
    the fracturing or  recompletion of any existing well,  without the prior written  consent of Purchaser.  Purchaser shall respond timely
    to any requests for such consent.
    
    4.1.20   Miscellaneous.  Not enter into any  agreement  or otherwise  agree to take any action in  violation of the negative  covenants
    set  forth in this  Section  5 or take,  agree to take or omit to take any  action  that  would  make any  representation  or  warranty
    inaccurate.
    
    4.2      Access to  Information.  (a) The Company and Red River  Shareholders  will cooperate  fully with Purchaser and Merger Sub, and
    the Company  shall  provide,  and the Red River  Shareholders  shall cause the Company to provide,  to Purchaser  and its  accountants,
    counsel and other  representatives  (collectively  "Advisors")  during normal  business hours,  (i) full access to the books,  records,
    Equipment,  oil and gas leases, title opinions and other information  concerning the oil and gas properties and other real estate owned
    or leased by the Company or in which the Company has an interest,  and all other  Contracts,  Leases,  Licenses and Permits relating to
    the assets and  operations  of the  Company's oil and gas business and  properties  and all work papers  relating to the Company of the
    Company's  independent  accountants and (ii) full  opportunity to discuss the Company's  business affairs and assets with its officers,
    employees,  agents and independent  accountants  ("Company's Advisors") and furnish to Purchaser,  Merger Sub and their Advisors copies
    of such  documents,  records and  information  with respect to the affairs of the Company as Purchaser,  Merger Sub or its Advisors may
    reasonably request.
    
             (b) The Purchaser will cooperate  fully with the Company and the Red River  Shareholders,  and the Purchaser  shall provide to
    the Company and its Advisors  during normal  business  hours,  (i) full access to the books,  records,  Equipment,  oil and gas leases,
    title  opinions and other  information  concerning the oil and gas properties and other real estate owned or leased by the Purchaser or
    in which the Purchaser has an interest,  and all other  Contracts,  Leases,  Licenses and Permits relating to the assets and operations
    of the Purchaser's  oil and gas business and properties and all work papers  relating to the Purchaser of the  Purchaser's  independent
    accountants and (ii) full opportunity to discuss the Purchaser's business affairs and assets with its officers,  employees,  agents and
    independent  accounts  ("Purchaser's  Advisors") and furnish to the Company,  the Red River  Shareholders  and their Advisors copies of
    such documents,  records and  information  with respect to the affairs of the Purchaser as the Company,  the Red River  Shareholders or
    their Advisors may reasonably request.
    
    4.3      Confidentiality.  Purchaser,  Merger Sub, their  respective  officers,  directors and employees shall retain in confidence and
    shall cause their Advisors to retain in confidence,  all information  obtained by them pursuant to the investigations made by Purchaser
    or its Advisors  pursuant to Section 5.2 (the  "Confidential  Information").  The Red River  Shareholders,  the Company,  its officers,
    directors and employees and the Company's  Advisors shall retain in confidence,  all  information  obtained by them in connection  with
    any  investigation  undertaken by such persons as a result of Purchaser or Merger Sub providing such Persons such access to information
    of the  Purchaser  or Merger Sub as provided in this  Agreement.  The parties  agree that  Confidential  Information  shall not include
    information which (i) was or becomes  generally  available to the public other than as a result of a Red River disclosure by Purchaser,
    Merger Sub, the Red River  Shareholders,  the Company or any of their officers,  directors or employees or any of their Advisors,  (ii)
    was or becomes  available to  Purchaser,  Merger Sub, the Red River  Shareholders,  the Company,  any of their  officers,  directors or
    employees or their Advisors on a  non-confidential  basis from a source other than Purchaser,  Merger Sub, the Red River  Shareholders,
    the Company or the  Company's  Advisors,  provided  that such source is not bound by a  confidential  agreement or (iii) was, or in the
    future is, developed  independently by Purchaser,  Merger Sub or their Advisors or by the Red River Shareholders,  the Company or their
    Advisors  without  reference to the information  furnished by the Purchaser,  Merger Sub, the Red River  Shareholders or the Company or
    the Company's  Advisors,  as the case may be. The parties  understand and agree that all of the  Confidential  Information  supplied to
    Purchaser,  Merger  Sub or their  Advisor  or to the Red River  Shareholders  or the  Company  or their  Advisors  is  provided  on the
    understanding  that such Confidential  Information shall remain the property of Purchaser,  Merger Sub or the Company,  as the case may
    be, and that all copies and originals of any Confidential  Information  furnished  pursuant to this Agreement from one party to another
    will be  returned  to the party  furnishing  such  Confidential  Information  or, at the  option of the party to whom the  Confidential
    Information  belongs,  destroyed  promptly upon such party's  request after  termination  of this Agreement as provided under Section 8
    hereof.  Pending the Closing of the  transactions  contemplated  hereby or if this  Agreement  is  terminated  as provided in Section 8
    hereof,  a party receiving the  Confidential  Information of another party shall not use such  information to its economic or financial
    advantage or benefit.
    
    4.4      Benefit  Plans.  Between the date hereof and the Closing Date the Company  will not  establish or implement a new Benefit Plan
    of any kind whatsoever.
    
    4.5      Best Efforts and Standstill.  Subject to the other  provisions of this Agreement,  the Red River  Shareholders and the Company
    will use their best  efforts to cause the  conditions  listed in Section  3.1 hereof to be  satisfied  on or before the  Closing  Date.
    Subject to the other  conditions  of this  Agreement,  Purchaser  and Merger  Sub will use their best  efforts to cause the  conditions
    listed in Section 3.2 hereof to be satisfied on or before the Closing Date. The Red River  Shareholders  and the Company  further agree
    that they will not enter into,  request,  solicit or engage in any Red River  discussions,  negotiations,  understandings or agreements
    with any person or entity  other than  Purchaser  and Merger Sub  relating to the merger,  consolidation  or sale of the Company or Red
    River Stock or the  properties  and assets of the Company  (other than in the  ordinary  course of business)  unless this  Agreement is
    terminated pursuant to Section 8 hereof.
    
    4.6      Listing of  Purchaser  Common  Stock.  Purchaser  shall  notify The Nasdaq  Stock Market of the issuance of the shares of Beta
    Common Stock in connection  with the  consummation  of the Merger and to use its reasonable  best efforts to list and cause such shares
    of Beta  Common  Stock to be eligible  for  trading on the Nasdaq  Small Cap Market or the Nasdaq  National  Market  System if the Beta
    Common Stock is then eligible for listing thereon.
    
    4.7      Meeting of  Stockholders  of  Purchaser.  If  Purchaser  does not obtain the written  consent  required  for the Merger by the
    holders of a majority of the  outstanding  shares of Beta Common  Stock  ("Purchaser  Stockholder  Consent"),  Purchaser  shall cause a
    meeting of its stockholders (the "Purchaser  Stockholder  Meeting") to be duly called and held as soon as reasonably  practicable,  for
                                      -------------------------------
    the purpose of voting on the approval and adoption of this Agreement and the Merger (the "Purchaser Stockholder  Approval").  The board
                                                                                              -------------------------------
    of directors of Purchaser shall recommend approval and adoption of this Agreement by Purchaser's  stockholders.  In connection with the
    Purchaser  Stockholder Consent or the Purchaser  Stockholder  Meeting, as the case may be, Purchaser (x) will promptly prepare and file
    with the  Commission,  will use its  reasonable  best  efforts  to have  cleared  by the  Commission  and will  thereafter  mail to its
    stockholders  as promptly as  practicable  the  Purchaser  Information  Statement  or  Purchaser  Proxy  Statement  and all other proxy
    materials for the Purchaser  Stockholder Meeting, as applicable,  (y) will use its best efforts,  subject to the immediately  preceding
    sentence,  to obtain the Purchaser  Stockholder  Consent or the Purchaser  Stockholder  Approval and (z) will otherwise comply with all
    legal requirements applicable to the Purchaser Stockholder Consent or the Purchaser Stockholder Meeting.
    
    5.       Post-Closing  Covenants.  The Red River  Shareholders,  the Company and Purchaser and Merger Sub agree as follows with respect
    to the period following the Closing.
    
    5.1      Cooperation  of The Red River  Shareholders  and Former  Officers  of  Company.  The Red River  Shareholders  and the  current
    officers and  directors of the  Company,  will  reasonably  cooperate  upon and after the Closing Date in effecting  the Merger and the
    orderly transfer of the assets and properties as well as the control of the Company to Purchaser by using their  reasonable  efforts to
    cause any federal,  state or local governmental body, and every agency and department and  instrumentality  thereof,  to have contracts
    between such government,  agency,  department and  instrumentality and the Company, to the extent required under any existing Contracts
    between the Company and such  governmental  body, as a result of the change of control of the Company,  to be approved and  transferred
    into the name of the Company under the control of the Purchaser  following the Closing.  To the extent that any other contract  between
    the  Company and any other third  parties  require  approval  as a result of the  Merger,  the Red River  Shareholders  and the current
    officers and directors of the Company will  reasonably  cooperate in effecting  any such  approval such that the Contracts  will remain
    intact and  enforceable  in  accordance  with the terms  thereof.  To the extent  required to effect any such  approval and transfer of
    control,  the Red River  Shareholders and the current officers and directors of the Company will execute any appropriate and reasonable
    documents or instruments required to accomplish such result.
    
    5.2      Litigation  Support.  If and to the  extent  that the  Company  is  actively  contesting  or  defending  against  any  charge,
    complaint, action, suit, proceeding, hearing,  investigation,  claim, or demand (collectively "Proceedings") in connection with (i) any
    transaction  contemplated under this Agreement,  or (ii) any fact, situation,  circumstance,  status,  condition,  activity,  practice,
    planning,  occurrence,  event, incident,  action, failure to act, or transaction on or prior to the Closing Date involving the Company,
    the  Company,  the Red River  Shareholders  and the current  officers  and  directors of the Company  will  reasonably  cooperate  with
    Purchaser,  Merger Sub and their counsel in contesting or defending  against any such  Proceedings,  making  available any personnel of
    the Company,  and providing  such  testimony in access to their books and records as shall be reasonably  necessary in connection  with
    contesting or defending  against such Proceedings.  Except to the extent that Purchaser and Merger Sub are entitled to  indemnification
    with respect to contesting or defending  any such  Proceedings,  Purchaser and Merger Sub shall bear the cost and expense of contesting
    or defending against any such Proceedings.
    
    5.3      Disposition  of  Confidential  Information.  After the  Closing,  the Red River  Shareholders  and the  current  officers  and
    directors  of the  current  Company  will treat and hold as such all of the  Confidential  Information,  refrain  from using any of the
    Confidential  Information  except in connection with this Agreement,  and deliver  promptly to the Purchaser and Merger Sub or destroy,
    at the request and option of Purchaser and Merger Sub, all tangible correspondence,  documents, instruments,  memorandums and all other
    writings (and all copies thereof) which embody the Confidential  Information which are in such persons'  possession.  Afer the Closing,
    if the Red River  Shareholders  or current  officers or directors of the Company are requested or required (by oral question or request
    for information or document in any legal proceeding,  interrogatory,  subpoena,  civil investigative demand, or similar process) to Red
    River,  disclose any  Confidential  Information,  the Red River  Shareholders and the current officers or directors of the Company will
    notify  Purchaser and Merger Sub promptly of any such request or requirement to enable  Purchaser and Merger Sub to seek an appropriate
    remedy to enjoin the Red River  disclosure of such  Confidential  Information or waive  compliance with the provisions of this Section.
    The foregoing  provision shall not apply to any Confidential  Information which is generally  available to the public immediately prior
    to the time of Red River disclosure.
    
    5.4      Other  Transitional  Matters.  The Red River  Shareholders and the current officers and directors of the Company will not take
    any action which primarily is designed or intended to have the effect of Red River discouraging lessor, licenser,  customer,  supplier,
    or other  business  associate of the Company or any of its  subsidiaries  from  maintaining  the same business  relationships  with the
    Company and its  subsidiaries  after the Closing as it maintained with the Company and its subsidiaries  prior to the Closing.  The Red
    River  Shareholders  and the current  officers  and  directors of the Company  will refer all lessor,  licensor,  customer and supplier
    inquiries relating to the business of the Company and any of its subsidiaries to Purchaser from and after the Closing Date.
    
    5.5      Employee  Benefits.  (a) Following the  consummation  of the Merger,  Purchaser  shall continue to provide to individuals  who
    are  employed by the Company as of the  effective  time of the Merger (the  "Effective  time") and who, if any,  remain  employed  with
    Purchaser or any Subsidiary of Purchaser  ("Affected  Employees"),  for so long as such Affected Employees remain employed by Purchaser
                                                -------------------
    or any Subsidiary of Purchaser,  employee  benefits (other than salary or incentive  compensation)  pursuant to employee benefit plans,
    programs,  policies or arrangements  maintained by Purchaser or any Subsidiary of Purchaser  providing  coverage and benefits which, in
    the  aggregate,  are generally  comparable  to those  provided to employees of Purchaser in positions  comparable to positions  held by
    Affected Employees with Purchaser or its Subsidiaries from time to time after the Effective Time.
    
                      (b)  Purchaser  will,  or will cause the  Surviving  Corporation  to,  (i) waive all  limitations  as to  preexisting
    conditions,  exclusions  and waiting  periods  with  respect to  participation  and coverage  requirements  applicable  to the Affected
    Employees under any welfare  benefit plans that such employees may be eligible to participate in after the Effective  Time,  other than
    limitations  or waiting  periods that are already in effect with respect to such  employees and that have not been  satisfied as of the
    Effective Time under any welfare plan maintained for the Affected  Employees  immediately prior to the Effective Time, and (ii) provide
    each Affected  Employee with credit for any co-payments  and deductibles  paid prior to the Effective Time in satisfying any applicable
    deductible  or  out-of-pocket  requirements  under any welfare  plans that such  employees  are  eligible to  participate  in after the
    Effective Time.
    
    5.6      Cooperation  After  Closing.  In case at any time after the Closing Date any further action is necessary or desirable to carry
    out and accomplish the purposes of this Agreement and the  transactions  contemplated  hereunder,  the Red River  Shareholders  and the
    current  officers and directors of the Company,  in the case of the Company's and the Red River  Shareholder's  performance  under this
    Agreement,  and Purchaser, in the case of Purchaser's and Merger Sub's performance under this Agreement,  will take such further action
    as the party seeking or requesting such performance  ("Requesting  Party") may reasonably  request,  including executing and delivering
    such further  instruments and documents as shall be necessary or appropriate to accomplish and effectuate such  transaction.  Except as
    to costs and damages  associated  with the  indemnification  of  Purchaser  and Merger Sub, as provided  below,  all costs and expenses
    relating to any such matters after the Closing Date will be borne by Purchaser and Merger Sub.
    
    5.7      Continuity of Business.  Following the Merger,  the Surviving  Corporation will continue the historic  business of the Company
    or use a significant portion of the Company's business assets in a business.
    
    5.8      Bank  Guarantees.  Following  the  Closing,  Purchaser  shall  use its best  efforts  to cause  the  release  of the  personal
    guarantees  executed  by the Red  River  Shareholders  which  secure  the  Company's  indebtedness  to the Bank of  Oklahoma,  National
    Association  ("Bank")  as  described  in  Exhibit  6.8  attached  hereto to the  extent  that the Bank is  willing to consent to such a
                                              ------------
    release.  As an inducement  for the Bank to release the Red River  Shareholders  from their  personal  guarantees  of the  indebtedness
    described in Exhibit 6.8,  Purchaser will execute a guaranty  required by the Bank to guarantee such  indebtedness  in  substitution of
                 -----------
    the  personal  guarantees  of the Red River  Shareholders  only to the  extent of their  current  guarantees  with the Bank.  After the
    Closing,  Purchaser shall indemnify and hold the Red River Shareholders  harmless from and against any and all amounts which any or all
    of the Red River  Shareholders  are  required to pay on account of the  guaranties  set forth in Exhibit 6.8  attached  hereto prior to
                                                                                                     -----------
    their release from such guaranties only, however, to the extent of their personal guarantee obligations as currently in effec
    
    5.9
    Tax  Treatment.  Purchaser  shall not take any  action  and shall not fail to take any  action  which  action or  failure  to act would
    prevent, or would be reasonably likely to prevent, the Merger from qualifying as a reorganization under Section 368 of the Code.
    
    6.       Delivery of Closing Documents.
    
    6.1      Delivery of Closing  Documents to Purchaser and Merger Sub.  Subject to the  fulfillment of all of the conditions set forth in
    Section 3.1 hereof, at the Closing,  the following  documents,  agreements,  and instruments shall be duly delivered by the Company and
    the Red River Shareholders:
    
             Certificates  representing  the shares of Red River Stock which shall be duly executed in blank or with a duly executed  stock
    power  attached  thereto,  endorsed  in blank,  in order to effect the  transfer  of the  shares of Red River  Stock from the Red River
    Shareholders to Purchaser,  with all stock transfer,  tax stamps, if any, affixed and cancelled and if required by Purchaser's transfer
    agent  shall be  guaranteed  by a United  States  Commercial  Bank or by a broker who is a member of the New York Stock  Exchange or is
    otherwise approved by the transfer agent of Purchaser to guarantee signatures in connection with such transfer;
    
    6.1.1    The  Resignations  of the Officers and  Directors of the Company as agreed upon in Exhibit 2.6.4 and as requested by Purchaser
                                                                                                --------------
    prior to the Closing;
    
    6.1.2    The books and records referred to in Section 3.1.10 hereof;
    
    6.1.3    The opinion of Conner & Winters,  A  Professional  Corporation,  counsel for the Company in the form and substance  reasonably
    requested by Purchaser;
    
    6.1.4
    
    
    
    
                               A  certificate  of good standing from the State of Oklahoma  certified by the  appropriate  official of such
    state,  dated as of the date not more than five (5) days prior to the Closing Date  evidencing  that the Company is duly  qualified and
    in good standing and in effect  indicating  that the Company has filed all  franchise tax returns due to the date of such  certificate,
    that all taxes  shown on such  returns to be due have been paid in full,  and that  there are no  outstanding  franchise  tax claims or
    assessments against the Company as of the date of such certificate;
    
    6.1.5    All consents and approvals referred to in section 3.1.11 hereof;
    
    6.1.6    The Company's closing certificate in the form of Exhibit 7.1.6 attached hereto;
                                                              -------------
    
    6.1.7    Certificate of Merger as contemplated by Section 2.5 hereof;
    
    6.1.8    To the extent  appropriate  and only if any secured loan, for which the Company is currently  obligated is paid in whole or in
    part on or prior to the Closing Date (which is not contemplated as of the date hereof),  documentation  (including without  limitation,
    duly executed UCC-3  termination  statements)  satisfactory in form and substance to Purchaser and Merger Sub as requested by Purchaser
    and Merger Sub to release all or a portion of such  Encumbrances to the extent of such loan  repayment,  if any, in favor of any of the
    holders of any such indebtedness on the property and assets of the Company;
    
    6.1.9    Employment  Agreement  between the Surviving  Corporation and Rolf N. Hufnagel and Robert E. Davis,  Jr., executed by them and
    the Purchaser in the form attached hereto as Exhibit 7.1.9; and
                                                 -------------
    
    6.1.10   Such other  documents or instruments of further  assurance or conveyance as shall be deemed  necessary and  appropriate by the
    Purchaser and Merger Sub.
    
    6.2      Delivery of Documents to the Company and the Red River  Shareholders.  Subject to the  fulfillment of all conditions set forth
    in Section 3.2 hereof,  at the Closing,  the following  documents,  agreements and instruments shall be duly delivered by the Purchaser
    and Merger Sub to the Company and Red River Shareholders:
    
    6.2.1    Stock  Certificates  representing  shares of Beta  Common  Stock to be issued  to each of the Red  River  Shareholders  in the
    amounts set forth in Schedule A attached hereto;
                         ----------
    
    6.2.2    Certificates of good standing from the Nevada and Oklahoma  Secretary of State (as appropriate),  dated not more than five (5)
    days prior to the  Closing  Date  evidencing  that  Purchaser  and Merger Sub are duly  qualified  and in good  standing  and in effect
    indicating  that Merger Sub has filed all franchise taxes on the date of such  certificate,  that all taxes shown on such returns to be
    due have been paid in full,  and that there are no outstanding  franchise tax claims or  assessments  against Merger Sub as of the date
    of such certificate;
    
    6.2.3    Purchaser's and Merger Sub's closing certificate in the form of Exhibit 7.2.3 attached hereto;
                                                                             -------------
    
    6.2.4    The opinion of Clanahan,  Tanner,  Downing & Knowlton,  P.C. to be in form and substance  reasonably  requested by the Company
    and the Red River Shareholders; and
    
    6.2.5    Employment  Agreements  between the Surviving  Corporation,  Rolf N. Hufnagel and Robert E. Davis,  Jr., executed by Surviving
    Corporation and the Purchaser, in the form attached hereto as Exhibit 7.1.9.
                                                                  -------------
    
    6.2.6    Certificate of Merger as contemplated by Section 2.5 hereof;  and
    
    6.2.7    Such other documents and instruments of further  assurance and conveyance as shall be deemed  necessary and appropriate to the
    Closing of the transactions contemplated hereby.
    
    7.       Termination
    
    7.1      Events of Termination.  Anything contained elsewhere in this Agreement to the contrary  notwithstanding,  prior to the Closing
    Date, this Agreement may be terminated by written notice of termination as follows:
    
    7.1.1    Mutual Consent.  Any time by mutual consent of the Company and Purchaser or Merger Sub;
    
    7.1.2    Prior to Closing  Date.  By the  Company  or  Purchaser  or Merger Sub if the other  party  shall  have (i)  misstated  to any
    material extent any  representation or been in breach of any warranty  contained herein, or (ii) breached any covenant,  undertaking or
    restriction  contained  herein,  and such  misstatement  or breach has not been cured by the  earlier of (a) thirty (30) days after the
    giving of notice of such party of such misstatement or breach or (b) the Closing Date
    
    7.1.3    Delay.  By either  party by written  notice to the other  party if the  Closing  shall not have  occurred on or prior to March
    31, 2000;  provided,  however,  that the right to terminate this Agreement under this Section 8.1.3 shall not be available to any party
    whose  failure to fulfill or  perform  any  obligation  under this  Agreement  has been a  substantial  cause of, or has  substantially
    resulted in, the failure of the Closing to occur on or before such date.
    
    7.1.4      Amendment  of Exhibits.  By the party  ("Receiving  Party")  receiving  Exhibits,  Schedules or  Attachments  or  amendments
    thereto from the other party to this  Agreement  which  disclose  information  which such  Receiving  Party  determines  to  materially
    adversely  affect the economic,  financial or business  considerations  previously  determined by the Receiving  Party in entering into
    this Agreement  setting forth its or his objection to such Exhibit,  Schedule or Attachment and to which such Receiving Party gives ten
    (10) days written notice to the party furnishing such Exhibits, Schedules or Attachments.
    
    7.1.5    Consequences  of  Termination.  In the event of a  termination  and  abandonment  hereof  pursuant to the  provisions  of this
    Section 8, this  Agreement  shall become void and have no effect,  without any  liability  on any of the parties or their  directors or
    officers or stockholder in respect of this  Agreement,  except that (a) the agreements  contained in this Section 8.1.5, in Section 5.3
    and in Section 9.2 shall  survive the  termination  hereof and (b) no such  termination  shall  relieve any party of any  liability  or
    damages  resulting from a breach by that party of its  representations,  warranties,  covenants,  agreements or other obligations under
    this Agreement  prior to such  termination.  In addition,  if this Agreement is terminated as provided under Section 8.1.2 hereof,  the
    party,  misstating or breaching  this Agreement  shall be obligated to pay the other party's costs and expenses  incurred in connection
    with this Agreement,  including actual attorney's fees.  Otherwise,  if the transactions  contemplated  hereunder cannot be consummated
    for  reasons  beyond the  control of the parties  hereto,  provided  they have used their best  efforts to acquire  the  approvals  and
    consents  hereunder,  or this  Agreement is terminated  under the provisions of Sections 8.1.1 or 8.1.3 hereof , then each party hereto
    will pay its own expenses, including without limitation its attorneys' fees and costs.
    
    8.       Miscellaneous
    
    8.1      Notices.  Any  notices  under this  Agreement  shall be in writing,  signed by the party  giving the same and  transmitted  by
    registered or certified  United States Mail or by a generally  accepted  national courier service  providing  confirmation of delivery,
    and  addressed  to the party to receive the notice at the  address  set forth  below or such other  address as any party may specify by
    notice to the other party, and shall be deemed properly given and received when actually given and received:
    
              If to Purchaser:                  Beta Acquisition Company, Inc.
                                                         901 Dove Street, Suite 230
                                                         Newport Beach, California 92660
                                                         Attn:  Steve Antry
    
              With a copy to:                   J. Chris Steinhauser
    
              If to the Company
              and Red River Shareholders:       Red River Energy, Inc.
                                                         6120 South Yale Avenue, Suite 813
                                                         Tulsa, Oklahoma 74136
    
              With a copy to:                            Conner & Winters, A Professional Corporation                          3700
    First National Tower
                                                         15 East 5th Street
                                                         Tulsa, Oklahoma 74103
                                                         Attention:  Lynnwood R. Moore, Jr.
    
    8.2
    
    
    
    
                      Brokerage Commissions.
    
