PRIZE ENERGY CORP, 424B4, 2000-09-21

PRIZE ENERGY CORP
424B4, 2000-09-21
CRUDE PETROLEUM & NATURAL GAS

Previous: SURGICAL SAFETY PRODUCTS INC, 10QSB/A, EX-27, 2000-09-21

Next: CORECOMM LTD, 8-K, 2000-09-21

<PAGE> 1

Filed Pursuant to Rule 424(b)(4)
Registration No. 333-44346
PROSPECTUS

3,000,000 SHARES

PRIZE ENERGY CORP.

COMMON STOCK
--------------------------------------------------------------------------------

All of the shares of common stock in this offering are being sold by the selling
stockholders named in this prospectus. Prize will not receive any of the
proceeds from the sale of the shares by the selling stockholders.

The common stock is listed on the American Stock Exchange under the symbol
"PRZ." The last reported sale price of the common stock on the American Stock
Exchange on September 20, 2000 was $21.438 per share.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public offering price....................................... $21.375 $64,125,000
Underwriting discount....................................... $ 1.068 $ 3,204,000
Proceeds to the selling stockholders........................ $20.307 $60,921,000
</TABLE>

Several stockholders of Prize, including the selling stockholders, have granted
the underwriters a 30-day option to purchase up to an additional 450,000 shares
on the same terms and conditions as set forth above to cover over-allotments, if
any. Prize has agreed to pay expenses incurred by the selling stockholders in
connection with this offering, other than the underwriting discount.

Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.

Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on
or about September 26, 2000.
--------------------------------------------------------------------------------

LEHMAN BROTHERS
CIBC WORLD MARKETS
PETRIE PARKMAN & CO.

September 21, 2000
<PAGE> 2

Inside Front Cover
PRIZE
---------------
ENERGY CORP. CORE OPERATING AREAS

<TABLE>
<CAPTION>
TOTAL PROVED RESERVES*
----------------------
PRO FORMA AS OF 12/31/99
(IN MILLIONS)
<S> <C> <C> <C>
<CAPTION>
PV- % OF
BOE 10 PV-10
--------------------------- ---- ------
<S> <C> <C> <C>
Permian Basin 45.7 $309.8 53%
Gulf Coast 31.3 184.4 32%
Mid-Continent 19.1 85.9 15%
---- ------ ----
Total 96.1 $580.1 100%
==== ====== ====
</TABLE>

[Map showing the location of Prize Energy Corp.'s oil and gas properties in
Texas, Louisiana, Oklahoma and New Mexico.]

SUMMARY OF OIL & GAS RESERVES*
PRO FORMA AS OF DECEMBER 31, 1999

- TOTAL PROVED RESERVES -- 96 MILLION BOE
-- 49.6 MILLION BARRELS OF OIL AND LIQUIDS
-- 279 BILLION CUBIC FEET OF NATURAL GAS

- PV-10 OF PROVED RESERVES -- $580 MILLION
BASED ON NYMEX $25.60 OIL AND $2.30 GAS, UNESCALATED, AT DECEMBER 31,
1999.

- BALANCED RESERVE MIX 52% OIL AND 48% GAS

- RESERVE TO PRODUCTION RATIO OF 13 YEARS

- 2000 CAPEX PROGRAM $50 -- $55 MILLION

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

* For a more complete description of our oil and gas reserves, please read the
"Business and Properties" section.
<PAGE> 3

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE
IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT COVER OF
THIS PROSPECTUS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 8
Forward-Looking Statements.................................. 13
Use of Proceeds............................................. 14
Market Price of Common Stock and Dividend Policy............ 14
Capitalization.............................................. 15
Selected Pro Forma and Historical Financial Data............ 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business and Properties..................................... 28
Management.................................................. 38
Certain Transactions........................................ 43
Principal and Selling Stockholders.......................... 46
Description of Capital Stock................................ 48
Shares Eligible for Future Sale............................. 50
United States Federal Tax Considerations for Non-U.S.
Holders................................................... 52
Underwriting................................................ 54
Legal Matters............................................... 56
Experts..................................................... 56
Where You Can Find More Information......................... 56
Oil and Gas Industry Terms.................................. 58
Index to Financial Statements............................... F-1
</TABLE>

i
<PAGE> 4

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus
and may not contain all of the information that is important to you. You should
carefully read the more detailed information in the rest of this prospectus
about us and the common stock being sold in this offering, including "Risk
Factors." Unless the context otherwise requires, references in this prospectus
to "Prize," "we," "us" and "our" refer to Prize Energy Corp. Unless otherwise
indicated, the information in this prospectus reflects our merger with Vista
Energy Resources, Inc. and the one-for-seven reverse common stock split effected
in connection with the merger. If you are not familiar with some of the oil and
gas terms used in this prospectus, please read the section of this prospectus
entitled "Oil and Gas Industry Terms."

ABOUT PRIZE ENERGY CORP.

Prize Energy Corp. is an independent oil and gas company. Our activities
are focused principally in the Permian Basin of West Texas and Southeastern New
Mexico, the onshore Gulf Coast area of Texas and Louisiana and the Mid-Continent
area of Western Oklahoma and the Texas Panhandle. These areas are among the
premier oil and gas producing areas of the United States. They are typified by
long-lived oil and gas reserves, predictable well production profiles and
multiple producing reservoir formations.

We were formed in January 1999 and have grown rapidly through the
implementation of our business strategy. We focus on the acquisition,
exploitation and enhancement of producing oil and gas properties in our core
operating areas. Exploitation involves the continuing development of a known
producing formation in a previously discovered field, as compared to more risky
exploratory drilling. Examples of exploitation activities include infill and
other development drilling, recompleting wells through existing well bores,
applying secondary recovery techniques and reworking existing wells. Our
enhancement activities are designed to reduce operating costs or to improve the
prices we realize from oil and natural gas sales. We attempt to achieve these
results by operating the properties ourselves, where we can control the timing
and amount of expenditures and enhance price realization from the sale of our
production.

Our acquisition strategy involves purchasing oil and gas properties that
have not received the focused attention of the prior operators. In June 1999, we
completed the acquisition of producing oil and gas properties from Pioneer
Natural Resources USA, Inc. for $239 million. On February 8, 2000, we merged
with Vista Energy Resources, Inc., a publicly traded company, acquiring
properties that complement the Permian Basin properties we acquired from Pioneer
USA. The Vista properties have already begun to contribute to our growth in
production and cash flow and, together with the Pioneer properties, provide us
with a two to three-year inventory of exploitation projects.

For the six months ended June 30, 2000, pro forma for the Vista merger as
if it had occurred January 1, 2000, we reported average net daily production of
20.6 MBOE, revenues of $68.0 million, EBITDA of $40.9 million and net income of
$12.4 million. In addition, as part of our ongoing efforts to aggressively
exploit our acquired properties, we spent $21.7 million on capital projects for
the drilling of 31 development wells, 32 recompletions and workover projects,
and the acquisition of an additional working interest in a Permian Basin
waterflood project. For the last six months of 2000, we have budgeted between
$25.0 million and $33.0 million for additional capital projects which we expect
will increase our daily production rate as well as add new proved reserves.

1
<PAGE> 5

The following is a summary of our oil and natural gas reserve information
as of December 31, 1999, on a pro forma basis as if the Vista merger was
completed on December 31, 1999.

Total Proved Reserves.... 49.6 MMBbls of oil and liquids and 278.9 Bcf of
natural gas; or 96.1 MMBOE

Reserve Mix.............. 52% oil and liquids; 48% natural gas

PV-10 of Proved
Reserves(1).............. $580 million

Reserve to Production
Ratio(2)................. 13 years
---------------

(1) The present value of pre-tax future net revenues as of December 31, 1999,
discounted at 10% per year, assuming unescalated prices of $23.99 per Bbl of
oil, $2.11 per Mcf of natural gas and $17.05 per Bbl of liquids. On December
31, 1999, NYMEX prices were $25.60 per Bbl for West Texas crude oil and
$2.30 per MMBtu for natural gas.

(2) Represents our pro forma proved reserves at December 31, 1999, divided by
our pro forma production for the year ended December 31, 1999.

OUR STRENGTHS

We believe our principal strengths include the following:

- High Quality Reserve Base. Our proved reserves are located in premier
domestic oil and gas producing areas characterized by long-lived reserves
that provide numerous exploitation and enhancement opportunities. While
our current reserves represent a fairly even balance between oil and
natural gas, our strategic objective is to increase our weighting in
natural gas reserves and production.

- Significant Inventory of Exploitation and Enhancement Opportunities. We
have identified a large inventory of projects within our existing
properties, including over 600 potential recompletion, workover and
development drilling opportunities.

- Operational Control Over Our Oil and Gas Properties. We believe
controlling the operations of the majority of our oil and gas properties
enhances our ability to increase the value of our reserve base.
Operational control allows us to have greater influence over the
implementation of our strategies and projects, including the timing,
scope and level of expenditures associated with our exploitation and
enhancement activities and other field operations.

- Significant Management Experience and Ownership. We have significant
expertise in exploitation and enhancement operations and technologies in
our core operating areas. The average length of employment in the oil and
gas industry of our management and technical staff is 19 years. Our
management and employees beneficially own approximately 17.5% of our
outstanding common stock.

OUR BUSINESS STRATEGY

Our primary objective is to increase net asset value per share by
increasing oil and natural gas reserves, production, cash flow and net income
through the acquisition, exploitation and enhancement of producing oil and gas
properties and by maintaining a low operating and corporate cost structure. We
believe the following components of our strategy will allow us to achieve our
objective.

- Geographic Concentration. We focus our activities in the core areas where
our management, our technical staff and our field operations teams have
significant prior experience. Substantially all of our properties are
located in our core operating areas where we can better achieve economies
of scale.

2
<PAGE> 6

- Acquisition of Producing Properties. We focus on acquiring producing
reserves with a production history of at least three to five years in
order to reduce the risks inherent in estimating the remaining oil and
natural gas reserves and the future production profile.

- Aggressive Value Enhancement. We seek to purchase oil and gas properties
that we will operate and that have potential for development and
operational improvements. We undertake an extensive well-by-well
operational study of acquired properties in order to identify value
enhancement opportunities such as development drilling, recompletions,
workovers and cost reductions. These activities can increase cash flow
and, in some cases, add incremental reserves.

- Low Cost Operating Structure. We pursue a low cost operating strategy at
both the field and corporate levels.

- Financial Flexibility. We seek to maintain financial flexibility in order
to be able to take advantage of strategic acquisition opportunities and
protect against price declines. As a result of our strategy of
acquisition, exploitation and enhancement, debt levels will vary from
time to time. Over the long-term, we believe that an appropriate target
debt level is 50% of oil and natural gas reserve value. We may seek to
further reduce oil and gas reserve, price and financial risks by:

- diversifying our property holdings and avoiding concentrating a large
value in any single property; and

- using commodity price hedges, interest rate swaps and other financial
strategies.

OUR EXECUTIVE OFFICES

Our principal executive offices are located at 3500 William D. Tate, Suite
200, Grapevine, Texas 76051, and our telephone number is (817) 424-0400.

3
<PAGE> 7

THE OFFERING

Shares offered by the
selling stockholders....... 3,000,000 shares(1)

Total shares to be
outstanding after this
offering................. 13,313,829 shares(2)

Use of proceeds............ We will not receive any proceeds from the sale of
shares in this offering.

American Stock Exchange
symbol................... PRZ
---------------

(1) The identities of the selling stockholders and the specific numbers of
shares being offered by each selling stockholder are set forth in the table
in "Principal and Selling Stockholders."

(2) Based on the number of shares outstanding as of August 14, 2000. This number
excludes:

- 2,206,300 shares reserved for issuance pursuant to outstanding stock
options, including up to 270,000 shares that may be sold by several other
stockholders upon exercise of the underwriters' over-allotment option;
and

- 1,723,724 shares reserved for issuance pursuant to outstanding warrants
to purchase shares of common stock.

4
<PAGE> 8

SUMMARY PRO FORMA AND HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table presents a summary of our pro forma and historical
consolidated financial data for the periods indicated. The unaudited pro forma
consolidated financial data give effect to the Vista merger pursuant to the
purchase method of accounting for business combinations and were prepared based
on the assumption that the purchase of the Pioneer properties, subsequent sale
of mineral interests and the Vista merger had been consummated on January 1,
1999.

<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
----------------------- ------------------------------------------------------------------
JANUARY 15,
SIX SIX 1999
MONTHS MONTHS (INCEPTION)
ENDED YEAR ENDED ENDED THROUGH YEAR ENDED DECEMBER 31,
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30, -----------------------------------------
2000 1999 2000 1999 1999(1) 1998(2) 1997(2) 1996(2)
-------- ------------ -------- ----------- --------- ------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Oil and gas sales.............. $67,959 $101,258 $66,318 $ -- $ 47,978 $79,418 $120,821 $109,266
Lease operating expenses....... 23,089 34,670 22,155 -- 16,607 26,211 32,739 24,233
------- -------- ------- -------- --------- ------- -------- --------
Revenues in excess of direct
operating expenses........... 44,870 66,588 44,163 -- 31,371 $53,207 $ 88,082 $ 85,033
Depreciation, depletion and
amortization................. 12,896 25,748 12,260 -- 8,714
General and administrative
expenses..................... 4,264 8,846 3,968 17 2,831
Interest expense............... 8,319 15,186 7,960 -- 6,070
Exploration costs.............. -- 53 -- -- --
Other (income)................. (261) (388) (251) (190) (268)
------- -------- ------- -------- ---------
Income before income taxes..... 19,652 17,143 20,226 173 14,024
Income taxes................... 7,265 6,338 7,484 64 4,915
------- -------- ------- -------- ---------
Net income..................... 12,387 10,805 12,742 109 9,109
Preferred dividend(3).......... 459 1,841 459 -- 907
------- -------- ------- -------- ---------
Income available to common
stockholders................. $11,928 $ 8,964 $12,283 $ 109 $ 8,202
Earnings per share:
Basic........................ $ 0.99 $ 0.84 $ 1.07 $ 0.02 $ 1.20
Diluted...................... 0.83 0.74 0.89 0.02 1.03
CASH FLOW DATA:
Cash provided by operating
activities................... n/a n/a $18,153 $ 575 $ 19,798
Cash used by investing
activities................... n/a n/a 21,680 210,650 184,964
Cash provided by financing
activities................... n/a n/a 10,060 211,299 168,519
OTHER FINANCIAL DATA:
EBITDA(4)(6)................... $40,867 $ 58,077 $40,446 $ 173 $ 28,808
Cash flow(5)(6)................ n/a n/a 25,215 21 18,067
</TABLE>

5
<PAGE> 9

<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
AS OF
JUNE 30, AS OF DECEMBER 31,
2000 1999
----------- ------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Properties and equipment, net............................. $333,115 $211,497
Total assets.............................................. 385,292 238,610
Working capital........................................... 9,028 1,647
Long-term debt............................................ 211,419 127,000
Stockholders' equity...................................... 108,703 88,452
</TABLE>

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

(1) The 1999 column is presented for the period from our inception, January 15,
1999, through December 31, 1999, and is derived from our audited
consolidated financial statements. A significant amount of the activity is
the direct result of our acquisition of producing properties from Pioneer
USA, which was effective July 1, 1999.

(2) The 1998, 1997 and 1996 amounts are derived from the audited statements of
revenues and direct operating expenses of the Pioneer properties. The data
have been adjusted to exclude revenues of $5,136,967, $7,189,442 and
$8,578,608, respectively, as well as direct operating expenses of $793,131,
$1,115,379 and $1,037,518, respectively, associated with the mineral
interest properties we acquired in connection with our acquisition of the
Pioneer properties. We sold the mineral interest properties in July 1999.
The 1996 audited statement of revenues and direct operating expenses is not
included in this prospectus.

(3) On March 31, 2000, all of the outstanding shares of convertible preferred
stock were converted into shares of common stock. See "Certain
Transactions."

(4) EBITDA represents earnings before interest, taxes, depreciation, depletion
and amortization expense.

(5) Cash flow represents cash flow from operating activities prior to changes in
operating assets and liabilities.

(6) EBITDA is presented because it is commonly accepted in the oil and gas
industry as a financial indicator of a company's ability to service or incur
debt. Cash flow is presented because it is commonly accepted in the oil and
gas industry as a financial indicator of a company's ability to fund capital
expenditures or service debt. We interpret trends in EBITDA and cash flow in
a similar manner as trends in net earnings. EBITDA and cash flow should be
used as supplements to, and not as substitutes for, net income and cash
provided by operating activities, determined in accordance with generally
accepted accounting principles, as measures of our profitability and
liquidity. There may be operational or financial demands and requirements
that reduce our discretion over the use of EBITDA and cash flow. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." EBITDA and cash flow measures presented in this prospectus may
not be comparable to similarly titled measures used by other companies.

6
<PAGE> 10

SUMMARY PRO FORMA OIL AND GAS RESERVE INFORMATION

The following table sets forth summary information with respect to our pro
forma proved oil and natural gas reserves as of December 31, 1999, giving effect
to the completion of the Vista merger as if it had occurred on that date.

<TABLE>
<CAPTION>
PRO FORMA
AS OF DECEMBER 31, 1999
-----------------------
<S> <C>
ESTIMATED PROVED RESERVES:
Oil/liquids (MBbls)....................................... 49,626
Gas (MMcf)................................................ 278,879
Total (MBOE).............................................. 96,106
Percent proved developed.................................. 76%
PV-10 value (in thousands)................................ $580,095
ESTIMATED PROVED RESERVES (MBOE) BY CORE OPERATING AREA:
Permian Basin............................................. 45,695
Onshore Gulf Coast........................................ 31,319
Mid-Continent............................................. 19,092
--------
Total............................................. 96,106
========
</TABLE>

SUMMARY OPERATING DATA

The following table presents summary information regarding the production
volumes of, average realized prices received for and average production costs
associated with our sales of oil and natural gas for the periods indicated. The
pro forma information gives effect to our acquisition of the Pioneer properties,
subsequent sale of mineral interests and the Vista merger as if these
transactions had occurred on January 1, 1999.

<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
------------------------- --------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
JUNE 30, DECEMBER 31, JUNE 30, -------------------------------------
2000 1999 2000 1999(1) 1998(2) 1997(2) 1996(2)
---------- ------------ ---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
PRODUCTION:
Oil/liquids (MBbls).................... 1,799 3,532 1,722 1,372 3,015 2,529 1,937
Gas (MMcf)............................. 11,699 23,690 11,475 10,236 22,863 28,800 26,899
Total (MBOE)........................... 3,749 7,480 3,634 3,078 6,826 7,329 6,420
AVERAGE REALIZED PRICES(3):
Oil/liquids (per Bbl).................. $ 20.66 $ 14.73 $ 20.87 $16.69 $11.54 $18.11 $ 20.63
Gas (per Mcf).......................... 2.63 2.10 2.65 2.45 1.95 2.36 2.24
Per BOE................................ 18.13 13.54 18.25 15.59 11.64 16.48 17.02
COST PER BOE:
Lease operating expenses............... $ 6.16 $ 4.64 $ 6.10 $ 5.40 $ 3.84 $ 4.47 $ 3.77
Depreciation, depletion and
amortization......................... 3.44 3.44 3.37 2.83 n/a n/a n/a
General and administrative............. 1.14 1.18 1.09 0.92 n/a n/a n/a
</TABLE>

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

(1) The 1999 column is presented for the period from our inception, January 15,
1999, through December 31, 1999. A significant amount of the activity is the
direct result of our acquisition of the Pioneer properties, which was
effective July 1, 1999.

(2) The 1998, 1997 and 1996 amounts are derived from the audited statements of
revenues and direct operating expenses of the Pioneer properties. The data
has been adjusted to exclude the production, revenue and direct operating
expenses associated with the mineral interest properties we acquired in
connection with our acquisition of the Pioneer properties. We sold the
mineral interest properties in July 1999.

(3) Except for 1998, 1997 and 1996, all amounts include the effects of hedging
activities.

7
<PAGE> 11

RISK FACTORS

You should carefully consider the following risk factors, in addition to
the other information set forth in this prospectus, before deciding to purchase
any shares of our common stock. Each of these risk factors could adversely
affect our business, operating results and financial condition, as well as
adversely affect the value of an investment in our common stock.

RISKS RELATING TO THE OIL AND GAS INDUSTRY

A decrease in oil or natural gas prices will adversely affect our financial
results.

Our success will depend substantially upon the prevailing market prices of
oil and natural gas. Historically, oil and natural gas prices and markets have
been volatile, and they are likely to continue to be volatile in the future. A
decrease in oil or natural gas prices will not only reduce revenues and profits,
but will also reduce the quantities of reserves that are commercially
recoverable and may result in charges to earnings for impairment of the value of
these assets. If oil or natural gas pricing conditions decline significantly for
extended periods of time in the future, we might not be able to generate enough
cash flow from operations to meet our obligations and make planned capital
expenditures. Oil and natural gas prices are subject to wide fluctuations in
response to relatively minor changes in the supply of and demand for oil and
natural gas, market uncertainty and a variety of additional factors that are
beyond our control.

Estimates of our proved reserves may materially change due to numerous
uncertainties inherent in estimating oil and natural gas reserves.

The oil and natural gas reserve data included in this prospectus represent
only estimates. There are many uncertainties inherent in estimating quantities
of proved reserves and their values. The process of estimating oil and natural
gas reserves requires interpretations of available technical data and various
assumptions, including assumptions relating to economic factors. Any significant
inaccuracies in these interpretations or assumptions could materially affect the
estimated quantities and present value of reserves shown in this prospectus. The
accuracy of any reserve estimate is a function of the quality of available data,
engineering and geological interpretations and judgment, and the assumptions
used regarding quantities of recoverable oil and natural gas reserves and prices
for oil and natural gas. Actual prices, production, development expenditures,
operating expenses, and quantities of recoverable oil and natural gas reserves
will vary from those assumed in our estimates, and these variances may be
significant. Any significant variance from the assumptions used could result in
the actual quantity of our reserves and future net cash flow being materially
different from the estimates in our reported reserves. In addition, results of
drilling, testing and production and changes in oil and natural gas prices after
the date of the estimate may result in substantial upward or downward revisions.

We may not be able to replace reserves.

If we are not successful in our acquisition, exploitation and enhancement
activities, our reserves and revenues will decline over time. These activities
will require significant expenditures. If our cash flow from operations is not
sufficient for this purpose, we may not be able to obtain the necessary funds to
maintain or expand our oil and natural gas reserves. The inability to replace
reserves could reduce the amount of credit available to us since the maximum
amount of borrowing capacity available under our revolving credit facility is
based, at least in part, on the estimated quantities of our proved reserves.

The success of future acquisitions is uncertain.

Our failure to successfully complete acquisitions could have a material
adverse effect on our future results of operations and financial condition.
There can be no assurance that our completed acquisitions will be successful. We
expect to continue to evaluate and pursue acquisition opportunities available on
terms management considers favorable. The successful acquisition of producing
properties involves an assessment of recoverable reserves, future oil and
natural gas prices, operating costs, potential environmental and other
liabilities and other factors beyond our control. This assessment is necessarily

8
<PAGE> 12

inexact and its accuracy is inherently uncertain. In connection with an
assessment, we will perform a review of the subject properties we believe to be
generally consistent with industry practices. This review, however, will not
reveal all existing or potential problems, nor will it permit us to become
sufficiently familiar with the properties to assess fully their deficiencies and
capabilities. Inspections may not be performed on every well, and structural and
environmental problems are not necessarily observable even when an inspection is
undertaken. We may in many cases assume pre-closing liabilities, including
environmental liabilities, and will likely acquire interests in properties on an
"as is" basis.

Our oil and gas operations are subject to operational risks.

Our oil and gas operations are subject to operational risks and
uncertainties associated with drilling for, production of, and transportation of
oil and natural gas, all of which can affect our operating results. Our
operations may be materially curtailed, delayed or canceled as a result of
numerous factors, including:

- unanticipated pressure or irregularities in formations;

- accidents;

- title problems;

- weather conditions;

- shortages or delays in the delivery of equipment; and

- compliance with governmental requirements.

Costs to comply with environmental laws are significant.