    8.2.1    The Company  hereby  represents  and  warrants to  Purchaser  that the Company has not engaged or utilized the services of any
    broker or finder in  connection  with this  transaction  and that no  commissions  are payable  with respect to this  transaction.  The
    Company  hereby  agrees to indemnify and hold  Purchaser and the Company  harmless from and against any liability for any claims of any
    broker or finder claiming by, through or under the Company or the Red River Shareholders.
    
    8.2.2    Purchaser  and Merger Sub hereby  represent  and  warrant to the  Company  and the Red River  Shareholders  that  neither  the
    Purchaser nor Merger Sub have engaged or utilized the services of any broker or finder in  connection  with this  transaction  and that
    no  commissions  are payable  with respect to this  transaction.  Purchaser  and Merger Sub hereby agree to indemnify  and hold the Red
    River  Shareholders  and the Company  harmless from and against any liability for any claims of any other broker or finder claiming by,
    through or under Purchaser and Merger Sub.
    
    8.3      Successors and Assigns.  This Agreement is personal to the parties hereto and may not be assigned,  transferred,  delegated or
    nullified  without the prior  written  consent of all of the parties  hereto.  This  Agreement  shall be binding  upon and inure to the
    benefit of the parties hereto and their respective heirs, personal representatives, successors and permitted assigns.
    
    8.4      Arbitration.  Any dispute  arising  pursuant  to or in any way  related to this  Agreement  or the  transactions  contemplated
    hereby shall be settled by  arbitration  at a mutually  agreed upon location in Newport  Beach,  California;  provided,  however,  that
    nothing in this Section shall  restrict the right of either party to apply to a court of competent  jurisdiction  for emergency  relief
    pending  final  determination  of a claim by  arbitration  in  accordance  with this  Section.  All  arbitration  shall be conducted in
    accordance  with the rules and  regulations of the American  Arbitration  Association,  in force at the time of any such dispute,  by a
    panel of three (3) single arbitrators  selected in accordance with the procedures of the American Arbitration  Association.  Each party
    shall pay its own expenses  associated  with such  arbitration,  including  50% of the expenses of the  arbitrator,  provided  that the
    prevailing party in any arbitration shall be entitled to reimbursement of reasonable  attorney's fees and expenses (including,  without
    limitation,  arbitration expenses) relating to such arbitration.  The award of the arbitrator,  based upon written findings of fact and
    conclusions  of law,  shall be binding upon the  parties;  and judgment in  accordance  with that  decision may be entered in any court
    having jurisdiction thereof.
    
    8.5      No Oral  Modifications.  No amendments or  modifications to this Agreement shall be made or deemed to have been made unless in
    writing  executed  and  delivered  by the  party  to be  bound  thereby.  Any  provision  of this  Agreement  may be  waived,  amended,
    supplemented or modified only by agreement in writing of the parties hereto.
    
    8.6
    
    
    
    
                      Waiver.  The failure of any party to this  Agreement  to insist upon strict  performance  of any of the terms of this
    Agreement  will not constitute a waiver of any of its rights under this Agreement or its right  subsequently  to assert,  rely upon, or
    enforce any provision of this Agreement.
    
    8.7
    Governing Law.  This Agreement shall be interpreted, governed by and enforced according to the laws of the State of Oklahoma.
    8.8      Severability.  If any provision of this Agreement  shall be held invalid,  illegal or  unenforceable,  the validity,  legality
    and enforceability of the remaining provisions of this Agreement will not in any way be affected or impaired thereby.
    
    8.9      Headings and Captions for  Convenience.  The headings and captions  contained in this Agreement are for  convenience  only and
    shall not be considered in interpreting the provisions hereof.
    
    8.10     Counterparts.  This agreement may be executed  simultaneously  in two or more  counterparts,  each of which shall be deemed an
    original, all of which together shall constitute one and the same instrument.
    
    8.11     Representations,  Warranties and Covenants.  Notwithstanding  any investigation  made by or on behalf of the Company,  the Red
    River  Shareholders  or Purchaser  prior to or after the Closing Date,  all  representations,  warranties  and covenants of the parties
    hereto  contained  herein shall  survive and remain in full force and effect for a period equal to the earlier of (i) the date that the
    first independent  consolidated  audit report of Purchaser and the Surviving  Corporation is issued after the Closing Date, or (ii) one
    year after the Closing Date.
    
    8.12     Remedies for Misrepresentation or Breach by Red River Shareholders.  In the event of:
    
                               (a) any inaccuracy in any  representation or the breach of any warranty made by the Red River  Shareholders
    and the Company in or pursuant to this Agreement or any Exhibit, Schedule or other attachment  to this Agreement,
    
                               (b) any  failure by the Red River  Shareholders  and the  Company  duly to  perform  or  observe  any term,
    provision,  covenant,  or agreement in this  Agreement to be performed or observed on the part of the Red River  Shareholders  and the
    Company, or
    
                               (c) action, suit, investigation,  proceeding,  demand, assessment, audit, judgment and claim, including any
    employment-related  claim arising out of the foregoing (collectively "Claims"),  against the Company or any of its subsidiaries,  even
    though  such  Claims may not be filed or come to light  until  after the  Closing  Date,  Purchaser  shall have the right to demand an
    adjustment  to the number of shares of the Beta Common  Stock issued to the Red River  Shareholders  as provided in Section 2.1 hereof
    and a return of a portion of the shares of the Beta Common Stock to  recompense  Purchaser for the amount of the loss  resulting  from
    such  misrepresentation  or breach , the number of shares to be determined by dividing the amount of the loss by the closing price per
    share of Beta Common  Stock as quoted at the Nasdaq  Small Cap Market or the Nasdaq  National  Market  System (as  applicable)  on the
    Closing Date.  Notwithstanding  anything  contained in the foregoing to the contrary,  any and all such  adjustments  in the number of
    shares of Beta  Common  Stock  shall not exceed in the  aggregate  225,000  shares of Beta  Common  Stock over the period  provided in
    Section 9.11 hereof.
    
              Purchaser  and  Merger Sub hereby  covenant  and agree to  immediately  provide  to the Red River  Shareholders  any and all
    notifications or other correspondence it receives related to matters which may affect this indemnity.
    
              The Red River  Shareholders'  obligation to return shares of Beta Common Stock to Purchaser as provided  hereunder shall not
    exceed in the  aggregate  ten percent  (10%) of the total  shares  issued to them as  determined  on the Closing  Date.  The Red River
    Shareholders  shall have no  obligation  to return  shares of Beta Common  Stock  until the  aggregate  losses as provided  under this
    Section  9.12  exceed One Hundred  Thousand  Dollars  ($100,000)  and shall be liable to return a portion of the shares of Beta Common
    Stock  received  by them on the  Closing  Date only for the  losses in excess of such  amount.  The  amount of any losses for which an
    adjustment  is  required to be made under this  Section  9.12 bythe Red River  Shareholders  shall be  computed  net of any  insurance
    proceeds  received by the  Surviving  Corporation  or Purchaser  with respect to the matter out of which such  liability  arose.  Each
    party agrees to use  commercially  reasonable  efforts to mitigate any damage or expense  resulting from any matter giving rise to the
    losses covered under this Section.  It is agreed that the obligations of the Red River  Shareholders  under this Section 9.12 shall be
    solely for the benefit of  Purchaser,  Merger Sub and the  Surviving  Corporation  and may not be  enforced  by any insurer  under any
    subrogation  or similar  agreement or  arrangement or by any  governmental  authority  except as a receiver for Purchaser or Surviving
    Corporation.  The  liability  of the Red River  Shareholders  hereunder  shall be joint and  several.  No claims for losses under this
    Section 9.12 may be asserted by Purchaser or Surviving  Corporation  under this section from and after the period set forth in Section
    9.11 of this  Agreement.  If one or more of the Red River  Shareholders  who are required to return  shares of Beta Common Stock under
    the  provisions  of this Section  9.12 have sold all or a portion of their  shares of Beta Common Stock such that such  shareholder(s)
    are unable to return shares of Beta Common Stock as provided herein,  such shareholder(s)  obligation  hereunder shall be paid in cash
    in an amount equal to the closing  market price of the shares of Beta Common  Stock,  as  determined  on the Closing  Date,  for which
    delivery thereof to Purchaser cannot be made.
    
              Any dividends  accruing or paid on the shares of Beta Common Stock  required to be returned under this Section 9.12 shall be
    returned to Purchaser upon determination of the loss in the manner provided in this Section 9.12.
    
             As used in this Section 9.12 and Section 9.13, the term "loss" shall mean and include (y) all losses, damages, costs and
    expenses, including without limitation pre- and post-judgment interest, penalties, court costs and attorneys' fees and expenses, and
    (z) all demands, claims, actions, costs of investigation, causes of action, proceedings, arbitrations, judgments, settlements and
    assessments.
    
    
    
    
    
    
    
    
             After the Closing,  the remedies  provided in this Section 9.12 to Purchaser,  Merger Sub and the Surviving  Corporation shall
    be exclusive of any other rights or remedies  available to  Purchaser,  Merger Sub or the  Surviving  Corporation,  either at law or in
    equity,  for breach of this Agreement or any certificates  delivered  pursuant hereto;  provided that none of Purchaser,  Merger Sub or
    the Surviving Corporation waives the right to seek specific performance or injunctive relief.
    
    8.13     Purchaser's Indemnification.  In the event of:
    
                                (a) any inaccuracy in any  representation  or the breach of any warranty made by Purchaser or Merger Sub in
    or pursuant to this Agreement or any Exhibit, Schedule or other attachment to this Agreement of Purchaser or Merger Sub; or
    
                                (b) any  failure by  Purchaser  or Merger Sub of their  duty to  perform  or observe  any item,  provision,
    covenant or agreement in this Agreement to be performed or observed on the part of Purchaser or Merger Sub,
    
                       Purchaser shall be obligated to issue additional  shares of Beta Common Stock to each of the Red River  Shareholders
    in  proportion  to the number of shares  issued to them by Purchaser on the Closing  Date to cover any losses  resulting  from any such
    misrepresentation  or breach  provided in (a) and (b) above.  The  obligation  to issue  additional  shares of Beta Common Stock to the
    Red River  Shareholders  under this Section 9.13 shall not exceed 225,000 shares of Beta Common Stock and shall be determined  based on
    the closing price of the shares of the Beta Common Stock as determined on the Closing Date.  The  provisions of Section 9.12  regarding
    the  determination  of the loss, , the limitation  concerning the aggregate  amount of losses (i.e.,  $100,000)  which must be incurred
    before the  adjustment  in the number of shares is  required,  and the offset of such losses by any  insurance  proceeds  received  are
    hereby  incorporated  by reference  as part of this Section 9.13 and shall apply with equal force and effect to Purchaser  with respect
    to its obligations under this Section 9.13 as it applies to the Red River  Shareholders  under Section 9.12 and in furtherance  thereof
    for  purposes of this  Section 9.13 all  references  to the Red River  Shareholders  under  Section  9.12 shall be to  Purchaser  where
    applicable.
    
    8.14     No Benefit To Others.  The  representations,  warranties,  covenants and  agreements  contained in this  Agreement are for the
    sole benefit of the parties hereto and their respective heirs,  successors,  assigns, and such representations,  warranties,  covenants
    and agreements shall not be construed as conferring, and are not intended to confer, any rights on any other persons.
    
    8.15
    
    
    
    
                      Registration of Securities.(a) As used in this Section 9.15, the following terms have the meanings set forth below:
    
             "Disadvantageous Condition" has the meaning set forth in Section 9.15(b)(iv).
              -------------------------
    
             "Holders"  means the Red River  Shareholders or any person who becomes a holder of Subject  Securities  after the Closing Date
              -------
    as a result of a No-Sale Transaction.
    
             "No-Sale  Transaction"  means a transfer from a Holder of Subject  Securities  that does not constitute a "sale" (as such term
              --------------------
    is understood and defined under the Securities Act),  including without  limitation a distribution from a Holder that is a corporation,
    partnership, joint venture,  limited liability company, association or trust to the owner of a beneficial interest in such Holder.
    
             "Registration Expenses" has the meaning set forth in Section 9.15(e).
              ---------------------
    
             "Registration  Termination  Date"  means the second  anniversary  of the date when the  Commission  first  declares  the Shelf
              -------------------------------
    Registration Statement effective.
    
             "Shelf  Registration  Statement"  means a  registration  statement  on Form S-1 or S-3  filed  with the  Commission  under the
              ------------------------------
    Securities Act.
    
             "Subject  Securities"  means the shares of Beta Common Stock issued to the Red River  Shareholders  pursuant to the Merger and
              -------------------
    any common stock or other  security  issued or issuable as a dividend or other  distribution  with  respect to, or in exchange  for, or
    upon conversion or in replacement of, any of such Beta Common Stock.
    
             "Suspension Notice" has the meaning set forth in Section 9.15(b)(iv).
              -----------------
    
                               (b) (i) By no later than March 31,  2000,  Purchaser  shall  prepare  and file with the  Commission  a Shelf
    Registration  Statement for the purpose of registering the resale in the market from time to time of the Subject  Securities by Holders
    or by  potential  assignees of such Holders to which all or a portion of such  Holders'  Subject  Securities  may be  transferred  in a
    No-Sale Transaction.
    
                                        (ii)  Purchaser  will use its  best  efforts  to have the  Shelf  Registration  Statement  promptly
    declared  effective by the  Commission  on or after the filing of such Shelf  Registration  Statement  and  thereafter  to maintain the
    effectiveness of the Shelf  Registration  Statement and to maintain such Shelf Registration  Statement  "current" (as below defined) at
    all times until the Registration  Termination  Date.  Purchaser shall promptly give written notice to the Holders when the Registration
    Statement has been declared effective by the Commission and is available for use by Holders for the resale of Subject Securities.
    
                                        (iii) The Shelf  Registration  Statement  shall not be considered to be "current" at any time when,
    by reason  of  occurrence  of any  event or by reason of the  passage  of time,  the  Shelf  Registration  Statement  does not meet the
    requirements of Section 10, Section 12(2) or Section 17 of the Securities Act, or the Shelf  Registration  Statement contains an untrue
    statement of a material  fact or omits to state any material  fact  required to be stated  therein or necessary to make the  statements
    therein not misleading.  The Shelf  Registration  Statement shall disclose that Holders may elect to resell Subject  Securities without
    registration  of such sales under the Shelf  Registration  Statement,  by making such sales under and as permitted by Rules 144 or 145,
    as applicable, of the Commission under the Securities Act.
    
                                        (iv) If at any time or times after the Shelf  Registration  Statement is declared  effective by the
    Commission,  Purchaser determines that the offering of Beta Common Stock under the Shelf Registration  Statement would be significantly
    disadvantageous  to Purchaser  because of, or improper in view of (or improper  without  disclosure in the  prospectus  included in the
    Shelf  Registration  Statement  of), the existence or  anticipation  of a material  financing,  merger,  acquisition  or other material
    transaction or event involving Purchaser or its subsidiaries that has not been publicly  disclosed,  the unavailability of any required
    financial  statements for reasons  substantially  beyond the control of the Purchaser,  or other similar events or conditions involving
    Purchaser or its subsidiaries that have not been publicly  disclosed (a  "Disadvantageous  Condition"),  Purchaser shall be entitled to
                                                                              --------------------------
    either suspend the  effectiveness  of the Shelf  Registration  Statement with the Commission or suspend the  availability  of the Shelf
    Registration  for resales of Subject  Securities  by Holders,  or may take both such  actions,  and shall  promptly  notify all Holders
    thereof by delivery of written notice (a "Suspension Notice");  provided,  however,  that Purchaser's  obligation to maintain the Shelf
                                              -----------------
    Registration  Statement  current  under this  Section  9.15(b)  shall not be  suspended  by reason of  Purchaser's  failure to disclose
    information  at a time when public  disclosure of such  information  is required by law. Upon receipt of a Suspension  Notice,  Holders
    shall immediately  discontinue the use of the Shelf  Registration  Statement for any purpose until notified by Purchaser that the Shelf
    Registration  Statement is current and available for use by Holders for sales of Subject  Securities.  Purchaser  shall not be entitled
    to suspend the effectiveness of the Shelf Registration  Statement until the later of (X) the removal of the Disadvantageous  Conditions
    or (Y) for a period of not more than 60 consecutive  days, or (B) 180 days within any twelve-month  period.  As promptly as practicable
    after the public  disclosure  of such  Disadvantageous  Condition or the Purchaser  determines  that the  Disadvantageous  Condition no
    longer  exists,  Purchaser  shall amend or  supplement  the Shelf  Registration  Statement  to the extent  necessary  to make the Shelf
    Registration  Statement  current,  and shall give prompt written notice to all Holders when the Shelf  Registration  Statement is again
    available for resales of Subject Securities.
    
                                        (v) Purchaser shall promptly  notify all Holders of Subject  Securities of, and confirm in writing,
    the issuance by the Commission of any stop order  suspending the  effectiveness of the Shelf  Registration  Statement or the initiation
    of any  proceedings  for that  purpose.  Purchaser  shall use its best efforts to obtain the  withdrawal  of any order  suspending  the
    effectiveness of the Shelf Registration Statement at the earliest possible time.
    
                                        (vi) Purchaser will cause all of the Subject  Securities to be listed on each  securities  exchange
    or market,  as the case may be, on which similar  securities  issued by Purchaser  are then listed no later than the effective  date of
    the Shelf Registration Statement.
    
                      (c)      If at any time the Purchaser  proposes to file a registration  statement  under the 1933 Act with respect to
    an offering by the  Purchaser  for its own account or for the account of any other  Person of any class of equity  security,  including
    any warrants,  options or other security convertible into or exchangeable for any equity security (other than a registration  statement
    on Forms S-4 or S-8 (or their  successor  forms) or filed in connection  with an exchange offer or an offering of securities  solely to
    the Purchaser's existing  stockholders,  and other than as set forth in subsection (c)(i) below), then the Purchaser shall in each case
    give written  notice of such  proposed  filing to the Holders at least twenty (20) days before the  anticipated  filing date,  and such
    notice  shall offer such  Holders the  opportunity  to register  such number of Subject  Securities  as each such Holder may request (a
    "Piggy-back  Registration").  The  Purchaser  shall use  reasonable  efforts to cause the managing  underwriter  or  underwriters  of a
    proposed  underwritten  offering to permit the Holders  requested to be included in the  registration for such offering to include such
    securities in such offering on the same terms and conditions as any similar  securities of the Purchaser  included therein.  Similarly,
    Purchaser may include the shares of any other Person in the Shelf  Registration  Statement as  contemplated  in  subsection  (b) above.
    Notwithstanding  the foregoing,  if the managing  underwriter or underwriters of such offering  delivers an opinion to the Holders that
    the total amount of  securities  which they and any other  Persons  (other than the  Purchaser)  intend to include in such  offering is
    sufficiently  large to  materially  and  adversely  affect the success of such  offering,  then the amount of Subject  Securities to be
    offered for the accounts of Holders of Subject  Securities  shall be reduced pro rata with all securities held by holders of securities
    having rights for inclusion therein to the extent necessary,  in the opinion of such managing  underwriter,  to reduce the total amount
    of securities to be included in such offering to the amount  recommended by such managing  underwriter.  In connection  with the rights
    set forth in this subsection 9.15(c), it is agreed that:
    
                                        (i)     Notwithstanding  anything to the contrary contained in this Agreement,  the Purchaser shall
    not be required to include Subject  Securities in any registration  statement if the proposed  registration is (1) a  registration of a
    stock option or other employee  incentive  compensation or employee  benefit plan or of securities  issued or issuable  pursuant to any
    such plan,  or a  registration  statement  relating to warrants,  options or shares of capital  stock  granted or to be granted or sold
    primarily to employees,  directors or officers of the Purchaser,  (2) a  registration  of securities  issued or issuable  pursuant to a
    stockholder  reinvestment  plan or other similar plan,  (3) a  registration of securities  issued in exchange for any securities or any
    assets of, or in connection with a merger or consolidation with, an unaffiliated  Purchaser,  (4) a registration of securities pursuant
    to a "rights" or other  similar  plan  designed to protect the  Purchaser's  stockholders  from a coercive or other  attempt to cause a
    change in control of the Purchaser,  (5) a  registration  of securities  filed pursuant to Rule 145 under the 1933 Act or any successor
    rule, or (6) a registration  of preferred  stock or securities  issued in connection  with any debt or preferred stock financing of the
    Purchaser.
    
                                        (ii)    The Purchaser  may withdraw any  registration  statement and abandon any proposed  offering
    initiated by the Purchaser  without the consent of any Person,  including the Holders,  notwithstanding  the request of any such Holder
    to participate  therein in accordance  with this provision,  if the Purchaser  determines in its sole discretion that such action is in
    the best interests of the Purchaser and its stockholders (for this purpose, the interest of the Holders shall not be considered).
    
                               (d) Purchaser  will  indemnify and hold harmless  each Holder,  each of such Holder's  officers,  directors,
    partners,  or  members,  as the case  may be,  and each  Person  controlling  such  Holder,  with  respect  to  which  registration  or
    qualification  of Subject  Securities  has been  effected  pursuant to this  Section  9.15  against all claims,  losses,  damages,  and
    liabilities,  joint or several (or actions in respect  thereof),  arising out of or based upon any untrue  statement (or alleged untrue
    statement) of a material fact contained in the Shelf  Registration  Statement,  prospectus,  or offering  circular,  or in any document
    incorporated  by  reference  in any of the  foregoing,  or arising out of or based upon any  omission  (or alleged  omission)  to state
    therein a material fact required to be stated therein or necessary to make the statements  therein not misleading,  or any violation by
    Purchaser of any rule or regulation  promulgated  under the  Securities  Act applicable to Purchaser and relating to action or inaction
    required of Purchaser in connection with the Shelf Registration,  each of such Holder's officers,  directors,  partners, or members, as
    the case may be, and each Person controlling such Holder, for any legal and any other expenses  reasonably  incurred in connection with
    investigating or defending any such claims, loss, damage,  liability or action;  PROVIDED,  however,  that Purchaser will not be liable
    in any such case to the extent  that any such  claim,  loss,  damage,  liability  or expense  arises out of or is based upon any untrue
    statement or omission  based upon written  information  furnished to Purchaser by such Holder  specifically  for  inclusion in any such
    registration  statement,  prospectus or offering circular.  The obligations of Purchaser under the foregoing  indemnity agreement shall
    survive the completion of the offering of Subject Securities under the Shelf Registration Statement .
    
                               (e) Each  Holder  with  respect  to which  registration  or  qualification  of Subject  Securities  has been
    effected pursuant to this Section 9.15 will indemnify and hold harmless Purchaser,  each of Purchaser's officers,  directors,  and each
    Person controlling Purchaser,  against all claims, losses, damages, and liabilities,  joint or several (or actions in respect thereof),
    arising out of or based upon any untrue  statement  (or alleged  untrue  statement) of a material  fact  contained in any  registration
    statement,  prospectus,  or offering circular, or in any document incorporated by reference in any of the foregoing,  or arising out of
    or based upon any omission (or alleged  omission) to state therein a material  fact required to be stated  therein or necessary to make
    the statements therein not misleading,  or any violation by such Holder of any rule or regulation  promulgated under the Securities Act
    or Exchange  Act  applicable  to such Holder and  relating to action or inaction  required of such Holder in  connection  with any such
    registration  or  qualification,  and will promptly  reimburse  Purchaser,  each of Purchaser's  officers,  directors,  and each Person
    controlling  Purchaser,  for any legal and any other expenses  reasonably  incurred in connection with  investigating  or defending any
    such claims, loss, damage, liability or action;  PROVIDED,  however, that such Holder will not be liable in any such case to the extent
    that any such claim,  loss,  damage,  liability or expense does not arise out of or is not based upon any untrue  statement or omission
    based upon written information  furnished by such Holder specifically for inclusion in any such registration  statement,  prospectus or
    offering circular.  The obligations of Holders under the foregoing  indemnity agreement shall survive the completion of the offering of
    Subject Securities under any registration statement provided for in this Section 9.15.
    
                               (f) All expenses  incident to Purchaser's  performance of or compliance  with this Section 9.15,  including,
    without  limitation,  all  registration  and filing fees,  fees and expenses of compliance  with securities or blue sky laws (including
    fees and disbursements of counsel in connection with blue sky qualifications of the Subject  Securities),  rating agency fees, printing
    expenses,  messenger  and  delivery  expenses,  internal  expenses  (including,  without  limitation,  all salaries and expenses of its
    officers and employees  performing legal or accounting  duties),  the fees and expenses  incurred in connection with the listing of the
    securities to be registered on The Nasdaq Stock Market and all  securities  exchanges on which similar  securities  issued by Purchaser
    are then quoted or listed,  the fees and  disbursements  of counsel for  Purchaser and its  independent  certified  public  accountants
    (including the expense of any special audit or comfort letters required by or incident to such  performance),  securities act liability
    insurance  (if  Purchaser  elects to obtain such  insurance),  the fees and  expenses of any special  experts  retained by Purchaser in
    connection with such registration,  and fees and expenses of other Persons retained by Purchaser,  in connection with each registration
    hereunder (but not including  discounts,  commissions,  fees or expenses  payable to underwriters  that are attributable to the Subject
    Securities  offered on behalf of the Selling  Holder or the fees and  expenses of counsel for any selling  Holder)  (collectively,  the
    "Registration Expenses") will be borne by Purchaser.
    ----------------------
    
                               (g) Purchaser  will also take such action as may be required to be taken under  applicable  blue sky laws in
    connection  with the issuance of Beta Common Stock  pursuant to this Agreement and in connection  with resale of Subject  Securities by
    Holders  pursuant to the Shelf  Registration  Statement;  PROVIDED that Purchaser will not be required to become qualified as a foreign
    corporation in any jurisdiction.
    
    8.16     Publicity.  Prior to the Closing  Date,  all notices to third  parties and all other  publicity  relating to the  transactions
    contemplated  by this  Agreement  shall be jointly  planned,  coordinated  and  approved by the Company,  and  Purchaser or Merger Sub;
    provided, however, that such approval shall not be unreasonably withheld.
    
    8.17     Exhibits.  The Exhibits,  Schedules and  Attachments  referred to herein are  incorporated  into this  Agreement by reference.
    Such Exhibits,  Schedules and Attachments may be amended or modified by a party provided that the other party  ("Receiving  Party") has
    been furnished with a copy of the Amendment or modification to such Exhibit,  Schedule or Attachment;  provided,  however,  that if any
    such amendment shall materially adversely affect the economics,  financial or business considerations of the transactions  contemplated
    under this  Agreement as determined by the Receiving  Party,  such  Receiving  Party may terminate  this  Agreement in accordance  with
    Section 8.1.4.
    
    8.18     Entire Agreement.  This Agreement,  together with Exhibits,  Schedules and Attachments hereto, represents the entire agreement
    between the parties hereto with respect to the subject matter hereof and all prior  agreements,  understandings  or negotiations  shall
    be deemed  merged  herein.  No  representations,  warranties,  promises  or  agreements,  express or implied,  shall exist  between the
    parties, except as stated herein.
    
    8.19
    
    
    
    
                      Currency  Amounts.  All references to dollar amounts in this Agreement  shall refer to, and be interpreted  solely as
    referring to, the dollar amount under the United States monetary system.
    
             IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written.
    
                                                          BETA OIL & GAS, INC.
                                                          a Nevada corporation
    
                                                          By: /s/ J. Chris Steinhauser
    
                                                          Its: Chief Financial Officer
    
    
    
                                                           BETA ACQUISITION COMPANY, INC.
                                                          an Oklahoma corporation
    
                                                          By: /s/ J. Chris Steinhauser
    
                                                          Its: President
    
    
                                                          RED RIVER ENERGY, INC.
                                                          an Oklahoma corporation
    
                                                          By: /s/Rolf Hufnagel
    
                                                          Its: President
    
    
                                                          THE RED RIVER SHAREHOLDERS
    
    
    
                                                          /s/Rolf N. Hufnagel
    
    
    
                                                          /s/Robert E. Davis, Jr.
    
    
    
                                                          /s/Stephen J. Vogel
    
    
    
                                                          /s/Janet L. McGeehee
    
    
    
                                                          /s/Billy L. Baysinger, Jr.
    
    
    
                                                          /s/Brent A. Biggs
    
    
    
                                                          /s/Mark A. Biggs
    
    
    
    FIRST AMENDMENT TO
    
    AGREEMENT AND PLAN OF MERGER
    
            THIS FIRST
    AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER (“First Amendment”)
    is made as of this 19th day of January, 2000, by and among Beta Oil
    & Gas, Inc., a Nevada corporation (“Purchaser”), Beta Acquisition
    Company, Inc., an Oklahoma corporation (“Merger Sub”), and Red River
    Energy, Inc., an Oklahoma corporation (“Company”), and the
    shareholders executing this Agreement, individually (collectively, “Red
    River Shareholders”). Unless otherwise defined in this First Amendment, all
    capitalized terms in this document shall have the same meaning as defined in the
    Merger Agreement. 
    
    R E C I T A L S
    
            A. The parties
    hereto have proposed that prior to the Closing Date, Purchaser issue in the
    respective names of the Red River Shareholders and deposit in escrow the total
    number of shares of Beta Common Stock to be issued to the Red River Shareholders
    at Closing as a condition of the obligations of the Company and the Red River
    Shareholders to consummate the Merger as contemplated under the Merger Agreement
    and to provide assurances to the Red River Shareholders that such shares will be
    received by them in connection with the consummation of the Merger; 
    
            B. Purchaser is
    willing to issue and make a deposit in good faith of all of the shares of Beta
    Common Stock to be issued to the Red River Shareholders which will constitute
    the stock consideration (“Share Consideration”) to be paid by
    Purchaser under the Merger Agreement; and 
    
            C. The parties
    to the Agreement and Plan of Merger, dated November 19, 1999 (“Merger
    Agreement”), wish to amend the Merger Agreement to provide for the issuance
    and deposit of such portion of the Share Consideration with an escrow agent
    mutually agreeable to the parties hereto. 
    
    NOW THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the
    receipt and sufficiency of which are hereby acknowledged, the parties hereby amend the Merger Agreement and agree
    as follows:
    
            1.    Issuance and Deposit of Portion of Share Consideration.  The Merger Agreement is hereby amended to add a
    new Section 3.2.15 which shall read in its entirety as follows:
    
            “3.2.15 Escrow of Portion of Share Consideration. As of the Effective Date of
    the First Amendment to the Merger Agreement, Purchaser shall issue seven (7)
    stock certificates representing 2,250,000 shares of Beta Common Stock for the
    number of shares in the names of current Red River Shareholders as follows:
    
    
    
                  
    Name
                                   
    Number of Shares
    
    
              
    Rolf N. Hufnagel
                                       
    1,440,000
    
    
              
    Robert E. Davis, Jr.
                                   
      360,000
    
    
              
    Stephen J. Vogel
                                       
       90,000
    
    
              
    Janet L. McGehee
                                       
       90,000
    
    
              
    Billy L. Basinger, Jr
                                  
       90,000
    
    
              
    Brent A. Biggs
                                         
       90,000
    
    
              
    Mark A. Biggs
                                          
       90,000
    
    
    
            The shares represented by such stock certificates shall constitute "restricted
             securities" within the meaning of Rule 144(a)(3) of the Securities Act of 1933, as amended
             ("the Act").  Such stock certificates shall contain a restrictive legend as to the restrictions
             on the transferability of such shares.  Such certificates shall be deposited with, and held by
             H.T.C. Escrow Company,("Escrow Agent"), 730 Seventeenth Street, Suite 500, Denver, Colorado
             80202, pursuant to the terms and provisions of the Escrow Agreement and Instructions ("Escrow
             Agreement") which is attached to this First Amendment in the form of Appendix A.
    
            The stock certificates shall be delivered by the Escrow Agent on the Closing Date to
             Rolf N. Hufnagel as the agent for the Red River Shareholders.  If the Merger Agreement is
             terminated in accordance with the terms thereof prior to the consummation of the Merger, the
             stock certificates shall be redelivered by the Escrow Agent to Purchaser.  Each of the parties
             hereto agrees to provide written instructions to the Escrow Agent to such effect.“
    
             During the period that the shares represented by the Stock Certificate as set forth
             above are held in escrow pending the consummation of the Merger, neither the Escrow Agent nor
             any of the Red River Shareholders shall have the right to vote such shares or dispose of such
             shares, except to the extent of the Escrow Agent's obligation to deliver or redeliver the
             shares as provided in the Escrow Agreement.
    
            2.    Effective Date.  This First Amendment to the Merger Agreement shall be effective for all purposes as of
    January 14, 2000 ("Effective Date").
    
            3.    Amendment to Schedule A. Schedule A to the Merger Agreement is hereby amended as set forth on the
    Amended Schedule A attached hereto.
    
            4.    Authorization of Agent to Sign.  By signing this First Amendment, the undersigned Red River Shareholders
    hereby authorize and empower Rolf N. Hufnagel as their agent to execute the Escrow Agreement on their
    behalf, to execute any instructions to the Escrow Agent that may be necessary or  appropriate under the
    terms of this agreement or the Escrow Agreement and to act on their behalf by taking any and all action
    which may be required of them under the terms and provisions of the Escrow Agreement.
    
            5.    No Other Modifications.  Except as modified by this First Amendment, there are no other changes or
    modifications to the Merger Agreement.  The Merger Agreement, as of the date hereof, remains in full
    force and effect and is enforceable in accordance with the terms thereof, including the terms of this
    First Amendment.
    
            6.    Counterparts.  This Agreement may be signed in one or more counterparts, each of which shall be deemed
    an original but all of which shall constitute one and the same instrument.
    
    Even though this First Amendment is executed by the parties on a later date, it shall be effective for
    all purposes as of the Effective Date.
    
    IN WITNESS  WHEREOF,  the parties  hereto have  executed  this  Agreement the day and year first above
    written.
                                            BETA OIL & GAS, INC.
                                            a Nevada Columbia corporation
    
                                            By: /s/ J. Chris Steinhauser
    
                                            Its:Chief Financial Officer
    
                                            BETA ACQUISITION COMPANY, INC.
                                            an Oklahoma corporation
    
                                            By: /s/ J. Chris Steinhauser
    
                                            Its: President
    
                                            RED RIVER ENERGY, INC.
                                            an Oklahoma corporation
    
                                            By: /s/ Rolf Hufnagel
    
                                            Its: President
    
                                            THE RED RIVER SHAREHOLDERS
    
                                            /s/Rolf N. Hufnagel
    
                                            /s/Robert E. Davis, Jr.
    
                                            /s/Stephen J. Vogel
    
                                            /s/Janet L. McGehee
    
                                            /s/Billy L. Baysinger, Jr.
    
                                            /s/Brent A. Biggs
    
                                            /s/Mark A. Biggs
    
    
    Schedule A
    
                                  To the First Amendment to Agreement and Plan of Merger
    Dated January 19, 2000
    
    Red River Shareholders
    
    
    
                                                             
    RED RIVER
                     
    BETA
    
    
     Rolf N. Hufnagel
    640 Shares
    1,440,000 Shares
    
    
    Robert E. Davis, Jr.
    160 Shares
    360,000 Shares
    
    
    Billy L. Baysinger, Jr.
    40 Shares
    90,000 Shares
    
    
    Brent A. Biggs
    40 Shares
    90,000 Shares
    
    
    Mark A. Biggs
    40 Shares
    90,000 Shares
    
    
    Janet L. McGehee
    40 Shares
    90,000 Shares
    
    
    Stephen J. Vogel
    40 Shares
    90,000Shares
    
    
    Total
    1,000 Shares
    2,250,000 Shares
    
    
    
    
    
    APPENDIX A
    
    TO THE FIRST AMENDMENT TO AGREEMENT AND
    
    PLAN OF MERGER DATED JANUARY 19, 2000
    
    ESCROW AGREEMENT AND INSTRUCTIONS
    
    TO:   H.T.C. ESCROW COMPANY
    
         Beta Oil & Gas, Inc., a Nevada corporation  ("Company"),  hereby delivers to you a stock certificates ("Stock  Certificates")
    for  2,250,000  shares of its Common Stock $.001 par value ("the  Shares")  which have been issued for the number of Shares in the name
    of the current shareholders of Red River Energy, Inc. as follows:
    
    
              
    Name
                   
    Number of Shares
          
    Stock Certificate No.
    
    
              
    Rolf N. Hufnagel
           
    1,440,000
    
    
              
    Robert E. Davis, Jr.
       
    360,000
    
    
              
    Stephen J. Vogel
            
    90,000
    
    
              
    Janet L. McGeehee
           
    90,000
    
    
              
    Billy L. Basinger, Jr.
      
    90,000
    
    
              
    Brent A. Biggs
              
    90,000
    
    
              
    Mark A. Biggs
               
    90,000
    
    
    
         The Shares  represented by the  Certificates are being deposited in an escrow account with you, as escrow agent, as a deposit
    made in good faith of the total stock  consideration  to be transferred  to the  shareholders  of Red River Energy,  Inc. in connection
    with the  performance of the Company's  obligations  under the Plan of Merger and Agreement,  dated November 19, 1999 as amended by the
    First  Amendment  to Agreement  and Plan of Merger,  dated  January 19, 2000  ("Merger  Agreement")  prior to the closing of the merger
    transaction as contemplated  under the Merger Agreement.  The Certificates  representing the Shares are to be held and delivered by you
    in accordance  with the  directions  contained in Schedule A attached  hereto and made a part hereof by this reference and on the terms
    and conditions as otherwise set forth in this Agreement.
    
         The Shares  represented  by the Stock  Certificates  are  "restricted  securities"  within the meaning of Rule  144(a)(3)  as
    promulgated under the Securities Act of 1933, as amended (the "Act").  The Stock  Certificates  contain a restrictive  legend as to the
    restrictions on the transferability of the Shares.
    
         During the period that the Shares  represented by the Stock  Certificate,  as set forth above, are held in escrow as provided
    in this Agreement,  neither the Agent (as defined below) nor any of the  shareholders of Red River Energy,  Inc. named in the foregoing
    table shall have the right to vote the Shares or dispose of the Shares,  except to the limited  extent as directed in  accordance  with
    the instructions to the Agent in Schedule A attached hereto.
    
         The  persons  signing  this  Agreement  are parties to the Merger  Agreement  and hereby  represent  that they have been duly
    authorized to sign this Agreement in the capacity as set forth in the signature page to this Agreement.
    
    SECTION ONE
    
    POSITION OF AGENT
    
         H.T.C.  Escrow Company (hereafter "Agent") acts hereunder as a depositary only and is not a party to, or bound by, any of the
    terms of  provisions  of the Merger  Agreement or any other  agreement or  undertaking  which may be evidenced  by, or arise out of, or
    which may  relate to,  the  Shares  deposited  with it under the terms of this  Agreement.  Agent is not  responsible  or liable in any
    manner for the sufficiency,  correctness,  genuineness, or validity of the Shares represented by the Stock Certificates or the issuance
    thereof  and  undertakes  no  responsibility  or  liability  for the form of  execution  of such Stock  Certificates  or the  identity,
    authority, title or rights of any person executing or depositing the Stock Certificates as described in this Agreement.
    
    SECTION TWO
    
    LIABILITY OF AGENT
    
         Agent  shall not be liable  for any error of  judgment  or for any act done or omitted by it in good  faith,  or for  anything
    which it may in good faith do or refrain from doing in  connection  herewith.  No liability  will be incurred by Agent if, in the event
    of any  dispute or question as to the  construction  of the  directions  in Schedule A, it acts in  accordance  with the opinion of its
    legal counsel.  The Company hereby agrees to indemnify Agent and to hold Agent harmless  against any claims  whatsoever in the event of
    any dispute  between the Company and Red River Energy,  Inc. or any of the  Shareholders  of Red River Energy,  Inc., or with any third
    person with respect to this agreement and the Merger Agreement.
    
    SECTION THREE
    
    NOTICES OF DEFAULT
    
         All notices of default of any persons  shall be given in writing to an officer of Agent.  Unless  written  notice shall be so
    given,  Agent  shall not be  required  to take or be bound by notice of any  default or to take  action  concerning  such  default.  If
    written notice of default is properly  given and Agent is required on receipt  thereof to take any action with respect to such default,
    and such action  involves  any expense or  liability,  Agent shall not be required to take any such  action,  unless it is  indemnified
    against such expense or liability in a manner satisfactory to it.
    
    SECTION FOUR
    
    DOCUMENTS
    
         Agent is authorized to act on any document  believed by it to be genuine and to be signed by the proper party or parties,  and
     will incur no liability in so acting.
    
    SECTION FIVE
    
    ADVERSE CLAIMS
    
         In the event of any  disagreement  or the  presentation  of adverse  claims or demands in  connection  with, or for the Shares
     represented by, the Stock Certificates or any matter related to or affected thereby,  Agent shall, at its option, be entitled to refuse
     to comply with any such claims or demands  during the  continuance  of such  disagreement  and may refrain  from  delivering  the Stock
     Certificates,  and in so doing Agent  shall not become  liable to the  Company or any party to the Merger  Agreement  or to any persons
     named in the attached  schedules,  or to any other person,  due to its failure to comply with any such adverse  claim or demand.  Agent
     shall be entitled to continue, without liability, to refrain and refuse to act:
    
         (a)   Until all the rights of the adverse  claimants have been finally  adjudicated by a court having  jurisdiction
              of the parties and the Shares  represented  by the Stock  Certificates  and any matter related to this Agreement or the Merger
              Agreement, after which time Agent shall be entitled to act in conformity with such adjudication; or
    
         (b)   Until all  differences  shall have been adjusted by agreement and Agent shall have been notified  thereof and
              shall have been directed in writing  signed  jointly or in counterpart by the Company and by all persons making adverse claims
              or demands, at which time Agent shall be protected in acting in compliance therewith.
    
         Agent may, at its option,  in the absence of a final  adjudication  or agreement  between the parties,  interplead  the Stock
     Certificates  representing the Shares held by Agent into the District Court for the City and County of Denver, State of Colorado,  and
     shall be entitled to reimbursement for its reasonable attorney's fees in so doing.
    
    SECTION SIX
    
    COMPENSATION LIEN
    
         Agent  agrees to serve  without  compensation  under this  Agreement.  However,  Agent  shall have a first lien on the Shares
     represented by the Stock  Certificates  held by it under this Agreement for any costs,  liability,  expenses or fees it may reasonably
     incur as the consequence of its acting as Agent under this Agreement.
    
         Dated this 19th day of January, 2000.
                                    THE COMPANY:
    
                                    Beta Oil and Gas, Inc.,
                                    a Nevada corporation
    
    
                                    by:/s/J. Chris Steinhauser
                                       Chief Financial Officer
    
                                    Red River Energy, Inc.,
                                    an Oklahoma corporation
    
    
                                    by:/s/Rolf N. Hufnagel
                                       Rolf N. Hufnagel, President
    
    
    
                                   /s/Rolf N. Hufnagel
                                   Rolf N.  Hufnagel,  individually  and
                                   as  Agent for the Red  River  Shareholders
                                   signatory to the Merger  Agreement as
                                   authorized  by the First  Amendment to
                                   the Merger Agreement, dated
                                   January 19, 2000
    
    
         H.T.C.  Escrow Company  acknowledges  receipt of your escrow letter of  instructions  of which the foregoing is a copy, and of
     the Stock Certificate  representing the Shares as provided in the foregoing Escrow Agreement,  and agrees to hold and deliver the Stock
     Certificate in accordance with the terms and conditions in the escrow letter of instructions and the directions  contained in Schedule
     A attached to such Agreement.
    
    
         Dated this 19th day of January, 2000.
    
                                                          H.T.C. ESCROW COMPANY
    
    
    
                                                         by:/s/Denis B. Clanahan
    
    
    
    
    SCHEDULE A
    
    INSTRUCTIONS FOR HOLDING STOCK CERTIFICATE
    
         H.T.C.  Escrow Company  ("Agent") is hereby  instructed to take  possession of and hold Stock  Certificate  Numbers _____
      through _____,  inclusively,  as identified in the Escrow Agreement and Instructions,  dated January ____, 2000  ("Agreement") to
      which this Schedule A is attached.
    
         Agent shall hold such Stock  Certificates  until such time as Agent has received written  instructions  from the Company,
      Red River Energy,  Inc. and Rolf N. Hufnagel,  on his behalf and on behalf of all of the Red River Shareholders  signatory to the
      Merger Agreement,  as amended,  which instructions shall have been signed by all such persons directing Agent as to the person to
      whom the items set forth in thisSchedule A should be delivered by the Agent.
    
         Upon delivery of the Stock  Certificates,  the parties to the Agreement as well as their respective  attorneys shall sign
     such releases and  indemnities  as required by Agent and at such time Agent shall be discharged of any and all duties  obligations
     required by it to be performed and any and all  liabilities  relating to or arising out of its duties and  responsibilities  under
     this Agreement and the discharge thereof.
    
         Dated this 19th day of January, 2000.
                                        THE COMPANY:
    
                                        Beta Oil and Gas, Inc.,
                                        a Nevada corporation
    
    
    
                                        by:/s/ J. Chris Steinhauser
                                           J. Chris Steinhauser
                                           Chief Financial Officer
    
                                        Red River Energy, Inc.,
                                        an Oklahoma corporation
    
    
    
                                        by:/s/ Rolf N. Hufnagel
                                           Rolf N. Hufnagel, President
    
    
    
                                        /s/ Rolf N. Hufnagel
                                        Rolf  N.  Hufnagel,  individually  and
                                        as  Agent  for the  Red  River
                                        Shareholders signatory  to the Merger
                                        Agreement  as  authorized  by the
                                        First  Amendment to the Merger Agreement,
                                        dated January 19, 2000
    
    
    SECOND AMENDMENT TO
    
    AGREEMENT AND PLAN OF MERGER
    
            THIS SECOND
    AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER (“Second Amendment”)
    is made as of this 14th day of February, 2000, by and among Beta Oil & Gas,
    Inc., a Nevada corporation (“Purchaser”), Beta Acquisition Company,
    Inc., an Oklahoma corporation (“Merger Sub”), and Red River Energy,
    Inc., an Oklahoma corporation (“Company”), and the shareholders
    executing this Agreement, individually (collectively, “Red River
    Shareholders”). Unless otherwise defined in this Second Amendment, all
    capitalized terms in this document shall have the same meaning as defined in the
    Merger Agreement, dated November 19, 1999. 
    
    R E C I T A L S
    
    A. Since the date that the parties hereto entered into the
    Merger Agreement, certain developments have occurred which the parties hereto
    have determined necessitate that the Merger contemplated under such agreement be
    consummated in any event with only limited exceptions and the parties hereto
    intend that the terms and provisions of the Merger Agreement shall be binding on
    the parties hereto and subject to limited exceptions shall be specifically
    enforceable by any party to the Merger Agreement notwithstanding any provisions
    presently contained in the Merger Agreement to the contrary; 
    
    B. Such developments include without limiting the generality
    thereof (i) the payment by the Purchaser of auditor’s fees with respect the
    audit of the consolidated financial statements of Red River Energy, LLC and its
    subsidiaries for the year ended December 31, 1998 and the unaudited consolidated
    financial statements for Red River Energy, LLC and its subsidiaries for the nine
    month period ended September 30, 1998 and 1999, and (ii) the indication by the
    United States Securities and Exchange Commission (“Commission”) that
    the Preliminary Proxy Statement filed with the Commission on January 12, 2000
    will be fully reviewed and the resulting delay to the Closing of the Merger
    Agreement that could result from such regulatory review; 
    
    C. The desire of the parties hereto to have certainty that,
    subject to certain exceptions as set forth in this Second Amendment, the
    transaction contemplated under the Agreement will be Closed and the Merger will
    be effectuated and as such enable the parties to proceed with the planned
    expenditures and development of the properties, implement and carry out the
    business plans and strategies for, and proceed with the conduct of the combined
    business operations and activities of the Purchaser and the Company on a going
    forward basis as though Merger Sub had merged with and into the Company and the
    Company was a wholly owned subsidiary of the Purchaser; 
    
    D. The parties hereto wish is to amend the Merger Agreement, as
    amended by the First Amendment to the Agreement and Plan of Merger, dated
    January 19, 2000, to extend date when the Merger Agreement will automatically be
    terminated if the Closing of the Merger has not been completed by a fixed date
    as provided in this Second Amendment; and 
    
    E. The parties in addition wish to amend Sections 3.1 and 3.2 of
    the Merger Agreement to provide that the Closing as contemplated under the
    Merger Agreement, as amended, will occur, and the Merger will be consummated, in
    any event on the Closing Date and at the Effective Time notwithstanding the
    satisfaction of the conditions set forth in Sections 3.1.1 through 3.1.15 and
    Sections 3.2.1 through 3.2.14 of the Merger Agreement to the contrary, except as
    otherwise provided in this Second Amendment. 
    
            NOW
    THEREFORE, in consideration of the foregoing premises and for other good and
    valuable consideration, the receipt and sufficiency of which are hereby
    acknowledged, the parties hereby amend the Merger Agreement, as previously
    amended, and agree as follows: 
    
    1. Amendments to Conditions of
    Closing. Sections 3.1 and 3.2 are hereby
    amended to provide that the obligations of the respective parties to Close as
    set forth under such Sections shall be subject only to the conditions that (i)
    no party has intentionally and fraudulently misrepresented or willfully breached
    any material representation or warranty made by such party to the other party as
    set forth in the Merger Agreement; (ii) no suit, action or other proceeding
    shall be pending or threatened as set forth in Sections 3.1.5 and 3.2.5 of the
    Merger Agreement; and (iii) the shareholders of the Purchaser shall have
    approved the Merger Agreement in accordance with the Purchaser’s Articles
    of Incorporation, its Bylaws and the General Corporation Law of Nevada.
    Otherwise, the conditions set forth in Sections 3.1.1 through 3.1.15 of the
    Merger Agreement shall be performed by the Company and the Red River Shareholder
    on or before the Closing Date but except as expressly provided in this Section 1
    shall not be a condition of the Purchaser’s and Merger Sub’s
    obligation to close the transactions contemplated under the Merger Agreement on
    the Closing Date. Similarly, the conditions set forth in Sections 3.2.1 through
    3.2.14 of the Merger Agreement shall be required to be performed by the
    Purchaser and Merger Sub on or before the Closing Date but except as expressly
    provided in this Section 1 shall not be a condition of the Company’s and
    the Red River Shareholders’ obligation to close the transactions
    contemplated under the Merger Agreement on the Closing Date. 
    