Environmental and other governmental laws have increased the costs to plan,
design, drill, install, operate and abandon oil and natural gas wells and
related facilities. We may expend significant financial and managerial resources
to comply with environmental laws, although, to date, our expenditures for
environmental compliance have been immaterial. Increasingly strict environmental
laws and enforcement policies, and claims for damages to property, employees,
other persons and the environment resulting from our operations, could cause us
to incur substantial costs and liabilities. See "Business and Properties --
Government Regulation" for a more detailed discussion of laws affecting our
operations.

Marketability of our oil and natural gas production may be affected by factors
beyond our control.

The marketability of our production depends in part upon the availability,
proximity and capacity of natural gas gathering systems, pipelines and
processing facilities. Most of our natural gas will be delivered through
gathering systems and pipelines that are not owned by us. Federal and state
regulation of oil and natural gas production and transportation, tax and energy
policies, changes in supply and demand and general economic conditions all could
adversely affect our ability to produce and market our oil and natural gas.

We will continue to face strong competition.

There is strong competition in all aspects of the oil and gas industry. We
must compete with a substantial number of other oil and gas companies, many of
which have substantially greater financial, managerial, technical and other
resources.

Some losses may not be insured and could materially adversely affect us.

Our operations are subject to the hazards and risks inherent in the oil and
gas industry including the risks of fire, explosions, blow-outs, pipe failure,
abnormally pressured formations and environmental accidents, such as oil spills,
gas leaks, salt water spills and leaks, ruptures or discharges of toxic gases.
We will carry insurance against some, but not all, of the hazards associated
with our business. This is our

9
<PAGE> 13

standard practice and we believe that this is standard practice in our industry.
Because of this practice, we may be subject to substantial liability or losses
that are not insured.

RISKS RELATING TO AN INVESTMENT IN PRIZE

We have a limited operating history. Our future operations may not be
profitable.

We began operations in January 1999, so, we have only a brief operating
history upon which you may base an evaluation of our performance. As a result of
our brief operating history and rapid growth, the operating results from
historical periods are not readily comparable and may not be indicative of
future results. We cannot assure you that we will continue to experience growth
in, or maintain our current level of, revenues, oil and natural gas reserves or
production. Our rapid growth has placed significant demands on our
administrative, operational and financial resources. Any future growth of our
oil and natural gas reserves, production and operations would place significant
further demands on our financial, operational and administrative resources. Our
future performance and profitability will depend in part on our ability to
successfully integrate the administrative and financial functions of acquired
properties, like the Pioneer properties, and companies, like Vista, into our
operations and to implement necessary enhancements to our management systems to
respond to changes in our business. We cannot assure you that we will be
successful in these efforts.

We may not be able to meet our capital requirements.

We will need to continue to make substantial capital expenditures for the
acquisition, exploitation and enhancement of oil and natural gas reserves.
Without successful acquisition, exploitation or enhancement activities, our
reserves and revenues will decline over time. We currently anticipate that our
oil and gas capital expenditures for 2000 will be between $50 million and $55
million for drilling and recompletion. As of June 30, 2000, we had cash reserves
of $9.9 million and working capital of $9.0 million. We intend to finance our
capital expenditures primarily with funds provided by operations and borrowings
under our revolving credit facility, to be supplemented from time to time with
funds obtained from additional equity and debt offerings. Our ability to obtain
additional debt and equity financing upon acceptable terms will be dependent
upon a number of economic factors that are beyond our control, such as the
prevailing prices of commodities and the general condition of the economy. If
our cash flow from operations and availability under existing credit facilities
are not sufficient to satisfy capital expenditure requirements, there can be no
assurance that additional debt or equity financing will be available to allow us
to fund our continued growth.

Our significant indebtedness could have important consequences to you.

We currently have, and after this offering will continue to have, a
significant amount of indebtedness. At June 30, 2000, our total long-term debt
outstanding was approximately $211 million and our long-term debt to total
capitalization ratio was 66%. We may incur additional indebtedness under our
revolving credit facility. Our significant indebtedness could have important
consequences to you. For example:

- Our ability to obtain any necessary financing in the future for working
capital, capital expenditures, acquisitions, debt service requirements or
other purposes may be limited.

- Our revolving credit facility requires us to make interest and principal
payments and to maintain financial covenants.

- A portion of our cash flow from operations must be used to pay interest
on our indebtedness and will not be available for financing capital
expenditures or other purposes.

- Our level of indebtedness and the covenants governing our indebtedness
could limit our flexibility in planning for, or reacting to, changes in
our business because certain financing options may be limited or
prohibited.

10
<PAGE> 14

- We are more highly leveraged than some of our competitors, which may
place us at a competitive disadvantage.

- Our level of indebtedness may make us more vulnerable during periods of
low oil and natural gas prices or in the event of a downturn in our
business because of our fixed debt service obligations.

- If the requirements of our revolving credit facility are not satisfied,
the lenders would be entitled to accelerate the payment of all
outstanding indebtedness under the facility. In such event, we cannot
assure you that we would have sufficient funds available or could obtain
the financing required to meet our obligations.

Our hedging activities could prevent us from receiving the full advantage of
increases in oil and natural gas prices and may expose us to other risks
involved with hedging.

We currently use, and intend in the future to use, energy swap and option
arrangements and financial futures for hedging purposes to reduce sensitivity to
oil and natural gas price volatility. If our oil and natural gas reserves are
not produced at the rates we estimated due to inaccuracies in the reserve
estimation process, operational difficulties or regulatory limitations, we will
be required to satisfy obligations we may have under fixed price sales and
hedging contracts on potentially unfavorable terms without the ability to hedge
that risk through sales of comparable quantities of our own production. Further,
the terms under which we enter into fixed price sales and hedging contracts are
based on assumptions and estimates of numerous factors such as costs of
production and pipeline and other transportation costs to delivery points.
Substantial variations between the assumptions and estimates used and actual
results experienced could materially adversely affect anticipated profit margins
and our ability to manage the risks associated with fluctuations in oil and gas
prices. Fixed price sales and hedging contracts also limit the benefits we will
realize if actual prices rise above the contract prices. In addition, fixed
price sales and hedging contracts are subject to the risk that the counter-party
may prove unable or unwilling to perform its obligations under those contracts.
Any significant nonperformance could have a material adverse effect on our
future results of operations and financial condition. Based on futures prices as
of June 30, 2000, the fair market value of unrealized losses resulting from our
crude oil and natural gas hedging instruments was approximately $41.7 million.

Our success depends on key members of our management.

Philip B. Smith, Lon C. Kile and D. Richard Massengill are critical to our
success. We do not have employment contracts with any of these individuals which
would require them to remain employed with us for any period of time. Loss of
the services of any of these individuals could have a material adverse effect on
our operations.

Concentration of ownership in a small number of stockholders will limit your
ability to influence corporate matters.

Upon completion of this offering, our directors, executive officers and
principal stockholders, and certain of their affiliates, will beneficially own
approximately 67.4% of our outstanding common stock, approximately 65.4% if the
underwriters' over-allotment option is exercised in full. One of our
stockholders, Natural Gas Partners V, L.P., will beneficially own 55.0% of our
outstanding common stock upon completion of this offering, 53.9% if the
underwriters over-allotment option is exercised in full. Accordingly, these
stockholders, as a group, and Natural Gas Partners V, by itself, will be able to
control the outcome of stockholder votes, including votes concerning the
election of directors, the adoption or amendment of provisions in our
certificate of incorporation or bylaws and the approval of mergers and other
significant corporate transactions. The existence of these levels of ownership
concentrated in a few persons makes it unlikely that any other holder of our
common stock will be able to affect the management or direction of Prize. These
factors may also have the effect of delaying or preventing a change in the
management or voting control of Prize, including transactions that otherwise
could involve payment of a premium over prevailing market prices to holders of
our common stock.

11
<PAGE> 15

Future sales of common stock may result in a decrease in value to existing
stockholders.

Our shares that are eligible for future sale may have an adverse effect on
the price of our stock. After this offering, we will have outstanding 13,313,829
shares of common stock, or 13,583,829 shares if the underwriters' over-allotment
option is exercised in full. In addition, options and warrants to purchase
3,930,024 shares are outstanding and fully exercisable, including options for up
to 270,000 shares subject to the underwriters' over-allotment option. These
options and warrants are exercisable at prices ranging from $7.84 to $28.00 per
share. Approximately 4,574,096 shares, 4,844,096 shares if the underwriters'
over-allotment option is exercised in full, will be freely tradeable without
substantial restriction or the requirement of future registration under the
Securities Act. Sales of a substantial number of shares of our common stock, or
the perception that such sales could occur, could adversely affect the market
price of our common stock and could impair our ability to raise capital through
the sale of common stock. See "Shares Eligible for Future Sale."

Issuance of preferred stock and provisions of Delaware law may discourage
change of control transactions.

Our certificate of incorporation authorizes our board of directors to issue
up to 10 million shares of preferred stock without stockholder approval and to
set the rights, preferences and other designations, including voting rights, of
those shares as the board of directors may determine. These provisions, alone or
in combination with each other, may discourage transactions involving actual or
potential changes of control of management, including transactions in which you
might otherwise receive a premium over prevailing market prices for your shares
of common stock. We are also subject to provisions of the Delaware General
Corporation Law that may make some business combinations more difficult.

12
<PAGE> 16

FORWARD-LOOKING STATEMENTS

This prospectus includes "forward-looking statements" as defined by the
SEC. These statements concern our plans, expectations and objectives for future
operations. All statements, other than statements of historical facts, included
in this prospectus that address activities, events or developments that we
expect, believe or anticipate will or may occur in the future are
forward-looking statements. The words "believe," "plan," "intend," "anticipate,"
"estimate," "project" and similar expressions are also intended to identify
forward-looking statements. These forward-looking statements include, among
others, such things as:

- reserve estimates;

- future production of oil and natural gas;

- future acquisition of producing oil and gas properties;

- future exploitation, drilling activity, enhancement and other capital
expenditures;

- future financial performance;

- business strategy; and

- expansion and growth of our business and operations.

These forward-looking statements are based on assumptions which we believe
are reasonable based on our current expectations and projections about future
events and industry conditions and trends affecting our business. However,
whether actual results and developments will conform to our expectations and
predictions is subject to a number of risks and uncertainties which could cause
actual results to differ materially from those contained in the forward-looking
statements, including those factors discussed under "Risk Factors" on pages
8-12. Consequently, we cannot assure you that the actual results or developments
we anticipate will be realized or, even if substantially realized, that they
will have the anticipated consequences to or effects on us or our business or
operations. We assume no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.

13
<PAGE> 17

USE OF PROCEEDS

We will not receive any proceeds from the sale of common stock by the
selling stockholders.

MARKET PRICE OF COMMON STOCK AND DIVIDEND POLICY

Our common stock has been listed on the American Stock Exchange under the
symbol "PRZ" since February 9, 2000. From October 28, 1998 until February 8,
1999, the common stock of Vista was listed on the American Stock Exchange under
the symbol "VEI." The following table sets forth the range of high and low sales
prices of our common stock, adjusted to reflect the one-for-seven reverse stock
split effective February 8, 2000, as reported on the American Stock Exchange for
the periods indicated.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1998
Quarter ended December 31 (from October 29)............... $23 5/8 $11 3/8
1999
Quarter ended March 31.................................... 14 7/8 7 7/8
Quarter ended June 30..................................... 17 1/2 8 3/4
Quarter ended September 30................................ 19 1/4 12 1/4
Quarter ended December 31................................. 18 13/16 10 1/2
2000
Quarter ended March 31.................................... 20 3/4 10 1/16
Quarter ended June 30..................................... 28 16 9/16
Quarter ending September 30 (through September 20)........ 26 1/2 20
</TABLE>

On September 20, 2000, the last reported sales price of the common stock on
the American Stock Exchange was $21.438. On August 21, 2000, there were
approximately 560 holders of record of our common stock.

We have never declared or paid cash dividends on our common stock. We
intend to retain all future earnings to fund the development of our business
and, therefore, do not anticipate paying dividends in the foreseeable future.
Any future payments of dividends will be at the discretion of our board of
directors and will depend on then-existing conditions, including our financial
condition, results of operations, contractual restrictions, capital
requirements, business prospects and other factors deemed relevant by the board.
Moreover, our revolving credit agreement prohibits us from paying cash dividends
on our common stock.

14
<PAGE> 18

CAPITALIZATION

The following table sets forth our capitalization at June 30, 2000. We will
not receive any proceeds from this offering. You should read this table in
conjunction with our consolidated financial statements and unaudited pro forma
consolidated financial statements and related notes included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
JUNE 30, 2000
--------------
(IN THOUSANDS)
<S> <C>
Long-term debt.............................................. $211,419
--------
Stockholders' equity:
Common stock(1)........................................... 146
Additional paid-in capital................................ 105,839
Retained earnings......................................... 20,486
Treasury stock............................................ (17,768)
--------
Total stockholders' equity........................ 108,703
--------
Total capitalization.............................. $320,122
========
</TABLE>

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

(1) The number of shares of common stock outstanding excludes:

- 2,206,300 shares reserved for issuance upon exercise of outstanding stock
options with exercise prices of $7.84 and $12.38 per share, including up
to 270,000 shares that may be sold by several other stockholders upon
exercise of the underwriters' over-allotment option; and

- 1,723,724 shares reserved for issuance upon the exercise of outstanding
warrants with exercise prices ranging from $20.13 to $28.00 per share.

15
<PAGE> 19

SELECTED PRO FORMA AND HISTORICAL FINANCIAL DATA

The following table presents a summary of our historical and pro forma
consolidated financial data for the periods indicated. The unaudited pro forma
consolidated financial data give effect to the Vista merger pursuant to the
purchase method of accounting for business combinations and was prepared based
on the assumption that the purchase of the Pioneer properties, subsequent sale
of mineral interests and the Vista merger had been consummated on January 1,
1999.

The unaudited pro forma consolidated financial data should be read together
with the historical consolidated financial statements of Prize and Vista, the
statements of revenues and direct operating expenses of the Pioneer properties
and the unaudited pro forma consolidated financial statements contained
elsewhere in this prospectus. The unaudited pro forma consolidated financial
data are not necessarily indicative of the results of operations that would have
occurred had the transactions been consummated on the date assumed, nor are they
necessarily indicative of future results of operations.
<TABLE>
<CAPTION>
HISTORICAL
------------------------
PRO FORMA JANUARY 15,
-------------------------------- 1999
SIX MONTHS ENDED SIX MONTHS (INCEPTION)
JUNE 30, YEAR ENDED ENDED THROUGH
----------------- DECEMBER 31, JUNE 30, JUNE 30,
2000 1999 1999 2000 1999
------- ------- ------------ ---------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Oil and gas sales................ $67,959 $43,010 $101,258 $66,318 $ --
Lease operating expenses......... 23,089 14,247 34,670 22,155 --
------- ------- -------- ------- --------
Revenues in excess of direct
operating expenses............. 44,870 28,763 66,588 44,163 --
Depreciation, depletion and
amortization................... 12,896 12,771 25,748 12,260 --
General and administrative
expenses....................... 4,264 4,235 8,846 3,968 17
Interest expense................. 8,319 6,912 15,186 7,960 --
Exploration costs................ -- 39 53 -- --
Other (income)................... (261) (82) (388) (251) (190)
------- ------- -------- ------- --------
Income before income taxes....... 19,652 4,888 17,143 20,226 173
Income taxes..................... 7,265 1,807 6,338 7,484 64
------- ------- -------- ------- --------
Net income....................... 12,387 3,081 10,805 12,742 109
Preferred dividend(3)............ 459 907 1,841 459 --
------- ------- -------- ------- --------
Income available to common
stockholders................... $11,928 $ 2,174 $ 8,964 $12,283 $ 109
Earnings per share
Basic.......................... $ 0.99 $ 0.20 $ 0.84 $ 1.07 $ 0.02
Diluted........................ 0.83 0.20 0.74 0.89 0.02
CASH FLOW DATA:
Cash provided by operating
activities..................... n/a n/a n/a $18,153 $ 575
Cash used by investing
activities..................... n/a n/a n/a 21,680 210,650
Cash provided by financing
activities..................... n/a n/a n/a 10,060 211,299
OTHER FINANCIAL DATA:
EBITDA(4)(6)..................... $40,867 $24,571 $ 58,077 $40,446 $ 173
Cash flow(5)(6).................. n/a n/a n/a 25,215 21

<CAPTION>
HISTORICAL
----------------------------------------

YEAR ENDED DECEMBER 31,
----------------------------------------
1999(1) 1998(2) 1997(2) 1996(2)
-------- ------- -------- --------

(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Oil and gas sales................ $ 47,978 $79,418 $120,821 $109,266
Lease operating expenses......... 16,607 26,211 32,739 24,233
-------- ------- -------- --------
Revenues in excess of direct
operating expenses............. 31,371 $53,207 $ 88,082 $ 85,033
Depreciation, depletion and
amortization................... 8,714
General and administrative
expenses....................... 2,831
Interest expense................. 6,070
Exploration costs................ --
Other (income)................... (268)
--------
Income before income taxes....... 14,024
Income taxes..................... 4,915
--------
Net income....................... 9,109
Preferred dividend(3)............ 907
--------
Income available to common
stockholders................... $ 8,202
Earnings per share
Basic.......................... $ 1.20
Diluted........................ 1.03
CASH FLOW DATA:
Cash provided by operating
activities..................... $ 19,798
Cash used by investing
activities..................... 184,964
Cash provided by financing
activities..................... 168,519
OTHER FINANCIAL DATA:
EBITDA(4)(6)..................... $ 28,808
Cash flow(5)(6).................. 18,067
</TABLE>

<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
AS OF JUNE 30, AS OF DECEMBER 31,
2000 1999
-------------- ------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Properties and equipment, net............................. $333,115 $211,497
Total assets.............................................. 385,292 238,610
Working capital........................................... 9,028 1,647
Long-term debt............................................ 211,419 127,000
Stockholders' equity...................................... 108,703 88,452
</TABLE>

(See notes on following page)

16
<PAGE> 20

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

(3) On March 31, 2000, all of the outstanding shares of convertible preferred
stock were converted into shares of common stock. See "Certain
Transactions."

(4) EBITDA represents earnings before interest, taxes, depreciation, depletion
and amortization expense.

(5) Cash flow represents cash flow from operating activities prior to changes in
operating assets and liabilities.

(6) EBITDA is presented because it is commonly accepted in the oil and gas
industry as a financial indicator of a company's ability to service or incur
debt. Cash flow is presented because it is commonly accepted in the oil and
gas industry as a financial indicator of a company's ability to fund capital
expenditures or service debt. We interpret trends in EBITDA and cash flow in
a similar manner as trends in net income. EBITDA and cash flow should be
used as supplements to, and not as substitutes for, net income and cash
provided by operating activities, determined in accordance with generally
accepted accounting principles, as measures of our profitability and
liquidity. There may be operational or financial demands and requirements
that reduce our discretion over the use of EBITDA and cash flow. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." EBITDA and cash flow measures presented in this prospectus may
not be comparable to similarly titled measures used by other companies.

17
<PAGE> 21

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

OVERVIEW

We were formed in January 1999 and have grown rapidly through the
acquisition of producing oil and gas properties. In June 1999, we completed the
acquisition of producing oil and gas properties from Pioneer USA for $239
million. On February 8, 2000, we merged with Vista, a publicly traded company
that owned producing oil and gas properties located primarily in the Permian
Basin of West Texas and Southeastern New Mexico.

Our growth from the acquisition of producing oil and gas properties has
affected our financial results in a number of ways. Acquisitions of new
properties often will result in an initial increase in lease operating expenses.
Acquired properties frequently have not received the focused attention of the
operator prior to our acquisition. After acquisition, these properties require
maintenance, workovers, recompletions and other remedial activity not
constituting capital expenditures. For example, we estimate that we spent at
least $3.5 million in nonrecurring remedial lease operating expenses with
respect to the properties obtained in the Pioneer acquisition alone.

Acquisitions may also result in an increase in general and administrative
expenses. For example, as a result of the Pioneer acquisition, we have recruited
and developed operating, geological, engineering, accounting and administrative
personnel compatible with the increased size of our operations. Since inception,
we have grown to over 100 full-time employees. Consequently, we have incurred
corresponding increases in our general and administrative expenses.

We believe that our large portfolio of enhancement and exploitation
projects and the significant number of staff we have added have positioned us to
exploit and enhance our existing asset base effectively and pursue additional
acquisition opportunities that complement our assets and operations.

We use the successful efforts method of accounting for our oil and gas
producing activities. Under this method, costs to acquire mineral interests in
oil and gas properties, to drill and equip exploratory wells that result in
proved reserves and to drill and equip development wells are capitalized. Costs
to drill exploratory wells that do not result in proved reserves, geological and
geophysical costs and costs of carrying and retaining properties that do not
contain proved reserves are expensed. Costs of significant nonproducing
properties, wells in the process of being drilled and significant development
projects are excluded from depletion until such time as the related project is
developed and proved reserves are established or impairment is determined.

RESULTS OF OPERATIONS

Pro Forma Results of Operations for the Six Months ended June 30, 2000
compared to the Six Months ended June 30, 1999

As a result of our limited operating history and rapid growth associated
with the Pioneer and Vista acquisitions, our consolidated financial statements
are not readily comparable to the prior year and are not indicative of future
results. Prior to June 30, 1999, we had no oil and gas operations. Consequently,
we have based our discussion on the pro forma statement of operations for the
six months ended June 30, 2000, compared to the pro forma statement of
operations for the six months ended June 30, 1999. You should read the following
discussion and analysis together with our consolidated financial statements and
unaudited pro forma consolidated financial statements and related notes included
elsewhere in this prospectus.

18
<PAGE> 22

Changes in oil/liquids and gas production, average realized prices
including the effects of hedging, and revenues for the six months ended June 30,
2000 and 1999, are shown in the table below.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
PRO PRO 2000
FORMA FORMA VS.
2000 1999 1999
-------- -------- -----
<S> <C> <C> <C>
PRODUCTION:
Oil/liquids (MBbls)...................................... 1,799 1,700 6%
Gas (MMcf)............................................... 11,699 12,060 (3)%
Total (MBOE)............................................. 3,749 3,710 1%
AVERAGE REALIZED PRICES:
Oil/liquids (per Bbl).................................... $ 20.66 $ 12.63 64%
Gas (per Mcf)............................................ 2.63 1.79 47%
Per BOE.................................................. 18.13 11.59 56%
TOTAL REVENUES (IN THOUSANDS):
Oil/liquids.............................................. $37,176 $21,471 73%
Gas...................................................... 30,783 21,539 43%
------- -------
Total.................................................... $67,959 $43,010 58%
======= =======
</TABLE>

Oil/Liquids Revenues. Oil/liquids revenues increased $15.7 million or 73%
in the six months ended June 30, 2000. The increase in oil/liquids revenues is
primarily due to the increase in realized prices in comparison to the prior
year. We realized $20.66 per Bbl during the six months ended June 30, 2000, an
increase of $8.03 or 64% over the respective period in the prior year.
Additionally, our production increased during the six months ended June 30,
2000, due to the impact of our operational and capital programs discussed below.

Gas Revenues. Gas revenues increased $9.2 million or 43% in the six months
ended June 30, 2000. The increase in gas revenues is primarily due to the
increase in realized prices in comparison to the prior year. We realized $2.63
per Mcf during the six months ended June 30, 2000, an increase of $.84 or 47%
over the respective period in the prior year. Gas production volumes remained
consistent with the prior year volumes.

Production and Operating Expenses. Set forth below are the changes in
production and operating expenses for the six months ended June 30, 2000 and
1999.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
PRO PRO 2000
FORMA FORMA VS.
2000 1999 1999
-------- -------- -----
<S> <C> <C> <C>
PRODUCTION AND OPERATING EXPENSES (IN THOUSANDS):
Recurring operations and maintenance expense............. $12,092 $ 9,684 25%
Well workover expense.................................... 4,138 950 336%
Production taxes......................................... 6,859 3,613 90%
------- -------
Total............................................ $23,089 $14,247 62%
======= =======
PER BOE PRODUCED:
Recurring operations and maintenance expense............. $ 3.23 $ 2.61 24%
Well workover expense.................................... 1.10 0.26 323%
Production taxes......................................... 1.83 0.97 89%
</TABLE>

Recurring operations and maintenance expense increased $2.4 million or 25%
in the six months ended June 30, 2000. Well workover expense increased $3.2
million in the six months ended June 30, 2000. The significant increases in
recurring operations and maintenance expense and well workover expense are due
to additional expenditures incurred to upgrade properties into acceptable
working condition and enhance

19
<PAGE> 23

future production. This spending level is comparatively higher than the previous
period as a result of the lack of focused attention of the previous operators of
our oil and gas properties prior to acquisition.

Production taxes increased $3.2 million or 90% in the six months ended June
30, 2000. This increase was caused by the significant increases in oil and gas
prices occurring over the past twelve months.

Depreciation, Depletion and Amortization Expenses. Depreciation, depletion
and amortization expense in the six months ended June 30, 2000 was $12.9 million
or $3.44 per BOE, essentially unchanged from the prior year.

General and Administrative Expenses. General and administrative expense
during the six months ended June 30, 2000 was $4.3 million, or $1.14 per BOE,
essentially unchanged from the prior year.

Interest Expense. Interest expense for the six months ended June 30, 2000
was $8.3 million. The average rate on our outstanding debt was 8.34% for the six
months ended June 30, 2000, compared to the rate of 8.27% for the same period in
1999.

Income Taxes. Income tax expense is based upon the estimated effective
income tax rate expected for the entire fiscal year. The estimated effective tax
rate for 2000 is 37%.

Results of Operations Pro Forma for the Year ended December 31, 1999 Compared
to Actual as Adjusted for the Year ended December 31, 1998

Our historical consolidated financial statements include the results of the
50-week period from our inception, January 15, 1999, through December 31, 1999.
Prior to June 30, 1999, Prize had no oil and gas operations. As a result of our
limited operating history and rapid growth associated with the Pioneer
acquisition, which was effective July 1, 1999, our consolidated financial
statements are not readily comparable and are not indicative of future results.
Consequently, we have based our discussion of the results of operations for 1999
upon the pro forma revenues and direct operating expenses of Prize for the year
ended December 31, 1999, prior to the Vista merger, compared to the revenues and
direct operating expenses of the Pioneer properties for the year ended December
31, 1998, adjusted for the sale of mineral interests and the purchase of the
remaining ownership interest in Sunterra Petroleum, L.L.C. The unaudited pro
forma financial statements of Prize for 1999 prior to the Vista merger are
included in this prospectus beginning on page F-33 and are referred to as the
unaudited pro forma financial statements of "Old Prize." THE 1998 AMOUNTS USED
IN THIS DISCUSSION ARE NOT BASED ON THE 1998 INFORMATION IN "SELECTED PRO FORMA
AND HISTORICAL FINANCIAL DATA." We believe the 1998 amounts, adjusted for the
sale of the mineral interests and the acquisition of the remaining Sunterra
interests, represent the most meaningful comparison to the 1999 pro forma
results of Prize prior to the Vista merger.

20
<PAGE> 24

Changes in oil/liquids and gas production, average realized prices
including the effects of hedging in 1999, and revenues for the years ended
December 31, 1999 and 1998, are shown in the table below.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
OLD PRIZE
PRO FORMA ADJUSTED 1999
1999 1998 VS 1998
--------- -------- -------
<S> <C> <C> <C>
PRODUCTION:
Oil/liquids (MBbls).................................... 2,621 3,015 (13)%
Gas (MMcf)............................................. 20,789 24,021 (13)%
Total (MBOE)........................................... 6,086 7,019 (13)%
AVERAGE REALIZED PRICES:
Oil/liquids (per Bbl).................................. $ 14.67 $ 11.54 27%
Gas (per Mcf).......................................... 2.12 1.96 8%
Per BOE................................................ 13.56 11.65 16%
TOTAL REVENUES (IN THOUSANDS):
Oil/liquids............................................ $38,458 $34,792 11%
Gas.................................................... 44,045 46,968 (6)%
------- -------
Total.................................................. $82,503 $81,760 1%
======= =======
</TABLE>

Oil/Liquids revenues for 1999 compared to 1998. Oil/liquids revenues
increased $3.7 million in 1999. Oil/liquids production decreased 394,000 barrels
resulting in reduced revenues of $4.5 million as a result of the lack of focused
attention of the previous operators. This decrease was offset by $8.2 million
added as a result of a $3.13 per barrel increase in the oil/liquids price.

Gas revenues for 1999 compared to 1998. Gas revenues decreased $2.9 million
in 1999. Gas production decreased 3,232 MMcf, resulting in reduced revenues of
$6.3 million as a result of the lack of focused attention of the previous
operators. The decrease in production was offset by a price increase of $0.16
per Mcf which added $3.3 million in gas revenues.

Production and Operating Expenses. Set forth below are the changes in
production and operating expenses for the years ended December 31, 1999 and
1998.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
OLD PRIZE
PRO FORMA ADJUSTED 1999
1999 1998 VS 1998
--------- -------- -------
<S> <C> <C> <C>
PRODUCTION AND OPERATING EXPENSES (IN THOUSANDS):
Lease operating........................................ $19,565 $18,767 4%
Production taxes....................................... 8,429 8,234 2%
------- -------
Total.......................................... $27,994 $27,001 4%
======= =======
PER BOE PRODUCED:
Lease operating........................................ $ 3.21 $ 2.67 20%
Production taxes....................................... 1.39 1.17 19%
</TABLE>

1999 compared to 1998. Despite lower production rates, lease operating
expenses increased 4% as a result of additional expenditures needed to upgrade
properties into working condition during the last half of 1999 because of the
lack of focused attention by the previous operator. Consequently, on a BOE
basis, lease operating expenses increased 20%. Production taxes increased
$195,000 as a result of the higher oil and gas prices received during the second
half of 1999 compared to 1998.

21
<PAGE> 25

Results of Operations for 1998 and 1997

Our discussion of the results of operations for 1998 and 1997 is based upon
the statements of revenues and direct operating expenses of the Pioneer
properties. The statements of revenues and direct operating expenses are not a
complete representation of the operating results of the acquired properties.

Changes in oil/liquids and gas production, average realized prices and
revenues for the years ended December 31, 1998 and 1997 are shown in the table
below.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998
1998 1997 VS 1997
------- -------- -------
<S> <C> <C> <C>
PRODUCTION:
Oil/liquids (MBbls).................................... 3,134 2,911 8%
Gas (MMcf)............................................. 24,929 31,733 (21)%
Total (MBOE)........................................... 7,289 8,200 (11)%
AVERAGE REALIZED PRICES:
Oil/liquids (per Bbl).................................. $ 11.51 $ 18.27 (37)%
Gas (per Mcf).......................................... 1.94 2.36 (18)%
Per BOE................................................ 11.60 15.61 (26)%
TOTAL REVENUES (IN THOUSANDS):
Oil/liquids............................................ $36,070 $ 53,174 (32)%
Gas.................................................... 48,485 74,836 (35)%
------- --------
Total.................................................. $84,555 $128,010 (34)%
======= ========
</TABLE>

Oil/Liquid revenues for 1998 compared to 1997. Oil/liquids revenues
decreased $17.1 million in 1998. An average price decline of $6.76 per barrel
reduced revenues $21.2 million. This decrease was partially offset by $4.1
million of revenue added by production gains of 223,000 barrels.

Gas revenues for 1998 compared to 1997. Gas revenues decreased $26.4
million in 1998. An average price decline of $0.42 per Mcf reduced revenues
$10.5 million. As a result of normal production decline associated with gas
wells, along with reduced activity levels, gas production decreased in the
amount of 6,804 MMcf and gas revenues decreased by $16.1 million.

Production and Operating Expenses. Set forth below are the changes in
production and operating expenses between 1997 and 1998.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998
1998 1997 VS 1997
------- ------- -------
<S> <C> <C> <C>
PRODUCTION AND OPERATING EXPENSES (IN THOUSANDS):
Lease operating......................................... $18,318 $22,562 (19)%
Production taxes........................................ 8,686 11,293 (23)%
------- -------
Total........................................... $27,004 $33,855 (20)%
======= =======
PER BOE PRODUCED:
Lease operating......................................... $ 2.51 $ 2.75 (9)%
Production taxes........................................ 1.19 1.38 (14)%
</TABLE>

1998 compared to 1997. Lease operating expenses decreased $4.2 million or
19% in 1998. The primary cause of this decrease was the very limited amount of
drilling and workover activity associated with the properties following Pioneer
USA's decision to sell the properties. Pioneer USA announced its decision to
divest non-strategic properties on February 10, 1998, and announced a definitive
sale agreement with another party on September 8, 1998. The production taxes
include severance and ad valorem taxes. Severance taxes are based upon a fixed
percentage of revenues. Therefore, the 34% reduction in oil and gas revenues was
the principal reason for the 23% reduction in production taxes.

22
<PAGE> 26

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capital Sources. As of June 30, 2000, we had cash reserves of
$9.9 million and working capital of $9.0 million. The current ratio was 1.22 to
1.0. In addition, we had long-term debt outstanding of approximately $211.4
million.

Our initial capitalization, bank financing, cash flow from operations and
private equity sales have provided funding for our business activities. The
Pioneer acquisition was funded with the issuance of convertible preferred stock
to Pioneer USA and cash from our initial capitalization, additional private
equity sales and bank financing.

We do not have a specific acquisition budget since the timing and size of
acquisitions are difficult to forecast. While we regularly engage in discussions
relating to the potential acquisition of oil and gas properties, we have no
present agreement, commitment or understanding with respect to any such
acquisition. Any future acquisitions may require additional financing and will
be dependent upon financing arrangements being available at the time.

We anticipate that our capital expenditures will be between $50.0 million
and $55.0 million for enhancement and exploitation activities in 2000. This
amount includes estimated expenditures associated with the oil and gas
properties acquired in the Vista merger. Approximately $21.7 million has been
spent in the first six months of 2000 for capital expenditures. This total
includes $20.7 million for the acquisition, drilling and development of oil and
gas properties. The timing of most of our capital expenditures is discretionary
with no long-term capital expenditure commitments. Consequently, we have a
significant degree of flexibility to adjust the level of our capital
expenditures as circumstances warrant. We use internally generated cash flow to
fund capital expenditures other than significant acquisitions. However, in the
long term, if our cash flow from operations and availability under our senior
credit agreement are not sufficient to satisfy cash requirements, there can be
no assurance that additional debt or equity financing will be available to meet
our requirements. We anticipate that our planned 2000 capital expenditures will
be funded from internally generated cash flow.

Although some of our costs and expenses may be affected by inflation,
inflation has not had a significant effect on our results of operations.
Improving industry conditions may significantly increase competition, creating a
relative shortage of oilfield supplies and/or services which would result in
inflationary cost pressures on our operations.

Cash provided by operating activities will be our primary source of capital
and short-term liquidity in the future. For the period from inception through
December 31, 1999, net cash provided by operating activities was $19.8 million.
This amount primarily reflects the cash flows from the properties purchased from
Pioneer USA, which were generated only in the second half of 1999. Our net cash
provided by operating activities for the six months ended June 30, 2000, was
$18.2 million.

During the period from inception through December 31, 1999, cash used in
investing activities was $185 million and consisted primarily of the acquisition
of the Pioneer properties, net of the sale of the mineral interests. During the
six months ended June 30, 2000, cash used in investing activities was $21.7
million and consisted primarily of capital expenditures for the acquisition,
drilling and development of oil and gas properties.

Cash provided by financing activities was $168.5 million for the period
from inception through December 31, 1999. This includes $125.4 million of net
borrowings under our senior credit agreement and $45.5 million of capital
contributions, offset by $2.6 million of loan origination fees. For the six
months ended June 30, 2000, cash provided by financing activities was $10.1
million. Financing activities for this period were comprised primarily of net
borrowings of $28.8 million under our senior credit agreement, offset by $18.4
million utilized for the purchase of treasury stock.

Credit Agreements. Our initial senior credit agreement established a
four-year revolving credit facility for borrowings of up to a maximum of $250.0
million, subject to a borrowing base determined annually by the lenders based on
an evaluation of our proved oil and gas reserves and other assets. To the extent
that

23
<PAGE> 27

the borrowing base is less than the aggregate principal amount of all
outstanding loans and letters of credit under the senior credit agreement, the
deficiency must be cured by either prepaying a portion of the outstanding
amounts under the senior credit agreement or pledging additional collateral to
the lenders. We borrowed $154.5 million of the $159.7 million available under
the senior credit agreement at the closing of our acquisition of the Pioneer
properties. As of December 31, 1999, our bank borrowing base was $150.0 million
and our outstanding indebtedness was $127.0 million. The weighted average
interest rate in 1999 under the revolving credit facility was 8.27%.

On February 8, 2000, in connection with the merger with Vista, we amended
our senior credit agreement to refinance all of our and Vista's outstanding debt
and to provide for total borrowings of up to $400.0 million, subject to our
borrowing base. The amended senior credit facility is due June 29, 2009. As of
June 30, 2000, our borrowing base was $250.0 million and our outstanding
indebtedness was approximately $211.4 million. The amended senior credit
facility provides for letters of credit in addition to a revolving credit
facility. We may request letters of credit for up to an aggregate of $5.0
million, with additional supplemental letters of credit, as defined by the
credit agreement, of up to $5.0 million. At June 30, 2000, $2.5 million was
outstanding under the letter of credit provisions of the credit facility.

Financial covenants under the amended senior credit agreement require our
current ratio, the ratio of our consolidated current assets to consolidated
current liabilities, to be greater than or equal to 1.0 to 1.0 at the end of
each fiscal quarter, and our ratio of consolidated EBITDA to the sum of
consolidated net interest expense plus letter of credit fees to be greater than
or equal to 2.5 to 1.0. In addition to these financial covenants, the senior
credit agreement includes restrictions on the incurrence of debt, paying
dividends and making other restricted payments, asset dispositions and
consolidations and mergers, among other restrictions typical in the oil and gas
industry. As of June 30, 2000, we were in compliance with all financial
covenants and restrictions. Borrowings under the senior credit facility are
secured by substantially all of our assets.

All outstanding amounts under the amended senior credit agreement will
convert to a term loan on June 29, 2002, with quarterly principal payments after
that date through June 29, 2009.

At our option, borrowings under the amended senior credit agreement bear
interest at either (1) the "Base Rate," which is the annual rate of interest
announced by BankBoston, N.A., or (2) the adjusted Eurodollar rate, as defined
by the agreement, plus a margin ranging from 1.25% to 1.875% per annum,
depending on the level of our aggregate outstanding borrowings under the
agreement. In addition, we are committed to pay in arrears a quarterly
commitment fee ranging from 0.25% to 0.50%, based on the unused portion of our
borrowing base.

The loan documents governing the amended senior credit agreement contain
covenants and restrictions relating to our operations that are customary in the
oil and gas industry. In addition, the line of credit is secured by a first lien
on oil and gas properties that represent at least 80% of the value of our proved
oil and gas reserves. See note 2 of notes to our consolidated financial
statements included elsewhere in this prospectus. We believe that the
availability under our senior credit agreement and cash flow from operations
will be sufficient for anticipated operating and capital expenditure
requirements in 2000.

Along with the senior credit agreement, we entered into a $13.0 million
senior subordinate credit agreement. The amount borrowed under the senior
subordinate credit agreement was due December 31, 1999, together with interest
at the Eurodollar rate plus a margin of 1% per annum. All borrowings under the
senior subordinate credit agreement were paid in August 1999 from proceeds of
the $32.0 million sale of our non-strategic producing and non-producing mineral
ownership interests.

STOCK OPTIONS AND COMPENSATION EXPENSE

In 1999, we instituted a stock option plan for key employees. A total of
2,141,300 shares of our common stock has been reserved for issuance under this
plan. Options to purchase a total of 2,141,300 shares of our common stock were
granted under the plan by our board of directors in 1999, 2,136,300 of which are
currently outstanding. As of June 30, 2000, options to purchase 5,000 shares
have

24
<PAGE> 28

been exercised. We have terminated the plan with respect to any future issuances
of stock options. The options are exercisable at an exercise price of $7.84 per
share. The options were to vest ratably over a period of three years, however,
the closing of the Vista merger accelerated the vesting of all of the
outstanding options. We did not recognize any compensation expense in connection
with the issuance of the options.

Effective with the Vista merger, we adopted Vista's existing stock option
plan. A total of 500,000 shares of our common stock are reserved for issuance
under this stock option plan. As of June 30, 2000, nonqualified stock options
for a total of 70,000 shares of common stock had been granted under this stock
option plan. The exercise price of these options equaled the fair market value
of our common stock on the date of grant, $12.38 per share, and the options
expire up to 10 years after the date of grant.

NATURAL GAS BALANCING

It is possible in the natural gas industry for various working interest
partners to produce more or less than their entitlement share of natural gas. In
those events, it is possible for there to be overproduced parties and
underproduced parties. At June 30, 2000, our net gas balancing position was not
material.

NEW ACCOUNTING STANDARDS

We will be required to comply with the provisions of SFAS 133 "Accounting
for Derivative Instruments and Hedging Activities," which, as amended, must be
adopted for fiscal years beginning after June 15, 2000. SFAS 133 requires that
derivatives be reported on the balance sheet at fair value and, if the
derivative is not designated as a hedging instrument, changes in fair value must
be recognized in earnings in the period of change. If the derivative is
designated as a hedge, and to the extent such hedge is determined to be
effective, changes in fair value are either offset by the change in fair value
of the hedged asset or liability, if applicable, or reported as a component of
other comprehensive income in the period of change, and subsequently recognized
in earnings when the offsetting hedged transaction occurs. The definition of
derivatives has also been expanded to include contracts that require physical
delivery of oil and gas if the contract allows for net cash settlement. We
primarily use derivatives to hedge product price and interest rate risks. These
derivatives are recorded at cost, and gains and losses on such derivatives are
reported when the hedged transaction occurs. Adoption of SFAS 133 should have no
significant impact on reported earnings, but could materially affect other
comprehensive income and equity.

MARKET RISK DISCLOSURES

Our business is affected by fluctuations in commodity prices and interest
rates. The following discussion is intended to identify the nature of these
market risks, describe our strategy for managing these risks and quantify the
potential effect of market volatility on our financial condition and results of
operations.

Oil and Gas Prices. Our financial condition, results of operations and
capital resources are highly dependent upon the prevailing market prices of, and
demand for, oil and natural gas. These commodity prices are subject to wide
fluctuations and market uncertainties due to a variety of factors that are
beyond our control. These factors include the level of global demand for
petroleum products, foreign supply of oil and gas, the establishment of and
compliance with production quotas by oil exporting countries, weather
conditions, the price and availability of alternative fuels and overall economic
conditions, both foreign and domestic. It is impossible to predict future oil
and gas prices with any degree of certainty. Sustained weakness in oil and gas
prices may adversely affect our financial condition and results of operations
and may also reduce the amount of net oil and gas reserves that we can produce
economically. Any reduction in reserves, including reductions due to price
fluctuations, can have an adverse effect on our ability to obtain capital for
our exploitation and development activities. Similarly, any improvements in oil
and gas prices can favorably impact our financial condition, results of
operations and capital resources.

In order to mitigate the effect of price fluctuations, we, and Vista prior
to the merger, periodically utilize hedging transactions with respect to a
portion of our oil and gas production. We utilize derivative
25
<PAGE> 29

financial instruments to provide methods to fix the price for natural gas and
oil independently of the physical sale and also to manage interest rates. While
the use of these hedging arrangements limits the downside risk of price
declines, such use may also limit benefits which may be derived from price
increases. We use various financial instruments, such as swaps and collars,
whereby monthly settlements are based on differences between the prices
specified in the instruments and the settlement prices of certain futures
contracts quoted on the NYMEX or certain other indices. Generally, when the
applicable settlement price is less than the price specified in the contract, we
receive a settlement from the counter party based on the difference. Similarly,
when the applicable settlement price is higher than the specified price, we pay
the counter party based on the difference. The instruments we utilize differ
from futures contracts in that there is not a contractual obligation which
requires or permits the future physical delivery of the hedged products. In
addition, we generally utilize over-the-counter instruments which are subject to
more credit risk than exchange-traded future contracts. However, management does
not believe this risk is significant as we enter into agreements with highly
rated and reputable counter parties. We generally do not require collateral.

During 1998 and continuing into the first quarter of 1999, the oil and gas
industry operated in a depressed commodity price environment. In mid-1999,
prices for both oil and gas began to increase to high levels relative to the
price history of the 1990s. We began hedging both oil and gas prices just prior
to the closing of our acquisition of the Pioneer properties in June 1999, and we
continue to enter the hedge market from time to time. Our hedging policies are
based upon the judgment of management and the need to meet certain requirements
of our lenders. See "Risk Factors."

In the tables set forth below, "Trade Date" is the date the hedge was
entered into. We typically enter into "swaps" or "collars." A "swap" is a
fixed-price hedge and a "collar" is a hedge that has a ceiling price and a floor
price. If the particular price stays in between the ceiling and floor price,
then no payments are made by either party under a collar. The terms "Put Floor
Price" and "Call Ceiling Price" refer to the prices at which we hedged our
production and are expressed in the calendar monthly average of daily NYMEX
closing prices for Light Sweet Crude Oil or monthly NYMEX (Henry Hub) or other
indices' closing prices for natural gas. Volumes refer to barrels of crude oil
or Mcf of gas, where one Mcf is equal to one MMBtu. The "Term" refers to the
time period of the hedge.

Set forth below is the contract amount and material terms of all natural
gas hedging instruments held by us at June 30, 2000.

<TABLE>
<CAPTION>
DAILY PUT CALL FAIR MARKET
TYPE VOLUME FLOOR PRICE CEILING PRICE VALUE AT
TRADE DATE TRANSACTION (MCF) INDEX (PER MCF) (PER MCF) TERM JUNE 30, 2000
---------- ----------- ------ ------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1/12/98 Swap 4,000 NYMEX $2.12 $2.12 1/00 to 12/00 $ (1,112,847)
2/8/99 Swap 4,000 NYMEX $2.35 $2.35 1/01 to 12/01 (3,383,956)
6/14/99 Collar 10,000 Houston Ship $2.30 $2.57 7/99 to 6/01 (5,779,627)
6/22/99 Collar 5,000 Permian $2.10 $2.42 8/99 to 7/01 (3,058,758)
6/22/99 Collar 5,000 Mid-Con $2.15 $2.43 8/99 to 7/01 (3,039,944)
6/30/99 Collar 5,000 Houston Ship $2.37 $2.58 9/99 to 8/01 (3,191,082)
7/01/99 Collar 5,000 Houston Ship $2.295/1.995 $2.64 9/99 to 8/01 (3,080,974)
10/04/99 Collar 5,000 Houston Ship $2.44 $2.84 1/00 to 12/00 (1,479,662)
3/22/00 Collar 15,000 Houston Ship $2.40 $3.33 8/01 to 12/01 (1,100,085)
6/21/00 Collar 5,000 Houston Ship $3.00 $4.75 1/01 to 12/01 (976,069)
------------
$(26,203,004)
============
</TABLE>

We may choose at some time in the future to hedge separately the basis
differential for our natural gas production. This separation would be immaterial
to our financial performance.

26
<PAGE> 30

Set forth below is the contract amount and material terms of all crude oil
hedging instruments held by us at June 30, 2000.