    2.Closing.  The  first  sentence  of  Section  2.4 of the  Merger  Agreement  shall be  deleted  and the  following  shall be in
    substitution therefor:
    
    
    
     
    
    “The
    Closing Date shall occur on that date which is on or before three (3) days after
    the satisfaction and receipt of any and all required conditions and approvals as
    set forth in Section 1 of the Second Amendment to the Merger Agreement, but in
    no event shall the Closing occur later than December 31, 2000; provided,
    however, that notwithstanding anything contained in the foregoing to the
    contrary, the Closing Date shall occur no sooner than three (3) days after the
    date that Purchaser in using its reasonable best efforts has satisfied the
    requirements of Sections 3.2.12 and 3.2.13 or if the Closing has not occurred by
    June 30, 2000, the Closing shall not occur until three (3) days after such
    registration statement has been declared effective by the Commission; and
    provided further that so long as Purchaser has used its best efforts to file the
    registration statement as provided herein, and any delays in filing or having
    the registration statement declared effective are for any reason beyond
    Purchaser’s control and relate to delays by Red River, the Closing shall
    occur within three (3) days after the necessary conditions and approvals under
    Section 1 of the Second Amendment have occurred. At the Closing, the shares of
    Beta Common Stock as contemplated under Section 7.2.1 shall be delivered by the
    escrow agent consistent with the provisions of the First Amendment to the Merger
    Agreement and the Escrow Agreement and Instructions attached thereto.
    
    
    
    
    
    Except as so amended, the remainder of Section 2.4 shall remain unmodified.
    
    3.Amendment  to  Registration  of  Securities  Section  9.15(b)(I)  of the  Merger  Agreement  is hereby  amended to read in its
    entirety as follows:
    
    
     
    
    “As soon as  reasonably  possible  after filing the  Definitive  Proxy  Statement,  and no later than June 30,
             2000,  the  Purchaser  shall  prepare and file with the  Commission a Shelf  Registration  Statement  for the
             purpose of  registering  the resale in the market from time to time of the Subject  Securities  by Holders or
             by
             potential  assignees  of such  Holders  to  which  all or part of such  Holders'  Subject  Securities  may be
             transferred in a No-Sale Transaction.
    
    
    
    
    
    4.Amendment to  Termination  for Breach or  Misrepresentation.  Section 8.1.2 of the Merger  Agreement is hereby amended to read
    in its entirety as follows:
    
    
     
    
    “8.1.2
    Prior to Closing Date. By the Company or Purchaser or Merger Sub if the
    other party shall have fraudulently and intentionally misrepresented any
    representation of a material nature or willfully breached any material warranty
    contained herein, and such misrepresentation or breach shall not have been cured
    by the earlier of (i) thirty (30) days after the giving of notice of such party
    of such misrepresentation or breach or (ii) the Closing Date.”
    
    
    
    
    
    5. Amendment to Termination
    Date. Section 8.1.3 of the Merger Agreement
    is hereby amended to change the date of March 31, 2000, as referenced therein,
    to December 31, 2000, which shall be the date when either party by written
    notice to the other may terminate the Merger Agreement if the Closing shall not
    have occurred by such date. Except as amended by this Section 2, the provisions
    of Section 8.1.3 shall remain unmodified. 
    
    6. Deletion of Provision Relating to
    Termination. Section 8.1.4 of the Merger
    Agreement is hereby deleted in its entirety. As a consequence of such deletion,
    Section 8.1.5 of the Merger Agreement is hereby renumbered as Section 8.2 and
    any reference therein to Section 8.1.5 shall be deemed to refer to Section 8.2. 
    
    7.Specific Performance.  A new Section 9.20 shall be added to the Merger Agreement which shall read in its entirety as follows:
    
    
    
    
     
    
    “9.20
    Specific Performance. In the event either party breaches any provision of this
    Agreement, fails to perform or is in breach of any covenant contained in this
    Agreement, or makes a misrepresentation of any representation or breaches any
    warranty contained in this Agreement which does not involve a fraudulent or
    intentional misrepresentation of a material fact or a willful breach of a
    material warranty, the nonbreaching party’s sole recourse shall be the
    right to seek specific performance of the Merger Agreement in a court of
    competent jurisdiction having jurisdiction over the breaching party; provided,
    however, that the nonbreaching party shall be entitled to the remedies set forth
    in Sections 9.12 or 9.13, whichever section is applicable to the party which is
    not in breach of this Agreement. If the misstatement or breach of a
    representation or warranty involves a fraudulent or intentional
    misrepresentation of a material fact or a willful breach of a material warranty,
    the nonbreaching party shall have the right to terminate this Agreement in
    accordance with Section 8.1.2 or shall be entitled to seek specific performance
    of this Agreement as provided in this Section 9.20.”
    
    
    
    
    
    8.Effective  Date.  This Second  Amendment to the Merger  Agreement  shall be effective for all purposes as of February 14, 2000
    ("Effective Date").
    
    9.No Other  Modifications.  Except as modified by this Second  Amendment,  there are no other  changes or  modifications  to the
    Merger  Agreement,  as  previously  amended.  The Merger  Agreement,  as  previously  amended,  remains in full force and effect and is
    enforceable in accordance with the terms thereof, including the terms of this Second Amendment,
    
    10.Counterparts.  This  Second  Amendment  may be signed 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.
    
            Even though this
    Second Amendment is executed by the parties on a later date, it shall be
    effective for all purposes as of the Effective Date. 
    
            IN WITNESS
    WHEREOF, the parties hereto have executed this Agreement the day and year
    first above written. 
    
    
    
     
    BETA OIL & GAS, INC.
    
    
     
    a Nevada corporation
    
    
     
    By: /s/Steve Antry
    Steve Antry
    
    
     
    Its: President
    
    
    
     
    BETA ACQUISITION COMPANY, INC.
    
    
     
    an Oklahoma corporation
    
    
     
    By: J. Chris Steinhauser
    
    
    
     
    Its: President
    
    
    
     
    RED RIVER ENERGY, INC.
    
    
     
    an Oklahoma corporation
    
    
     
    By: /s/Rolf Hufnagel
    
    
     
    Its: Rolf Hufnagel
    
    
    
     
    THE RED RIVER SHAREHOLDERS
    
    
    
     
    /s/Rolf N. Hufnagel
    
    
     
    Rolf N. Hufnagel
    
    
    
     
    /s/Robert E. Davis, Jr.
    
    
     
    Robert E. Davis, Jr.
    
    
    
     
    /s/Stephen J. Vogel
    
    
     
    Stephen J. Vogel
    
    
    
     
    /s/Janet L. McGeehee
    
    
     
    Janet L. McGeehee
    
    
    
     
    /s/Billy L. Baysinger, Jr.
    
    
     
    Billy L. Baysinger, Jr.
    
    
    
     
    /s/Brent A. Biggs
    
    
     
    Brent A. Biggs
    
    
    
     
    /s/Mark A. Biggs
    
    
     
    Mark A. Biggs
    
    
    
    
     ANNEX B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Red River Energy, Inc.
    
                                                     and Subsidiaries
    
    
    
                                             Consolidated Financial Statements
    
                                                    For the Years Ended
    
                                                December 31, 1998 and 1999
    
    
    
    
    
    
    
    INDEX TO FINANCIAL STATEMENTS
    
    
    
                                                                                                                     Page
                                                                                                                     ----
    
    Independent Auditor's Report......................................................................................F-2
    
    Consolidated Balance Sheets - December 31, 1998 and 1999..........................................................F-3
    
    Consolidated Statements of Operations - For the Years Ended December 31, 1998 and 1999 ...........................F-4
    
    Consolidated Statement of Stockholders' Equity - For the Years Ended
         December 31, 1998 and 1999...................................................................................F-5
    
    Consolidated Statements of Cash Flows - For the Years Ended December 31, 1998 and 1999 ...........................F-6
    
    Notes to Consolidated Financial Statements........................................................................F-7
    
    
    
    
    
    
    
     INDEPENDENT AUDITOR'S REPORT
    
    
    
    
    
    The Stockholders and Board of Directors
    
    Red River Energy, Inc.
    
    Tulsa, Oklahoma
    
    
    
    We have audited the  consolidated  balance  sheets of Red River Energy,  Inc. and  subsidiaries  as of December 31,
    1998 and 1999, and the related  consolidated  statements of operations,  stockholders'  equity,  and cash flows for
    the years  then  ended.  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 consolidated financial statements referred to above present fairly, in all material respects,
    the financial position of Red River Energy, Inc. and subsidiaries as of December 31, 1998 and 1999 and the results
    of their operations and their cash flows for the years then ended in conformity with generally accepted accounting
    principles.
    
    
    
    
    /S/ HEIN + ASSOCIATES LLP
    
    HEIN + ASSOCIATES LLP
    
    Certified Public Accountants
    
    
    Orange, California
    
    February 16, 2000
    
    
    
    
    
    RED RIVER ENERGY, INC. AND SUBSIDIARIES
    
    CONSOLIDATED BALANCE SHEETS
    
    
                                                                                  DECEMBER 31,            DECEMBER 31,
                                                                                      1998                    1999
                                                                              ---------------------    --------------------
    
                                                            ASSETS
                                                            ------
    CURRENT ASSETS:
         Cash                                                                 $         48,980         $        366,653
         Accounts receivable                                                           335,002                  308,572
         Advance on drilling contract                                                   30,000                      600
                                                                              ----------------         ----------------
             Total current assets                                                      413,982                  675,825
    
    OIL AND GAS PROPERTIES, at cost (full cost method)
         Evaluated properties                                                        5,224,845                5,897,603
         Unevaluated properties                                                      1,143,656                2,708,661
         Less - accumulated amortization of full cost pool                            (137,936)                (461,030)
                                                                              ----------------         -----------------
             Net oil and gas properties                                              6,230,565                8,145,234
    
    OTHER OPERATING PROPERTY AND EQUIPMENT, at cost
         Gas gathering system                                                           -                     1,303,160
         Support equipment                                                           1,012,335                1,096,415
         Less - accumulated depreciation                                               (38,118)                (201,315)
                                                                              ----------------         -----------------
             Net other operating property and equipment                                974,217                2,198,260
    
    FURNITURE, FIXTURES AND EQUIPMENT, net                                              39,316                   28,194
    OTHER ASSETS                                                                       -                          8,818
                                                                              ----------------         ----------------
    
                                TOTAL ASSETS                                  $      7,658,080               11,056,331
                                                                              ================         ================
    
    LIABILITIES AND STOCKHOLDERS' EQUITY
    CURRENT LIABILITIES:
         Current portion of long-term debt                                    $         68,424         $      2,233,176
         Accounts payable, trade                                                       303,931                  161,329
         Accounts payable, related party                                                95,931                   57,023
         Accrued interest                                                               36,154                  126,989
         Other accrued liabilities                                                       2,300                   60,855
                                                                              ----------------         ----------------
             Total current liabilities                                                 506,740                2,639,372
    
    LONG-TERM DEBT, less current portion                                             6,421,095                7,767,386
                                                                              ----------------         ----------------
         Total liabilities                                                           6,927,835               10,406,758
    
    COMMITMENTS (Note 8)                                                               -                        -
    
    STOCKHOLDERS' EQUITY
         Common stock, $1.00 par value, 50,000 shares authorized, 1,000
           shares issued and outstanding                                                 1,000                    1,000
         Additional paid-in capital                                                  1,238,911                1,255,500
         Accumulated deficit                                                          (509,666)                (606,927)
                                                                              ----------------         ----------------
                                  Total stockholders' equity                           730,245                  649,573
                                                                              ----------------         ----------------
    
                 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $      7,658,080         $     11,056,331
                                                                              ================         ================
    
    
    See accompanying notes to consolidated financial statements.
    
    
    
    RED RIVER ENERGY, INC. AND SUBSIDIARIES
    
    CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    
                                                                                          FOR THE YEARS ENDED
                                                                                              DECEMBER 31,
                                                                                      1998                    1999
                                                                              ---------------------    --------------------
    
    REVENUES:
         Oil and gas sales                                                    $        865,356         $      2,852,121
         Field services                                                                 -                       336,637
                                                                              ----------------         ----------------
             Total revenue                                                             865,356                3,188,758
                                                                              ----------------         ----------------
    
    COSTS AND EXPENSES:
         Oil and gas production costs                                                  316,533                1,148,421
         Field services                                                                 -                       148,354
         General and administrative                                                    685,573                  980,627
         Depreciation, depletion and amortization expense                              182,747                  498,791
                                                                              ----------------         ----------------
             Total costs and expenses                                                1,184,853                2,776,193
                                                                              ----------------         ----------------
    
    INCOME (LOSS) FROM OPERATIONS                                                     (319,497)                 412,565
                                                                              ----------------         ----------------
    
    OTHER INCOME (EXPENSE):
         Gain (loss) on sale of fixed assets                                           (20,000)                   2,438
         Interest expense, net                                                        (168,851)                (512,264)
         Other, net                                                                     (1,318)                 -
                                                                              ----------------         -----------------
             Total other income (expense)                                             (190,169)                (509,826)
                                                                              ----------------         -----------------
    
    NET (LOSS)                                                                 $      (509,666)        $        (97,261)
                                                                               ===============         =================
    
    
    
    See accompanying notes to consolidated financial statements.
    
    
    
    
    RED RIVER ENERGY, INC. AND SUBSIDIARIES
    
    
    CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
    
    FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
    
    
    
    
    
                                                                                                             Additional                                       Total
                                                                   Common Stock                               Paid-in             Accumulated              STOCKHOLDERS'
                                                                     Shares               Amount              Capital              Deficit                   EQUITY
                                                                ----------------     ----------------   -------------------   --------------------   ---------------------
    
        Common stock issued to form the company                          1,000       $        1,000     $        379,000      $          -           $        380,000
    
        Contribution of equipment by officers                            -                    -                  774,000                 -                    774,000
    
        Contribution of salaries by stockholders                         -                    -                  217,800                 -                    217,800
    
        Additional cash contributions by officers                        -                    -                   38,565                 -                     38,565
    
        Distributions to stockholders                                    -                    -                 (170,454)                -                   (170,454)
    
            Net loss                                                     -                    -                 -                    (509,666)               (509,666)
                                                                ---------------      ---------------    ----------------      ---------------        ----------------
    
        BALANCES, December 31, 1998                                      1,000                1,000            1,238,911             (509,666)                730,245
    
        Contribution of salaries by stockholders                         -                    -                  151,200                 -                    151,200
    
        Distributions to stockholders                                    -                    -                 (134,611)                -                   (134,611)
    
            Net loss                                                      -                   -                  -                      (97,261)              (97,261)
                                                                ---------------      ---------------    ----------------      -----------------      ----------------
    
        BALANCES, December 31, 1999                                      1,000       $        1,000     $      1,255,500      $        (606,927)     $       (649,573)
                                                                 ==============       ==============     ================      =================      ================
    
    
    
    See accompanying notes to consolidated financial statements.
    
    
    
    
    RED RIVER ENERGY, INC. AND SUBSIDIARIES
    
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
                                                                                          FOR THE YEARS ENDED
                                                                                                  ENDED
                                                                                               DECEMBER 31,
                                                                                      1998                   1999
                                                                                ------------------    -------------------
    CASH FLOWS FROM OPERATING ACTIVITIES:
         Net (loss)                                                             $       (509,666)     $        (97,261)
         Adjustments to reconcile net loss to net cash provided by (used
             in) operating activities:
             Depreciation, depletion, and amortization                                   182,747               498,791
             Contribution of salaries by stockholders                                    217,800               277,200
             (Gain) loss on sale of equipment                                             20,000                (2,438)
         (Increase) decrease in:
             Accounts receivable                                                        (335,002)               26,430
             Advance in drilling contract                                                (30,000)               29,400
             Other assets                                                                  -                    (8,818)
         Increase (decrease) in:
             Accounts payable, trade                                                     303,931              (142,602)
             Accounts payable, related party                                              95,931               (38,908)
             Accrued interest                                                             36,154                90,835
             Other accrued liabilities                                                     2,300                58,555
                                                                                 ---------------      ----------------
    
         Net cash provided by (used in) operating activities                             (15,805)              691,184
                                                                                ----------------      ----------------
    
    CASH FLOWS FROM INVESTING ACTIVITIES:
         Capital expenditures for:
             Evaluated oil and gas property                                           (5,224,845)             (672,758)
             Unevaluated oil and gas property                                         (1,127,656)           (1,565,005)
             Gas gathering system property                                                 -                (1,303,160)
             Support equipment                                                          (273,335)             (108,234)
             Furniture, Fixtures and equipment                                           (57,009)                  233
         Proceeds from sale of property and equipment                                     10,000                24,981
                                                                                ----------------      ----------------
    
         Net cash (used in) investing activities                                      (6,672,845)           (3,623,943)
                                                                                ----------------      ----------------
    
    CASH FLOWS FROM FINANCING ACTIVITIES:
         Cash borrowings from line of credit                                           6,274,734             3,584,729
         Issuance of notes payable                                                       345,000                -
         Principal payments on borrowings                                               (130,215)              (73,686)
         Proceeds from sale of stock                                                     380,000                -
         Capital contributions                                                            38,565                -
         Distributions to stockholders                                                  (170,454)             (260,611)
                                                                                ----------------      ----------------
    
         Net cash provided by financing activities                                     6,737,630             3,250,432
                                                                                ----------------      ----------------
    
    INCREASE IN CASH AND CASH EQUIVALENTS                                                 48,980               317,673
    
    CASH AND CASH EQUIVALENTS, at beginning of period                                     -                     48,980
                                                                                =================     ================
    
    CASH AND CASH EQUIVALENTS, at end of period                                 $         48,980      $        366,653
                                                                                ----------------      ----------------
    
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
         Cash paid for:
             Interest                                                           $        152,342      $        499,380
                                                                                ================      ================
    
         Non-cash investing and financing transactions:
             Assets contributed by stockholders                                 $        774,000                -
                                                                                ================      ===========
    
    
    
    See accompanying notes to consolidated financial statements.
    
    
    
    
    RED RIVER ENERGY, INC. AND SUBSIDIARIES
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    
    
    1.
         
    NATURE OF OPERATIONS:
    
    
    Red River  Energy,  LLC ("Red River  Energy") was  incorporated  in the State of Oklahoma in November  1997,
           with  operations  commencing  in  February  1998,  to engage  in the  business  of oil and gas  exploration,
           acquisition, production, development, marketing, and transportation in the United States.
    
    
    The Company also conducts  business through its subsidiaries  TCM, LLC ("TCM") and Red River Field Services,
           LLC ("Red River Field").  TCM was formed by Red River Energy and was  incorporated  in the State of Oklahoma
           in November 1997,  with operations  commencing in August 1998, to explore,  produce,  market,  and transport
           coal bed methane gas from  leases  located in Eastern  Oklahoma.  Red River  Field was  incorporated  in the
           State of Oklahoma in March 1999 to market and  transport  gas  produced by Red River  Energy and others from
           leasehold interests located in Eastern Oklahoma.
    
    
    In November 1999, the members of Red River Energy exchanged their units of ownership interest for stock in
           Red River Energy, Inc. (Red River) an Oklahoma corporation that has elected to be taxed as an S
           corporation. As a result of this transaction, Red River is now the parent of Red River Energy and the
           former members of Red River Energy now own all of the issued and outstanding stock of Red River.
    
    
    Also in November 1999, Red River entered into a binding Agreement and Plan of Merger with Beta Oil & Gas
           Inc. (Beta).  The merger consideration consists of Beta common stock.  Under the agreement, Beta has also
           agreed to guarantee certain of the Company's bank indebtedness.  Upon closing of the agreement, the
           shareholders of Red River will convert all issued and outstanding common stock into 2.25 million shares of
           Beta common stock.  Completion of the agreement is contingent upon approval by Beta shareholders.
    
    
    2.
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
    
    
    Principles  of  Consolidation  - The  consolidated  financial  statements  the  accounts  of Red  River  and
           subsidiaries ("the Company").  All significant  intercompany  accounts and transactions have been eliminated
           in consolidation.
    
    
    TCM has 1,000 member units outstanding at December 31, 1999 with 800 units owned by the Company and 200
           units owned individually by a stockholder of the Company as a minority interest.  Upon formation of TCM,
           the Company committed to contribute cash and assets to be used on establishing and developing TCM.  For
           the additional cash and assets contributed, the Company received no additional ownership units.  Under the
           operating agreement, the Company is to receive all income and losses of TCM until such time as the total
           amount of income allocated to the Company equals the amount of cash, service, and equipment contributions
           made to TCM.  Thereafter, profits and losses of TCM will be allocated to the two owners in proportion to
           their respective ownership interests.  Distributions are limited to available cash as defined in the
           operating agreement.
    
    
    
    
    
    
    
    
    
    
    
    Use of Estimates - The  preparation of the Company's  consolidated  financial  statements in conformity with
           generally  accepted  accounting   principles  requires  the  Company's  management  to  make  estimates  and
           assumptions that affect the amounts reported in these financial  statements and accompanying  notes.  Actual
           results could differ from those estimates.
    
    
    
    
    The Company's  financial  statements  are based on significant  estimates  including the selection of useful
           lives for property,  plant and equipment,  and oil and gas reserve  quantities  which form the basis for the
           calculation of  amortization  and impairment of oil and gas properties.  Management  emphasizes that reserve
           estimates are  inherently  imprecise and that estimates of more recent  discoveries  are more imprecise than
           those for properties with long production histories.
    
    
    
    Oil and Gas  Properties - The Company  follows the full cost method of accounting  for oil and gas producing
           activities  and,  accordingly,  capitalizes  all  costs  incurred  in  the  acquisition,   exploration,  and
           development  of proved oil and gas  properties,  including  the costs of  abandoned  properties,  dry holes,
           geophysical  costs,  and annual lease  rentals.  All general  corporate  costs are expensed as incurred.  In
           general,  sales  or other  dispositions  of oil and gas  properties  are  accounted  for as  adjustments  to
           capitalized  costs,  with no gain or loss  recorded.  Amortization  of evaluated  oil and gas  properties is
           computed on the units of  production  method  based on all proved  reserves  on a country by country  basis.
           Unevaluated  oil and gas  properties  are assessed for  impairment  either  individually  or on an aggregate
           basis.  The net  capitalized  costs of evaluated oil and gas properties  (full cost ceiling  limitation) are
           not to exceed  their  related  estimated  future net  revenues  discounted  at 10%, and the lower of cost or
           estimated fair value of unproved properties, net of tax considerations.
    
    
    Joint Ventures - All exploration and production activities are conducted jointly with others and,
           accordingly, the accounts reflect only the Company's proportionate interest in such activities.
    
    
     Revenue Recognition - The Company recognizes oil and gas sales upon delivery to the purchaser.
    
    
     Furniture,  Fixtures and Equipment - Furniture,  fixtures,  and equipment are stated at cost.  Provision for
           depreciation  and  amortization  on  property  and  equipment  is  calculated  using the  straight-line  and
           accelerated  methods over the estimated  useful lives (ranging from 3 to 5 years) of the respective  assets.
           The cost of  normal  maintenance  and  repairs  is  charged  to  operating  expense  as  incurred.  Material
           expenditures,  which  increase the life of an asset,  are  capitalized  and  depreciated  over the estimated
           remaining  useful  life of the  asset.  The cost of  properties  sold,  or  otherwise  disposed  of, and the
           related accumulated  depreciation or amortization are removed from the accounts,  and any gain or losses are
           reflected in current operations.
    
    
     Impairment  of  Long-Lived  Assets - In the event that facts and  circumstances  indicate  that the costs of
           long-lived  assets,  other than oil and gas  properties,  may be impaired,  an evaluation of  recoverability
           would be performed.  If an evaluation is required,  the estimated future  undiscounted cash flows associated
           with the asset would be compared to the asset's  carrying  amount to  determine  if a  write-down  to market
           value or  discounted  cash  flow  value is  required.  Impairment  of oil and gas  properties  is  evaluated
           subject to the full cost ceiling as described under oil and gas properties.
    
    
    Income Taxes - No  provision  has been made for income taxes since the Company has elected to be taxed as an
           "S  Corporation"  as defined in the  Internal  Revenue  Code.  The  Company's  shareholders  will report the
           Company's taxable income or loss on their individual tax returns.
    
    
     Concentrations  of Credit Risk - Credit risk  represents the accounting loss that would be recognized at the
           reporting  date if  counterparties  failed  completely to perform as  contracted.  Concentrations  of credit
           risk (whether on or off balance sheet) that arise from financial  instruments  exist for groups of customers
           or counter parties when they have similar  economic  characteristics  that would cause their ability to meet
           contractual  obligations  to be  similarly  affected by changes in economic  or other  conditions  described
           below. In accordance  with FASB Statement No. 105,  Disclosure of Information  about  Financial  Instruments
           with  Off-Balance-Sheet  Risk and Financial  Instruments with Concentrations of Credit Risk, the credit risk
           amounts  shown in cash and  accounts  receivable  do not take into  account the value of any  collateral  or
           security.
    
    
    The Company  operates  primarily in the oil and gas  industry  within the United  States.  Oil and gas sales
           are based solely on short-term  purchase  contracts from three  customers with related  accounts  receivable
           subject to credit risk.
    