<TABLE>
<CAPTION>
DAILY PUT CALL FAIR MARKET
TYPE VOLUME FLOOR PRICE CEILING PRICE VALUE AT
TRADE DATE TRANSACTION (BBLS) (PER BBL) (PER BBL) TERM JUNE 30, 2000
---------- ----------- ------ ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
4/19/99 Collar 1,333 $15.00 $16.85 7/00 to 12/00 $ (3,074,884)
6/14/99 Swap 1,500 $17.44 $17.44 7/99 to 6/01 (6,373,480)
6/18/99 Collar 1,000 $17.00 $19.00 7/99 to 6/01 (3,309,018)
7/01/99 Collar 500 $17.15 $20.05 9/99 to 8/01 (1,815,118)
3/22/00 Collar 1,500 $19.00 $24.35 8/01 to 12/01 (460,962)
6/20/00 Collar 1,500 $20.00 $30.24 1/01 to 12/01 (448,719)
------------
$(15,482,181)
============
</TABLE>

Interest Rates. Our interest rate risk exposure results primarily from
having short-term variable rates under our revolving credit facility. All of our
outstanding indebtedness is subject to market rates of interest as determined
from time to time by the banks under the revolving credit facility. Any
increases in the variable interest rates related to this facility can have an
adverse impact on our results of operations and cash flow. At June 30, 2000, we
had approximately $211.4 million of outstanding debt under the credit facility.
Interest is due quarterly at either BankBoston's "Base Rate" or the Eurodollar
rate, as adjusted pursuant to the credit facility, plus a margin. Under the
revolving credit facility, we currently pay interest at a rate equal to LIBOR
plus 1.875%, or 8.64% as of June 30, 2000.

In an attempt to manage our interest rate risk, we entered into two
interest rate swaps effective July 2, 1999, which are accounted for as hedges
with any realized gains or losses appropriately recorded as interest expense.
The swaps consist of $50 million of notional amount of indebtedness whereby we
pay a fixed swap rate of 5.76% and receive the three-month LIBOR rate, and $50
million of notional amount of indebtedness whereby we pay a fixed swap rate of
6.07% and receive the three-month LIBOR rate. The terms of the swaps were and
are until July 2, 2000, and July 2, 2001, respectively.

27
<PAGE> 31

BUSINESS AND PROPERTIES

GENERAL

We are an independent oil and gas company. Our activities are focused
principally in the Permian Basin of West Texas and Southeastern New Mexico, the
onshore Gulf Coast area of Texas and Louisiana and the Mid-Continent area of
Western Oklahoma and the Texas Panhandle. These areas are among the premier oil
and gas producing areas of the United States. They are typified by long-lived
oil and gas reserves, predictable well production profiles and multiple
producing reservoir formations.

Our acquisition strategy involves purchasing oil and gas properties that
have not received the focused attention of the prior operators. In June 1999, we
completed the acquisition of producing oil and gas properties from Pioneer USA
for $239 million. On February 8, 2000, we merged with Vista, acquiring
properties that complement the Permian Basin properties we acquired from Pioneer
USA. The Vista properties have already begun to contribute to our growth in
production and cash flow and, together with the Pioneer properties, provide us
with a two to three-year inventory of exploitation projects.

The following is a summary of our oil and natural gas reserve information
as of December 31, 1999, on a pro forma basis as if the Vista merger was
completed on December 31, 1999.

Total Proved Reserves.... 49.6 MMBbls of oil and liquids and 278.9 Bcf of
natural gas; or 96.1 MMBOE

Reserve Mix.............. 52% oil and liquids; 48% natural gas

PV-10 of Proved
Reserves(1)................... $580 million

Reserve to Production
Ratio(2)...................... 13 years
---------------

(1) The present value of pre-tax future net revenues as of December 31, 1999,
discounted at 10% per year assuming unescalated prices of $23.99 per Bbl of
oil, $2.11 per Mcf of natural gas and $17.05 per Bbl of liquids. On December
31, 1999, NYMEX prices were $25.60 per Bbl for West Texas crude oil and
$2.30 per MMBtu for natural gas.

(2) Represents our pro forma proved reserves at December 31, 1999, divided by
our pro forma production for the year ended December 31, 1999.

28
<PAGE> 32

OUR STRENGTHS

We believe our principal strengths include the following:

High Quality Reserve Base. Our proved reserves are located in premier
domestic oil and gas producing areas characterized by long-lived reserves,
predictable well production profiles and multiple producing reservoir formations
providing numerous exploitation and enhancement opportunities. Our aggregate
reserve to production ratio at December 31, 1999 was 13 years. A significant
benefit of owning long-lived reserves is an enhanced ability to provide
long-term funding for additional exploitation and growth opportunities. Our
reserve base consists of approximately 52% oil and liquids and 48% natural gas
on a BOE basis. This balance provides a built-in hedge against significant price
declines in either natural gas or crude oil prices. While our current reserves
represent a fairly even balance between oil and natural gas, our strategic
objective is to increase our weighting in natural gas reserves and production.

Significant Inventory of Exploitation and Enhancement Opportunities. We
have an extensive inventory of exploitation and enhancement opportunities that
should continue to support future net reserve additions and production growth
over the next several years. We have identified a large inventory of projects
within our existing properties, including over 600 potential recompletion,
workover and development drilling opportunities.

Operational Control Over Our Oil and Gas Properties. We believe controlling
the operations of the majority of our oil and gas properties enhances our
ability to increase the value of our reserve base. Operational control allows us
to have greater influence over the implementation of our strategies and
projects, including the timing, scope and level of expenditures associated with
our exploitation and enhancement activities and other field operations. We
operate over 1,500 producing wells, representing over 75% of the PV-10 value of
our pro forma proved reserves as of December 31, 1999.

Significant Management Experience and Ownership. We have significant
expertise in exploitation and enhancement operations and technologies in our
core operating areas. The members of our management, technical staff and field
operations teams, through tenure with other independent and major oil and gas
companies operating in our core areas, have successfully implemented acquisition
and exploitation strategies similar to ours. The average length of employment in
the oil and gas industry of our management and technical staff is 19 years. Our
management and employees beneficially own approximately 17.5% of our outstanding
common stock.

OUR BUSINESS STRATEGY

Our primary objective is to increase net asset value per share by
increasing oil and natural gas reserves, production, cash flow and net income
through the acquisition, enhancement and exploitation of producing oil and gas
properties and by maintaining a low operating and corporate cost structure. We
believe the following components of our strategy will allow us to achieve our
objective.

Geographic Concentration. We focus our activities in the areas of the
Permian Basin, the onshore Gulf Coast and the Mid-Continent region, areas where
our management, our technical staff and our field operations teams have
significant prior experience. Management's track record and technical knowledge
of the reservoir and production characteristics of oil and gas properties in
these regions should allow us to identify acquisitions with attractive
exploitation and value enhancement opportunities. In addition, the concentration
of our properties in these core operating areas allows us to better achieve
economies of scale.

Acquisition of Producing Properties. We focus on acquiring producing
reserves with a production history of at least three to five years in order to
reduce the risks inherent in estimating the remaining oil and natural gas
reserves and the future production profile.

Aggressive Value Enhancement. We seek to purchase oil and gas properties
that we will operate and that have potential for development and operational
improvements. We undertake an extensive well-by-well operational study of
acquired properties in order to identify value enhancement opportunities such as

29
<PAGE> 33

development drilling, recompletions, workovers and cost reductions. These
activities can increase cash flow and, in some cases, add incremental reserves.

Low Cost Operating Structure. We pursue a low cost operating strategy at
both the field and corporate levels. We also target acquisitions of properties
that are located in our core areas that provide opportunities for cost
efficiencies through consolidation with existing operations.

Financial Flexibility. We seek to maintain financial flexibility in order
to be able to take advantage of strategic acquisition opportunities and protect
against price declines. As a result of our strategy of acquisition, exploitation
and enhancement, debt levels will vary from time to time. We intend to finance
future exploitation capital expenditures from internal cash flow. Major property
acquisitions will be financed in the most efficient manner available at the
time. Over the long-term, we believe that an appropriate target debt level is
50% of oil and natural gas reserve value. We may seek to further reduce oil and
gas reserve, price and financial risks by:

- diversifying our property holdings and avoiding concentrating a large
value in any single property; and

- using commodity price hedges, interest rate swaps and other financial
strategies.

ACQUISITION ACTIVITIES

Prize was formed in January 1999, with an initial capitalization of $20.5
million and an ownership interest in Sunterra Petroleum, L.L.C., which owned oil
and gas producing properties. For the first several months following formation,
our primary activities were to manage Sunterra and evaluate acquisition
candidates.

Effective July 1, 1999, we purchased over 400 domestic onshore oil and gas
properties from Pioneer USA for $245 million. Concurrent with the closing of the
purchase, we arranged for the sale of the properties in North Dakota for $6
million, which reduced the final purchase price of the Pioneer properties to
$239 million. The purchased properties are located primarily in Texas, with most
of the remainder in Oklahoma and Louisiana.

In July 1999, we sold non-strategic producing and non-producing mineral
ownership interests that we acquired with the Pioneer properties for $32
million. We also acquired the remaining ownership interests of Sunterra in
exchange for our interest in the Will-O-Mills treating facility and $1 million
cash and other consideration.

On February 8, 2000, we completed our merger with Vista. As a result of the
merger, we acquired all of Vista's interest in producing oil and gas properties
located principally in the Permian Basin of West Texas. The acquisition of
Vista's properties pursuant to the merger increased our oil and gas reserves by
approximately 20 MMBOE, or 27%. Although Vista was the surviving entity, for
accounting purposes the merger was treated as an acquisition of Vista by the
former Prize.

We frequently review acquisition opportunities and anticipate making
additional acquisitions when the properties, and the terms and conditions of the
transaction, are determined to be appropriate. We do not have a specific
acquisition budget because the timing and size of acquisitions are difficult to
forecast. At the present time, we have no binding agreements or commitments with
respect to any significant acquisitions.

DESCRIPTION OF OUR PROPERTIES

We own and operate producing oil and gas properties in 12 states, with our
proved reserves being located primarily in three core areas: the Permian Basin
of West Texas and Southeastern New Mexico, the onshore Gulf Coast area of Texas
and Louisiana and the Mid-Continent area of Western Oklahoma and the Texas
Panhandle. At December 31, 1999, we operated 1,522 gross productive wells and
owned non-operated interests in 1,048 gross productive wells. We continuously
evaluate the profitability of our oil

30
<PAGE> 34

and gas operations and attempt to divest unprofitable leases or areas of
operations that are not consistent with our operating philosophy.

The following table sets forth information about our pro forma oil and gas
reserves by core operating area as of December 31, 1999. The information
provided is on a pro forma basis as if the Vista merger was completed on
December 31, 1999.

<TABLE>
<CAPTION>
PRO FORMA PROVED RESERVES AS OF DECEMBER 31, 1999
---------------------------------------------------------------
OIL/LIQUIDS GAS TOTAL PERCENT OF
AREA (MBBLS) (MMCF) (MBOE) PV-10 VALUE PV-10 VALUE
---- ----------- --------- ------ -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Permian Basin...................... 35,821 59,241 45,695 $309,751 53%
Onshore Gulf Coast................. 7,584 142,413 31,319 184,442 32%
Mid-Continent...................... 6,221 77,225 19,092 85,902 15%
------ ------- ------ -------- ---
Total.................... 49,626 278,879 96,106 $580,095 100%
====== ======= ====== ======== ===
</TABLE>

Permian Basin Area. Our properties in the Permian Basin area accounted for
53% of our pro forma PV-10 value as of December 31, 1999. The Permian Basin area
is located in West Texas and Southeastern New Mexico and is predominantly oil.
We own an interest in 1,055 gross producing oil and gas wells which we operate
and 423 gross producing oil and gas wells operated by others. For the six months
ended June 30, 2000, our total net daily production from the Permian Basin area
averaged approximately 8,779 BOE or 45% of our total production. The majority of
our production in this core area is from the Spraberry, Cherry Canyon, Yates,
San Andres, Ellenberger, Holt, McKee and Wolfcamp formations, from depths of
2,800 feet to 15,000 feet. We have identified numerous workover and recompletion
opportunities in the Cherry Canyon formation in the War Wink field, along with
additional infill drilling locations. We have also identified two fields that
have waterflood potential which could add additional oil and gas reserves.

Onshore Gulf Coast Area. Our properties in the onshore Gulf Coast area
accounted for 32% of our pro forma PV-10 value at December 31, 1999. The onshore
Gulf Coast area is located primarily in Texas and Louisiana and is predominantly
gas. We own an interest in 264 gross producing oil and gas wells which we
operate and 181 gross producing oil and gas wells operated by others. For the
six months ended June 30, 2000, our total net daily production from this area
averaged approximately 9,002 BOE or 40% of our total production. The majority of
our production in this core area is from the Wilcox, Edwards, Frio, Yegua and
Miocene formations, from depths of 2,000 feet to 17,000 feet. Our exploitation
activities for the properties in this region are focused on a significant
inventory of workovers, recompletion and development drilling opportunities
available in the Oakville, Roleta, Buchel, Provident City, Perry Point and Delta
Farms fields.

Mid-Continent Area. Our properties in the Mid-Continent area accounted for
15% of our pro forma PV-10 value as of December 31, 1999. The Mid-Continent area
is located primarily in Western Oklahoma and the Texas Panhandle and is
predominantly gas. We own an interest in 203 gross producing oil and gas wells
which we operate and 444 gross producing oil and gas wells operated by others.
For the six months ended June 30, 2000, our total daily net production from this
area averaged approximately 2,806 BOE or 15% of our total production. The
majority of our production in this core area is from the Morrow, Granite Wash,
Albany, Wolfcamp, Sycamore, Viola, Hunton and Woodford formations, from depths
of 800 feet to 15,000 feet. A significant inventory of workovers, recompletions
and developmental drilling opportunities are available in the Red Deer, Mendota
NW and Eola Robertson fields.

31
<PAGE> 35

PRODUCTION, PRICE AND PRODUCTION COST

The following table sets forth pro forma and historical information with
respect to the production volumes, average realized prices and average
production costs with respect to the periods indicated. Pro forma adjustments
give effect to our purchase of the Pioneer properties, the sale of mineral
interests and the Vista merger as if such transactions had occurred at the
beginning of 1999.

<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
----------------- -----------------
JANUARY 15,
1999 (INCEPTION),
YEAR ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
PRODUCTION:
Oil/liquids (MBbls)............................... 3,532 1,372
Gas (MMcf)........................................ 23,690 10,236
Total (MBOE)...................................... 7,480 3,078
AVERAGE REALIZED PRICES(1):
Oil/liquids (per Bbl)............................. $ 14.73 $ 16.69
Gas (per Mcf)..................................... 2.10 2.45
Per BOE........................................... 13.54 15.59
AVERAGE PRODUCTION COST (PER BOE)................... $ 4.64 $ 5.40
</TABLE>

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

(1) Includes the effects of hedging activities.

OIL AND GAS RESERVES

The following table presents our pro forma and historical estimated net
proved oil and natural gas reserves and the present value of our reserves at
December 31, 1999. Pro forma adjustments give effect to the Vista merger as if
the merger had occurred on December 31, 1999.

<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
PRO FORMA HISTORICAL
--------- ----------
<S> <C> <C>
PROVED RESERVES:
Oil/liquids (MBbls)....................................... 49,626 35,316
Gas (MMcf)................................................ 278,879 241,977
Total (MBOE).............................................. 96,106 75,645
PV-10 value (in thousands)................................ $580,095 $427,741
PROVED DEVELOPED RESERVES:
Oil/liquids (MBbls)....................................... 38,006 28,580
Gas (MMcf)................................................ 212,812 188,488
Total (MBOE).............................................. 73,475 59,995
</TABLE>

The estimates of our historical proved oil and natural gas reserves as of
December 31, 1999 are based on evaluations prepared by us, 80% of the PV-10
value of which has been audited by Netherland, Sewell & Associates, Inc.,
independent petroleum engineers. Approximately 98% of the total proved reserves
of Vista were reviewed by Williamson Petroleum Consultants, independent
petroleum engineers. The proved oil and natural gas reserves of Vista as of
December 31, 1999, were added to our historical proved oil and natural gas
reserves as of December 31, 1999, to calculate our pro forma estimated oil and
natural gas reserves in the table above. The PV-10 values shown in the preceding
table are not intended to represent the current market value of our estimated
oil and natural gas reserves. In accordance with SEC requirements, we base the
PV-10 value on prices and costs on the date of estimate. Actual prices and costs
may differ materially from those used in the estimate.

There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond our control. Reservoir
engineering is a subjective process of estimating subsurface accumulations of
oil and gas that cannot be measured in an exact manner. Reserve estimates
require an

32
<PAGE> 36

analysis of available geological, geophysical, production and engineering data.
The accuracy of any reserve estimate is a function of the quality and
reliability of this 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 production history, product
prices and other factors that are beyond our control, may justify revisions to
these estimates. Accordingly, oil and gas quantities ultimately recovered will
vary from the reserve estimates.

ACREAGE DATA

The following table presents information regarding our pro forma developed
and undeveloped lease acreage as of December 31, 1999, adjusted to give effect
to the Vista merger as if the merger had occurred on December 31, 1999.
Developed acreage refers to acreage within producing units and undeveloped
acreage refers to acreage that has not been placed in producing units.

<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------------
DEVELOPED ACRES UNDEVELOPED ACRES
--------------------- ---------------------
GROSS NET GROSS NET
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Arkansas................................. 3,693.7 946.2 -- --
Illinois................................. 160.0 140.0 437.0 382.4
Indiana.................................. 343.9 309.5 442.7 415.9
Kansas................................... 17,133.0 14,027.3 91,983.4 82,400.3
Louisiana................................ 6,992.0 4,773.9 1,992.6 1,957.8
Mississippi.............................. 3,120.0 1,873.7 1,579.9 857.4
New Mexico............................... 10,195.1 5,528.2 20,700.8 20,554.4
North Dakota............................. 12,167.5 11,109.6 29,333.4 8,043.3
Oklahoma................................. 80,903.0 35,035.9 58,702.3 17,896.7
Texas.................................... 182,203.9 165,255.1 180,276.5 98,612.7
Utah..................................... 8,062.7 8,062.1 3,345.0 3,165.0
Wyoming.................................. 26,217.5 25,997.5 22,357.8 19,182.5
--------- --------- --------- ---------
Total.......................... 351,192.3 273,059.0 411,151.4 253,468.4
========= ========= ========= =========
</TABLE>

The following table presents information regarding our historical developed
and undeveloped lease acreage as of December 31, 1999.

<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
----------------------- -----------------------
GROSS NET GROSS NET
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Arkansas............................. 3,693.7 946.2 -- --
Illinois............................. -- -- -- --
Indiana.............................. 343.9 309.5 442.7 415.9
Kansas............................... 17,133.0 14,027.3 91,983.4 82,400.3
Louisiana............................ 6,992.0 4,773.9 1,992.6 1,957.8
Mississippi.......................... 3,120.0 1,873.7 1,579.9 857.4
New Mexico........................... 1,794.7 1,794.7 19,780.8 19,780.8
North Dakota......................... 11,538.4 11,031.6 26,743.4 7,691.9
Oklahoma............................. 80,903.0 35,035.9 58,702.3 17,896.7
Texas................................ 154,608.2 144,061.4 135,251.0 70,506.6
Utah................................. 8,062.7 8,062.1 3,345.0 3,165.0
Wyoming.............................. 26,217.5 25,997.5 22,357.8 19,182.5
---------- ---------- ---------- ----------
Total...................... 314,407.1 247,914.3 362,178.8 223,854.8
========== ========== ========== ==========
</TABLE>

33
<PAGE> 37

DRILLING ACTIVITIES

The following table sets forth our pro forma and historical drilling
activity for the year ended December 31, 1999. The pro forma activity gives
effect to the purchase of the Pioneer properties and the Vista merger as if
those transactions had occurred at the beginning of 1999. In the table, "gross"
refers to the total wells in which we have a working interest and "net" refers
to gross wells multiplied by our working interest in the wells.

<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
------------ -----------
GROSS NET GROSS NET
----- ---- ----- ---
<S> <C> <C> <C> <C>
DEVELOPMENT WELLS:
Productive............................................... 28 17.4 9 1.4
Non-productive........................................... 1 0.1 1 0.1
-- ---- -- ---
Total............................................ 29 17.5 10 1.5
== ==== == ===
EXPLORATORY WELLS:
Productive............................................... 4 0.4 0 0
Non-productive........................................... 3 0.4 0 0
-- ---- -- ---
Total............................................ 7 0.8 0 0
== ==== == ===
</TABLE>

PRODUCTIVE WELLS

The following table sets forth the number of productive oil and natural gas
wells in which we owned an interest at December 31, 1999, on a pro forma and
historical basis. The pro forma data gives effect to the Vista merger as if the
merger had occurred on December 31, 1999.

<TABLE>
<CAPTION>
OIL GAS TOTAL
------------- ----------- -------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- --- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Pro Forma................................. 1,832 1,100 738 402 2,570 1,502
Historical................................ 1,273 626 665 354 1,938 980
</TABLE>

Productive wells consist of producing wells capable of production,
including natural gas wells waiting on pipeline connections to commence
deliveries and oil wells waiting on connection to production facilities.

CUSTOMERS

We sell our natural gas production to a variety of customers, including
pipelines, utilities, gas marketing firms, industrial users and local
distribution companies. We use existing gathering systems and interstate and
intrastate pipelines to consummate gas sales and deliveries.

Our principal customers for crude oil production are refiners, remarketers
and other companies, some of which have pipeline facilities near the producing
properties. In the event pipeline facilities are not conveniently available,
crude oil is trucked or barged to storage, refining or pipeline facilities.

For the year ended December 31, 1999, one significant purchaser, Genesis
Energy, L.P., accounted for 19% of our total revenue. Genesis purchases our
production from numerous properties at variable and market-sensitive prices. We
do not consider ourselves dependent upon this purchaser since other purchasers
are willing to purchase this production at competitive prices.

OIL AND NATURAL GAS MARKETING

Oil Marketing. Our oil production is sold under short-term agreements at
negotiated prices. As a result, we can change purchasers whenever price
improvements can be received. We periodically enter into hedging activities with
a portion of our oil production which are intended to support our oil prices at
targeted levels and to manage our exposure to oil price fluctuations. See
"Management's Discussion and

34
<PAGE> 38

Analysis of Financial Condition and Results of Operations -- Market Risk
Disclosures" for a discussion of our hedging activities.

Natural Gas Marketing. Our natural gas production is sold under both long
and short-term agreements at negotiated prices. Although exact percentages vary
daily, during the six months ended June 30, 2000, approximately 60% of our
natural gas production was sold under short-term contracts at variable or
market-sensitive prices. These market-sensitive sales are referred to as "spot
market" sales. Another 39% of our natural gas production was committed under
various long-term contracts of one year or more at variable prices which
dedicate the natural gas to a purchaser for the contract period. Our remaining
natural gas production was dedicated under long-term contracts at fixed prices.

Under both long-term and short-term contracts, typically either the entire
contract, in the case of short-term contracts, or the price provisions of the
contract, in the case of long-term contracts, are renegotiated at intervals from
one day to one year. The spot market has become progressively more competitive
in recent years. As a result, prices on the spot market have been volatile.

The spot market is subject to volatility as supply and demand factors in
various regions of North America fluctuate. In addition to entering into
long-term fixed price contracts, we periodically enter into hedging arrangements
or firm delivery commitments with a portion of our natural gas production. These
activities are intended to support targeted gas price levels and manage our
exposure to gas price fluctuations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Market Risk Disclosures" for a
discussion of our hedging activities.

COMPETITION

The oil and gas business is highly competitive. We compete against major
integrated and independent oil and gas companies and others in acquiring
producing oil and gas properties, new leases, contracting for drilling equipment
and securing trained personnel. Intense competition occurs with respect to
marketing, particularly of natural gas. A number of our competitors have
substantially greater financial and other resources than we do.

SEASONAL NATURE OF BUSINESS

Generally, the demand for natural gas decreases during the summer months
and increases during the winter months. Seasonal anomalies such as mild winters
sometimes lessen this fluctuation. Also, summer natural gas demand is increasing
as more gas-fired electrical generating units come on-line. In addition,
pipelines, utilities, local distribution companies and industrial users utilize
natural gas storage facilities and purchase some of their anticipated winter
requirements during the summer. This can also lessen seasonal demand
fluctuations.

GOVERNMENT REGULATION

Our operations are subject to various levels of government controls and
regulations. In the United States, legislation affecting the oil and gas
industry has been pervasive and is under constant review for amendment or
expansion. Pursuant to such legislation, numerous federal, state and local
departments and agencies have issued extensive rules and regulations binding on
the oil and gas industry and its individual members, some of which carry
substantial penalties for the failure to comply. Such laws and regulations have
significant impact on oil and gas drilling and production activities, increase
the cost of doing business and, consequently, affect profitability. Inasmuch as
new legislation affecting the oil and gas industry is commonplace and existing
laws and regulations are frequently amended or reinterpreted, we are unable to
predict the future cost or impact of complying with such laws and regulations.

Exploration and Production. Our operations are subject to various types of
regulation at the federal, state and local levels. This regulation includes
requiring permits for the drilling of wells; maintaining bonding requirements in
order to drill or operate wells; submitting and implementing spill prevention
plans; submitting notification relating to the presence, use and release of
certain contaminants incidental to oil

35
<PAGE> 39

and gas operations; and regulating the location of wells, the method of drilling
and casing wells, the use, transportation, storage and disposal of fluids and
materials used in connection with drilling and production activities, surface
usage and the restoration of properties upon which wells have been drilled, the
plugging and abandoning of wells and the transporting of production. Our
operations are also subject to various conservation matters, including the
regulation of the size of drilling and spacing units or proration units, the
number of wells which may be drilled in a unit and the unitization or pooling of
oil and gas properties. In this regard, some states allow the forced pooling or
integration of tracts to facilitate exploration while other states rely on
voluntary pooling of lands and leases, which may make it more difficult to
develop oil and gas properties. In addition, state conservation laws establish
maximum rates of production from oil and gas wells, generally prohibit the
venting or flaring of gas and impose certain requirements regarding the ratable
purchase of production. The effect of these regulations is to limit the amounts
of oil and gas we can produce from our wells and to limit the number of wells or
the locations at which we can drill.

Environmental and Occupational Regulations. Various federal, state and
local laws and regulations concerning the discharge of contaminants into the
environment, the generation, storage, transportation and disposal of
contaminants and the protection of public health, natural resources, wildlife
and environment affect our exploration, development and production operations
and the costs attendant thereto. These laws and regulations increase our overall
operating expenses. We maintain levels of insurance customary in the industry to
limit our financial exposure in the event of a substantial environmental claim
resulting from sudden and accidental discharges of oil, salt water or other
harmful substances. However, we do not maintain 100% coverage for any possible
environmental claim, and we do not maintain coverage with respect to any award
of punitive damages against us or any penalty or fine required to be paid by us
because of our violation of any federal, state or local law. We are committed to
meeting our responsibilities to protect the environment everywhere we operate.
We anticipate making increased expenditures of both a capital and expense nature
as a result of the increasingly stringent laws relating to the protection of the
environment. We did not have any unreimbursed expenditures in 1999 concerning
these matters. However, we cannot predict with any reasonable degree of
certainty our future exposure concerning these matters.

We are also subject to laws and regulations concerning occupational safety
and health. Due to the continued changes in these laws and regulations, and the
judicial construction of these laws and regulations, we are unable to predict
with any reasonable degree of certainty our future costs of complying with these
laws and regulations.

We maintain our own internal environmental and safety department which is
responsible for instituting and maintaining our environmental and safety
compliance program. This program includes field inspections of properties and
internal audits of our compliance procedures.

TITLE TO PROPERTIES

Title to our oil and gas properties is subject to contractual arrangements
customary in the oil and gas industry, liens for current taxes not yet due and
other encumbrances. We believe that these burdens do not materially detract from
the value of our properties or our interests in our properties or materially
interfere with their use in our business operations.

As is customary in the industry in the case of undeveloped properties,
little investigation of record title is made at the time of acquisition, other
than a preliminary review of local records. Investigations, which may include a
title opinion of outside counsel, are made prior to the consummation of an
acquisition of producing properties and before commencement of drilling
operations on undeveloped properties.

EMPLOYEES

As of August 21, 2000, our staff consisted of 124 full-time employees,
including 18 professionals in engineering, eight in geology, 10 in the land
department, two in oil and gas marketing, 18 in accounting and data processing,
nine in administration and 59 in field operations.
36
<PAGE> 40

OFFICE FACILITIES

We lease approximately 19,000 square feet of office space at 3500 William
D. Tate, Suite 200, Grapevine, Texas. This lease expires in 2003. We also lease
approximately 1,824 square feet of office space at 20 E. 5th Street, Suite 1400,
Tulsa, Oklahoma. This lease expires in 2000. Both leases are typical office
leases containing standard and customary lease provisions.

LEGAL PROCEEDINGS

We are a defendant in legal proceedings that have resulted from the
ordinary conduct of our business. While the outcome of these proceedings cannot
be predicted with certainty, our management does not expect that these
proceedings will have a material adverse effect on our financial condition or
results of operations.

37
<PAGE> 41

MANAGEMENT

OUR EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding our executive
officers and directors:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Philip B. Smith....................... 49 Director, Chairman of the Board of
Directors, Chief Executive Officer
and Treasurer
Lon C. Kile........................... 45 Director, President and Chief
Operating Officer
D. Richard Massengill................. 52 Vice President
David R. Albin........................ 40 Director
Kenneth A. Hersh...................... 37 Director
Theresa L. Killgore................... 47 Director
</TABLE>

Philip B. Smith, the founder of Prize, has been Chairman of the Board of
Directors, Chief Executive Officer, Treasurer and a director of Prize since
January 1999. He was also President of Prize during a portion of 1999. From 1996
until 1999, he served as a director of HS Resources and Pioneer Natural
Resources Company and its predecessor, MESA, Inc. In 1996, Mr. Smith founded a
small independent oil and gas company which he managed until 1999. Mr. Smith
served as president, chief executive officer and a director of Tide West Oil
Company, an independent oil and gas company, from 1992 until 1996. He was
president and a director of Draco Petroleum, Inc., a wholly-owned subsidiary of
Tide West, from 1991 until 1996, and of Tide West Trading & Transport Company,
formerly Draco Production Company, a wholly-owned subsidiary of Tide West, from
1989 until 1996. From 1986 until 1991, Mr. Smith was a senior vice president of
Mega Natural Gas Company, a natural gas gathering company and the former parent
company of Tide West Trading & Transport Company and its predecessor companies.
Prior to that time, he held various technical and management positions at other
independent and major oil and gas companies. He earned his M.B.A. from the
University of Tulsa and his B.S. in mechanical engineering from Oklahoma State
University.

Lon C. Kile has been President, Chief Operating Officer and a director of
Prize since June 1999. From 1997 until 1999, he was executive vice president of
Pioneer Natural Resources Company, an independent oil and gas company. Mr. Kile
joined Parker & Parsley Petroleum Company, an independent oil and gas company
and a predecessor to Pioneer, in 1985 and was promoted to senior vice
president -- investor relations in 1996. Previously, he was vice president and
manager of the mid-continent division of Parker & Parsley. Prior to that, he
held the positions of vice president -- equity finance & analysis and vice
president -- marketing and program administration of Parker & Parsley. Before
joining Parker & Parsley, he was employed as supervisor -- senior, audit, in
charge of Parker & Parsley's audit, with Arthur Young & Co. Mr. Kile earned his
Bachelor of Business Administration degree in accounting from Oklahoma State
University.

D. Richard Massengill has been a Vice President of Prize since July 1999.
From 1998 to 1999, he served as reservoir engineering manager, domestic
division, for Pioneer Natural Resources Company. He was reservoir engineering
manager for the mid-continent division of Pioneer and its predecessors from 1996
to 1998. Prior to that time, he held various positions with both large and small
oil companies as well as being an owner in consulting and acquisition companies.
Mr. Massengill earned a Master of Science in Chemical Engineering from the
University of Wyoming.

David R. Albin has been a director of Prize since January 1999. From 1988
to the present, he has been a manager of the Natural Gas Partners private equity
investment funds which were organized to make equity investments in the oil and
gas industry. Previously, he was employed as a portfolio manager for the Bass
Investment Limited Partnership, a partnership formed by the Bass family of Fort
Worth, Texas. Before joining Bass, he was a member of the oil and gas group in
Goldman, Sachs & Co.'s

38
<PAGE> 42

investment banking division. Mr. Albin earned a B.S. in physics and an M.B.A.,
both from Stanford University.

Kenneth A. Hersh has been a director of Prize since January 1999. From 1989
to the present, he has been a manager of the Natural Gas Partners private equity
investment funds. Previously, he was employed by the investment banking division
of Morgan Stanley & Co. Incorporated where he was a member of the firm's energy
group specializing in oil and gas financing and acquisition transactions. Mr.
Hersh earned an M.B.A. from the Stanford University Graduate School of Business
and a B.A. from Princeton University.

Theresa L. Killgore has been a director of Prize since August 2000. From
July 1999 to the present, she has operated a personal investment company in
Tulsa, Oklahoma. Ms. Killgore was president and chief executive officer of
Spring Holding Company from its inception in November 1996 until July 1999.
Spring Holding owned two operating subsidiaries: an exploitation and production
company and a gas marketing and transportation company. She owned Energy Asset
Management, an operator of oil and gas properties, from 1995 until its sale in
November 1996. In 1992, Ms. Killgore formed Killgore Investments, Inc., a
company engaged in acquiring and exploiting operated oil and gas properties, and
Future Fuels, Inc., a company engaged in designing, packaging and installing
compressed natural gas fueling systems for vehicles. Future Fuels was sold in
1993 and Killgore Investments was sold in 1995. From 1981 to 1992, Ms. Killgore
worked in various engineering and management positions at Samson Resources
Company, an oil and gas exploration and production company. Prior to that, she
was employed by Cotton Petroleum as a reservoir engineer from 1979 to 1981 and
by Shell Oil Company as a petrophysical engineer from 1975 to 1979. Ms. Killgore
received B.S. degrees in physics and math from the University of Oklahoma.

ELECTION OF OFFICERS AND DIRECTORS

Our executive officers are elected by the board of directors and serve at
its discretion. Each of our directors is elected for a one-year term. Under a
voting and shareholders agreement among some of our stockholders, Natural Gas
Partners V, L.P. and us, the parties to the agreement currently have the
following rights to nominate and elect directors to our board:

- the stockholders who are members of our management may designate one
member; and

- Natural Gas Partners V may designate up to four members.

Philip B. Smith is the designee of the stockholders who are members of our
management and Kenneth A. Hersh, David R. Albin and Lon C. Kile are designees of
Natural Gas Partners V. The other Natural Gas Partners V position is vacant.
Theresa L. Killgore is an independent member of the board. The agreement
terminates on June 29, 2009, and the rights of the parties to nominate and elect
directors terminate upon the happening of certain events specified in the
agreement. Absent the agreement, Natural Gas Partners V, through its ownership
of our common stock, would be able to control the election of all of our
directors. For more information regarding the voting and shareholders agreement,
see "Description of Capital Stock -- Voting and Shareholders Agreement."

BOARD COMMITTEES

The board of directors has an audit committee and a compensation committee.
Mr. Hersh and Ms. Killgore are members of the audit committee and Messrs. Albin
and Hersh are members of the compensation committee.

Pursuant to the audit committee charter, the audit committee has the
responsibility to, among other things:

- evaluate the performance of our independent auditors together with the
board of directors and make recommendations to the board of directors for
the engagement of independent auditors;

39
<PAGE> 43

- review with management our audited financial statements, including issues
concerning accounting and auditing principles and practices and the
adequacy of our internal accounting controls that may have a significant
effect on our financial statements;

- review with management and our independent auditors our interim financial
statements;

- receive periodic reports from our independent auditors regarding the
auditors' independence and discuss such reports with our independent
auditors; and

- review with our independent auditors any difficulties the auditors may
have encountered in performing its services and any management letter
provided by the auditors and management's response to the letter.

The audit committee also generally reviews the terms of material transactions
and arrangements, if any, between Prize and its directors, officers and
principal stockholders.

The compensation committee has the responsibility to:

- monitor and administer our employee benefit plans, including our 1998 Key
Employee Stock Option Plan, and executive compensation plans, practices
and policies, including all salaries, bonuses and fringe benefits;

- make changes in existing employee benefit plans and executive
compensation plans; and

- formulate and adopt new executive compensation plans.

DIRECTOR COMPENSATION

Directors who are not employees of Prize receive $2,500 per meeting for
their services as directors. Directors who are also employees of Prize are not
separately compensated for serving on our board of directors. In addition, Prize
reimburses directors for reasonable expenses incurred in connection with
attending meetings of our board of directors and its committees.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1999, Kenneth A. Hersh and David R. Albin served as members of the
compensation committee of the board of directors. Messrs. Hersh and Albin
constitute (a) two of the four managing members of each entity that serves as
the ultimate general partner of Natural Gas Partners II, L.P. and Natural Gas
Partners III, L.P. and (b) a majority of the managing members of the entity that
serves as the ultimate general partner of Natural Gas Partners V, L.P. They also
own interests in these Natural Gas Partners partnerships. Each of these Natural
Gas Partners partnerships is a greater than 5% owner of our common stock. For
information with respect to transactions involving these partnerships, see
"Certain Transactions."

40
<PAGE> 44

EXECUTIVE COMPENSATION

Summary Compensation

The following table sets forth the compensation we paid during 1999 to our
Chief Executive Officer and each other executive officer of Prize whose
compensation, based on salary and bonus, for 1999 was greater than $100,000.

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION --
ANNUAL COMPENSATION AWARDS
------------------------------------ ---------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS(2)
------------------ -------- ------- --------------- ---------------
<S> <C> <C> <C> <C>
Philip B. Smith.................... $ 72,000 $47,250 -0- 946,520
Chairman of the Board, Chief
Executive Officer and Treasurer
Lon C. Kile(3)..................... 114,000 75,938 -0- 535,702
President and Chief
Operating Officer
D. Richard Massengill(4)........... 62,500 32,813 -0- 267,852
Vice President
</TABLE>

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

(1) Does not include the value of perquisites and other personal benefits
because the aggregate amount of such compensation, if any, does not exceed
the lesser of $50,000 or 10% of the total amount of annual salary and bonus
for any named individual.

(2) Represents shares of our common stock underlying options granted during 1999
after giving effect to the Vista merger effected on February 8, 2000.

(3) Mr. Kile joined Prize in June 1999.

(4) Mr. Massengill joined Prize in July 1999.

None of the named executive officers in the summary compensation table
above received compensation from us for the entire 1999 fiscal year. The current
annual salaries of Messrs. Smith, Kile and Massengill in connection with their
services are $140,000, $225,000 and $165,000, respectively. The compensation
committee of our board of directors is responsible for determining the salaries
and adjustments to the salaries of these officers. None of our executive
officers have employment agreements with us.

Option Grants in Last Fiscal Year

The following table sets forth information with respect to options granted
during 1999 to each of the executive officers named in the summary compensation
table above. We have never granted any stock appreciation rights.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SHARES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION ----------------------
NAME GRANTED(1) YEAR PER SHARE DATE 5%($) 10%($)
---- ---------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Philip B. Smith................ 946,520 44.2 $7.84 6-29-2004 2,053,948 4,533,831
Lon C. Kile.................... 535,702 25.0 7.84 6-29-2004 1,162,473 2,566,013
D. Richard Massengill.......... 267,852 12.5 7.84 6-29-2004 581,239 1,283,011
</TABLE>

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

(1) Represents shares of our common stock underlying options after giving effect
to the Vista merger effected on February 8, 2000.

41
<PAGE> 45

Fiscal Year End Option Values

The following table sets forth information with respect to the unexercised
options held by the executive officers named in the summary compensation table
above as of December 31, 1999. No options were exercised during 1999.

<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT DECEMBER 31, 1999(1) OPTIONS AT DECEMBER 31, 1999(2)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Philip B. Smith.................. 946,520 -0- $5,830,563 -0-
Lon C. Kile...................... 535,702 -0- 3,299,924 -0-
D. Richard Massengill............ 267,852 -0- 1,649,968 -0-
</TABLE>

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

(1) Represents shares of our common stock underlying options after giving effect
to the Vista merger effected on February 8, 2000.

(2) Represents the difference between the year-end closing price of the common
stock of Vista (now Prize) on the American Stock Exchange of $14.00 per
share and the exercise price per share, multiplied by the number of shares
subject to options.

STOCK OPTION PLANS

We have in place a 1998 Key Employee Stock Option Plan, or the 1998 Option
Plan. A total of 500,000 shares of common stock has been reserved for issuance
under the 1998 Option Plan. The 1998 Option Plan provides for the granting of
incentive stock options and nonqualified stock options to officers, directors or
employees of Prize and its subsidiaries. The 1998 Option Plan also permits the
granting of nonqualified stock options to consultants of Prize and its
subsidiaries. As of the date of this prospectus, nonqualified options to
purchase 70,000 shares of common stock have been granted under the 1998 Option
Plan.

The 1998 Option Plan is administered by our board of directors or a
committee designated by the board. The administrator of the 1998 Option Plan
determines which eligible individuals are to receive option grants and the terms
of the options granted, including the type of option, the number of shares
subject to the option, exercise price and exercisability. In addition, the
administrator has the discretion to accelerate vesting or exercisability of an
option, determine whether performance conditions, if any, have been satisfied
and otherwise modify or amend any option under the 1998 Option Plan, including
the ability to "reprice" options. No stock options for more than 250,000 shares
of common stock may be granted to any one employee in a calendar year. The
exercise price of each incentive stock option granted under the 1998 Option Plan
may not be less than the fair market value of the common stock on the date of
grant. The exercise price is payable in cash; however, the administrator may
allow option holders to use shares of common stock previously owned or issuable
upon exercise of the option to pay the exercise price.

Our board of directors has the authority to amend or terminate the 1998
Option Plan, except that the board may not increase the aggregate number of
shares of common stock which may be issued under options granted pursuant to the
1998 Option Plan without the approval of our stockholders.

We have outstanding options to purchase 2,136,300 shares of our common
stock that were granted to employees under a former stock option plan. All of
these options are currently exercisable and expire five years from the date of
grant at an exercise price of $7.84 per share. All of the shares reserved for
issuance upon exercise of options granted under this plan are subject to
outstanding awards, and, accordingly, this plan has been terminated for future
awards.

42
<PAGE> 46

CERTAIN TRANSACTIONS

Advisory Services and Indemnification Agreement. We have entered into an
advisory services and indemnification agreement, dated as of January 25, 1999,
as amended, with Natural Gas Partners V, which owns approximately 55% of our
common stock. Kenneth A. Hersh and David R. Albin, representatives of Natural
Gas Partners V, also serve as directors of Prize. Under the terms of the
agreement, we currently pay Natural Gas Partners V $150,000 per year and
reimburse Natural Gas Partners V for expenses in consideration for consulting
and financial advisory services provided by Natural Gas Partners V and its
representatives.

Prior to our merger with Vista, Vista had a similar advisory services
agreement with Natural Gas Partners II and Natural Gas Partners III, both of
which own more than 5% of our common stock, except that the annual fee was
$75,000. Kenneth A. Hersh and David R. Albin are also representatives of Natural
Gas Partners II and Natural Gas Partners III. This agreement was terminated upon
completion of the Vista merger.

Indebtedness of Officer. In June 1999, we issued 41,916 shares of common
stock to Lon C. Kile in exchange for a note receivable in the amount of
$250,000. The note did not bear interest and was paid in full during the last
half of 1999.

Vista Merger. We completed the Vista merger on February 8, 2000, pursuant
to the terms of an agreement and plan of merger dated October 8, 1999. In the
merger, a wholly-owned subsidiary of Vista was merged with and into the former
Prize, or "Old Prize," with Old Prize surviving the merger as a wholly-owned
subsidiary. In connection with the merger, Vista effected a change of its
corporate name to Prize Energy Corp. Pursuant to the merger, each issued and
outstanding share of common stock and convertible preferred stock of Old Prize
was converted into 1,665.187 shares of our common stock and preferred stock,
respectively. After the merger, the former stockholders of Old Prize
collectively owned approximately 84% of our outstanding common stock, assuming
conversion of the shares of convertible preferred stock. The Vista merger also
accelerated the vesting of outstanding options to purchase shares of our common
stock under a former stock option plan. For accounting purposes the merger was
treated as an acquisition of Vista by Old Prize.

At the time of the merger, each of David R. Albin and Kenneth A. Hersh was
a director of Old Prize and also a director of Vista. In addition, Messrs. Albin
and Hersh are principal managers of, and own interests in, Natural Gas Partners
II, and Natural Gas Partners III, which together owned approximately 52% of
Vista's outstanding common stock prior to the merger. Messrs. Albin and Hersh
are also principal managers of and own interests in Natural Gas Partners V,
which owned approximately 60% of Old Prize's outstanding shares of capital stock
(common stock and convertible preferred stock, combined) prior to the merger.
The terms of and consideration paid in connection with the Vista merger were
determined through arms-length negotiations between the executive management of
Old Prize and a special committee of the board of directors of Vista.

As part of the Vista merger, we committed to indemnify the Vista officers
and directors and have purchased officers' and directors' insurance for the
former officers and directors of Vista at a total cost of $20,000.

Voting and Shareholders Agreement. In connection with the Vista merger, we
entered into a voting and shareholders agreement with Pioneer USA, Natural Gas
Partners II, Natural Gas Partners III, Natural Gas Partners V and some
management stockholders. On March 31, 2000, Pioneer USA relinquished all of its
rights under the agreement. A summary of the current terms of this agreement is
included in this prospectus under "Description of Capital Stock -- Voting and
Shareholders Agreement."

Termination and Consulting Agreements. In connection with the Vista merger,
we entered into termination and consulting agreements with each of C. Randall
Hill, Steven D. Gray and R. Cory Richards, former executive officers of Vista.
Under these agreements, each executive officer received a cash severance payment
in the amount of $333,333 following completion of the merger. Each executive
officer also agreed, at our request, to provide consulting services to us at a
monthly compensation equal to
43
<PAGE> 47

his current monthly compensation at the time he entered into the agreement. The
monthly compensation of each of Messrs. Hill and Gray at that time was $13,750.
Mr. Richards' monthly compensation at that time was $11,459. Under these
agreements, the consulting services terminated on February 28, 2000.

Amendment to Confidentiality and Non-Compete Agreements. In connection with
the Vista merger, we amended confidentiality and non-compete agreements with
each of C. Randall Hill and Steven D. Gray, former executive officers and
directors of Vista, to terminate the non-competition provisions of those
agreements, effective upon completion of the merger.

Acquisition of Pioneer Oil and Gas Properties. On June 29, 1999, we
acquired oil and gas properties from Pioneer USA for total consideration of
$245.0 million, comprised of $215.0 million of cash and shares of our 6% Series
A convertible preferred stock having a liquidation preference and fair value of
$30.0 million. Philip B. Smith, a director and officer of Prize, and Kenneth A.
Hersh, a director of Prize, were members of the board of directors of Pioneer
Natural Resources Company, the parent of Pioneer USA. Messrs. Smith and Hersh
resigned from their positions with Pioneer Natural Resources Company prior to
the completion of the acquisition. Additionally, Lon C. Kile resigned his
position as an officer of Pioneer Natural Resources Company to become an officer
and director of Prize. In connection with the acquisition, we entered into a
registration rights agreement with Pioneer USA and others and a joint
participation agreement with Pioneer USA. These agreements are described below.

Registration Rights Agreement. Upon completion of the Vista merger, we
entered into a registration rights agreement with Natural Gas Partners II,
Natural Gas Partners III, Natural Gas Partners V, Pioneer USA, various holders
of shares of our common stock and various holders of our outstanding warrants to
purchase common stock. The registration rights agreement entitles the parties to
demand, piggyback and shelf registration rights with respect to their shares of
common stock and provides for the payment of the expenses of registration by us.
In addition, the registration rights agreement grants Pioneer USA the right to
include registrable securities in the first underwritten offering of our common
stock commenced after the Vista merger, subject to limitations. Natural Gas
Partners II, Natural Gas Partners III and Pioneer USA are selling stockholders
in this offering. See "Principal and Selling Stockholders."

Joint Participation Agreement. Prior to its termination on March 31, 2000,
Prize and Pioneer USA were parties to a joint participation agreement that was
entered into on June 29, 1999. Under the joint participation agreement, we were
obligated to notify Pioneer USA of certain opportunities to acquire oil and gas
interests or securities of a company that was engaged in the acquisition,
exploitation, exploration and development of oil and gas. In addition, we were
obligated to notify Pioneer USA of any decision by our board of directors to
sell to any unaffiliated third party direct property interests in an exploration
project or equity ownership interests in an entity owned or controlled by us
that owns such an exploration project, in either case, for the purpose of
financing such exploration project. Pursuant to the terms of the joint
participation agreement, Pioneer USA had the right to participate, up to 50%, in
any acquisition opportunity or exploration project described above.