    
     Fair Value of  Financial  Instruments  - The  estimated  fair values for  financial  instruments  under FASB
           Statement  No. 107,  Disclosures  about Fair Value of  Financial  Instruments,  are  determined  at discrete
           points in time based on relevant market  information.  These estimates  involve  uncertainties and cannot be
           determined  with  precision.  The  estimated  fair  values of the  Company's  financial  instruments,  which
           includes all cash,  accounts  receivable,  accounts  payable,  and long term debt  approximates the carrying
           values in the financial statements at December 31, 1998 and 1999.
    
    
     Hedging  Activities - The Company uses  derivative  commodity  instruments  to manage  commodity  price risk
           associated  with  future  natural  gas and  crude  oil  production,  but does  not use them for  speculative
           purposes.  The Company's  commodity  price hedging program  utilizes swap contracts.  To qualify as a hedge,
           these  contracts must correlate to anticipated  future  production  such that the Company's  exposure to the
           effects of commodity  price changes is reduced.  The gains and losses related to these hedging  transactions
           are  recognized as  adjustments  to revenue  recorded for the related  production.  No such  contracts  were
           outstanding  as of December 31, 1998. As of December 31, 1999,  the Company had contracts  expiring on March
           31, 2000 on the sale of 315,000 Mmbtu of gas at an average price of $2.62 per Mmbtu.
    
    
     Statement of Cash Flows - For  purposes of the  statement of cash flows,  the Company  considers  all highly
           liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
    
    
    
    Impact of Recently Issued Standards - In June 1998, the Financial Accounting Standards Board issued
           Statement of Financial Accounting Standards No. 133 (FASB133), "Accounting for Derivative Instruments and
           Hedging Activities."  This statement was effective for fiscal years beginning after June 15, 1999.
           However, in July 1999, FASB137 was issued delaying the effective date of FASB133 for one year, to fiscal
           years beginning after June 15, 2000.  FASB133 requires that an entity recognize all derivatives as assets
           or liabilities in the statement of financial position and measure their instruments at fair value. The
           Company has not yet determined the impact of FASB133 on its financial statements.
    
    
     Segment Information - The Company has adopted SFAS 131, "Disclosure about Segments of an Enterprise and
           Related Information."  As defined in that Standard, the Company operates in only one segment, oil and gas
           exploration.
    
    
    3.
     
    BASIS OF PRESENTATION:
    
    
    As reflected in the accompanying financial statements, the Company has incurred net losses of $509,666 and
           $97,261 for the years ending December 31, 1998 and 1999, respectively and has negative working capital of
           $1,963,547 as of December 31, 1999.  Net losses of $376,634 and $483,826 for the years ended December 31,
           1998 and 1999, respectively, and negative working capital of $2,255,980 as of December 31, 1999 are
           attributable to TCM.  As discussed in Note 7, the Company is in the process of renegotiating the payment
           terms of TCM's loan with an energy financial services company.  If the Company is unsuccessful and becomes
           in default under the loan, the lender's recourse is solely to certain assets of TCM.  The remainder of the
           Company's operations are profitable and are generating sufficient cash flows to pay the Company's
           obligations as they come due and, in management's opinion, will continue to do so for at least the next
           year.
    
    
    4.
           
    SUMMARY OF OIL AND GAS OPERATIONS:
    
    
    Property Acquisitions - In July 1998, the Company acquired a 97.4% working interest (80.0% net revenue
           interest) in a producing oil and gas prospect in Central Oklahoma for a cash payment of $5,258,000.  The
           property includes a 30,160-acre unit producing from 22 active wells.  In March 1999, the Company acquired
           an 85.0% working interest (68.0% net revenue interest) in 7,500 acres that are currently producing from 45
           active wells in Eastern Oklahoma for a cash payment of $1,950,000.  The property also includes a gas
           gathering system consisting of 40 miles of pipeline transporting gas produced to Eastern Oklahoma.
    
    
    
           Full Cost Amortization Expense - Amortization expense amounted to $137,936 and $323,094 for the years
           ended December 31, 1998 and 1999, respectively.  Amortization expense per equivalent units of oil and gas
           produced amounted to $1.58 and $1.72 per barrel for the years ended December 31, 1998 and 1999,
           respectively.  Natural gas is converted to equivalent units of oil on the basis of six MCF of gas to one
           equivalent barrel of oil.
    
    
    
           Unevaluated Oil and Gas Properties - The Company is currently developing a 47 well coal bed methane
           project located in Eastern Oklahoma.  As of December 31, 1998 and 1999, the evaluation of the property had
           not been completed through exploration, and therefore is not included in the depletion base.  The
           completed wells are currently producing gas and water, but it has not yet been determined whether the
           wells will produce gas in commercial quantities.  The Company is in the process of testing various
           completion techniques in an effort to effectively de-water the coal beds and optimize gas production.  It
           is estimated that six to nine months of additional operational data will be required to effectively
           evaluate the properties.  Drilling is expected to continue on the prospects through the year ended
           December 31, 2000 and in future periods.  As the prospect is evaluated through future drilling and testing
           operations, the property development and exploration costs associated with the wells drilled will be
           transferred to evaluated properties and included in the depletion base.
    
    
    
         Capitalization  of  Interest - For the years ended  December  31,  1998 and 1999,  the  Company  capitalized
           interest costs of $18,896 and $176,498  respectively,  related to the  unevaluated  oil and gas  properties'
           exploration activities.
    
    
    
    Costs Included in Oil and Gas Producing Activities - Costs incurred in oil and gas producing activities,
           all of which have been in the United States, are as follows:
    
    
    
    
    
                                                                                 DECEMBER 31,
                                                                          1998                     1999
                                                               --------------------     --------------------
    
                            Property acquisition                 $     5,224,845          $       672,758
                                                                 ===============          ===============
    
                            Exploration                          $     1,143,656          $     1,565,005
                                                                 ===============          ===============
    
                            Development                          $          -             $          -
                                                                 ===============          ============
    
    
    
    
    
    
    
    
    5.
         
    OTHER OPERATING PROPERTY AND EQUIPMENT:
    
    
         
    Other operating property and equipment are the 40 miles of pipeline acquired during 1999 in Eastern
           Oklahoma and specific equipment and vehicles related to the oil and gas activities purchased in 1998 and
           1999.  During the years ended December 31, 1998 and 1999, the Company recorded depreciation expense of
           $38,118 and $163,197, respectively.
    
    
         
    At December  31,  1998 and 1999,  support  equipment  with a net book value of $705,000  was  classified  as
           idle.  In  management's  opinion,  the  net  book  value  of the  idle  equipment  is not in  excess  of net
           realizable value.
    
    
    6.
         
    FURNITURE, FIXTURES AND EQUIPMENT:
    
    
    
         
    Property and equipment consisted of the following:
    
    
    
    
    
    
                                                                             DECEMBER 31,
    
                                                                     1998                    1999
                                                              --------------------    --------------------
    
                  Office equipment                            $         40,000        $         40,000
    
                  Computer equipment                                     6,009                   7,387
    
                  Less- Accumulated depreciation                        (6,693)                (19,193)
                                                              ----------------        -----------------
    
                                                              $         39,316        $         28,194
                                                              ================        ================
    
    
    
    
    During the years ended December 31, 1998 and 1999, the Company recorded depreciation expense of $6,693 and
        $12,500, respectively.
    
    
    
    
    
    
    
    7.
    LONG-TERM DEBT:
    
    
    
     Long-term debt consisted of the following:
    
    
                                                                                                 DECEMBER 31,
    
    
    
                                                                                         1998                      1999
                                                                                      -----------------------    ---------------------
             Note payable under a revolving credit agreement,  due July 31,
               2001,  bearing interest at the prime rate minus .25% (7.627%
               at December 31, 1999),  accrued  interest  payable  monthly,
               collateralized  by substantially  all oil and gas properties
               owned by Red River Energy and Red River Field.                       $      5,413,000           $      7,694,676
    
             Note  payable  under a  revolving  credit  agreement,  monthly
               payments of principal and accrued  interest equal to 100% of
               the net  production  proceeds of  specific  coal bed methane
               wells,  final payment on outstanding  principal and interest
               due July 31, 2002,  bearing  interest at the prime rate plus
               1.50%  (8.50%  at  December  31,  1999),  collateralized  by
               certain assets of TCM.                                                        861,734                  2,165,234
    
             Note payable,  due in monthly installments of $6,845 including
               interest of 7.50% maturing on October 31, 2001, unsecured.                    214,785                    140,652
                                                                                        ------------                -----------
                                                                                        $  6,489,519                 10,000,562
                                                                                         -----------           ----------------
                      Less current portion                                                    68,424                  2,233,176
                                                                                    ----------------           ----------------
                                                                                    $      6,421,095           $      7,767,386
                                                                                    ================           ================
    
    
    
           
    The $7,694,676 note at December 31, 1999 arises from a credit agreement with a commercial bank for Red
           River Energy that provides for maximum outstanding borrowings aggregating $25 million and maturing on July
           31, 2001.  The aggregate amount of advances under the revolving credit agreement is limited to a
           collateral borrowing base of $5.8 million and $9.2 at December 31, 1998 and 1999. The shareholders have
           committed to a limited personal guarantee of the repayment of the credit agreement up to $800,000.  Under
           the terms of the agreement, the Company is required to maintain certain ratios and be in compliance with
           other covenants.  At December 31, 1999, the Company was in compliance with all covenants.
    
    
    
           
    The $2,165,234 note at December 31, 1999 arises from a credit agreement between an energy financial
           services company and TCM which provides for maximum outstanding borrowings aggregating $2.5 million and
           maturing on July 31, 2002.  Under the terms of the agreement, TCM may make periodic draws to fund specific
           costs incurred in developing certain coal bed methane wells.  Also, TCM is required to make monthly
           repayments of principal and accrued interest equal to 100% of the net production proceeds of specific coal
           bed methane gas wells.  The agreement allows for the deferral of the required monthly repayments if the
           purchase of the production from those wells does not meet specific percentages of production.  However, if
           outstanding borrowings on the agreement are greater than 90%, 50%, and 25% of the total borrowings made
           under the agreement at March 31, 2000 and July 31, 2000, 2001, and 2002, respectively, then TCM is
           required to make additional payments equal to the difference between the outstanding borrowings at the
           date and the specific percentage of total borrowings made under the agreement.
    
    
    
           TCM has also granted to the lender an undivided 2% overriding royalty interest in the coal bed methane gas
           wells.  The overriding royalty interest is reduced (to a minimum of 1-7/12%) if the borrowings are repaid
           prior to specified dates and, may be increased (to a maximum of 3%) if borrowings are not repaid by
           specific dates.  No value has been assigned to the overriding royalty interest because the properties are
           still being evaluated.  At the time that the properties are evaluated and overriding royalties are due,
           TCM will treat the payments as additional interest expense to the extent paid.  For the years ended
           December 31, 1998 and 1999, there have been no overriding royalty payments made to the lender.
    
    
    
           The Company does not currently believe that they will be able to make the March 31 and July 31, 2000
           payments.  The Company is in the process of renegotiating the payment terms of the loan and, while the
           Company believes they will be successful, there are no assurances of their success.  Therefore, the entire
           balance of the line of credit is classified as current at December 31, 1999.
    
    
    
           Scheduled maturities of notes payable and long-term debt are as follows:
    
    
    
                                     YEARS ENDING DECEMBER 31,                          AMOUNT
                                                                          ---------------------
                                                2000                               2,233,176
                                                2001                               7,767,386
                                                                          ------------------
                                               TOTAL                              10,000,562
                                                                          ==================
    
    
    
    
    
    
    
    
    
    
    
           Future minimum lease payments for all non-cancelable operating leases are as follows:
    
    
                                     YEARS ENDING DECEMBER 31,                          AMOUNT
                                     -------------------------
    
                                                                          ---------------------
    
                                                2000                      $        116,169
                                                2001                               105,815
                                                2002                               105,815
                                                2003                               105,815
                                                2004                                 8,818
                                                                          ----------------
                                               TOTAL                               442,432
                                                                          ================
    
           Rent expense was $51,827 and $97,564 for the years ended December 31, 1998 and 1999, respectively.
    
    
    
    
    
    8.
    COMMITMENTS:
    
    
    
    Lease Commitments - The Company leases office space in Oklahoma and certain vehicles under long-term
           operating leases. The Company's leases include the cost of real property taxes. Insurance, utilities, and
           routine maintenance are the Company's responsibility.
    
    
    
    
    
    
    
    9.
         
    STOCKHOLDERS' EQUITY:
    
    
         
           The Company was originally formed as Red River Energy, LLC with 100 membership units authorized and issued
           to the members.  In November 1999, the members formed Red River Energy, Inc. and exchanged each membership
           unit of Red River Energy, LLC for ten shares of common stock of Red River Energy, Inc.  The accompanying
           financials statements have been retroactively restated to reflect this transaction.
    
    
    Two majority stockholders also made additional contributions of assets to the Company totaling $812,565.
           The assets consist of office furniture with a historical cost of $19,000 and equipment with a historical
           cost of $755,000, $705,000 of which is idle at December 31, 1999, and is expected to be used in the
           exploration and production of the coal bed methane gas properties.
    
    
         
           The Company has assigned  overriding  royalty  interests to certain  employees who are also  stockholders of
           the Company to reward such employees with incentive  compensation  based on the results of the Company's oil
           and gas drilling  activities.  The interests  assigned were determined at the discretion of management prior
           to the  commencement  of certain  drilling  programs by the Company.  For the year ended  December 31, 1999,
           the Company had paid $15,547 to these  employees for their  overriding  royalty  interests and an additional
           $6,344 was accrued as other accrued liabilities as of December 31, 1999.
    
    
    10.
         
    UBSEQUENT EVENTS (UNAUDITED):
    
    
           In February 2000, the Company entered into an agreement with an operator to jointly test and develop
           additional production during 2000 in the Company's West Edmond Hunton Lime Unit (Wehlu) in Eastern
           Oklahoma.
    
    
    
    
    
    
    
    
    
    11.
     UNAUDITED SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION:
    
    
    The following  supplementary  information  is presented in  compliance  with United  States  Securities  and
           Exchange  Commission  ("SEC")  regulations  and is not  covered by the report of the  Company's  independent
           auditors.
    
    
    The  information  required  to be  disclosed  for the year  ended  1998 and  after in  accordance  with FASB
           Statement No. 69,  "Disclosures  About Oil and Gas Producing  Activities," is discussed below and is further
           detailed in the following tables.
    
    
    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.  Proved developed oil
           and gas reserves are those reserves expected to be recovered through existing wells with existing
           equipment and operating methods.  The Company's reserves are substantially all proved developed.  The
           reserve data is based on studies prepared by the Company's independent consulting petroleum engineers.
           Reserve estimates require substantial judgement on the part of petroleum engineers resulting in imprecise
           determinations, particularly with respect to new discoveries.  Accordingly, it is expected that the
           estimates of reserves will change as future production and development information become available.  At
           December 31, 1998 and 1999, all of the Company's proved oil and gas reserve quantities are located in
           Oklahoma.  The following table presents estimates of the Company's net proved oil and gas reserves and
           changes therein for the years ended December 31, 1998 and 1999.
    
    
    
    Changes in Quantities of Proved Petroleum and Natural Gas Reserves (unaudited)
    
    
                                                                                 PROVED RESERVES
                                                                             OIL                 GAS
                                                                           (BBLS)               (MCF)
                                                                      ------------------- --------------------
               Proved reserves, beginning of year                              -                    -
    
                  Purchase of minerals in place                              447,470          15,878,536
    
                  Production                                                 (13,470)           (336,536)
                                                                     ----------------    ---------------
    
               Proved reserves, December 31, 1998                            434,000          15,542,000
    
                  Purchase of minerals in place                                                1,852,138
    
                  Production                                                 (33,584)           (911,036)
    
                  Revisions of previous estimates                              9,670             109,898
                                                                     ---------------     ---------------
    
    
               Proved reserves, December 31, 1999                            410,086          16,593,000
                                                                     ===============     ===============
    
    
    
    
    
     Standardized  Measure of Discounted  Future Net Cash Flows  (unaudited) - Statement of Financial  Accounting
           Standards  No. 69  prescribes  guidelines  for  computing  a  standardized  measure of future cash flows and
           changes therein  relating to estimated  proved  reserves.  The Company has followed these  guidelines  which
           are briefly discussed below.
    
    
    Future cash inflows and future production and development costs are determined by applying year-end prices
           and costs to the estimated quantities of oil and gas to be produced.  Estimates of future income taxes are
           computed using current statutory income tax rates including consideration for estimated future statutory
           depletion and tax credits.  The resulting net cash flows are reduced to present value amounts by applying
           a 10% discount factor.
    
    
    The assumptions used to compute the standardized measure are those prescribed by the Financial Accounting
           Standards Board and, as such, do not necessarily reflect the Company's expectations for actual revenues to
           be derived from those reserves nor their present worth.  The limitations inherent in the reserve quantity
           estimation process, as discussed previously are equally applicable to the standardized measure
           computations since those estimates are the basis for the valuation process.
    
    
    The following summary sets forth the Company's future net cash flows relating to proved oil and gas
           reserves as of December 31, 1998 and 1999 based on the standardized measure prescribed in Statement of
           Financial Accounting Standard No. 69:
    
    
    
    
    
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                   1998                        1999
                                                                        --------------------------    -----------------------
    
               Future cash inflows                                      $         39,090,229          $         47,992,139
               Future costs-
                 Production                                                      (12,614,429)                  (12,714,359)
                 Development                                                         (48,721)                       -
                                                                          -------------------                 -------------
               Future net cash inflows before income tax                          26,427,079                    35,277,780
               Future income tax                                                  (5,505,574)                   (8,511,090)
                                                                        ---------------------         --------------------
               Future net cash flows                                              20,921,505                    26,766,690
               10% discount factor                                               (12,556,496)                  (15,707,586)
                                                                        --------------------          --------------------
               Future net cash flows                                    $          8,365,009          $         11,059,104
                                                                        ====================          ====================
    
    
    
    
    
    
    
    
    Changes in the  Standardized  Measure  (unaudited) - The  following are the principal  sources of changes in
           the  standardized  measure of  discounted  future net cash flows for the years ended  December  31, 1998 and
           1999:
    
    
    
    
    
                                                                                     YEAR ENDED DECEMBER 31,
                                                                                   1998                        1999
                                                                        --------------------------    -----------------------
               Standardized measure, beginning of year                  $          -                  $          8,365,009
    
               Purchase of minerals in place                                      11,295,703          $            995,917
               Sale of oil and gas produced, net of production
                    costs                                                           (548,823)                   (1,993,571)
               Changes in income taxes, net                                       (2,381,871)                   (1,276,463)
               Changes in prices and costs                                          -                            5,066,599
               Changes in development costs                                         -                               38,805
               Accretion of discount                                                -                              836,501
               Revisions of estimates and other                                     -                             (973,693)
                                                                        --------------------          ---------------------
    
               Standardized measure, end of year                        $          8,365,009          $         11,059,104
                                                                        ====================          ====================
    
    
    
    
    
    
    ANNEX C
    
    BETA OIL & GAS, INC.
    
    CONSOLIDATED FINANCIAL STATEMENTS
    
    
    (With Independent Auditors' Report Thereon)
    
    
    INDEPENDENT AUDITOR'S REPORT
    
    The Shareholders and Board of Directors
    
    Beta Oil & Gas, Inc.
    
    Newport Beach, California
    
         We have audited the accompanying consolidated balance sheets of Beta Oil & Gas, Inc. and subsidiaries as of
    December 31, 1998 and 1999, and the related statements of operations, shareholders' equity, and cash flows for
    the period from inception (June 6, 1997) to December 31, 1997, and the years ended December 31, 1998 and 1999.
    These consolidated financial statements are the responsibility of the Company's management.  Our responsibility
    is to express an opinion on these financial statements based on our audits.
    
    
         We conducted our audits in accordance with generally accepted auditing standards.  Those standards require
    that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
    of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and
    disclosures in the financial statements.  An audit also includes assessing the accounting principles used and
    significant estimates made by management, as well as evaluating the overall financial statement presentation.  We
    believe that our audits provide a reasonable basis for our opinion.
    
         In our opinion, the consolidated financial statements referred to above present fairly, in all material
    respects, the financial position of Beta Oil & Gas, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
    results of their operations and their cash flows for the period from inception (June 6, 1997) to December 31,
    1997 and for the years ended December 31, 1998 and 1999 in conformity with generally accepted accounting
    principles.
    
    /s/ HEIN + ASSOCIATES LLP
    
    HEIN + ASSOCIATES LLP
    
    Certified Public Accountants
    
    
    
    Orange, California
    
    February 22, 2000
    
    
    
                                                  BETA OIL & GAS, INC.
    
    
                                                CONSOLIDATED BALANCE SHEETS
    
    
                                                             ASSETS
                                                                                      December 31,         December 31,
                                                                                          1998                 1999
                                                                                    -----------------    -----------------
    Current Assets:
             Cash and cash equivalents                                            $          198,043   $        1,448,655
             Accounts receivable -
                 Oil and gas sales                                                         -                      745,493
                 Other                                                                         9,678                1,178
             Prepaid expenses                                                                 14,951              104,241
                                                                                    -----------------    -----------------
                      Total current assets                                                   222,672            2,299,567
                                                                                    -----------------    -----------------
    Oil and Gas properties, at cost (full cost  method):
             Evaluated properties                                                          3,387,300            9,810,198
             Unevaluated properties                                                       11,466,695           12,091,627
                    Less--accumulated depletion and impairments                           (1,670,691)          (3,797,227)
                                                                                    -----------------    -----------------
                      Net oil and gas properties                                          13,183,304           18,104,598
                                                                                    -----------------    -----------------
    Furniture, Fixtures and Equipment, at cost,
             Less - accumulated depreciation of  $13,413 and $26,072 at
                            December 31, 1998, and 1999, respectively                         22,943               12,231
    
    Other Assets                                                                             166,028              465,079
    
    Deferred Offering Costs                                                                   23,524            -
                                                                                    -----------------    -----------------
                                                                                  $       13,618,471   $       20,881,475
                                                                                    =================    =================
    
    
                                                        (Continued)
    
    
    
    
                                                   BETA OIL & GAS, INC.
    
                                                CONSOLIDATED BALANCE SHEETS
    
                                                        (Continued)
    
                                                LIABILITIES AND SHAREHOLDERS' EQUITY
    
                                                                                      December 31,         December 31,
                                                                                          1998                 1999
                                                                                    -----------------    -----------------
    
    Current Liabilities:
           Premiums payable - current portion                                     $        -           $           28,224
           Accounts payable, trade                                                           310,770              225,174
           Payroll and payroll taxes payable                                                   7,559               10,631
           Other accrued expenses                                                                800                1,270
                                                                                    -----------------    -----------------
                      Total current liabilities                                              319,129              265,299
    
                Premiums payable                                                           -                       27,939
    
                                                                                    -----------------    -----------------
                      Total liabilities                                                      319,129              293,238
                                                                                    -----------------    -----------------
    
    Commitments and Contingencies (Notes 1 and 7)                                          -                    -
    
    Shareholders' Equity:
           Common stock, $.001 par value 50,000,000 shares authorized
                    7,029,492 and 9,400,124 shares issued and
                    outstanding at December 31, 1998, and 1999,  respectively                  7,029                9,400
                Additional paid-in capital                                                15,878,386           28,549,313
                Accumulated deficit                                                       (2,586,073)          (7,970,476)
                                                                                    -----------------    -----------------
                      Total shareholders' equity                                          13,299,342           20,588,237
                                                                                    -----------------    -----------------
    
                                                                                    -----------------    -----------------
    Total Liabilities and Shareholders' Equity                                    $       13,618,471   $       20,881,475
                                                                                    =================    =================
    
    
                  The accompanying notes are an integral part of these consolidated financial statements
    
    
    
    
                                                   BETA OIL & GAS, INC.
    
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
                                                      For the
                                                    period from        The year         The year
                                                     inception           ended            ended
                                                     (June 6,        December 31,     December 31,
                                                     1997) to            1998             1999
                                                   December 31,
                                                       1997
                                                  ---------------- ----------------- --------------
             Revenues
                     Oil and gas sales            $       -         $      -        $      1,199,480
                                                   ----------------- --------------  ----------------
    
             Costs and Expenses:
                      Lease operating expense             -                -                  81,538
                      General and administrative            245,452        746,769         1,418,240
                      Impairment expense                  -              1,670,691         1,224,962
                      Depreciation and                        1,530         11,883           914,233
                       depletion expense
                                                   ----------------- --------------  ----------------
                          Total costs and expenses          246,982      2,429,343         3,638,973
                                                   ----------------- --------------  ----------------
    
             Loss from Operations                         (246,982)    (2,429,343)       (2,439,493)
    
             Other Income and (Expense):
    
                     Interest expense                     -                -             (2,966,651)
    
                     Interest income                         45,409         44,843            21,741
                                                   ----------------- --------------  ----------------
             Net Loss                             $       (201,573) $  (2,384,500)  $    (5,384,403)
                                                   ================= ==============  ================
    
             Basic and Diluted Loss
             per Common Share                                ($.05)         ($.37)            ($.66)
                                                   ================= ==============  ================
    
             Weighted Average Number of
              Common Shares Outstanding                   4,172,662      6,366,923         8,160,000
                                                   ================= ==============  ================
    
                  The accompanying notes are an integral part of these consolidated financial statements
    
    
    
    
                                                   BETA OIL & GAS, INC.
    