Conversion of Convertible Preferred Stock and Repurchase of Common
Stock. On March 31, 2000, Pioneer USA converted all of the 3,984,197 shares of
our Series A convertible preferred stock owned by it into 3,984,197 shares of
common stock. Immediately after the conversion, we purchased 1,346,482 of the
newly-issued shares of common stock from Pioneer USA for cash consideration of
approximately $18.2 million. Immediately prior to the conversion of the
preferred stock on March 31, 2000, we paid Pioneer USA $458,514 as a dividend on
the preferred stock. In conjunction with these transactions, Pioneer USA
relinquished all of its rights under the voting and shareholders agreement,
including its right to designate two members of our Board of Directors.
Accordingly, Scott D. Sheffield and Mark L. Withrow, Pioneer USA's previous
designees on our Board of Directors, resigned as directors effective as of March
31, 2000. In addition, we and Pioneer USA agreed to terminate the joint
participation agreement discussed above as of March 31, 2000.

Additional Investment. In conjunction with the acquisition of oil and gas
properties from Pioneer USA, in June 1999 we sold 3,996,448 additional shares of
our common stock to Natural Gas Partners V

44
<PAGE> 48

for aggregate consideration of $24.0 million, and we sold 166,519 shares of our
common stock to Philip B. Smith, an officer and director of Prize, for aggregate
consideration of $1.0 million.

Fees and Reimbursements. In connection with our formation and organization
in January 1999, and the additional investment in us by Natural Gas Partners V
in June 1999, we paid fees of $560,000, in the aggregate, to Natural Gas
Partners V. In addition, we reimbursed Natural Gas Partners V for its out-of-
pocket expenses incurred in connection with these transactions. Natural Gas
Partners V owns more than 55% of our common stock, and its representatives,
Kenneth A. Hersh and David R. Albin, serve as directors of Prize.

45
<PAGE> 49

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth the beneficial ownership of our common stock
as of August 14, 2000, and as adjusted to reflect the sale of the shares of
common stock offered by this prospectus by:

- each person or entity known by us to beneficially own more than 5% of our
outstanding shares of common stock;

- each of our directors and each of our executive officers named in
"Management -- Executive Compensation"; and

- all of our directors and executive officers as a group.

Except as otherwise indicated below, we believe that each individual or
entity named has sole investment and voting power with respect to the shares of
common stock indicated as beneficially owned by that individual or entity. The
number of shares of common stock outstanding used in calculating the percentage
for each person listed includes the shares of common stock which could be
acquired by that person upon the exercise of an option or warrant within 60 days
of August 14, 2000, but excludes such shares of common stock which could be so
acquired by any other person. Percentage of beneficial ownership is based on
13,313,829 shares of common stock outstanding as of August 14, 2000.

The following table also sets forth the shares of common stock being
offered by the selling stockholders, all of whom are more than 5% beneficial
owners, directors or executive officers.

<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF COMMON
BENEFICIALLY OWNED SHARES OF STOCK BENEFICIALLY
PRIOR TO OFFERING COMMON OWNED AFTER OFFERING
--------------------------- STOCK ---------------------------
BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
---------------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Five Percent Stockholders
Natural Gas Partners II, L.P.
125 E. John Carpenter Freeway, Suite 600
Irving, TX 75062........................ 879,818(1) 6.43% 422,516(2) 457,302(1) 3.34%
Natural Gas Partners III, L.P.
125 E. John Carpenter Freeway, Suite 600
Irving, TX 75062........................ 1,202,509(3) 8.70% 577,484(4) 625,025(3) 4.52%
Natural Gas Partners V, L.P.
125 E. John Carpenter Freeway, Suite 600
Irving, TX 75062........................ 7,326,821 55.03% -- 7,326,821 55.03%
Pioneer Natural Resources USA, Inc.
1400 Williams Square West 5205 N.
O'Connor Blvd.
Irving, TX 75039........................ 2,613,215 19.63% 2,000,000(5) 613,215 4.61%
Directors and Named Executive Officers
Philip B. Smith........................... 1,471,045(6)(7) 10.32% (8) 1,471,045(6)(7) 10.32%
Lon C. Kile............................... 578,618(9) 4.18% (8) 578,618(9) 4.18%
D. Richard Massengill..................... 267,852(10) 1.97% (8) 267,852(10) 1.97%
Kenneth A. Hersh.......................... 9,429,448(11) 66.47% 1,000,000(12) 8,429,448(11) 59.42%
David R. Albin............................ 9,409,148(11) 66.33% 1,000,000(12) 8,409,148(11) 59.28%
Theresa L. Killgore....................... 0 -- -- 0 --
All executive officers and directors as a
group (6 persons)....................... 11,746,963(7)(13) 73.72% 1,000,000(8) 10,746,963(7)(13) 67.44%
</TABLE>

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

(1) Includes 368,109 shares issuable upon exercise of stock warrants currently
exercisable at an exercise price of $28.00 per share.

(2) Natural Gas Partners II, L.P. has granted the underwriters a 30-day option
to purchase up to 25,351 shares to cover over-allotments, if any. If the
underwriters' over-allotment option is exercised in full, the number of
shares beneficially owned after this offering will be reduced by 25,351
shares and the percentage of shares beneficially owned after this offering
will be 3.10%.

46
<PAGE> 50

(3) Includes 503,120 shares issuable upon exercise of stock warrants currently
exercisable at an exercise price of $28.00 per share.

(4) Natural Gas Partners III, L.P. has granted the underwriters a 30-day option
to purchase up to 34,649 shares to cover over-allotments, if any. If the
underwriters' over-allotment option is exercised in full, the number of
shares beneficially owned after this offering will be reduced by 34,649
shares and the percentage of shares beneficially owned after this offering
will be 4.19%.

(5) Pioneer Natural Resources USA, Inc. has granted the underwriter a 30-day
option to purchase up to 120,000 shares to cover over-allotments, if any.
If the underwriters' over-allotment option is exercised in full, the number
of shares beneficially owned after this offering will be reduced by 120,000
shares and the percentage of shares beneficially owned after this offering
will be 3.63%.

(6) Includes 946,520 shares issuable upon exercise of stock options currently
exercisable at an exercise price of $7.84 per share.

(7) Includes (a) 84,134 shares held by the Scott C. Smith Irrevocable Trust, of
which Mr. Smith is the trustee, and (b) 84,134 shares held by the Laura E.
Smith Irrevocable Trust, of which Mr. Smith is the trustee.

(8) Messrs. Smith, Kile and Massengill have each granted the underwriters a
30-day option to purchase up to 120,000, 100,000 and 50,000 shares,
respectively, or up to an aggregate of 270,000 shares, to cover
over-allotments, if any, which may be exercised on a pro rata basis with
the options granted by the selling stockholders. If the underwriters'
over-allotment option is exercised in full, the number of shares
beneficially owned after this offering by Messrs. Smith, Kile and
Massengill will be reduced by 120,000, 100,000 and 50,000 shares and the
percentage of shares beneficially owned after this offering by Messrs.
Smith, Kile and Massengill will be 9.38%, 3.41% and 1.58%, respectively,
and the number of shares beneficially owned after this offering by all
executive officers and directors as a group will be reduced by 330,000
shares and the percentage of shares beneficially owned after this offering
by all executive officers and directors as a group will be 65.37%. We have
assumed that any shares sold by Messrs. Smith, Kile and Massengill will be
acquired by them by exercising stock options.

(9) Includes 535,702 shares issuable upon exercise of stock options currently
exercisable at an exercise price of $7.84 per share.

(10) Represents shares issuable upon exercise of stock options currently
exercisable at an exercise price of $7.84 per share.

(11) Includes, as to Mr. Hersh, and represents, as to Mr. Albin, shares
beneficially owned by Natural Gas Partners II, L.P., Natural Gas Partners
III, L.P. and Natural Gas Partners V, L.P. Messrs. Hersh and Albin
constitute two of the four managing members of each entity that serves as
the ultimate general partner of Natural Gas Partners II, L.P. and Natural
Gas Partners III, L.P., and constitute two of the three managing members of
the entity that serves as the ultimate general partner of Natural Gas
Partners V, L.P. They also own interests in these Natural Gas Partners
partnerships. Accordingly, they may be deemed to beneficially own, or
otherwise control, the voting of all or some portion of the shares of
common stock owned by Natural Gas Partners II, L.P., Natural Gas Partners
III, L.P. and Natural Gas Partners V, L.P. Messrs. Hersh and Albin disclaim
beneficial ownership of such shares.

(12) Messrs. Hersh and Albin are not selling stockholders in this offering.
These shares represent shares beneficially owned by Natural Gas Partners
II, L.P. and Natural Gas Partners III, L.P., selling stockholders in this
offering.

(13) Includes 1,750,074 shares issuable upon exercise of stock options currently
exercisable at an exercise price of $7.84 per share. Also includes shares
beneficially owned by Natural Gas Partners II, L.P., Natural Gas Partners
III, L.P. and Natural Gas Partners V, L.P. Messrs. Hersh and Albin disclaim
beneficial ownership of shares owned by the Natural Gas Partners
partnerships.

47
<PAGE> 51

DESCRIPTION OF CAPITAL STOCK

GENERAL

Our authorized capital stock consists of (a) 50,000,000 shares of common
stock, having a par value of $.01 per share, and (b) 10,000,000 shares of
preferred stock, having a par value of $.01 per share. As of August 14, 2000,
13,313,829 shares of common stock and no shares of preferred stock were
outstanding. Upon completion of this offering, we will have outstanding
13,313,829 shares of common stock, or 13,583,829 shares if the underwriters'
over-allotment option is exercised in full.

COMMON STOCK

The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders, including the
election of directors. Subject to preferences that may be applicable to any
outstanding series of preferred stock, holders of common stock are entitled to
receive ratably dividends as they may be declared by our board of directors out
of funds legally available for the payment of dividends. Our revolving credit
agreement prohibits the payment of cash dividends on our common stock. In the
event of our liquidation or dissolution, holders of common stock are entitled to
share ratably in all assets remaining after payment of liabilities and the
liquidation preference of any outstanding series of preferred stock.

Holders of common stock have no preemptive rights and have no rights to
convert their common stock into any other securities. All of the outstanding
shares of common stock are, and the shares of common stock we sell in this
offering will be, duly authorized, validly issued, fully paid and nonassessable.

PREFERRED STOCK

Our board of directors has the authority, without further action by our
stockholders, to issue shares of undesignated preferred stock from time to time
in one or more series and to fix the related number of shares and the
designations, voting powers, preferences, optional and other special rights, and
restrictions or qualifications of that preferred stock. The rights, preferences,
privileges and restrictions or qualifications of different series of preferred
stock may differ with respect to dividend rates, amounts payable on liquidation,
voting rights, conversion rights, redemption provisions, sinking fund provisions
and other matters. The issuance of preferred stock could:

- decrease the amount of earnings and assets available for distribution to
holders of common stock;

- adversely affect the rights and powers, including voting rights, of
holders of common stock; and

- have the effect of delaying, deferring or preventing a change in control.

WARRANTS

Public Warrants. At August 14, 2000, there were 2,252,670 warrants
outstanding that are publicly traded on the American Stock Exchange under the
symbol "PRZ.WS." These warrants are currently exercisable for an aggregate of
321,810 shares of common stock (seven warrants per share) at an aggregate
exercise price of $28.00 per share. These warrants will expire on November 1,
2002.

Private Warrants. In addition, at August 14, 2000, there were 9,558,403
warrants outstanding that are currently exercisable to purchase an aggregate of
1,365,486 shares of common stock (seven warrants per share) at an aggregate
exercise price of $28.00 per share that are not publicly traded. These warrants
will expire on November 1, 2002. At August 14, 2000, there were also outstanding
165,000 warrants that are currently exercisable to purchase an aggregate of
36,428 shares of common stock with exercise prices ranging from $20.13 to $21.14
per share and which have expiration dates ranging from February 24, 2001, to
June 29, 2002.

48
<PAGE> 52

VOTING AND SHAREHOLDERS AGREEMENT

In connection with the Vista merger, we entered into a voting and
shareholders agreement with Pioneer USA, Natural Gas Partners II, Natural Gas
Partners III, Natural Gas Partners V and some management stockholders. On March
31, 2000, Pioneer USA relinquished all of its rights under the agreement. See
"Certain Transactions."

Under the terms of the agreement and as a result of Pioneer USA's
relinquishment of its rights under this agreement, the remaining parties to the
agreement have the following rights to nominate and elect directors to the
Board:

- Stockholders who are members of Prize management may designate one
member; and

- Natural Gas Partners V may designate up to four members.

The provisions of the voting and shareholders agreement described above
regarding the election of directors terminate as to:

- any single management member on the first to occur of the termination of
that person's employment by Prize, the death of that person and the date
on which that person transfers his securities in violation of the
transfer restrictions provided for in the agreement; and

- all parties to the agreement on June 29, 2009.

REGISTRATION RIGHTS

We have entered into a registration rights agreement with certain holders
of shares of our common stock, Natural Gas Partners II, Natural Gas Partners
III, Natural Gas Partners V, Pioneer USA and various holders of our outstanding
warrants to purchase common stock. The registration rights granted under the
registration rights agreement entitle the parties to demand, piggyback and shelf
registration rights. In addition, the registration rights agreement grants
Pioneer USA the right to include registrable securities in the first
underwritten offering of our common stock commenced after the Vista merger,
subject to limitations. This offering constitutes our first underwritten
offering for purposes of the registration rights agreement. The registration
rights agreement also contains customary provisions regarding the payment of
expenses by Prize and mutual indemnification agreements between Prize and the
security holders who are parties to the registration rights agreement for
securities law violations.

In addition, holders of outstanding warrants to purchase 142,196 shares of
our common stock are parties to a registration rights agreement with respect to
the resale of such shares upon exercise of the warrants. Holders of more than
50% of the shares of common stock issuable upon exercise of the warrants may
require us to effect the registration of the shares of common stock on no more
than two occasions, subject to certain limitations. The holders of these
warrants are also entitled to piggyback registration rights whenever we propose
to register any of our capital stock under the Securities Act of 1933, subject
to certain exceptions. The registration rights agreement contains customary
provisions regarding the payment of expenses by Prize and mutual indemnification
agreements between Prize and the warrant holders for securities law violations.

ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CHARTER AND BYLAW PROVISIONS

Delaware law and our bylaws contain provisions that might be characterized
as anti-takeover provisions. These provisions may make it more difficult to
acquire control of Prize or remove our management.

Delaware Business Combination Statute. We are subject to the provisions of
Section 203 of the Delaware General Corporation Law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date that the person became an interested stockholder unless the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner.
49
<PAGE> 53

Generally, a "business combination" includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the stockholder.
Generally, an "interested stockholder" is a person who, together with affiliates
and associates, owns, or owned within the prior three years 15% or more of the
corporation's voting stock. This provision may delay, defer or prevent a change
in control of Prize without the stockholders taking further action.

Special Authorization by Board of Directors. Our bylaws provide that an
affirmative vote of 70% of all directors then serving on our board of directors
is required for certain actions, including any action to approve, agree or
consent to any agreement or transaction resulting in a merger, consolidation,
liquidation, dissolution or disposition of properties having a value of $100
million or more. The provisions in our bylaws relating to these special
authorization requirements may be amended only by the affirmative vote of at
least 70% of all directors then serving on our board of directors or by the
unanimous written consent of all the directors.

Removal of Directors and Filling Vacancies. Our certificate of
incorporation provides that our directors may be removed only for cause by the
affirmative vote of the holders of a majority of the outstanding shares of our
capital stock entitled to vote. In addition, under the certificate of
incorporation any vacancy on our board of directors, however occurring,
including a vacancy resulting from an enlargement of the board, may be filled
only by vote of a majority of the remaining directors then in office. The likely
effect of the limitations on the removal of directors and filling of vacancies
is an increase in the time required for the stockholders to change the
composition of the board of directors.

Advance Notification of Stockholder Nominations and Proposals. Our bylaws
establish advance notice procedures for any proposals for nominations of
candidates for the election to the board of directors, other than nominations
made by or at the direction of the board of directors, or for any matters to be
acted upon by stockholders at an annual meeting of stockholders. Our bylaws
further provide that special meetings of the stockholders may be called only by
the chairman of the board of directors, the president or secretary of Prize or
the holders of a majority of the outstanding shares of capital stock entitled to
vote. The forgoing provisions could have the effect of delaying until the next
stockholders' meeting stockholder actions that are favored by the holders of a
majority of our outstanding voting securities.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock and public warrants
is American Stock Transfer & Trust Company.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of our common stock in the public market, or
the perception that these substantial sales could occur, could adversely affect
the market price of our common stock and our ability to raise equity capital in
the future on terms favorable to us.

After this offering, we will have outstanding an aggregate of 13,313,829
shares of common stock, or 13,583,829 shares if the underwriters exercise their
over-allotment option in full. Approximately 4,574,096 shares, or 4,844,096
shares if the underwriters' over-allotment option is exercised in full, will be
freely tradeable without substantial restriction or the requirement of future
registration under the Securities Act. Approximately 8,739,733 of the
outstanding shares are "restricted securities" as that term is defined in Rule
144 under the Securities Act, are held by affiliates of Prize or are subject to
other restrictions on transfer, and in each case generally may not be sold
except in transactions registered under the Securities Act or pursuant to an
exemption from registration, such as the exemption provided by Rule 144.

As of August 14, 2000, there were outstanding stock options to purchase
2,206,300 shares of common stock and warrants to purchase 1,723,724 shares of
common stock. Options to purchase 2,136,300 shares and all of the warrants are
currently exercisable. Our shares of common stock issuable upon exercise of the
outstanding stock options have been registered under the Securities Act, thus
permitting the resale of such shares by nonaffiliates in the public market
without restriction. In addition, we are required to register
50
<PAGE> 54

under the Securities Act 321,810 shares of our common stock underlying warrants
that are publicly traded on the American Stock Exchange. The Company is also
required, upon request, to register under the Securities Act the resale of
1,365,486 shares of our common stock underlying warrants that are not publicly
traded.

Lock-up agreements. All of our officers and directors, the selling
stockholders and certain other stockholders, who together in the aggregate hold
8,738,875 shares of our common stock and options and warrants to purchase up to
2,621,303 shares of our common stock, have entered into lock-up agreements with
the underwriters under which they agreed not to transfer or dispose of, directly
or indirectly, any shares of our common stock or any securities convertible
into, or exercisable or exchangeable for shares of our common stock owned by
them, for a period of 90 days (30 days for Pioneer USA) after the date of this
prospectus.

Lehman Brothers Inc. may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to the lock-up
restrictions; however, Lehman Brothers Inc. currently has no plans to release
any portion of the securities subject to these lock-up agreements. Additionally,
the lock-up agreements do not place restrictions on the resale of shares
purchased in the public market.

Rule 144. In general, under Rule 144 as currently in effect, a person who
has beneficially owned shares of our common stock for at least one year may sell
in "broker's transactions" or to market makers, within any three-month period, a
number of shares that does not exceed the greater of:

- 1% of the number of shares of our common stock then outstanding; or

- the average weekly trading volume in the common stock during the four
calendar weeks preceding the filing with the SEC of a notice on Form 144
with respect to such sale.

Sales under Rule 144 are generally subject to the availability of current public
information about us.

In addition, a person who has not been an affiliate of Prize at any time
during the 90 days immediately preceding a sale, and who has beneficially owned
the shares for at least two years, would be entitled to sell the shares under
Rule 144(k) without having to comply with the manner of sale, volume limitation,
notice filing and public information provisions of Rule 144. Affiliates of Prize
are subject to the volume limitations and other conditions described above
regardless of the length of time those shares have been held and whether the
shares are restricted.

Registration rights. After this offering, the holders of up to 8,779,357
shares of common stock and the holders of outstanding warrants to purchase
1,687,296 shares of common stock are entitled to certain rights with respect to
the registration of these shares under the Securities Act. The registration of
these shares under the Securities Act would result in these shares becoming
freely tradeable without restrictions under the Securities Act. Any substantial
sales of shares by these stockholders could have an adverse effect on the
trading price of our common stock.

51
<PAGE> 55

UNITED STATES FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of common stock by
a beneficial owner that is a "non-U.S. holder." For purposes of this discussion,
a "non-U.S. holder" is a person or entity that, for U.S. federal income tax
purposes, is a non-resident alien individual, a foreign corporation, a foreign
partnership, or a foreign estate or trust. This discussion is based on the
Internal Revenue Code of 1986, as amended, and administrative interpretations as
of the date of this prospectus, all of which are subject to change, including
changes with retroactive effect. This discussion does not address all aspects of
U.S. federal income and estate taxation that may be relevant to non-U.S. holders
in light of their particular circumstances and does not address any tax
consequences arising under the laws of any state, local or foreign jurisdiction.
Prospective holders should consult their tax advisors with respect to the
particular tax consequences to them of owning and disposing of common stock,
including the consequences under the laws of any state, local or foreign
jurisdiction.

DIVIDENDS

Dividends paid to a non-U.S. holder of common stock generally will be
subject to withholding tax at a 30% rate or a reduced rate specified by an
applicable income tax treaty. For purposes of determining whether tax is to be
withheld at a reduced rate under an income tax treaty, we will presume that
dividends paid on or before December 31, 2000 to an address in a foreign country
are paid to a resident of that country unless we have knowledge that the
presumption is not warranted. In order to obtain a reduced rate of withholding
for dividends paid after December 31, 2000, a non-U.S. holder will be required
to provide us with an Internal Revenue Service Form W-8BEN certifying its
entitlement to benefits under a treaty. In addition, in certain cases where
dividends are paid to a non-U.S. holder that is a partnership or other
pass-through entity, persons holding an interest in the entity may need to
provide us with the required certification.

The withholding tax does not apply to dividends paid to a non-U.S. holder
that provides an Internal Revenue Service Form W-8ECI, certifying that the
dividends are effectively connected with the non-U.S. holder's conduct of a
trade or business within the United States. Instead, the effectively connected
dividends will be subject to regular U.S. income tax as if the non-U.S. holder
were a U.S. resident. A non-U.S. corporation receiving effectively connected
dividends may also be subject to an additional "branch profits tax" imposed at a
rate of 30% (or a lower treaty rate) on an earnings amount that is net of the
regular tax.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to U.S. federal income tax
on gain realized on a sale or other disposition of common stock unless:

- the gain is effectively connected with a trade or business of the
Non-U.S. holder in the United States, or where a treaty applies, is
attributable to a United States permanent establishment of the non-U.S.
holder;

- in the case of certain non-U.S. holders who are non-resident alien
individuals and hold the common stock as a capital asset, the individuals
are present in the United States for 183 or more days in the taxable year
of the disposition and meet other requirements;

- the non-U.S. holder is subject to tax under the provisions of the
Internal Revenue Code regarding the taxation of U.S. expatriates; or

- we are or have been a "United States real property holding corporation"
for U.S. federal income tax purposes and, assuming the common stock
continues to be "regularly traded on an established securities market"
for U.S. federal income tax purposes, the non-U.S. holder held, directly
or indirectly, at any time during the five-year period ending on the date
of disposition or such shorter period the shares were held, more than
five percent of the outstanding common stock.
52
<PAGE> 56

We currently believe that we are a "United States real property holding
corporation" for U.S. federal income tax purposes.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING

We must report to the Internal Revenue Service the amount of dividends paid
to each non-U.S. holder, the name and address of the recipient, and the amount
of any tax withheld. A similar report is sent to the non-U.S. holder. Under tax
treaties or other agreements, the IRS may make its reports available to tax
authorities in the recipient's country of residence. Dividends paid on or before
December 31, 2000 at an address outside the United States are not subject to
backup withholding, unless the payor has knowledge that the payee is a U.S.
person. However, a non-U.S. holder may need to certify its non-U.S. status in
order to avoid backup withholding at a 31% rate on dividends paid after December
31, 2000 or dividends paid on or before that date at an address inside the
United States.

U.S. information reporting and backup withholding generally will not apply
to a payment of proceeds of a disposition of common stock where the transaction
is effected outside the United States through a non-U.S. office of a non-U.S.
broker. However, a non-U.S. holder may need to certify its non-U.S. status in
order to avoid information reporting and backup withholding at a 31% rate on
disposition proceeds where the transaction is effected by or through a U.S.
office of a broker. In addition, U.S. information reporting requirements may
apply to the proceeds of a disposition effected by or through a non-U.S. office
of a U.S. broker, or by a non-U.S. broker with specified connections to the
United States.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. When withholding results in an overpayment of taxes, a refund may be
obtained if the required information is furnished to the IRS.

FEDERAL ESTATE TAX

An individual non-U.S. holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the common stock will be required
to include the value of the stock in the individual's gross estate for U.S.
federal estate tax purposes, and may be subject to U.S. federal estate tax
unless an applicable estate tax treaty provides otherwise.

53
<PAGE> 57

UNDERWRITING

Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, each underwriter named
below, for whom Lehman Brothers Inc., CIBC World Markets Corp. and Petrie
Parkman & Co., Inc. are acting as representatives, has severally agreed to
purchase from the selling stockholders identified in the table under "Principal
and Selling Stockholders" the respective number of shares set forth opposite its
name.

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ----------
<S> <C>
Lehman Brothers Inc. ....................................... 1,350,000
CIBC World Markets Corp. ................................... 810,000
Petrie Parkman & Co., Inc. ................................. 540,000
Banc of America Securities LLC.............................. 50,000
Dain Rauscher Incorporated.................................. 50,000
Legg Mason Wood Walker, Inc. ............................... 50,000
Morgan Keegan & Company, Inc. .............................. 50,000
Robertson Stephens, Inc. ................................... 50,000
The Robinson-Humphrey Company, LLC.......................... 50,000
----------
Total............................................. 3,000,000
----------
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered by this prospectus depend on the satisfaction of the conditions set
forth in the underwriting agreement and that if any of the shares are purchased
by the underwriters pursuant to the underwriting agreement, then all of the
shares of common stock which the underwriters have agreed to purchase pursuant
to the underwriting agreement must be purchased, other than those shares covered
by the over-allotment option described below.

The underwriters propose to offer the shares of common stock in part
directly to the public at the public offering price set forth on the cover page
of this prospectus and in part to certain dealers, who may include the
underwriters, at the same price less a selling concession not in excess of $0.60
per share. The underwriters may allow, and such dealers may re-allow, a
concession not in excess of $0.10 per share. After the offering, the
underwriters may change the public offering price and other selling terms.

The selling stockholders and several other stockholders of Prize (the
"over-allotment stockholders") have granted to the underwriters an option,
exercisable within 30 days after the date of this prospectus, to purchase, from
time to time, in whole or in part, up to an additional 180,000 and 270,000
shares of common stock, respectively, at the public offering price less
underwriting discounts and commissions. The underwriters may exercise this
option solely to cover over-allotments, if any, made in connection with the
offering. To the extent that the underwriters exercise this option, each
underwriter will become obligated, subject to certain conditions, to purchase
its pro rata portion of these additional shares based on the underwriter's
percentage underwriting commitment in the offering as indicated in the preceding
table.

The following table provides the per share and other total underwriting
discounts and commissions to be paid to the underwriters by the selling
stockholders and the over-allotment stockholders and us in connection with this
offering. These amounts are shown assuming both no exercise and full exercise of
the underwriters' over-allotment option. The underwriting fee is the difference
between the initial price to the public and the amount the underwriters pay to
purchase the shares.

<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ 1.068 $ 1.068
Total paid by selling stockholders.......................... $3,204,000 $3,396,240
Total paid by over-allotment stockholders................... $ -- $ 288,360
</TABLE>

54
<PAGE> 58

We, the selling stockholders and the over-allotment stockholders have
agreed to indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments that the
underwriters may be required to make in respect of these liabilities.

We estimate that the total expenses payable by us in connection with the
offering will be approximately $510,000.

We, the selling stockholders, and our directors, executive officers and
certain stockholders have agreed not to, directly or indirectly, sell, offer or
otherwise dispose of any shares of common stock or enter into any derivative
transaction with similar effect as a sale of common stock, for a period of 90
days (30 days for Pioneer USA) after the date of this prospectus without the
prior written consent of Lehman Brothers Inc. The restrictions described in this
paragraph do not apply to:

- the sale of common stock to the underwriters;

- shares of common stock issued by us under employee benefit plans or upon
the exercise of options issued under employee benefit plans; or

- shares of common stock or other securities issued upon the exercise of
currently outstanding options, warrants or rights.

In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. "Covered"
short sales are sales made in an amount not greater than the underwriters'
option to purchase additional shares from the issuer in the offering. The
underwriters may close out any covered short position by either exercising their
option to purchase additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short position, the
underwriters will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which they may
purchase shares through the over-allotment option. "Naked" short sales are any
sales in excess of such option. The underwriters must close out any naked short
position by purchasing shares in the open market. A naked short position is more
likely to be created if the underwriters are concerned that there may be
downward pressure on the price of the common stock in the open market after
pricing that could adversely affect investors who purchase in the offering.
Stabilizing transactions consist of various bids for or purchases of common
stock made by the underwriters in the open market prior to the completion of the
offering.

The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.

Similar to other purchase transactions, the underwriters' purchases to
cover the syndicate short sales may have the effect of raising or maintaining
the market price of the common stock or preventing or retarding a decline in the
market price of the common stock. As a result, the price of the common stock may
be higher than the price that might otherwise exist in the open market. These
transactions may be effected on the American Stock Exchange, on the
over-the-counter market or otherwise and, if commenced, may be discontinued at
any time.

Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus or prospectus supplement in the relevant
province of Canada in which the sale is made.

Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
page of this prospectus.

55
<PAGE> 59

Some of the underwriters or their affiliates have from time to time
provided investment banking, financial advisory, trustee and lending services to
us and our affiliates in the ordinary course of business for which they have
received customary fees, and they may continue to do so.

LEGAL MATTERS

The validity of the shares of common stock to be sold in this offering will
be passed upon for Prize by Conner & Winters, A Professional Corporation, Tulsa,
Oklahoma. Certain legal matters related to this offering will be passed upon for
the underwriters by Andrews & Kurth L.L.P., Houston, Texas.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1999, for the period from inception
(January 15, 1999) to December 31, 1999, and the statements of revenues and
direct operating expenses for the producing properties acquired by Prize from
Pioneer Natural Resources USA, Inc. for the years ended December 31, 1998 and
1997, as set forth in their reports. We have included these financial statements
in this prospectus in reliance on Ernst & Young LLP's reports given on their
authority as experts in accounting and auditing.

The consolidated balance sheets of Vista Energy Resources, Inc. as of
December 31, 1999 and 1998, and the consolidated statements of operations,
stockholders' equity and cash flows for the three years in the period ended
December 31, 1999, and the statements of revenues and direct operating expenses
of the acquisition of IP Petroleum Company, Inc. included in this prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports, and are included in this prospectus in reliance on
their reports given upon their authority as experts in accounting and auditing
in giving such reports.

The consolidated balance sheets of Midland Resources, Inc. as of December
31, 1997 and 1996, and the consolidated statements of operations, stockholders'
equity and cash flows for each of the years then ended, have been included in
this prospectus in reliance on the report of Grant Thornton LLP, independent
public accountants, given upon the authority of that firm as experts in
accounting and auditing.

The estimates of our historical proved oil and natural gas reserves
prepared by us as of December 31, 1999, 80% of the PV-10 value of which has been
audited by Netherland, Sewell & Associates, Inc.

The estimated reserve evaluations and related calculations of Williamson
Petroleum Consultants for Vista Energy Resources, Inc. at December 31, 1999,
included in this prospectus and used in compiling Prize's pro forma estimated
proved reserves at December 31, 1999, have been included in reliance on the
firm's authority as experts in petroleum engineering.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549, or at the SEC's public reference rooms in New
York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our filings with the SEC are
also available to the public from the SEC's web site at http://www.sec.gov. Our
reports, proxy statements and other information filed with the SEC can also be
inspected at the American Stock Exchange, 86 Trinity Place, New York, New York
10006.

We have filed with the SEC a registration statement on Form S-1, including
all amendments and exhibits to the registration statement, under the Securities
Act with respect to the common stock to be sold in this offering. This
prospectus constitutes a part of that registration statement. As allowed by the

56
<PAGE> 60

rules and regulations of the SEC, this prospectus does not contain all the
information you can find in the registration statement and the exhibits to the
registration statement. For further information with respect to us and the
common stock offered in this offering, you should refer to the registration
statement, including its exhibits. Furthermore, the statements contained in this
prospectus concerning any document filed as an exhibit are not necessarily
complete and, in each instance, we refer you to a copy of such document filed as
an exhibit to the registration statement.

57
<PAGE> 61

OIL AND GAS INDUSTRY TERMS

The following list contains abbreviations and definitions of terms commonly
used in the oil and gas industry and this prospectus. Unless otherwise indicated
in this prospectus, natural gas volumes are stated at the legal pressure base of
the state or area in which the reserves are located and at 60 degrees
Fahrenheit.

"Bbl" means one stock tank barrel, or 42 U.S. gallons of oil.

"Bcf" means billion cubic feet of natural gas.

"BOE" means barrels of oil equivalent. BOEs are determined using the ratio
of six Mcf of natural gas to one Bbl of oil.

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

"Development well" means a well drilled within or in close proximity to an
area of known production targeting existing reservoirs.

"Exploitation" means the continuing development of a known producing
formation in a previously discovered field. To make complete or maximize the
ultimate recovery of oil or natural gas from the field by work including
development wells, secondary recovery equipment, or other suitable processes and
technology.

"Exploration" means the search for natural accumulations of oil and natural
gas by any geological, geophysical or other suitable means.

"Exploratory well" means a well drilled either in search of an as yet
undiscovered pool of oil or natural gas, or with the intent to greatly extend
the limits of a pool already partly developed.

"Finding and development costs" means capital costs incurred in the
acquisition, exploration, development and revisions of proved oil and natural
gas reserves divided by proved reserve additions.

"Gross acres or gross wells" means the total acres or wells, as the case
may be, in which we have a working interest.

"Infill drilling" means the drilling of an additional well or wells
provided for by an existing spacing order to more adequately drain a reservoir.

"MBbl" means one thousand barrels of oil or other liquid hydrocarbons.

"MBOE" means thousand barrels of oil equivalent.

"Mcf" means one thousand cubic feet of natural gas.

"Mineral interest" means the property interest that includes the right to
enter to explore for, drill for, produce, store and remove oil and natural gas
from the subject lands, or to lease to another for those purposes.

"MMBbl" means one million barrels of oil.

"MMBOE" means one million barrels of oil equivalent.

"MMBtu" means one million British Thermal Units. A British Thermal Unit
means the quantity of heat required to raise the temperature of one pound of
water by one degree Fahrenheit.

"MMcf" means one million cubic feet of natural gas.

"Net acres or net wells" means gross acres or wells, as the case may be,
multiplied by the percentage working interest owned by us.

"Oil and gas lease" means an instrument which grants to another (the
lessee) the exclusive right to enter to explore for, drill for, produce, store
and remove oil and natural gas on the mineral interest, in consideration for
which the lessor is entitled to certain rents and royalties payable under the
terms of the lease.

58
<PAGE> 62

"Operated and non-operated working interests" means where the working
interests for a property are co-owned, and where more than one party elects to
participate in the development of a lease or unit, there is an operator
designated "for full control of all operations . . . within the limits of the
operating agreement" for the development and production of the wells on the
co-owned interests. The working interests of the operating party become the
"operated working interests" and those co-owners not designated as operator hold
the "non-operated working interests."

"Proved developed reserves" means reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery are 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 reserves" means those estimated quantities of crude oil, natural
gas and natural gas liquids that geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known oil and
gas reservoirs under existing economic and operating conditions. Proved reserves
are limited to those quantities of oil, gas and natural gas liquids that can be
expected to be recoverable commercially at current prices and costs, under
existing regulatory practices and with existing conventional equipment and
operating methods.

"Proved undeveloped reserves" means 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 completion. Reserves on undrilled
acreage are 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.
Estimates for proved undeveloped reserves do not include proved reserves
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.

"PV-10" or "PV-10 value" means the present value of estimated future
revenues to be generated from the production of proved reserves, net of
estimated production and future development costs, using prices and costs as of
the effective date of estimation without future escalation, without giving
effect to non-property related expenses such as general and administrative
expenses, debt service, future income tax expense and depreciation, depletion
and amortization, and discounted using an annual discount rate of 10%.

"Recompletion" means the completion for production of an existing well bore
in another formation from that in which the well has been previously completed.

59
<PAGE> 63

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Consolidated Condensed Financial
Statements of Prize Energy Corp.:
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the year ended December 31, 1999........ F-3
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the six months ended June 30, 2000...... F-4
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the six months ended June 30, 1999...... F-5
Notes to Unaudited Pro Forma Consolidated Condensed
Financial Statements................................... F-6
Prize Energy Corp. and Subsidiaries (Historical):
Report of Independent Auditors............................ F-10
Consolidated Balance Sheets as of June 30, 2000
(unaudited) and December 31, 1999...................... F-11
Consolidated Statements of Operations for the six months
ended June 30, 2000 (unaudited), the period January 15,
1999 (Inception) through June 30, 1999 (unaudited) and
the period beginning January 15, 1999 (Inception)
through December 31, 1999.............................. F-12
Consolidated Statements of Stockholders' Equity for the
six months ended June 30, 2000 (unaudited) and the
period beginning January 15, 1999 (Inception) through
December 31, 1999...................................... F-13
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 (unaudited), the period January 15,
1999 (Inception) through June 30 ,1999 (unaudited) and
the period beginning January 15, 1999 (Inception)
through December 31, 1999.............................. F-14
Notes to the Consolidated Financial Statements............ F-15
Producing Properties Acquired by Prize Energy Corp. from
Pioneer Natural Resources USA, Inc.:
Report of Independent Auditors............................ F-28
Statements of Revenues and Direct Operating Expenses for
the six months ended June 30, 1999 (unaudited) and the
years ended December 31, 1998 and 1997................. F-29
Notes to Statements of Revenues and Direct Operating
Expenses............................................... F-30
Old Prize (Pro Forma):
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the year ended December 31, 1999........ F-34
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the six months ended June 30, 1999...... F-35
Notes to Unaudited Pro Forma Consolidated Condensed
Financial Statements................................... F-36
Vista Energy Resources, Inc. and Subsidiaries (Historical):
Report of Independent Public Accountants.................. F-37
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... F-38
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997....................... F-39
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997... F-40
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997....................... F-41
Notes to Consolidated Financial Statements................ F-42
Report of Independent Public Accountants regarding the
I.P. Acquisition....................................... F-58
Statement of Revenues and Direct Operating Expense of the
I.P. Acquisition for the nine months ended September
30, 1998 and the years ended December 31, 1997 and
1996................................................... F-59
Notes to Statements of Revenues and Direct Operating
Expense of the I.P. Acquisition........................ F-60
Report of Independent Certified Public Accountants
regarding Midland Resources, Inc. ..................... F-63
Consolidated Balance Sheets of Midland Resources, Inc. as
of September 30, 1998 (unaudited) and December 31, 1997
and 1996............................................... F-64
Consolidated Statements of Operations of Midland
Resources, Inc. for the nine months ended September 30,
1998 and 1997 (unaudited) and the years ended December
31, 1997 and 1996...................................... F-65
Consolidated Statements of Stockholders' Equity of Midland
Resources, Inc. for the nine months ended September 30,
1998 (unaudited) and the years ended December 31, 1997
and 1996............................................... F-66
Consolidated Statements Cash Flows of Midland Resources,
Inc. for the nine months ended September 30, 1998 and
1997 (unaudited) and the years ended December 31, 1997
and 1996............................................... F-67
Notes to Consolidated Financial Statements of Midland
Resources, Inc. ....................................... F-68
</TABLE>

F-1
<PAGE> 64

PRIZE ENERGY CORP.

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

On February 8, 2000, Prize Natural Resources, Inc., formerly known as Prize
Energy Corp. (Old Prize) merged with Vista Energy Resources, Inc. (Vista) to
form Prize Energy Corp. (Prize).

The accompanying Unaudited Pro Forma Consolidated Condensed Statements of
Operations have been prepared by recording pro forma adjustments to the
Unaudited Pro Forma Consolidated Condensed Statements of Operations of Old Prize
(included elsewhere in this prospectus), the Unaudited Consolidated Condensed
Statement of Operations of Prize for the six months ended June 30, 2000, the
Unaudited Consolidated Statements of Operations of Vista for the period from
January 1, 2000 through February 8, 2000 and for the six months ended June 30,
1999 and the Audited Consolidated Statement of Operations of Vista for 1999. The
Unaudited Pro Forma Consolidated Condensed Statements of Operations have been
prepared assuming the merger of Prize and Vista occurred on January 1, 1999.

The Unaudited Pro Forma Consolidated Condensed Statements of Operations are
not necessarily indicative of the results of operations that would have occurred
had the merger been effected on the assumed date. Additionally, future results
may vary significantly from the results reflected in the Unaudited Pro Forma
Consolidated Condensed Statements of Operations due to normal production
declines, changes in prices, future transactions, and other factors. These
statements should be read in conjunction with the (i) Audited Consolidated
Financial Statements of Prize (Old Prize) for the period ended December 31,
1999, (ii) the Audited Consolidated Financial Statements of Vista for the year
ended December 31, 1999, (iii) the Unaudited Pro Forma Condensed Financial
Statements of Old Prize, and (iv) the Unaudited Consolidated Condensed Financial
Statements of Prize (including Old Prize).

F-2
<PAGE> 65

PRIZE ENERGY CORP.

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRIZE
VISTA OLD PRIZE ADJUSTMENTS PRO FORMA
---------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales........................ $ 18,755 $82,503 $ -- $ 101,258
Costs and expenses:
Lease operating expenses................. 6,676 27,994 -- 34,670
Exploration costs........................ 53 -- -- 53
Depreciation, depletion and
amortization.......................... 4,777 17,638 3,333(a) 25,748
General and administrative............... 2,765 6,081 --(b) 8,846
---------- ------- ------- -----------
Total costs and expenses......... 14,271 51,713 3,333 69,317
---------- ------- ------- -----------
Operating income (loss).................... 4,484 30,790 (3,333) 31,941
Other:
Interest expense, net.................... 4,132 11,054 -- 15,186
(Gain) loss on sale of assets............ (146) -- -- (146)
Other.................................... (62) (180) -- (242)
---------- ------- ------- -----------
Total other...................... 3,924 10,874 -- 14,798
---------- ------- ------- -----------
Income before income taxes................. 560 19,916 (3,333) 17,143
Provision for income taxes................. 653 7,363 (1,678)(c) 6,338
---------- ------- ------- -----------
Net income (loss).......................... (93) 12,553 (1,655) 10,805
Less preferred dividends................... -- (1,841) -- (1,841)
---------- ------- ------- -----------
Income available to common stockholders.... $ (93) $10,712 $(1,655) $ 8,964
========== ======= ======= ===========
Earnings per share:
Basic.................................... $ (0.04) $ .84
Diluted.................................. $ (0.04) $ .74
Weighted-average common shares
outstanding -- basic..................... 2,332,298 10,629,520
Weighted-average common shares
outstanding -- diluted................... 2,332,298 14,701,014
</TABLE>

See accompanying notes.

F-3
<PAGE> 66

PRIZE ENERGY CORP.

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000

<TABLE>
<CAPTION>
VISTA
JANUARY 1,
PRIZE 2000
SIX MONTHS THROUGH
ENDED FEBRUARY 8, PRO FORMA PRIZE
JUNE 30, 2000 2000 ADJUSTMENTS PRO FORMA
------------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales......................... $ 66,318 $1,641 $ -- $ 67,959
Costs and expenses:
Lease operating expenses.................. 22,155 934 -- 23,089
Depreciation, depletion and
amortization........................... 12,260 644 (8)(a) 12,896
General and administrative................ 3,968 296 --(b) 4,264
----------- ------ ----- -----------
Total costs and expenses.......... 38,383 1,874 (8) 40,249
----------- ------ ----- -----------
Operating income (loss)..................... 27,935 (233) 8 27,710
Other:
Interest expense, net..................... 7,960 359 -- 8,319
Other..................................... (251) (10) -- (261)
----------- ------ ----- -----------
Total other....................... 7,709 349 -- 8,058
----------- ------ ----- -----------
Income before income taxes.................. 20,226 (582) 8 19,652
Provision for income taxes.................. 7,484 -- (219)(c) 7,265
----------- ------ ----- -----------
Net income (loss)........................... 12,742 (582) 227 12,387
Less preferred dividends.................... (459) -- -- (459)
----------- ------ ----- -----------
Income available to common stockholders..... $ 12,283 $ (582) $ 227 $ 11,928
=========== ====== ===== ===========
Earnings per share:
Basic..................................... $ 1.07 $ 0.99
Diluted................................... $ 0.89 $ 0.83
Weighted-average common shares
outstanding -- basic...................... 11,448,049 12,067,003
Weighted-average common shares
outstanding -- diluted.................... 14,245,822 14,982,661
</TABLE>

See accompanying notes.

F-4
<PAGE> 67

PRIZE ENERGY CORP.

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRIZE
VISTA OLD PRIZE ADJUSTMENTS PRO FORMA
----------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales....................... $ 8,485 $34,525 $ -- $ 43,010
Costs and expenses:
Lease operating expenses................ 2,860 11,387 -- 14,247
Exploration costs....................... 39 -- -- 39
Depreciation, depletion and
amortization......................... 2,212 8,717 1,841(a) 12,771
General and administrative.............. 968 3,267 --(b) 4,235
----------- ------- ------- -----------
Total costs and expenses........ 6,079 23,371 1,841 31,292
----------- ------- ------- -----------
Operating income (loss)................... 2,406 11,154 (1,841) 11,718
Other:
Interest expense, net................... 2,030 4,882 -- 6,912
(Gain) loss on sale of assets........... (70) -- -- (70)
Other................................... (12) -- -- (12)
----------- ------- ------- -----------
Total other..................... 1,948 4,882 -- 6,830
----------- ------- ------- -----------
Income before income taxes................ 458 6,272 (1,841) 4,888
Provision for income taxes................ 160 2,319 (671)(c) 1,807
----------- ------- ------- -----------
Net income (loss)......................... 298 3,953 (1,170) 3,081
Less preferred dividends.................. -- (907) -- (907)
----------- ------- ------- -----------
Income available to common stockholders... $ 298 $ 3,046 $(1,170) $ 2,174
=========== ======= ======= ===========
Earnings per share:
Basic................................... $ 0.02 $ 0.20
Diluted................................. $ 0.02 $ 0.20
Weighted-average common shares
outstanding -- basic.................... 16,312,336 10,629,520
Weighted-average common shares
outstanding -- diluted.................. 16,312,336 10,629,520
</TABLE>

See accompanying notes.

F-5
<PAGE> 68

PRIZE ENERGY CORP.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

The unaudited pro forma consolidated condensed statements of operations
have been prepared to give effect to the merger of Prize Natural Resources,
formerly known as Prize Energy Corp. (Old Prize), and Vista Energy Resources,
Inc. (Vista) on February 8, 2000, to form an entity called Prize Energy Corp.
(Prize). Under the terms of the merger, Vista was the legal survivor. However,
because Old Prize's stockholders controlled a majority of the voting shares of
Prize, Old Prize was treated as the acquiror for accounting purposes. Concurrent
with the merger, Vista effected a one-for-seven reverse common stock split. The
unaudited pro forma consolidated condensed statements of operations are
presented as if the combination had occurred on January 1, 1999.

The following is a description of the individual columns included in these
unaudited pro forma financial statements.

Vista -- Represents the consolidated statements of operations of Vista for
the period January 1, 2000 through February 8, 2000, the six months ended June
30, 1999, and the year ended December 31, 1999.