    
                                      CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
    
    
                                                              Common Stock                     Additional                                    Total
                                                  --------------------------------------
                                                                                                 Paid-in            Accumulated          Shareholders'
                                                       Shares               Amount               Capital              Deficit               Equity
                                                  -----------------    -----------------     ----------------     ----------------     ------------------
    
    BALANCES,  June 6, 1997                              -          $         -          $          -         $          -         $           -
    
    Issuance of common stock, net of offering costs      5,565,648                5,566            9,216,217             -                     9,221,783
    
    
    Salary contributed to Beta                           -                    -                       30,000             -                        30,000
    
    Net loss                                             -                    -                     -                   (201,573)              (201,573)
                                                  -----------------    -----------------     ----------------     ----------------     ------------------
    BALANCES,  December 31, 1997                         5,565,648                5,566            9,246,217            (201,573)              9,050,210
    
    Issuance of common stock, net of offering  costs     1,463,844                1,463            6,572,169             -                     6,573,632
    
    Salary contributed to Beta                           -                    -                       60,000             -                        60,000
    
    Net loss                                             -                    -                     -                 (2,384,500)            (2,384,500)
    
                                                  -----------------    -----------------     ----------------     ----------------     ------------------
    BALANCES,  December 31, 1998                         7,029,492                7,029           15,878,386         (2, 586,073)             13,299,342
                                                  -----------------    -----------------     ----------------     ----------------     ------------------
    
                  The accompanying notes are an integral part of these consolidated financial statements
    
    
    
    
                                                   BETA OIL & GAS, INC.
    
                                      CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
    
                                                        (Continued)
    
    
                                                                   Common Stock                    Additional                                    Total
                                                       -------------------------------------
                                                                                                     Paid-in            Accumulated          Shareholders'
                                                           Shares               Amount               Capital              Deficit               Equity
                                                       ----------------     ----------------     ----------------     -----------------    ------------------
    
    BALANCES,  December 31, 1998                             7,029,492                7,029           15,878,386           (2,586,073)            13,299,342
    
     Issuance of shares for bridge note financing              459,000                  459            2,647,641             -                     2,648,100
    
     Salary contributed to Beta                               -                    -                      10,000             -                        10,000
    
     Issuance of  warrants  to consultants                    -                    -                     126,890             -                       126,890
    
    Warrants issued for properties                            -                    -                     102,135             -                       102,135
    
    Issuance of shares for warrant exercises                   446,142                  446            2,052,174             -                     2,052,620
    
    Issuance of shares in initial public offering, net       1,465,490                1,466            7,732,087             -                     7,733,553
    
    Net loss                                                  -                    -                    -                  (5,384,403)           (5,384,403)
    
                                                       ----------------     ----------------     ----------------     -----------------    ------------------
    BALANCES,  December 31, 1999                             9,400,124  $             9,400  $        28,549,313  $        (7,970,476)  $         20,588,237
                                                       ================     ================     ================     =================    ==================
    
                  The accompanying notes are an integral part of these consolidated financial statements
    
    
    
    
                                                   BETA OIL & GAS, INC.
    
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    
                                                           For the
                                                         period from          For the          For the
                                                          inception         year ended        year ended
                                                           (June 6,          December          December
                                                           1997) to          31, 1998            31,
                                                         December 31,                            1999
                                                             1997
                                                        ------------------  ---------------  ----------------
    
    CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                        $         (201,573) $    (2,384,500) $     (5,384,403)
      Adjustments to reconcile net loss to
       net cash provided by (used in)
       operating activities:
          Depreciation and depletion                                1,530           11,883           914,233
          Amortization of notes payable
              discount and debt issuance costs                  -                 -                2,754,000
          Impairment expense                                    -                1,670,691         1,224,962
          Warrants issued to consultants                        -                 -                  126,890
          Salary contributed to Beta                               30,000           60,000            10,000
      Changes in operating assets and
       liabilities:
           Accounts receivable                                  -                  (9,678)         (736,993)
           Prepaid expenses                                       (2,599)         (12,352)          (89,290)
           Accounts payable,  trade                               807,474        (496,703)          (85,596)
           Commissions  payable                                    25,329         (25,329)          -
           Accrued payroll                                         24,044         (16,485)             3,072
           Other accrued expenses                                  14,000         (13,200)               470
    
                Net cash provided by (used in)          ------------------  ---------------  ----------------
                          operating activities                    698,205      (1,215,673)       (1,262,655)
                                                        ------------------  ---------------  ----------------
    
    CASH FLOWS FROM
    INVESTING ACTIVITIES:
      Oil and gas property expenditures                       (5,900,794)      (8,928,201)       (6,945,695)
      Change in other assets                                    -                (166,028)         (299,051)
      Acquisition of furniture, fixtures & equipment             (33,595)          (2,762)           (1,947)
                                                        ------------------  ---------------  ----------------
             Net cash used in investing activities            (5,934,389)      (9,096,991)       (7,246,693)
                                                        ------------------  ---------------  ----------------
    
    
                                                        (Continued)
    
    
    
    
    
                                                   BETA OIL & GAS, INC.
    
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                        (Continued)
    
    
                                                          For the
                                                        period from          For the          For the
                                                         inception         year ended        year ended
                                                          (June 6,          December          December
                                                          1997) to          31, 1998          31, 1999
                                                          December
                                                          31, 1997
                                                        ----------------   ---------------  ----------------
    
    CASH FLOWS FROM
    FINANCING ACTIVITIES:
      Proceeds from sale of common stock net                  9,221,783         6,548,632         7,733,553
      Proceeds from exercise of warrants                       -                 -                2,052,620
    
      Proceeds from premiums payable                           -                 -                   71,527
      Repayment of premiums payable                            -                 -                 (15,364)
      Proceeds from bridge notes payable                       -                 -                2,894,100
      Repayment of bridge notes                                -                 -              (3,000,000)
      (Increase) decrease in deferred offering costs           -                 (23,524)            23,524
                                                        ----------------   ---------------  ----------------
            Net cash provided by financing activities         9,221,783         6,525,108         9,759,960
                                                        ----------------   ---------------  ----------------
    
    NET INCREASE (DECREASE) IN
    CASH AND CASH EQUIVALENTS:                                3,985,599       (3,787,556)         1,250,612
    CASH AND CASH EQUIVALENTS:
           Beginning of period                                 -                3,985,599           198,043
                                                        ----------------   ---------------  ----------------
           End of period                              $       3,985,599  $        198,043 $       1,448,655
                                                        ================   ===============  ================
    
    SUPPLEMENTAL DISCLOSURE OF
    CASH FLOW INFORMATION:
           Cash paid for interest                     $        -        $        -        $         123,552
                                                        ================   ===============  ================
           Cash paid for income taxes                 $        -        $        -        $           5,475
                                                        ================   ===============  ================
    
    
    SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
    
                                                          For the
                                                        period from         For the           For the
                                                         inception         year ended       year ended
                                                         (June 6,           December       December 31,
                                                         1997) to           31, 1998           1999
                                                       December 31,
                                                           1997
                                                       -----------------  ---------------- -----------------
    Fair value of common stock issued for:
              Oil and gas properties                  $       -          $         25,000 $       -
    
    
    Fair value of warrants issued for:
              Oil and gas properties                  $       -          $       -        $         102,135
    
    
    
    
                  The accompanying notes are an integral part to these consolidated financial statements
    
    
    
    
    
    BETA OIL & GAS, INC.
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    (1)     ORGANIZATION AND OPERATIONS
    
    
    
         The Company
    
    
    
    
    
    Beta Oil & Gas, Inc. was incorporated under the laws of the State of Nevada on June 6, 1997 to participate in the
    oil and gas acquisition, exploration, development and production business in the United States and
    internationally.  Beta's wholly owned subsidiary, BETAustralia, LLC, was formed on February 20, 1998 as a limited
    liability company under the laws of the State of California for the purposes of participating in the acquisition,
    evaluation and development of exploration blocks in Australia.
    
    
    
    In November 1999, the Company formed the wholly owned subsidiary Beta Acquisition Company, Inc. under the laws of
    the State of Oklahoma to participate in oil and gas acquisitions in the United States.
    
    
    
         Operations
    
    
    
    Since its inception, Beta has participated as a non-operating working interest owner in the acquisition of
    undeveloped leases, seismic options, lease options and foreign concessions and has participated in extensive
    seismic surveys and the drilling of test wells on its undeveloped properties.  Further leasehold acquisitions and
    seismic operations are planned for 2000 and future periods.  In addition, exploratory drilling is scheduled
    during 2000 and future periods on Beta's undeveloped properties.  It is anticipated that these exploration
    activities together with others that may be entered into will impose financial requirements which will exceed the
    existing working capital of Beta.  Management plans to raise additional equity and/or debt capital to finance its
    continued participation in planned activities. In the opinion of Beta management, current cash flow projections
    indicate that Beta can continue as a going concern even if additional financing is unavailable.  However, if
    additional financing is not available, Beta will be compelled to reduce the scope of its business activities.  If
    Beta is unable to fund planned expenditures, it may be necessary to:
    
    
    
    1.     Forfeit its interest in wells that are proposed to be drilled;
    
    
    
    2.     Farm-out its interest in proposed wells;
    
    
    
    3.     Sell a portion of its interest in prospects and use the sale proceeds to fund its participation for a
         lesser interest; and
    
    
    
    4.     Reduce general and administrative expenses.
    
    
    
    (2)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    
    
    
         Principles of Consolidation
    
    
    
    The consolidated financial statements include the accounts of Beta and its wholly-owned subsidiaries.  All
    significant inter-company accounts and transactions have been eliminated in consolidation.
    
    
    
         Use of Estimates
    
    
    
    Beta's financial statements are based upon a number of significant estimates, including  oil and gas reserve
    quantities which form the basis for the calculation of amortization and impairment of oil and gas properties
    
    
    BETA OIL & GAS, INC.
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    and the estimated useful lives selected for furniture, fixtures and equipment.Management emphasizes that reserve
    estimates are inherently imprecise and that estimates of more recent discoveries are more imprecise that those
    for properties with long production histories.
    
    
    
    
         Oil and Gas Properties
    
    
    
    
    Beta follows the full cost method of accounting for oil and gas producing activities and, accordingly,
    capitalizes all costs incurred in the acquisition, exploration, and development of proved oil and gas properties,
    including the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals.  All general
    corporate costs are expensed as incurred.  In general, sales or other dispositions of oil and gas properties are
    accounted for as adjustments to capitalized costs, with no gain or loss recorded.  Amortization of evaluated oil
    and gas properties is computed on the units of production method based on all proved reserves on a country by
    country basis.  Unevaluated oil and gas properties are assessed for impairment either individually or on an
    aggregate basis.  The net capitalized costs of evaluated oil and gas properties (full cost ceiling limitation)
    are not to exceed their related estimated future net revenues discounted at 10%, and the lower of cost or
    estimated fair value of unproved properties, net of tax considerations.
    
    
    
    
    
         Joint Ventures
    
    
    
    
    All exploration and production activities are conducted jointly with others and, accordingly, the accounts
    reflect only Beta's proportionate interest in such activities.  Beta is a non-operator in all of its oil and gas
    producing activities to date.
    
    
    
    
    
         Revenue Recognition
    
    
    
    
    Revenue is recognized upon delivery of oil and gas production.
    
    
         Furniture, Fixtures and Equipment
    
    
    
    
    
    Furniture,  fixtures  and  equipment  is stated at cost.  Depreciation  is  provided  on  furniture,  fixtures  and
    equipment using the straight-line method over an estimated service life of three years.
    
    
         Income Taxes
    
    
    
    
    
    Beta accounts for income taxes using the asset and liability method wherein deferred tax assets and liabilities
    are recognized for the future tax consequences attributable to differences between financial statement carrying
    amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities
    are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary
    differences are expected to be recovered or settled.
    
    
    
         Concentrations of Credit Risk
    
    
    
    
    
    Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties
    failed completely to perform as contracted.  Concentrations of credit risk (whether on or off balance sheet) that
    arise from financial instruments exist for groups of customers or counterparties when they have similar
    
    
    BETA OIL & GAS, INC.
    
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    economic characteristics that would cause their ability to meet contractual obligations to be similarly affected
    by changes in economic or other conditions described below.  In accordance with FASB Statement
    No. 105, Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial
    Instruments with Concentrations of Credit Risk, the credit risk amounts shown in cash and accounts receivable do
    not take into account the value of any collateral or security. As of December 31, 1998 and 1999, Beta maintained
    cash in a bank that was approximately $98,000 and $1,352,085, respectively, in excess of the federally insured
    limit.
    
    
    
         Fair Value of Financial Instruments
    
    
    
    
    
    The estimated fair values for financial instruments under FAS No. 107, Disclosures about Fair Value of Financial
    Instruments, are determined at discrete points in time based on relevant market information.  These estimates
    involve uncertainties and cannot be determined with precision.  The estimated fair values of Beta's financial
    instruments, which includes all cash, accounts receivable and accounts payable, approximate the carrying values
    in the financial statements at December 31, 1998 and 1999.
    
    
    
         Stock Based Compensation
    
    
    
    Beta has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
    (APB25) and related interpretations in accounting for its employee stock options.  In accordance with FASB
    Statement No. 123 Accounting for Stock-Based Compensation (FASB123), Beta will disclose the impact of adopting
    the fair value accounting of employee stock options.  Transactions in equity instruments with non-employees for
    goods or services have been accounted for using the fair value method as prescribed by FASB123.
    
    
    
         Loss Per Common Share
    
    
    
    Basic earnings per share excludes dilution and is calculated by dividing net loss by the weighted average number
    of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that
    could occur if securities or other contracts to issue common stock were exercised or converted into common stock
    or resulted in the issuance of common stock that then shared in the earnings of the entity. Potential common
    shares for all periods presented were anti-dilutive and excluded in the earnings per share computation.
    
    
    
         Cash Equivalents
    
    
    
    For purposes of the Statements of Cash Flows, cash and cash equivalents include cash on hand, amounts held in
    banks and highly liquid investments purchased with an original maturity of three months or less.
    
    
    
    
    
         Impact of Recently Issued Standards
    
    
    
    Beta intends to adopt SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," issued in June
    1998 effective with its fiscal year beginning January 1, 2000 as required by the Statement.  Due to Beta's
    current and anticipated limited use of derivative instruments, management anticipates that adoption of SFAS 133
    will not have any significant impact on Beta's financial position or results of operations.
    
    
    
         Segment Information
    
    
    BETA OIL & GAS, INC.
    
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    
    Beta has adopted SFAS 131, "Disclosure about Segments of an Enterprise and Related Information."  As defined in
    that Standard, Beta operates in only one segment, oil and gas exploration.
    
    
    
    (3)     SUMMARY OF OIL AND GAS OPERATIONS
    
    
    
    
    Capitalized costs at December 31,1998 and 1999 relating to Beta's oil and gas activities are summarized as
    follows:
    
    
    
                                                 December 31, 1998         December 31, 1999
                                                 -----------------         -----------------
    
                                              United States  Foreign   United States   Foreign
                                              -------------  -------   -------------   -------
              Capitalized costs-
                Evaluated properties          $  1,763,082 $ 1,624,218   $ 8,128,928 $ 1,681,270
              -------------------------------
                Unevaluated properties          11,426,732      39,963    11,973,532     118,095
              -------------------------------
                Less- Accumulated
              depreciation,
                        depletion, amortization    (46,473) (1,624,218)   (2,115,957) (1,681,270)
                              and impairment
                                              ------------ ----------- ------------- -----------
                                              $ 13,143,341 $    39,963  $ 17,986,503 $   118,095
                                              ============ =========== ============= ===========
    
    Costs incurred in oil and gas producing activities are as follows:
    
    
                                    Inception (June 6, 1997)                  Year ended                         Year ended
                                   through December 31, 1997               December 31, 1998                  December 31, 1999
                                 ------------------------------     ------------------------------- -- -------------------------------
                                 United States      Foreign         United States        Foreign        United States     Foreign
                                 -------------    -------------     -------------     ------------- -- ------------- --- -------------
    Property acquisition       $     3,835,540  $        -       $      2,808,123   $       323,463  $     1,810,331  $        114,632
                                 ==============   ==============    ==============    ==============   ==============    ==============
    Exploration                $     2,035,254  $        30,000  $      4,510,897   $      1,310,718 $     5,122,866  $         -
                                 ==============   ==============    ==============    ==============   ==============    ==============
    Development                $         -      $        -       $         -       $         -       $        -       $         -
                                 ==============   ==============    ==============    ==============   ==============    ==============
    
    
    
    Unevaluated oil and gas properties - United States
    
    
    As Beta's properties are evaluated through exploration, they will be included in the amortization base.   Costs
    of unevaluated properties in the United States at December 31,1998 and 1999 represent property acquisition and
    exploration costs in connection with Beta's Louisiana, Texas and California prospects. The prospects and their
    related costs in unevaluated properties have been assessed individually and no impairment charges were considered
    necessary for the United States properties for any of the periods presented. The current status of these
    prospects is that seismic has been acquired, processed and is being interpreted on an ongoing basis on the
    subject lands within the prospects.  Drilling commenced on the prospects in the first quarter of 1999 and will
    continue in future periods.  As the prospects are evaluated through drilling in future periods, the property
    acquisition and exploration costs associated with the wells drilled will be transferred to evaluated properties
    where they will be subject to amortization.
    
    
    
    BETA OIL & GAS, INC.
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    Unevaluated oil and gas properties - Foreign
    
    
    
    Unevaluated costs incurred outside the United States represent costs in connection with the acquisition of
    properties in Australia.
    
    
    
    At December 31, 1998 and 1999, capitalized unevaluated properties consist of the following:
    
    
                                                      December 31, 1998           December 31, 1999
                                                    ----------------------    ----------------------
           Unproved property acquisition cost   $               6,476,043  $              7,056,414
           Exploration costs                                    4,990,652                 5,035,213
                                                    ----------------------    ----------------------
                                                $              11,466,695  $             12,091,627
                                                    ======================    ======================
    
    
    
    Management expects that planned activities for the year 2000 will enable the evaluation for approximately 30% of
    the costs as of December 31, 1999.  Evaluation of 40% of the remaining costs is expected to occur in 2001 with
    the remaining 30% in 2002.
    
    
    
    
    
    
    Evaluated Properties - United States
    
    
    
    During the year ended December 31, 1998 Beta participated in the drilling of 6 wells within the United States.
    The property acquisition and exploration costs associated with the wells were transferred to evaluated properties
    and were evaluated for impairment.  It was determined that the capitalized costs associated with the drilling of
    these properties exceed their net realizable value by $46,473.  Accordingly, an impairment write-down of $46,473
    was recorded for the year ended December 31, 1998.  Since all of the proved reserves associated with the wells
    were non-producing or behind pipe and no production had occurred as of December 31, 1998,  no depletion expense
    was recorded during the year ended December 31, 1998.
    
    
    
    During the year ended December 31, 1999, Beta participated in the drilling of 19 wells within the United States.
    The property acquisition and exploration costs associated with the wells  were transferred to evaluated
    properties.  It was determined that the total costs in the U.S. evaluated properties cost pool exceeded their net
    realizable value. Accordingly, an impairment write-down of $1,167,910 was recorded for the year ended December
    31, 1999.  Production commenced during the year and depletion expense of approximately $901,573 was recorded.
    
    
    
    
    
    
    Evaluated Properties - Foreign
    
    
    
    During 1998, Beta, through its wholly owned subsidiary, BETAustralia, LLC secured an option to participate for a
    5% working interest in two petroleum licenses covering 2,798,000 acres (approximately 4,372 square miles).  Per
    the terms of the option agreement, Beta exercised its option to earn a 5% working interest by participating in
    the drilling of two offshore test wells in the license areas. The wells were completed as dry holes. The property
    acquisition and exploration costs associated therewith totaling $1,624,218 were transferred to evaluated
    properties and charged to impairment expense during the year ended December 31, 1998.  The exploration licenses
    expired in December 1998.  Additional costs of $57,052 were transferred to and charged to impairment expense
    during 1999.
    
    
    
      
    BETA OIL & GAS, INC.
    
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    
    (4)     BRIDGE NOTES - NOTES PAYABLE
    
    
    
    During the year ended December 31, 1999 Beta completed the private placement of a $3,000,000 bridge promissory
    note financing to three institutional  investors (the "1999 bridge financing").  In connection with the 1999
    bridge financing, Beta granted the investors a security interest in all of Beta's assets.  In addition, a total
    of 459,000 shares of Beta common stock were issued in connection with the 1999 bridge financing.  The $3,000,000
    in bridge notes was repaid in full with accrued interest on July 7, 1999 from the proceeds of Beta's initial
    public offering.
    
    
    
    Beta received net cash proceeds of $2,835,000 from the bridge notes.  The estimated fair market value of 429,000
    shares of common stock issued in connection with the bridge note of $2,574,000 was treated as a discount and was
    amortized over the term of the promissory notes using the interest method. The estimated fair market value of
    30,000 additional shares of common stock issued per the terms of the bridge note of $180,000 was immediately
    expensed as interest during the year ended December 31, 1999.   Accordingly, Beta incurred additional interest
    expense of $2,754,000 because of the common stock issued in connection with the bridge notes. The debt issuance
    costs of the 1999 bridge financing of $89,100 were amortized as additional interest expense during the year ended
    December 31, 1999.
    
    
    
    During the year ended December 31, 1999, Beta incurred interest expense of $2,966,651,  substantially all of
    which related to the bridge notes.  Interest expense related to the bridge notes for the 1999 period consists of
    the following:
    
    
                                                                                              ==============
    
    
    Cash interest expense
                                                         
    $        120,555
    
    
    Amortization of note discount and fair market value of 459,000 shares
         
           2,754,000
    
    
    Amortization of deferred loan costs
                                           
              89,100
                                                                                                 -----------
    
    
    Bridge note interest expense for the year ended December 31, 1999                   $      2,963,655
    
    
    
    
    
    The remaining $2,997 represents cash interest expense incurred in connection with financing insurance premiums.
    
    
    
    BETA OIL & GAS, INC.
    
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    
    (5)     COMMON STOCK WARRANTS
    
    
    
    The following table summarizes the number of shares reserved for the exercise of common stock purchase warrants
    as of December 31, 1998 and 1999:
    
    
                                      12/31/1998 Warrants Warrants  Warrants  12/31/1999     Callable/Non-
      Expiration Date    Exercise Price         Exercised Cancelled Granted     Shares          Callable
      ---------------    ---------------        --------- -          -------     ------          --------
                                 Shares
                                -------
    
         06/23/2002             $2.00   230,000  (50,000)    -         -         180,000      Non-Callable
         09/05/2002             $5.00   266,667  (15,270)    -         -         251,397      Non-Callable
         10/01/2002             $4.50    10,000     -        -         -          10,000      Non-Callable
         12/30/2002             $4.50   224,310  (56,180)    -         -         168,130      Non-Callable
         09/05/2002             $5.00   797,245 (324,692)    -         -         472,553      Callable (a)
         01/27/2003             $3.75   100,000     -        -         -         100,000  Non-Callable (c)
         02/04/2003             $5.00     2,000     -        -         -           2,000      Non-Callable
         03/12/2003             $5.00   230,100     -      (20,000)    -         210,100      Non-Callable
         03/12/2003             $7.50   100,000     -        -         -         100,000      Non-Callable
         03/13/2003             $7.50    50,000     -        -         -          50,000      Callable (b)
         03/12/2003             $7.00   121,383     -      (67,296)    -          54,087      Non-Callable
         03/12/2003             $7.50   365,958     -        -         -         365,958      Callable (b)
         04/08/2004             $5.00     -         -        -       50,000       50,000  Non-Callable (e)
         08/03/2004             $6.00     -         -        -       25,000       25,000      Callable (d)
         08/16/2004             $6.00     -         -        -       30,000       30,000      Non-Callable
         09/01/2004             $6.00     -         -        -       20,000       20,000      Non-Callable
         09/08/2004             $7.50     -         -        -      133,122      133,122      Non-Callable
         09/10/2004             $6.38     -         -        -        1,000        1,000   Non-Callable(f)
         09/14/2004             $6.00     -         -        -       50,000      50,000       Callable (d)
         11/02/2004             $6.38     -         -        -       10,000      10,000       Non-Callable
                                      ----------------------------------------------------
                                      2,497,663 (446,142) (87,296)    319,122   2,283,347
                                      ====================================================
    
    
    
    (a)Beta will be entitled to call these warrants at any time on and after the date that its common stock is
           traded on any exchange, including the NASD Over-the-Counter Bulletin Board, at a market price equal to or
           exceeding $7.00 per share for 10 consecutive trading days.
    (b)Beta will be entitled to call these warrants at any time on and after the date that its common stock is
           traded on any exchange, including the NASD Over-the-Counter Bulletin Board, at a market price equal to or
           exceeding $10.00 per share for 10 consecutive trading days.
    (c)On January 27, 1998, Beta issued 100,000 common stock purchase warrants exercisable at a price of $3.75
           per share to an officer of Beta. The exercise price was equal to the market value of the common stock on
           the date of grant.  The warrants vest as follows:  (a) 25,000 warrants vested immediately; (b) 25,000
           shall vest upon the first anniversary of the employee's employment (January 27,1998) with Beta; (c) 25,000
           shall vest upon the second anniversary of employment; and (d) 25,000 shall vest upon the third anniversary
           of employment.  If the officer ceases employment during the vesting period, all nonvested warrants shall
           be forfeited.
    (d)Warrants issued in connection with the acquisition of evaluated oil & gas properties.  Beta will be
           entitled to call these warrants at any time on and after the date that its common stock is traded on any
           exchange, including the NASD Over-the-Counter Bulletin Board, at a market price equal to or exceeding
           $12.00 per share for 10 consecutive trading days.
    (e)Warrants granted to a new director for services.
    (f)Warrants granted to an employee.
    
    
    
    
    BETA OIL & GAS, INC.
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    Pro Forma Information
    
    
    
    
    
    As stated in Note 2, Beta has not adopted the fair value accounting prescribed by FAS123 for employees.  Had
    compensation cost for stock options issued to employees been determined based on the fair value at grant date for
    awards in the year ended December 31, 1998 and 1999 consistent with the provisions of FAS123, Beta's net loss and
    net loss per share would have been adjusted to the pro forma amounts indicated below:
    
    
                                                      December 31, 1998        December 31, 1999
                                                      -----------------        -----------------
                         Net loss                          $(2,473,000)             $(5,470,000)
                                                           ============             ============
                         Loss per common share                   $(.39)                   $(.67)
                                                                 ======                   ======
    
    
    
    During the year ended December 31, 1997, Beta did not grant exercisable warrants to employees.  As a result,
    there would be no effect on Beta's net loss or net loss per share.
    
    
    
    The fair value of each warrant is estimated on the date of grant using the minimum value option-pricing model in
    1998 and the Black Scholes option pricing model for 1999 using the following assumptions:
    
    
                                                          1998             1999
                                                          ----             ----
             Expected volatility                           0%             54.42%
             Expected life in years                        2-3               2
             Dividends                                    None             None
             Risk free interest rate                      5.6%         5.07% - 5.84%
    
    
    
    The weighted average fair value of the options on the grant dates was $4.31 per share for 1998 and $1.68 for 1999.
    
    
    
         Cancellation of Warrants
    
    
    
    
    
    On June 21, 1999, certain warrant holders agreed to cancel 87,296 warrants to purchase common stock consisting of
    20,000 warrants exercisable at $5.00 per share and 67,296 warrants exercisable at $7.00 per share.  All of  the
    cancelled warrants were non-callable with expiration dates on March 12, 2003.  The warrants were cancelled for no
    consideration pursuant to a request by the National Association of Securities Dealers, the "NASD". The warrant
    holders were certain NASD member firms and their employees who participated in Beta's 1998 private placement, as
    well as Beta's legal counsel.  The cancellation request was made and complied with because the NASD determined
    that these warrants could be deemed "underwriter's compensation" and the continued existence of these warrants
    could result in the compensation for the initial public offering exceeding the NASD guidelines.  Therefore, all
    such warrants which could be deemed "underwriter's compensation" in excess of NASD guidelines have been cancelled
    for no consideration.
    
    
    
    
    BETA OIL & GAS, INC.
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    (6)     INCOME TAXES
    
    
    
    
    
     Income tax (expense) for the period from inception through December 31, 1997 and the years ended 1998 and 1999
     is comprised of the following:
    
    
                                               Inception                Year ended              Year ended
                                           (June 6, 1997) to           December 31,            December 31,
                                           December 31, 1997               1998                    1999
                                         ----------------------    --------------------    --------------------
         Current:
                  Federal            $             -            $           -           $           -
                  State                            -                      (800)                   (800)
                                         ----------------------    --------------------    --------------------
                                     $             -            $         (800)         $         (800)
                                         ======================    ====================    ====================
         Deferred:
                  Federal            $             -            $           -           $           -
                  State                            -                        -                       -
                                         ----------------------    --------------------    --------------------
                                     $             -            $           -           $           -
                                         ======================    ====================    ====================
    
    
    
    The actual income tax (expense ) benefit differs from the "expected" tax (expense) benefit (computed by applying
    the U.S. Federal corporate income tax rate of  34% for each period) as follows:
    
    
                                                   Inception
                                                (June 6, 1997)        Year ended          Year ended
                                                to December 31,      December 31,        December 31,
                                                     1997                1998                1999
                                               -----------------    ---------------     ---------------
    
         Amount of expected tax
               (expense) benefit            $             68,535 $          810,458 $         1,829,677
         Non-deductible expenses                           (713)           (23,759)            (13,846)
         State taxes, net                              -                      (800)               (800)
         Change in beginning balance
                of valuation allowance                  (67,822)          (786,699)         (1,815,831)
                                               -----------------    ---------------     ---------------
         Total                              $          -         $            (800) $             (800)
                                               =================    ===============     ===============
    
    
    
    
    
    
    
    BETA OIL & GAS, INC.
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
     The components of the net deferred tax asset recognized as of December 31, 1998 and 1999 are as follows:
    
    
                                                       December 31,         December 31,
                                                           1998                 1999
                                                     ----------------     ----------------
    
    Long-term deferred tax assets (liabilities)
        Net operating loss carryforwards          $         1,714,694 $          3,989,087
        Furniture, fixtures and equipment                   -                         (130)
        Oil and gas properties                               (605,173)            (695,387)
                                                     ----------------     ----------------
                                                            1,109,521            3,293,830
       Valuation allowance                                 (1,109,521)          (3,293,830)
                                                      ----------------    ----------------
       Net long term deferred tax asset           $         -         $          -
                                                     ================     ================
    
    
    
     At December 31, 1999, Beta has net operating loss carryforwards of approximately $9,500,000 which expire in the
     years 2012 through 2019.  Beta has California net operating loss carryforwards for the year ended December 31,
     1999 of $8,600,000 which expire in 2005.
    
    
    
     Utilization of the tax net operating loss carryforward may be limited in the event a 50% or more change in
     ownership occurs within a three year  period.
    
    
    
    (7)     OTHER
    
    
    
         Related Party Transactions
    
    
    
    During the period from inception (June 6, 1997) through December 31, 1997, and for the years ended December 31,
    1998 and 1999,  a director of Beta was paid $20,000, $60,000 and $77,500,  respectively, pursuant to a consulting
    contract for management and geologic evaluation services.  In addition, the director subscribed to 350,000 shares
    of Beta's common stock at a price of  $0.05 per share ("founder shares").
    
    
    
    A second director of Beta subscribed to 50,000 founder shares at a price of $0.05 per share. In addition, a legal
    firm with whom the director is a shareholder, subscribed to 20,000 founder shares at a price of $0.05 per share.
    The legal firm represents Beta as general counsel. The legal firm also received 20,000 common stock purchase
    warrants presently exercisable at a price of $6.00 per share until expiration on September 1, 2004.
    
    
    
    A third director of Beta subscribed to 400,000 founder shares at a price of $0.05 per share.
    
    
    
    Beta entered into an expense sharing agreement with Beta Capital Group, Inc., a company owned by the President
    and Chairman of the Board, and the Treasurer of Beta.  The agreement provides for the allocation and
    reimbursement of certain office expenses such as office rent, secretarial support, office supplies, marketing
    materials and telephone charges between Beta and Beta Capital Group, Inc.  During the period from inception
    through December 31, 1997 Beta made payments totaling $9,940 to Beta Capital Group, Inc. in connection with this
    agreement.  During the years ended December 31, 1998 and 1999 Beta paid $17,000 and $2,891, respectively, in
    connection with this agreement.
    
    
    
    BETA OIL & GAS, INC.
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    Leases
    
    
    
    
    
    Effective October 1, 1999, Beta entered into a new agreement to lease office space.  The lease agreement provides
    for a 36 -month term expiring in September 2002.  Monthly rent payments under the lease agreement commenced in
    October 1999.   Beta is recognizing rent expense ratably over the term of the lease.  Total minimum future rental
    payments under this lease are as follows:
    
    
                           Year ended December 31, 2000                           $ 41,472
                                                                                ===========
                           Year ended December 31, 2001                           $ 47,969
                                                                                ===========
                           Year ended December 31, 2002                           $ 37,363
                                                                                ===========
    
    
    
    Rent expense for the period ended December 31, 1997 and the years ended December 31, 1998 and 1999 amounted to
    approximately $8,000, $ 31,000 and $33,000,  respectively.
    
    
    
    
    
         Beta Acquisition of Red River Energy, Inc.
    
    
    
    
    
    Beta Oil & Gas, Inc. (“Beta”) entered into an agreement on November 19, 1999 to purchase Red River Energy, Inc.
    of Tulsa, Oklahoma, a private oil and natural gas company.  The purchase price will be paid by the issuance of
    approximately 2.25 million shares of Beta common stock.  The purchase is subject to approval by Beta shareholders.
    
    
    
    The assets of Red River Energy, Inc. consist of four components:  1) a 97.4% working interest (80% net revenue
    interest) in a 30,160 acre unit which is currently producing approximately 3.65 MMBTU/d and 120 Bopd from 22
    active wells in the Hunton Limestone formation in Central Oklahoma; 2) an 85% working interest (68% net revenue
    interest) in 7,500 acres which are currently producing 960 MMBTU/d from 45 wells in the Atoka and Gilcrease
    formations in Eastern Oklahoma; 3) a gas gathering system  consisting of 40 miles of pipeline which is currently
    transporting approximately 1650 MMBTU/d in Eastern Oklahoma; and 4) a 46 well coal bed methane project also
    located in Eastern Oklahoma which is currently under development and producing approximately 600 MMBTU/d. Red
    River Energy, Inc. is the operator of all its properties.
    
    
    
         Stock Option Plan
    
    
    
    On August 27, 1999, the board of directors approved an incentive and non-statutory stock option plan which
    authorizes the Compensation Committee to grant stock option awards to officers, directors and employees.  The
    plan provides, among other things, the following:
    
    
    
    €     The maximum number of shares which may be optioned and sold under the plan is 700,000 shares.
    
    €     The per share exercise price for common shares to be issued pursuant to the exercise of an option shall
         be no less than the fair market value of Beta's common stock as of the date of grant.
    
    €     The per share exercise price for common shares to be issued to persons owning more than 10% of the
         voting stock of Beta at the date of grant, shall be no less than 110% of the fair market value of Beta's
         common stock as of the date of grant.
    
    €     The maximum term of the options shall be a maximum of ten years or such lesser time period as the board
         of directors determines. The maximum time period for options to be issued to persons owning more than 10% of
         the voting stock of Beta at the date of grant shall be five years from the date of grant.
    
    
    BETA OIL & GAS, INC.
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    The plan is subject to approval by the shareholders of the Company.
    
    
    
         Employment Contracts
    
    
    
    
    
    Beta has executed an employment contract dated June 23, 1997 with its president who also serves as a director.
    The contract provides for an indefinite term of employment at an annual salary of $150,000
    commencing in October of 1997 and an annual car allowance of up to $12,000.  The contract may be
    terminated by Beta without cause upon the payment of the following:
    
    
    
    
    (a)
    Options to acquire the common stock of Beta  in an amount equal to 10% of the
                      then issued and outstanding shares containing a five year term, piggyback registration rights
                      and an exercise price equal to 60% of the fair market value of the shares during the sixty day
                      period of time preceding the termination notice, such amount not to exceed $3.00 per share.
    
    
    (b)
    A cash payment equal to two times the aggregate annual compensation.
    
    
    (c)
    In the event of termination without cause, all unvested securities issued by Beta to the
                      Employee shall immediately vest and Beta shall not have the right to terminate or otherwise
                      cancel any securities issued by Beta to the Employee.
    
    
    
    On June 23, 1997, Beta entered into an employment agreement with a shareholder. The agreement provides for a two
    year term at an annual salary of $60,000 for services as "Vice President of Capital Markets".  Under separate
    agreement, the Shareholder subscribed to 350,000 shares of Founders Shares at a price of $0.05 per share.  The
    subscription agreement provides that the shares shall vest over a three year period.
    
    
    
         Deferred Compensation
    
    
    
    In 1998, the Company began to offer a simple individual retirement account (IRA) plan for all employees meeting
    certain eligibility requirements.  Employees may contribute up to 3% of the employees eligible compensation.
    Beta's contribution to the plan for the years ended December 31, 1998 and 1999 was $4,693 and $-0- respectively.
    
    
    
    
    
    (8)     OTHER ASSETS
    
    
    
    Other assets of approximately $166,000 and $465,000 at December 31, 1998 and December 31, 1999,  respectively,
    consisted of unapplied well prepayments.
    
    
    
    BETA OIL & GAS, INC.
    
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    (9)     UNAUDITED SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION,br>
    
    
    The following supplementary information is presented in compliance with United States Securities and Exchange
    Commission regulations and is not covered by the report of Beta's independent auditors. The information required
    to be disclosed for the years ended 1998 and 1999 in accordance with FASB Statement No. 69, "Disclosures About
    Oil and Gas Producing Activities," is discussed below and is further detailed in the following tables.  There
    were no oil and gas reserves as of December 31, 1997.
    
    
    
         The reserve quantities and valuations for fiscal 1998 are based upon estimates by Veazey & Associates, Inc.
    and Beta's management. The reserve quantities and valuations for fiscal 1999 are based upon estimates by Ryder
    Scott Company.  Proved 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 a 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 reasonably be 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.
    
    
    
    Proved  developed  reserves  are  reserves  that can be expected to be  recovered  through  existing  wells with
    existing  equipment and operating  methods.  Additional oil and gas reserves 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.
    
    
    
    Beta wishes to emphasize that the estimates included in the following tables are by their nature inexact and are
    subject to changing economic, operating and contractual conditions.  At December 31, 1999 most of Beta's reserves
    are attributable to recently completed wells that have little or no production history as of that date.  Reserve
    estimates for these wells are subject to substantial upward or downward revisions after production commences and
    a production history is obtained.  Accordingly, reserve estimates of future net revenues from production may be
    subject to substantial revision from year to year.  Reserve information presented herein is based on reports
    prepared by independent petroleum engineers.
    
    
    
    The assumptions used to compute the standardized measure are those prescribed  by the Financial Accounting
    Standards Board and, as such, do not necessarily reflect Beta's expectations for actual revenues to be derived
    from those reserves nor their present worth.  The limitations inherent in the reserve quantity estimation
    process, as discussed previously, are equally applicable to the standardized measure computations since these are
    the basis for the valuation process.
    
    
    
    
    BETA OIL & GAS, INC.
    
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
                            CHANGES IN QUANTITIES OF PROVED PETROLEUM AND NATURAL GAS RESERVES
                            ------------------------------------------------------------------
                                FOR THE YEARS ENDED DECEMBER 31, 1998 and 1999 (Unaudited)
                                ----------------------------------------------------------
    
                                   PROVED RESERVES           (Bbls)               (Mcfs)
    
    Balance at December 31, 1997                               -                    -
         Extensions and discoveries                          1,461             1,596,740
                                                          ------------        -----------
    Balance at December 31, 1998                             1,461             1,596,740
    
             Extensions and discoveries                     13,932             4,228,627
             Revisions of previous estimates                  (370)           (1,180,302)
             Production                                     (1,822)             (475,065)
                                                         -------------        -----------
    Balance at December 31, 1999                            13,201             4,170,000
                                                         =============       ==============
    
                                                            Oil                    Gas
                           PROVED DEVELOPED RESERVES       (Bbls)                 (Mcfs)
    
    December 31, 1997                                        -                     -
                                                        =============       =============
    
    December 31, 1998                                        1,461             1,596,740
                                                        =============       =============
    December 31, 1999                                       13,201             4,170,000
                                                        =============       =============
    
    
    
    
    BETA OIL & GAS, INC.
    
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
    
    RELATING TO PROVED PETROLEUM AND NATURAL GAS RESERVES (Unaudited)
    
    For purposes of the following disclosures, estimates were made of quantities of proved reserves and the periods
    during which they are expected to be produced.  Future cash flows were computed by applying year-end prices to
    estimated annual future production from proved oil and gas reserves.  The average year-end price for oil was
    $13.14 and $ 23.06 per barrel at December 31, 1998 and 1999, respectively.  The average year-end price for gas
    was $1.85 and $2.19 per mcf at December 31, 1998 and 1999,  respectively.  Future development and production
    costs were computed by applying year-end costs to be incurred in producing and further developing the proved
    reserves.  Future income tax expenses were computed by applying, generally, year-end statutory tax rates
    (adjusted for permanent differences, tax credits and allowances) to the estimated net future pre-tax cash flows.
    The discount was computed by application of a 10% discount factor.  The calculations assume the continuation of
    existing economic, operating and contractual conditions.  However, such arbitrary assumptions have not proven to
    be the case in the past.  Other assumptions of equal validity could give rise to substantially different
    results.
    
    
    
                                                                        For the year        For the year
                                                                        ended December      ended December
                                                                             31,                 31,
                                                                             1998                1999
                                                                       ----------------    ----------------
    Future cash inflows                                             $        2,978,861     $     9,141,659
    Future costs-
        Production                                                            (343,478)           (905,242)
        Development                                                            (81,621)           (701,771)
                                                                       ----------------     ----------------
    Future net cash inflows before income tax                                2,553,762           7,534,646
    Future income tax                                                         -                   -
                                                                       ----------------    ----------------
    Future net cash flows                                                    2,553,762           7,534,646
    10% discount factor                                                       (837,154)         (1,521,674)
                                                                       ----------------    ----------------
    Standardized measure of discounted future net cash flows       $         1,716,608 $         6,012,972
                                                                       ================    ================
    
    
    
    
    
    BETA OIL & GAS, INC.
    
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    
    CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH
    
    FLOWS FROM PROVED PETROLEUM AND NATURAL GAS RESERVE
    
    QUANTITIES (Unaudited)
    
    
    The following are the principal sources of changes in the standardized measure of discounted future net cash
    flows:
    
    
                                                                         For the year        For the year
                                                                        ended December      ended December
                                                                             31,                 31,
                                                                             1998                1999
                                                                       ----------------    ----------------
    
    Standardized measure of discounted future net cash
             flows--beginning of year                               $         -         $         1,716,608
    
    Oil & gas sales, net of costs                                             -                 (1,117,941)
    Extensions and discoveries, net of future costs                           1,716,608           6,374,495
    Changes in prices and costs                                               -                     447,063
    Change in development costs                                               -                   (443,525)
    Accretion of discount                                                     -                     171,661
    Revisions of previous estimates                                           -                 (1,135,389)
                                                                       ----------------    ----------------
    Standardized measure of discounted future net cash
                 flows--end of year                                 $         1,716,608 $         6,012,972
                                                                        ================    ================
    
    
    
    During 1999, Beta recognized downward revisions in oil and gas reserves due to disappointing production results
    associated with two wells in which Beta recorded reserves at December 31, 1998.
    
    
    
    
    ANNEX D
    
    
    
    BETA OIL & GAS, INC.
    AMENDED AND RESTATED 1999 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
    
    
    Annex D
    [GRAPHIC OMITTED][GRAPHIC OMITTED]
    
    BETA OIL & GAS, INC.
    AMENDED AND RESTATED
    1999 INCENTIVE AND NONSTATUTORY
    STOCK OPTION PLAN
    
            1.
    Purpose of Plan.  The purpose of this 1999 Incentive and
     Nonstatutory Stock Option Plan are to attract
    and retain the best available personnel for positions of substantial
    responsibility, to provide additional incentive to the Employees, Directors and
    Consultants of BETA OIL & GAS, INC. (the “Company”) and to
    promote the success of the Company’s business. Options granted hereunder
    may be either “incentive stock options,” as defined in Section 422 of
    the Internal Revenue Code of 1986, as amended, or “nonstatutory stock
    options,” at the discretion of the Board and as reflected in the terms of
    the written stock option agreement. 
    
            2.  Definitions.  As used herein, the following definitions shall apply:
    
    
               (a)  "Board" shall mean the Board of Directors of the Company,  or if a Committee is appointed,  "Board"
                                          shall refer to the Committee if the context so requires.
    
               (b)  "Code" shall mean the Internal Revenue Code of 1986, as amended.
    
               (c)  "Common Stock" shall mean the $.001 par value common stock of the Company.
    
               (d)  "Company" shall mean BETA OIL & GAS, INC., a Nevada corporation.
    
               (e)  "Committee"  shall mean the  Committee  appointed  by the Board of  Directors  in  accordance  with
             paragraph (a) of Section 4 of the Plan, if one is appointed, or the Board if no committee is appointed.
    
               (f)  "Consultant"shall  mean any person who is  engaged  by the  Company or any  Subsidiary  to render
             consulting services and is compensated for such consulting services.
    
               (g)  "Continuous  Status as an Employee"shall mean the absence of any  interruption  or termination of
             service as an  Employee.  Continuous  Status as an Employee  shall not be  considered  interrupted  in the case of sick leave,
             military  leave,  or any other leave of absence  approved by the Board;  provided  that such leave is for a period of not more
             than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute.
    
     
               (h)  "Employee"shall mean any person, including officers and directors,  employed by the Company or any
               Parent or Subsidiary of the Company.
    
               (i)  "Incentive  Stock Option"shall mean an Option which is intended to qualify as an incentive  stock
               option  within the  meaning of Section  422 of the Code and which shall be clearly  identified  as such in the  written  Stock
             Option Agreement provided by the Company to each Optionee granted an Incentive Stock Option under the Plan.
    
               (j)  "Non-Employee Director"shall mean a director who:
    
                  (i)Is not  currently  an officer  (as defined in Section  16a-1(f) of the  Securities
    Exchange Act of 1934, as amended) of the Company or a Parent or Subsidiary of the
    Company, or otherwise currently employed by the Company or a Parent or
    Subsidiary of the Company;
    
                  (ii)     Does not receive  compensation,  either  directly or indirectly,  from the Company
    or a Parent or Subsidiary of the Company, for services rendered as a Consultant or
    in any capacity other than as a director, except for an amount that does not
    exceed the dollar amount for which disclosure would be required pursuant to Item
    404(a) of Regulation S-K adopted by the United States Securities and Exchange
    Commission; and
                  (iii)    Does not possess an interest in any other  transaction for which  disclosure would
    be required pursuant to Item 404(a) of Regulation S-K adopted by the United States
    Securities and Exchange Commission.
    
               (k)  "Nonstatutory  Stock  Option"shall mean an Option  granted under this Plan which does not qualify
               as an Incentive Stock Option and which shall be clearly  identified as such in the written Stock Option Agreement  provided by
             the Company to each  Optionee  granted a  Nonstatutory  Stock Option under this Plan.  To the extent that the  aggregate  fair
             market value of Optioned Stock to which  Incentive  Stock Options granted under Options to an Employee are exercisable for the
             first time  during  any  calendar  year  (under the Plan and all plans of the  Company  or any Parent or  Subsidiary)  exceeds
             $100,000,  such Options shall be treated as  Nonstatutory  Stock Options  under the Plan.  The aggregate  fair market value of
             the Optioned Stock shall be determined as of the date of grant of each Option and the  determination  of which Incentive Stock
             Options  shall be treated as  qualified  incentive  stock  options  under  Section 422 of the Code and which  Incentive  Stock
             Options  exercisable  for the first  time in a  particular  year in excess of the  $100,000  limitation  shall be  treated  as
             Nonstatutory  Stock  Options  shall be  determined  based on the order in which such Options were granted in  accordance  with
             Section 422(d) of the Code.
    
     
               (l)  "Option" shall mean an Incentive  Stock Option,  a Nonstatutory  Stock Option or both as identified
               in a written Stock Option Agreement representing such stock option granted pursuant to the Plan.
    
               (m)  "Optioned Stock" shall mean the Common Stock subject to an Option.
    
               (n)  "Optionee" shall mean an Employee or other person who is granted an Option.
    
               (o)  "Parent"  shall mean a "parent  corporation,"  whether  now or  hereafter  existing,  as defined in
               Section 424(e) of the Code.
    
     
               (p)  "Plan" shall mean this 1999 Incentive and Nonstatutory Stock Option Plan.
    
    
       
               (q)  "Share"  shall mean a share of the Common  Stock of the  Company,  as adjusted in  accordance  with
             Section 11 of the Plan.
    
               (r)  "Stock Option  Agreement"  shall mean the agreement to be entered into between the Company and each
             Optionee  which shall set forth the terms and  conditions  of each Option  granted to each  Optionee,  including the number of
             Shares underlying such Option and the exercise price of each Option granted to such Optionee under such agreement.
    
               (s)  "Subsidiary" shall mean a "subsidiary  corporation,"  whether now or hereafter existing, as defined
             in Section 424(f) of the Code.
    
            3.
    Stock Subject to the
    Plan.  Subject to the provisions of
    Section 11 of the Plan, the maximum aggregate number of Shares which may be
    optioned and sold under the Plan is 700,000 shares of Common Stock. The Shares
    may be authorized, but unissued, or reacquired Common Stock. If an Option should
    expire or become unexercisable for any reason without having been exercised in
    full, the unpurchased Shares which were subject thereto shall, unless the Plan
    shall have been terminated, become available for future grant under the Plan. 
    
                  4.Administration of the Plan.  
               (a)Procedure.  The  Plan shall be  administered  by a Committee  appointed by the Board  consisting of
               two or more  Non-Employee  Directors to administer  the Plan on behalf of the Board,  subject to such terms and  conditions as
             the Board may prescribe.  If the Company has a class of its equity  securities  registered  under the Securities  Exchange Act
             of 1934, as amended ("1934 Act"), the Board shall appoint the Committee.
    
                  (i)Once appointed,  the Committee  shall continue to serve until  otherwise  directed
    by the Board (which for purposes of this paragraph (a)(i) of this Section 4 shall
    be the Board of Directors of the Company). From time to time the Board may
    increase the size of the Committee and appoint additional members thereof,
    remove members (with or without cause) and appoint new members in substitution
    therefor, fill vacancies however caused, or remove all members of the Committee
    and thereafter directly administer the Plan.
                  (ii)Members of the Board who are granted,  or have been  granted,  Options may vote on
                      any matters affecting the administration of the Plan or the grant of any Options pursuant to the Plan.
    
               (b)Powers of the  Board.Subject to the provisions of the Plan, the Board (or the Committee,  subject
             to the approval of the Board) shall have the authority, in its discretion:
    
                  (i)To grant  Incentive  Stock  Options,  in accordance  with Section 422 of the Code,
    and Nonstatutory Stock Options or both as provided and identified in a separate
    written Stock Option Agreement to each Optionee granted such Option or Options
    under the Plan; provided however, that in no event shall an Incentive Stock
    Option and a Nonstatutory Stock Option granted to any Optionee under a single
    Stock Option Agreement be subject to a “tandem” exercise arrangement
    such that the exercise of one such Option affects the Optionee’s right to
    exercise the other Option granted under such Stock Option Agreement;
    
                  (ii)To determine,  upon review of relevant  information and in accordance with Section
                      8(b) of the Plan, the fair market value of the Common Stock;
    
                  (iii)To  determine  the  exercise  price  per Share of  Options  to be  granted,  which
                      exercise price shall be determined in accordance with Section 8(a) of the Plan;
    
                  (iv)To  determine  the  Employees or other  persons to whom,  and the time or times at
                      which, Options shall be granted and the number of Shares to be represented by each Option;
    
                  (v)To interpret the Plan;
    
                  (vi)To prescribe, amend and rescind rules and regulations relating to the Plan;
    
                  (vii)To  determine  the terms and  provisions  of each Option  granted  (which need not be
                      identical) and, with the consent of the holder thereof, modify or amend each Option;
    
                  (viii)To  accelerate  or defer (with the consent of the  Optionee)  the exercise date of
                      any Option, consistent with the provisions of Section 7 of the Plan;
    
                  (ix)To  authorize  any  person to  execute  on behalf of the  Company  any  instrument
                      required to effectuate the grant of an Option previously granted by the Board; and
                  (x) To  make  all  other   determinations   deemed  necessary  or  advisable  for  the
                      administration of the Plan.
    
                  (xi)To determine  whether a holder of  Nonstatutory  Stock Options  granted under this
    Plan shall have engaged in conduct which is contrary to the best interests of the
    Company and whose Nonstatutory Stock Option is therefore subject to cancellation
    as set forth in Section 7.
               (c)Effect of Board's Decision.  All  decisions,  determinations and interpretations of the Board shall
             be final and binding on all Optionees and any other permissible holders of any Options granted under the Plan.
    
            5.Eligibility.
    
               (a)Persons Eligible.  Options may be granted to any Employee,  Director,  Officer or Consultant of the
             Company  selected  by the Board.  Incentive  Stock  Options  may be granted  only to  Employees.  An  Employee,  who is also a
             director of the  Company,  its Parent or a  Subsidiary,  shall be treated as an Employee  for  purposes of this  Section 5. An
             Employee  or other  person  who has been  granted  an Option  may,  if he is  otherwise  eligible,  at the  discretion  of the
             Committee, if a Committee has been appointed, or the Board, be granted an additional Option or Options.
    
               (b)No Effect on  Relationship.  The Plan shall not confer upon any  Optionee any right with respect to
             continuation  of  employment  or other  relationship  with the Company nor shall it interfere in any way with his right or the
             Company's right to terminate his employment or other relationship at any time.
    
            6.
    Term of Plan.  The Plan
    became effective on the date first approved and adopted by the Board of
    Directors, as set forth on the last page of this Plan. It shall continue in
    effect for 10 years from the date of such approval and adoption, unless sooner
    terminated under Section 13 of the Plan. 
    
            7.
    Term of Option.  The term of
    each Option shall be 10 years from the date of grant thereof or such shorter
    term as may be provided in the Stock Option Agreement. However, in the case of
    an Incentive Stock Option granted to an Optionee who, at the time the Option is
    granted, owns stock representing more than 10% of the total combined voting
    power of all classes of stock of the Company or any Parent or Subsidiary, the
    term of the Option shall be five years from the date of grant thereof or such
    shorter time as may be provided in the Stock Option Agreement. 
    
            The Nonstatutory
    Stock Options granted to, and held by, any person under this Plan, may be deemed
    canceled and forfeited by the Board, if the Board, in its sole discretion,
    determines that the conduct of the holder of such Nonstatutory Stock Option has
    been contrary to the best interests of the Company and could reasonably be
    deemed by the Board to have a material adverse effect on the Company or the
    business of the Company. 
    
            8.Exercise Price and Consideration.
    
               (a) Exercise  Price.  The per Share  exercise  price for the Shares to be issued  pursuant to exercise of an
             Option  shall be no less than the fair  market  value of Shares of common  stock as of the date of grant of the option or such
             higher price as may be  determined by the Board,  but the per Share  exercise  price under an Incentive  Stock Option shall be
             subject to the following:
    
                  (i)      If granted to an Employee  who, at the time of the grant of such  Incentive  Stock
    Option, owns stock representing more than 10% of the voting power of all classes of
    stock of the Company or any Parent or Subsidiary, the per Share exercise price
    shall not be less than 110% of the fair market value per Share on the date of
    grant.
                  (ii)     If granted to any other  Employee,  the per Share exercise price shall not be less
                      than 100% of the fair market value per Share on the date of grant.
    
               (b)Determination  of Fair Market Value.  The fair market value per Share on the date of grant shall be
             determined as follows:
    
                  (i)      If the Common Stock is listed on the New York Stock  Exchange,  the American Stock
    Exchange or such other securities exchange designated by the Board, or admitted to
    unlisted trading privileges on any such exchange, or if the Common Stock is
    quoted on a National Association of Securities Dealers, Inc. system that reports
    closing prices, the fair market value shall be the closing price of the Common
    Stock as reported by such exchange or system on the day the fair market value is
    to be determined, or if no such price is reported for such day, then the
    determination of such closing price shall be as of the last immediately
    preceding day on which the closing price is so reported;
    
                  (ii)     If the Common  Stock is not so listed or admitted to unlisted  trading  privileges
    or so quoted, the fair market value shall be the average of the last reported
    highest bid and the lowest asked prices quoted on the National Association of
    Securities Dealers, Inc. Automated Quotations System or, if not so quoted, then
    by the National Quotation Bureau, Inc. on the day the fair market value is
    determined; or
    
                  (iii)    If the Common  Stock is not so listed or admitted to unlisted  trading  privileges
    or so quoted, and bid and asked prices are not reported, the fair market value
    shall be determined in such reasonable manner as may be prescribed by the Board.
    
               (c)      Consideration  and  Method of  Payment.  The  consideration  to be paid for the Shares to be issued
             upon  exercise of an Option,  including  the method of payment,  shall be  determined  by the  Committee  or the Board and may
             consist  entirely of cash,  check,  other shares of Common  Stock having a fair market value on the date of exercise  equal to
             the aggregate  exercise price of the Shares as to which said Option shall be exercised,  or any combination of such methods of
             payment,  or such other  consideration  and method of payment  for the  issuance of Shares to the extent  permitted  under the
             Nevada Business Corporation Act.
    
            9.Exercise of Option.
    
               (a) Procedure  for  Exercise;   Rights  as  a  Shareholder.  Any  Option  granted  hereunder  shall  be
             exercisable at such times and under such conditions as determined by the Board,  including  performance  criteria with respect
             to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan.
    
            In the sole discretion of the Board,  at the time of the grant of an Option or subsequent  thereto but prior
             to the exercise of an Option, an Optionee may be provided with the right to exchange, in a cashless  transaction,  all or part
             of the Option for Common Stock of the Company on terms and conditions determined by the Board.
    
            An Option may not be exercised for a fraction of a Share.
    
            An Option  shall be deemed to be  exercised  when  written  notice of such  exercise  has been  given to the
             Company in  accordance  with the terms of the Option by the person  entitled to exercise  the Option and full  payment for the
             Shares with respect to which the Option is exercised  has been  received by the Company.  Full  payment,  as authorized by the
             Board,  may consist of a consideration  and method of payment  allowable under Section 8(c) and this Section 9(a) of the Plan.
             Until the  issuance (as  evidenced by the  appropriate  entry on the books of the Company or of the duly  authorized  transfer
             agent of the Company) of the stock  certificate  evidencing  such Shares,  no right to vote or receive  dividends or any other
             rights as a  shareholder  shall exist with  respect to the Optioned  Stock,  notwithstanding  the  exercise of the Option.  No
             adjustment  will be made for a dividend or other  right for which the record  date is prior to the date the stock  certificate
             is issued, except as provided in Section 11 of the Plan.
    
            Exercise of an Option in any manner shall result in a decrease in the number of Shares which  thereafter may
             be  available,  both for  purposes  of the Plan and for  exercise  under the  Option,  by the number of Shares as to which the
             Option is exercised.
    
               (b)Termination of Status as an  Employee.  In  the case of an Incentive Stock Option,  if any Employee
             ceases to serve as an Employee,  he may, but only within such period of time not  exceeding  three months as is  determined by
             the Board at the time of grant of the Option,  after the date he ceases to be an Employee of the Company,  exercise his Option
             to the extent  that he was  entitled  to exercise  the Option at the date of such  termination.  To the extent that he was not
             entitled to exercise  the Option at the date of such  termination,  or if he does not exercise any portion of the Option which
             he was entitled to exercise at the date of termination within the time specified herein, the Option shall terminate.
    
               (c) Disability of Optionee.  In the case of an Incentive Stock Option,  notwithstanding  the provisions
             of Section  9(b) above,  in the event an Employee is unable to  continue  his  employment  with the Company as a result of his
             total and permanent  disability (as defined in Section  22(e)(3) of the Code), he may, but only within such period of time not
             exceeding 12 months as is  determined by the Board at the time of grant of the Option from the date of  termination,  exercise
             his Option to the  extent he was  entitled  to  exercise  it at the date of such  termination.  To the extent  that he was not
             entitled to exercise  the Option at the date of  termination,  or if he does not  exercise  any portion of the Option which he
             was entitled to exercise at the date of disability within the time specified herein, the Option shall terminate.
    
               (d)Death of Optionee.  In  the case of an Incentive  Stock  Option,  in the event of the death of the
             Optionee:
    
                  (i)During  the term of the  Option  if the  Optionee  was at the time of his death an
    Employee the Company and had been in Continuous Status as an Employee or Consultant since
    the date of grant of the Option, the Option may be exercised, at any time within
    12 months following the date of death, by the Optionee’s estate or by a
    person who acquired the right to exercise the Option by bequest or inheritance,
    but only to the extent of the right to exercise that would have accrued had the
    Optionee continued living and remained in Continuous Status as an Employee 12
    months after the date of death; or
    
                  (ii)Within such period of time not  exceeding  three  months as is  determined  by the
    Board at the time of grant of the Option after the termination of Continuous Status as
    an Employee, the Option may be exercised, at any time within 12 months following
    the date of death, by the Optionee’s estate or by a person who acquired the
    right to exercise the Option by bequest or inheritance, but only to the extent
    of the right to exercise that had accrued at the date of termination.
    
            10.
    Nontransferability of Options..  In the case of an Incentive
    Stock Option, the Option may not be sold, pledged, assigned, hypothecated,
    transferred, or disposed of in any manner (a “sale or other transfer”)
    other than by will or by the laws of descent and distribution and may be
    exercised, during the lifetime of the Optionee, only by the Optionee. In the
    case of a nonstatutory stock option, an Option may not be sold, pledged,
    assigned, hypothecated, transferred, or disposed of in any manner during the
    period ending one year from the date of grant and thereafter only (i) after
    written notice to the Board and (ii) in a manner which is in compliance with all
    applicable provisions of the Securities Act of 1933, as amended (“1933
    Act”) and the 1934 Act to the reasonable satisfaction of the Company. Upon
    any permitted sale or other transfer, the transferee shall remain subject to all
    terms and conditions of the Plan and the Stock Option Agreement. 
    
            11. Adjustments Upon Changes in
    Capitalization or Merger.  Subject to
    any required action by the shareholders of the Company, the number of Shares
    covered by each outstanding Option, and the number of Shares which have been
    authorized for issuance under the Plan but as to which no Options have yet been
    granted or which have been returned to the Plan upon cancellation or expiration
    of any Option, as well as the price per Share covered by each such outstanding
    Option, shall be proportionately adjusted for any increase or decrease in the
    number of issued Shares resulting from a stock split, reverse stock split, stock
    dividend, combination or reclassification of the Common Stock, or any other
    increase or decrease in the number of issued shares of Common Stock effected
    without receipt of consideration by the Company; provided, however, that
    conversion of any convertible securities of the Company shall not be deemed to
    have been “effected without receipt of consideration.” Such adjustment
    shall be made by the Board, whose determination in that respect shall be final,
    binding and conclusive. Except as expressly provided herein, no issuance by the
    Company of shares of stock of any class, or securities convertible into shares
    of stock of any class, shall affect, and no adjustment by reason thereof shall
    be made with respect to, the number or price of Shares subject to an Option. 
    
            In the event of
    the proposed dissolution or liquidation of the Company, the Option will
    terminate immediately prior to the consummation of such proposed action, unless
    otherwise provided by the Board. The Board may, in the exercise of its sole
    discretion in such instances, declare that any Option shall terminate as of a
    date fixed by the Board and give each Optionee the right to exercise his Option
    as to all or any part of the Optioned Stock, including Shares as to which the
    Option would not otherwise be exercisable. In the event of the proposed sale of
    all or substantially all of the assets of the Company, or the merger of the
    Company with or into another corporation in a transaction in which the Company
    is not the survivor, the Option shall be assumed or an equivalent option shall
    be substituted by such successor corporation or a parent or subsidiary of such
    successor corporation, unless the Board determines, in the exercise of its sole
    discretion and in lieu of such assumption or substitution, that the Optionee
    shall have the right to exercise the Option as to all of the Optioned Stock,
    including Shares as to which the Option would not otherwise be exercisable. If
    the Board makes an Option fully exercisable in lieu of assumption or
    substitution in the event of such a merger or sale of assets, the Board shall
    notify the Optionee that the Option shall be fully exercisable for a period of
    30 days from the date of such notice, and the Option will terminate upon the
    expiration of such period. 
    
            12.
    Time of Granting Options.  The date of grant of an Option
    shall, for all purposes, be the date on which the Board makes the determination
    granting such Option. Notice of the determination shall be given to each
    Employee or other person to whom an Option is so granted within a reasonable
    time after the date of such grant. Within a reasonable time after the date of
    the grant of an Option, the Company shall enter into and deliver to each
    Employee or other person granted such Option a written Stock Option Agreement as
    provided in Sections 2(r) and 16 hereof, setting forth the terms and conditions
    of such Option and separately identifying the portion of the Option which is an
    Incentive Stock Option and/or the portion of such Option which is a Nonstatutory
    Stock Option. 
    
            13.Amendment and Termination of the Plan.
    
               (a)Amendment  and  Termination.  The  Board may amend or terminate  the Plan from time to time in such
             respects as the Board may deem advisable;  provided that, the following  revisions or amendments shall require approval of the
             shareholders of the Company in the manner described in Section 17 of the Plan:
    
                  (i)An  increase  in the number of Shares  subject to the Plan above  700,000  Shares,
                      other than in connection with an adjustment under Section 11 of the Plan;
    
                  (ii)Any change in the  designation  of the class of  Employees  eligible to be granted
                      Incentive Stock Options; or
    
                  (iii)Any  material  amendment  under the Plan that  would  have to be  approved  by the
    shareholders of the Company for the Board to continue to be able to grant Incentive Stock Options under the Plan in accordance with the Code.
    
               (b)Effect of Amendment  or  Termination.Any  such  amendment  or  termination  of the Plan shall not
             affect Options  already  granted and such Options shall remain in full force and effect as if the Plan had not been amended or
             terminated,  unless  mutually  agreed  otherwise  between the Optionee and the Board,  which  agreement must be in writing and
             signed by the Optionee and the Company.
    
            14.
    Conditions Upon Issuance of Shares.  Shares shall not be issued
    pursuant to the exercise of an Option unless the exercise of such Option and the
    issuance and delivery of such Shares pursuant thereto shall comply with all
    relevant provisions of law, including, without limitation, the 1933 Act, the
    1934 Act, the rules and regulations promulgated thereunder, applicable state
    securities laws, and the requirements of any stock exchange upon which the
    Shares may then be listed, and shall be further subject to the approval of legal
    counsel for the Company with respect to such compliance. 
    
            As a condition
    to the existence of an Option, the Company may require the person exercising
    such Option to represent and warrant at the time of any such exercise that the
    Shares are being purchased only for investment and without any present intention
    to sell or distribute such Shares and such other representations and warranties
    which in the opinion of legal counsel for the Company, are necessary or
    appropriate to establish an exemption from the registration requirements under
    applicable federal and state securities laws with respect to the acquisition of
    such Shares. 
    
            15.
    Reservation of Shares.  The Company, during the term of this Plan, will at all times reserve and keep
    available such number of Shares as shall be sufficient to satisfy the
    requirements of the Plan. Inability of the Company to obtain authority from any
    regulatory body having jurisdiction, which authority is deemed by the
    Company’s legal counsel to be necessary for the lawful issuance and sale of
    any Share hereunder, shall relieve the Company of any liability relating to the
    failure to issue or sell such Shares as to which such requisite authority shall
    not have been obtained. 
    
            16.
    Option Agreement.  Each Option granted to an Employee or other persons shall be evidenced by a written
    Stock Option Agreement. The Stock Option Agreement shall be in the form and shall include the terms and conditions set forth on
    Exhibit A attached hereto. 
    
            17.
    Shareholder Approval.  Continuance of the Plan shall
    be subject to approval by the shareholders of the Company. Such shareholder
    approval and any shareholder approval required under Section 13 of the Plan, may
    be obtained at a duly held shareholders meeting by the affirmative vote of the
    holders of a majority of the outstanding shares of the voting stock of the
    Company, who are present or represented and entitled to vote thereon, or by
    majority written consent of the shareholders in accordance with the provisions
    of the Nevada Business Corporation Act. 
    
            18.
     Information to Optionees.  The Company shall provide to
    each Optionee, during the period for which such Optionee has one or more Options
    outstanding, copies of all annual reports and other information which are
    provided to all shareholders of the Company. The Company shall not be required
    to provide such information if the issuance of Options under the Plan is limited
    to key employees whose duties in connection with the Company assure their access
    to equivalent information. 
    
            19. Gender.As used herein,  the  masculine,  feminine and neuter  genders  shall be deemed to include the others in all
    cases where they would so apply.
    
            20.
    CHOICE OF LAW.  ALL QUESTIONS
    CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS PLAN AND THE
    INSTRUMENTS EVIDENCING OPTIONS WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE
    LAW OF CONFLICTS, OF THE STATE OF NEVADA. 
    
    Adopted by Directors:      Effective January 6, 1999
    Adopted by Shareholders:   Effective ____________
    
    BETA OIL & GAS, INC.
    organized under the laws of Nevada
    
                                                                   ATTEST:
    
    By/s/ Steve Antry                                             /s/Lisa Antry
        Chairman                                                  Secretary
    
    
    
    REQUEST FOR CONSENT
    
    BETA OIL & GAS, INC. (“Company”)
    
    901 Dove Street, Suite 230
    
    Newport Beach, California 92660
    
    THIS IS A REQUEST FOR THE CONSENT OF THE SHAREHOLDERS TO THE
    
                                  ACTION TO BE TAKEN AS TO THE RESOLUTION SET FORTH BELOW
    
    ON OR AFTER, BUT NO EARLIER THAN,          ____, 2000
    
    
    
    CONSENT TO ACTION IN LIEU OF A SPECIAL MEETING
    
                                                    OF THE SHAREHOLDERS
    
    
    The undersigned acknowledges that he/she/it/they have received a copy of the Proxy Statement, dated
            _____, 2000, concerning the proposed merger of the Company's wholly owned subsidiary, Beta Acquisition
    Company, Inc., an Oklahoma corporation, with and into Red River Energy, Inc., an Oklahoma corporation.  On the
    basis of his/her/its/their review of the information contained in such Proxy Statement, the undersigned hereby
    (please check the appropriate box  If you sign and return the enclosed consent forms to the Company without
    checking either of these boxes, the consent forms will be treated as though you consented to the proposed merger)
    
    
    €  Consents    € Withholds Consent
    
    as to the following resolution:
    
    
         RESOLVED, that the Agreement and Plan of Merger, dated November 19           , 1999 as amended, by and
    between the Company and Beta Acquisition Company, Inc. and Red River Energy, Inc. and the shareholders of the Red
    River Energy, Inc. and the merger of Beta Acquisition Company, Inc. with and into Red River Energy, Inc., as
    described in the Agreement and Plan of Merger, is hereby ratified and approved by the shareholders of the
    Company.; and
    
    
         RESOLVED FURTHER, that this consent may executed in multiple counterparts, all of which shall be taken
    together and considered a single consent.
    
    
    
    
         FAILURE TO RETURN THIS REQUEST FOR CONSENT WILL HAVE THE EFFECT OF WITHHOLDING CONSENT WITH RESPECT TO
    THE RESOLUTION SET FORTH ABOVE.  TO BE APPROVED UNDER NEVADA LAW AND THE COMPANY'S BYLAWS THE RESOLUTION MUST
    RECEIVE THE CONSENT OF THE HOLDERS OF RECORD OF A MAJORITY OF THE ISSUED AND OUTSTANDING SHARES OF THE COMPANY'S
    COMMON STOCK AS DETERMINED ON           _______, 2000, THE RECORD DATE.
    
    
    Dated:  __________________, 2000.
    
    
    Signature
    
    
    Signature (if held jointly)
    
    Please sign exactly as your name(s) appear(s) herein.  Where more than
                                             one owner is shown above, each should sign.  When signing in a fiduciary
                                             or representative capacity, please add your full title as such.  If a
                                             corporation is submitting this Consent, it should be executed in its
                                             full corporate name by a duly authorized officer.  If a partnership or
                                             limited liability company is submitting this Consent, it should be
                                             signed in the full name of the entity by an authorized person.
    
    REQUEST FOR CONSENT
    
    BETA OIL & GAS, INC. ("Company")
    
    901 Dove Street, Suite 230
    
    Newport Beach, California 92660
    
    THIS IS A REQUEST FOR THE CONSENT OF THE SHAREHOLDERS TO THE
    
                                  ACTION TO BE TAKEN AS TO THE RESOLUTION SET FORTH BELOW
    
    ON OR AFTER, BUT NO EARLIER THAN,          ____, 2000
    
    
    
    CONSENT TO ACTION IN LIEU OF A SPECIAL MEETING
    
                                                    OF THE SHAREHOLDERS
    
    The undersigned acknowledges that he/she/it/they have received a copy of the Proxy Statement, dated
    January 12, 2000, which in part under Proposed No. 2 discusses the Company's Amended and Restated 1999 Incentive
    and Nonstatutory Stock Option Plan ("Plan"), a copy of which is appended to the Proxy Statement as Appendix D.
    Based on his/her/its/their review of the information contained in such Proxy Statement, pertaining to the Plan,
    the undersigned hereby (please check the appropriate box. If you sign and return the enclosed consent forms to
    the Company without checking either of these boxes, such consent forms will be treated as though you consented to
    the proposed Plan)
    
    
    €  Consents    € Withholds Consent
    
    as to the following resolution:
    
         RESOLVED, that the Shareholders of the Company hereby ratify and approve the adoption of the Company's
    Amended and Restated 1999 Incentive and Nonstatutory Stock Option Plan by the Company's Board of Directors: and
    
    
    
         RESOLVED FURTHER, that this consent may executed in multiple counterparts, all of which shall be taken
    together and considered a single consent.
    
    
    
    
         FAILURE TO RETURN THIS REQUEST FOR CONSENT WILL HAVE THE EFFECT OF WITHHOLDING CONSENT WITH RESPECT TO
    THE RESOLUTION SET FORTH ABOVE.  TO BE APPROVED UNDER NEVADA LAW AND THE COMPANY'S BYLAWS THE RESOLUTION MUST
    RECEIVE THE CONSENT OF THE HOLDERS OF RECORD OF A MAJORITY OF THE ISSUED AND OUTSTANDING SHARES OF THE COMPANY'S
    COMMON STOCK AS DETERMINED ON           , 2000, THE RECORD DATE.
    
    
    Dated:  __________________, 2000.
    
    
    Signature
    
    
    Signature (if held jointly)
    
    Please sign exactly as your name(s) appear(s) herein.  Where more than
                                             one owner is shown above, each should sign.  When signing in a fiduciary
                                             or representative capacity, please add your full title as such.  If a
                                             corporation is submitting this Consent, it should be executed in its
                                             full corporate name by a duly authorized officer.  If a partnership or
                                             limited liability company is submitting this Consent, it should be
                                             signed in the full name of the entity by an authorized person.