Pro Forma Old Prize -- Represents the Old Prize unaudited pro forma
consolidated statements of operations for the six months ended June 30, 1999 and
the year ended December 31, 1999 as if the acquisition of oil and gas properties
from Pioneer Natural Resources USA, Inc. (Pioneer), the subsequent sale of
certain mineral interests, which were included in the purchase from Pioneer, and
the Sunterra Petroleum LLC purchase had occurred on January 1, 1999.

Prize -- Represents the unaudited consolidated statements of operations of
Prize for the six months ended June 30, 2000.

(2) PRO FORMA ADJUSTMENTS

(a) To record the change in depletion, depreciation, and amortization based
on the new basis in oil and gas properties resulting from the merger.

(b) Although management expects to achieve some efficiencies in
consolidation of the general and administrative functions, no efficiencies have
been included in the pro forma adjustments.

In addition, Prize also incurred some non-recurring costs as a result of
the transaction that will not have a continuing impact, and accordingly are
excluded from the pro forma statements of operations. Prize incurred $325,000 in
severance costs related to other employees of Vista. Prize may also incur
additional merger integration costs which have not yet been identified or
estimated. Further, Prize is committed to indemnify the Vista officers and
directors and, has purchased officers' and directors' insurance for the officers
and directors of Vista. The cost of the insurance was $20,000. Because the
severance costs and the directors' and officers' insurance are not expected to
have a continuing impact, no adjustments have been included in the pro forma
statements of operations for these costs.

F-6
<PAGE> 69
PRIZE ENERGY CORP.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

(3) EARNINGS PER SHARE

The following table reconciles the historical shares outstanding to the pro
forma shares outstanding on December 31, 1999:

<TABLE>
<S> <C>
Outstanding common shares of Vista on December 31, 1999..... 16,367,330
Adjusted for the one-for-seven reverse stock split.......... 2,338,190
Common shares issued to Old Prize........................... 8,291,330
----------
Pro forma Prize common shares outstanding as of December 31,
1999...................................................... 10,629,520
==========
</TABLE>

For the purpose of calculating pro forma earnings per share, Vista's
historical weighted-average shares outstanding were adjusted for the
one-for-seven reverse stock split, and the common and preferred shares issued to
Old Prize stockholders were assumed to have been outstanding since January 1,
1999. For the six months ended June 30, 2000 and the year ended December 31,
1999, the convertible preferred stock is dilutive and is included in the diluted
earnings per share calculation. However, for the six months ended June 30, 1999,
the convertible preferred stock is antidilutive. Because, prior to the merger,
the warrants and employee stock options had exercise prices above the market
price, they have been excluded from the pro forma earnings per share
calculations as antidilutive for the six months ended June 30, 1999 and the year
ended December 31, 1999.

The following table reconciles pro forma basic and diluted earnings per
share for the six months ended June 30, 2000, and the year ended December 31,
1999:

<TABLE>
<CAPTION>
JUNE 30, 2000
------------------------------------------
WEIGHTED-AVERAGE PER SHARE
INCOME SHARES AMOUNT
----------- ---------------- ---------
<S> <C> <C> <C>
Pro forma basic earnings per share:
Income available to common stockholders..... $11,928,000 12,067,003 $0.99
Effect of dilutive securities:
Employee stock options...................... -- 805,571
Warrants.................................... -- 104
Convertible preferred shares................ 459,000 2,109,983
----------- ----------
Pro forma diluted earnings per share.......... $12,387,000 14,982,661 $0.83
=========== ==========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------
WEIGHTED-AVERAGE PER SHARE
INCOME SHARES AMOUNT
----------- ---------------- ---------
<S> <C> <C> <C>
Pro forma basic earnings per share:
Income available to common stockholders..... $ 8,964,000 10,629,520 $0.84
Effect of dilutive securities:
Convertible preferred shares................ 1,841,000 4,071,494
----------- ----------
Pro forma diluted earnings per share.......... $10,805,000 14,701,014 $0.74
=========== ==========
</TABLE>

F-7
<PAGE> 70
PRIZE ENERGY CORP.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

(4) SUPPLEMENTAL OIL AND GAS RESERVE AND STANDARDIZED MEASURE INFORMATION

The following table presents the pro forma estimate of the proved oil and
gas reserves as of December 31, 1999 for Old Prize and Vista combined.

ESTIMATED QUANTITIES OF PROVED RESERVES

<TABLE>
<CAPTION>
OLD PRIZE VISTA PRIZE
OIL & NGLS OIL & NGLS OIL & NGLS
(MBBL) (MBBL) (MBBL)
---------- ---------- ----------
<S> <C> <C> <C>
Proved reserves................................... 35,315 14,311 49,626
Proved developed reserves......................... 28,579 9,427 38,006
Proved undeveloped reserves....................... 6,736 4,884 11,620

<CAPTION>
OLD PRIZE VISTA PRIZE
GAS GAS GAS
(MMCF) (MMCF) (MMCF)
---------- ---------- ----------
<S> <C> <C> <C>
Proved reserves................................... 241,975 36,904 278,879
Proved developed reserves......................... 188,487 24,325 212,812
Proved undeveloped reserves....................... 53,488 12,579 66,067

<CAPTION>
OLD PRIZE VISTA PRIZE
MBOE MBOE MBOE
---------- ---------- ----------
<S> <C> <C> <C>
Proved reserves................................... 75,644 20,462 96,106
Proved developed reserves......................... 59,993 13,481 73,474
Proved undeveloped reserves....................... 15,651 6,981 22,632
</TABLE>

Estimated quantities of proved net reserves include only those quantities
that can be expected to be commercially recoverable at prices and costs in
effect at the effective date of the acquisition, under existing regulatory
practices and with conventional equipment and operating methods. Proved
developed reserves represent only those reserves expected to be recovered
through existing wells with existing equipment and operating methods. Proved
undeveloped reserves include those reserves expected to be recovered from new
wells on undrilled acreage or from existing wells on which a relatively major
expenditure is required for recompletion.

Oil and gas reserve quantity estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved reserves and in
the projection of future rates of production and the timing of development
expenditures. The accuracy of such estimates is a function of the quality of the
available data and of engineering and geological interpretation and judgment.
Results of subsequent drilling, testing and production may cause either upward
or downward revisions of previous estimates. Further, the volumes considered to
be commercially recoverable fluctuate with changes in prices and operating
costs. Reserve estimates are inherently imprecise and estimates of new
discoveries are more imprecise than those of currently producing oil and gas
properties. Accordingly, these estimates are expected to change as additional
information becomes available in the future.

The following is a summary of the pro forma standardized measure of
discounted future net cash flows for Old Prize and Vista combined related to the
proved oil and gas reserves. For these calculations, estimated future cash flows
from estimated future production or proved reserves were computed using oil and
gas prices as of December 31, 1999. Future development and production costs
attributable to the proved reserves were estimated assuming that existing
conditions would continue over the economic life of the properties, and costs
were not escalated for the future. The information presented below should not be

F-8
<PAGE> 71
PRIZE ENERGY CORP.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

viewed as an estimate of the fair value of the acquired interests, nor should it
be considered indicative of any future trends.

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS

<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
OLD PRIZE VISTA PRIZE
---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash inflows............................... $1,276,946 $433,726 $1,710,672
Future production and development costs........... (495,210) (163,317) (658,527)
Future income tax expense......................... (191,253) (55,437) (246,690)
---------- -------- ----------
590,483 214,972 805,455
Discount of future net cash flows at 10% per
annum........................................... (267,059) (77,845) (344,904)
---------- -------- ----------
Standardized measure of discounted future net cash
flows........................................... $ 323,424 $137,127 $ 460,551
========== ======== ==========
</TABLE>

The weighted average prices of oil and gas at December 31, 1999 used in the
calculation of the standardized measure were $25.60 per barrel for oil and $2.30
per Mcf for gas, respectively.

F-9
<PAGE> 72

REPORT OF INDEPENDENT AUDITORS

The Board of Directors of
Prize Energy Corp.:

We have audited the accompanying consolidated balance sheet of Prize Energy
Corp. and subsidiaries as of December 31, 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for the period
from inception (January 15, 1999) to December 31, 1999. 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 audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Prize Energy
Corp. and subsidiaries at December 31, 1999, and the consolidated results of its
operations and its cash flows for the period from inception (January 15, 1999)
to December 31, 1999, in conformity with accounting principles generally
accepted in the United States.

ERNST & YOUNG LLP

Fort Worth, Texas
February 11, 2000

F-10
<PAGE> 73

PRIZE ENERGY CORP.

CONSOLIDATED BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 9,886,804 $ 3,353,060
Accounts receivable -- oil and gas........................ 30,656,715 18,487,491
Accounts receivable -- trade, net of allowance for
doubtful accounts of $300,000 and $100,000............. 4,598,478 2,173,098
Other..................................................... 4,339,728 633,471
------------ ------------
Total current assets.............................. 49,481,725 24,647,120
Properties and equipment, at cost:
Oil and gas properties.................................... 352,113,650 219,226,854
Other..................................................... 1,976,066 984,683
------------ ------------
354,089,716 220,211,537
Less accumulated depreciation and depletion............... (20,974,777) (8,714,423)
------------ ------------
333,114,939 211,497,114
Other assets................................................ 2,694,966 2,465,894
------------ ------------
Total assets...................................... $385,291,630 $238,610,128
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable.......................................... $ 18,726,892 $ 10,799,312
Accrued federal income tax................................ 6,539,138 4,898,183
Accrued production taxes.................................. 4,197,414 1,832,009
Accrued hedge liability................................... 3,140,309 --
Accrued interest.......................................... 1,532,961 2,202,965
Other accrued liabilities................................. 6,316,877 3,267,443
------------ ------------
Total current liabilities......................... 40,453,591 22,999,912
Long-term debt.............................................. 211,418,736 127,000,000
Deferred income taxes....................................... 24,716,316 158,361
Commitments and contingencies
Stockholders' equity:
Convertible voting preferred stock: authorized
shares -- 10,000,000 and 16,651,870, issued and
outstanding -- 0 and 3,958,879......................... -- 30,906,750
Common stock, $.01 par value: authorized
shares -- 50,000,000 and 33,303,740, issued and
outstanding -- 14,614,587 and 8,291,301................ 146,146 82,913
Additional paid-in capital................................ 105,838,539 49,259,991
Retained earnings......................................... 20,485,890 8,202,201
Treasury stock -- 1,300,482 shares at June 30, 2000....... (17,767,588) --
------------ ------------
Total stockholders' equity........................ 108,702,987 88,451,855
------------ ------------
Total liabilities and stockholders' equity........ $385,291,630 $238,610,128
============ ============
</TABLE>

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

F-11
<PAGE> 74

PRIZE ENERGY CORP.

CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
JANUARY 15, 1999
(INCEPTION) JANUARY 15, 1999
SIX MONTHS ENDED THROUGH (INCEPTION)
JUNE 30, 2000 JUNE 30, 1999 THROUGH
(UNAUDITED) (UNAUDITED) DECEMBER 31, 1999
---------------- ---------------- -----------------
<S> <C> <C> <C>
Oil and gas sales............................. $66,318,249 $ -- $47,978,010
Costs and expenses:
Lease operating expenses.................... 15,504,093 -- 11,791,188
Production taxes............................ 6,651,190 -- 4,816,126
Depreciation, depletion and amortization.... 12,260,354 -- 8,714,423
General and administrative.................. 3,968,168 16,812 2,830,714
----------- ---------- -----------
Total costs and expenses............ 38,383,805 16,812 28,152,451
----------- ---------- -----------
Operating income (loss)....................... 27,934,444 (16,812) 19,825,559
Other:
Interest (income) expense................ 7,959,696 (102,006) 6,069,642
Other (income)........................... (250,971) (88,347) (267,650)
----------- ---------- -----------
Total other expense (income)........ 7,708,725 (190,353) 5,801,992
----------- ---------- -----------
Income before income taxes.................... 20,225,719 173,541 14,023,567
Provision for income taxes.................... (7,483,516) (64,158) (4,914,616)
----------- ---------- -----------
Net income.................................. 12,742,203 109,383 9,108,951
Preferred dividend............................ (458,514) -- (906,750)
----------- ---------- -----------
Income available to common stockholders..... $12,283,689 $ 109,383 $ 8,202,201
=========== ========== ===========
Earnings per share:
Basic....................................... $ 1.07 $ 0.02 $ 1.20
Diluted..................................... $ 0.89 $ 0.02 $ 1.03
Weighted-average common shares outstanding --
basic....................................... 11,448,049 5,238,678 6,820,606
Weighted-average common shares outstanding --
diluted..................................... 14,245,822 5,286,969 8,878,777
</TABLE>

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

F-12
<PAGE> 75

PRIZE ENERGY CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE VOTING PREFERRED
JANUARY 15, 1999 (INCEPTION) STOCK COMMON STOCK NOTE ADDITIONAL
THROUGH JUNE 30, 1999 ----------------------------- --------------------- RECEIVABLE PAID-IN RETAINED
(UNAUDITED) SHARES AMOUNT SHARES AMOUNT OFFICER CAPITAL EARNINGS
---------------------------- ------------ -------------- ---------- -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock..... -- $ -- 8,291,301 $ 82,913 $(250,000) $ 49,259,991 $ --
Issuance of preferred
stock...................... 3,843,252 30,000,000 -- -- -- -- --
Preferred dividends.......... 115,627 906,750 -- -- -- -- (906,750)
Repayment of note
receivable................. -- -- -- -- 250,000 -- --
Net income................... -- -- -- -- -- -- 9,108,951
---------- ------------ ---------- -------- --------- ------------ -----------
Balance as of December 31,
1999....................... 3,958,879 $ 30,906,750 8,291,301 $ 82,913 $ -- $ 49,259,991 $ 8,202,201
========== ============ ========== ======== ========= ============ ===========
Six Months Ended June 30,
2000 (unaudited)
Issuance of stock in
acquisition................ -- $ -- 2,339,089 $ 23,391 $ -- $ 25,177,503 $ --
Preferred dividend........... 25,318 197,656 -- -- -- -- (458,514)
Preferred conversion......... (3,984,197) (31,104,406) 3,984,197 39,842 -- 31,064,564 --
Purchase of treasury
shares..................... -- -- -- -- -- -- --
Warrant exercises............ -- -- -- -- -- 330,196 --
Option exercises............. -- -- -- -- -- 6,285 --
Net income................... -- -- -- -- -- -- 12,742,203
---------- ------------ ---------- -------- --------- ------------ -----------
Balance as of June 30,
2000....................... -- $ -- 14,614,587 $146,146 $ -- $105,838,539 $20,485,890
========== ============ ========== ======== ========= ============ ===========

JANUARY 15, 1999 (INCEPTION) TREASURY STOCK
THROUGH JUNE 30, 1999 -------------------------
(UNAUDITED) SHARES AMOUNT TOTAL
---------------------------- ---------- ------------ ------------
<S> <C> <C> <C>
Issuance of common stock..... -- $ -- $ 49,092,904
Issuance of preferred
stock...................... -- -- 30,000,000
Preferred dividends.......... -- -- --
Repayment of note
receivable................. -- -- 250,000
Net income................... -- -- 9,108,951
---------- ------------ ------------
Balance as of December 31,
1999....................... -- $ -- $ 88,451,855
========== ============ ============
Six Months Ended June 30,
2000 (unaudited)
Issuance of stock in
acquisition................ (900) $ (21,798) $ 25,179,096
Preferred dividend........... -- -- (260,858)
Preferred conversion......... -- -- --
Purchase of treasury
shares..................... (1,349,582) (18,428,906) (18,428,906)
Warrant exercises............ 45,000 614,804 945,000
Option exercises............. 5,000 68,312 74,597
Net income................... -- -- 12,742,203
---------- ------------ ------------
Balance as of June 30,
2000....................... (1,300,482) $(17,767,588) $108,702,987
========== ============ ============
</TABLE>

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

F-13
<PAGE> 76

PRIZE ENERGY CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
JANUARY 15, 1999 JANUARY 15, 1999
SIX MONTHS ENDED (INCEPTION) THROUGH (INCEPTION) THROUGH
JUNE 30, 2000 JUNE 30, 1999 DECEMBER 31, 1999
---------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net income................................ $ 12,742,203 $ 109,383 $ 9,108,951
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation, depletion and
amortization......................... 12,260,354 -- 8,714,423
Amortization of loan origination fees... 212,441 -- 173,886
Deferred income taxes................... -- -- 158,361
Other................................... -- (88,347) (88,347)
Changes in operating assets and
liabilities:
Accounts receivable.................. (8,697,368) -- (19,957,148)
Other current assets................. (3,435,142) -- (633,471)
Other long term assets............... -- (1,878,912) 38,816
Accounts payable and accrued
liabilities........................ 5,070,576 2,432,819 22,282,079
------------ ------------- -------------
Cash provided by operating activities..... 18,153,064 574,943 19,797,550
Investing activities:
Acquisition of net assets............... (21,679,556) (210,649,586) (216,963,931)
Proceeds from sale of mineral
interest............................. -- -- 32,000,000
------------ ------------- -------------
Cash used by investing activities......... (21,679,556) (210,649,586) (184,963,931)
Financing activities:
Proceeds from issuance of common
stock................................ -- 45,464,078 45,464,078
Repayment of notes receivable from
stockholder.......................... -- -- 250,000
Borrowings under credit facilities...... 28,750,000 167,500,000 171,000,000
Repayment of credit facilities.......... -- -- (45,607,791)
Loan origination fees................... -- (1,665,000) (2,586,846)
Purchase of treasury stock.............. (18,428,906) -- --
Preferred dividend...................... (260,858) -- --
------------ ------------- -------------
Cash provided by financing activities..... 10,060,236 211,299,078 168,519,441
Increase in cash and cash equivalents..... 6,533,744 1,224,435 3,353,060
Cash and cash equivalents, beginning of
period.................................. 3,353,060 -- --
------------ ------------- -------------
Cash and cash equivalents, end of
period.................................. $ 9,886,804 $ 1,224,435 $ 3,353,060
============ ============= =============
Supplemental disclosure of cash flow
information:
Cash paid during the period for income
taxes................................ $ 5,806,814 $ -- $ 34,000
Cash paid during the period for
interest............................. 7,192,003 -- 3,692,791
Supplemental disclosure of non-cash
transactions:
Convertible preferred stock issued as
consideration in acquisition......... $ -- $ 30,000,000 $ 30,000,000
Preferred dividends issued in kind...... 197,656 -- 906,750
Issuance of common stock to officer for
note receivable...................... -- 250,000 250,000
Purchase of LLC:
Exchange of gas plant................ -- -- 2,000,000
Debt assumed......................... -- -- 1,607,791
Issuance of common stock............. -- 3,517,932 3,628,826
</TABLE>

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

F-14
<PAGE> 77

PRIZE ENERGY CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

Business and Organization

Prize Energy Corporation (the Company) was formed on January 15, 1999
(inception) and is a Delaware corporation engaged in the development and
production of proved oil and gas properties. The Company's corporate
headquarters is located in Grapevine, Texas with oil and gas producing
properties primarily located in Texas, Louisiana, and Oklahoma.

The Company was initially formed through the contribution of cash and a
minority investment in a limited liability company for the purpose of acquiring
oil and gas properties. Pursuant to the terms of a Purchase and Sale Agreement
(Purchase Agreement) dated May 16, 1999, on June 29, 1999 the Company completed
the acquisition of interests in certain oil and gas producing properties,
primarily located in Texas, Louisiana, and Oklahoma from affiliates of Pioneer
Natural Resources USA, Inc. (Pioneer) for a total purchase price of $242
million, including transaction costs, paid in cash and 6% convertible voting
preferred stock.

Subsequent to the purchase from Pioneer and effective July 1, 1999, Prize
sold a group of mineral interests for $32 million, which were acquired with the
oil and gas properties purchased from Pioneer. The properties were located
outside Prize's principal operating areas of Texas, Louisiana, Oklahoma and New
Mexico. Accordingly, the properties were assigned a value of $32 million when
purchased, and no gain or loss was recognized on disposal.

At inception, certain stockholders contributed a minority investment in a
limited liability company, Sunterra Petroleum LLC (Sunterra). Subsequently, the
Company purchased the remaining interest in Sunterra in exchange for $750,000
cash, a gas plant and the assumption of Sunterra's debt. The total consideration
paid for Sunterra during the year was $6,378,826, plus the assumed debt of
$1,607,791.

On February 8, 2000, the Company merged with Vista Resources, Inc.
("Vista"), an independent oil and gas development and production company. Though
the Company's stockholders exchanged their shares for new shares of Vista, the
stockholders of the Company acquired an 84% controlling interest in the merged
company, and the Company is treated as having acquired Vista. The transaction
was accounted for as a purchase of Vista by the Company in accordance with the
provisions of Accounting Principles Board Opinion No. 16.

Under the terms if the merger, Prize stockholders effectively exchanged 16%
of their interest in Prize for an 84% interest in Vista. Prior to the merger,
Prize was a private company with no readily determinable market value. Thus, in
order to determine the purchase price paid by Prize, Prize management estimated
the fair value of the 16% interest of Prize exchanged for the 84% interest in
Vista based on the estimated fair value of Prize's oil and gas assets, its debt
and other assets and liabilities as of February 8, 2000. The preliminary
purchase price is $87.4 million, including liabilities assumed of $62.2 million.
The purchase price was assigned to the assets of Vista based on their fair
value, resulting in current and other assets of $5.0 million, oil and gas
properties of $112.2 million, current liabilities of $13.5 million, debt of
$53.7 million, and deferred taxes of $24.8 million. Additionally, $1.3 million
of accrued interest and bank fees were rolled into the debt principal as
described below in "Note 3. Credit Facilities".

Purchase price adjustments include the recognition of severance for the
executive officers of Vista, derecognition of Vista's deferred financing costs,
the accrual of Vista's hedge position at its fair value and adjustments to the
basis of oil and gas properties as well as the related deferred taxes as a
result of the merger. The increase to deferred taxes was principally due to the
increase in the carrying value of Vista's oil and gas properties as a result of
the purchase compared to the tax basis which is not increased as a result of the
purchase. There are no identifiable intangible assets related to the purchase.
Accordingly, all of the purchase price has been allocated to the tangible assets
and liabilities.

F-15
<PAGE> 78
PRIZE ENERGY CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As a result of the merger, which included a one-for-seven reverse stock
split, all share and option amounts and earnings per share as of and for the
period ended December 31, 1999 and June 30, 1999 have been restated to reflect
the equivalent number of new shares resulting from the merger based on the
conversion ratio of the merger.

Basis of Presentation -- June 30, 2000 and 1999 Consolidated Financial
Statements

In management's opinion, the accompanying consolidated financial statements
contain all adjustments necessary to present fairly the financial position as of
June 30, 2000 and the related results of operations and cash flows for the six
months ended June 30, 2000 and 1999 of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated in preparation of the consolidated financial statements.

Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted for the period ended June 30, 2000 and
1999, pursuant to the rules and regulations of the Securities and Exchange
Commission. Information as of June 30, 2000 or for the six months ended June 30,
2000 and 1999 is unaudited.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

Cash Equivalents

Cash and cash equivalents include cash in banks and money market accounts
as well as highly liquid investments with initial maturities of less than three
months.

Use of Estimates

Oil and Gas Properties

The Company follows the successful efforts method of accounting for its oil
and gas properties whereby costs of productive wells, developmental dry holes
and productive leases are capitalized and amortized on a unit-of-production
basis over the respective properties' remaining proved reserves. Depreciation,
depletion and amortization of capitalized costs of oil and gas properties are
provided on a common area basis.

Leasehold costs are capitalized when incurred. Though no significant
unproved acreage has been acquired to date, unproved oil and gas properties with
significant acquisition costs will be periodically assessed and any impairment
in value charged to expense. The costs of unproved properties, which are not
individually significant, will be assessed periodically in the aggregate based
on historical experience, and any impairment in value will be charged to
expense. The costs of unproved properties that are determined to be productive
will be transferred to proved oil and gas properties.

Exploration costs, such as geological and geophysical expenses and annual
delay rentals, will be charged to expense as incurred. Exploratory drilling
costs, if any, including the costs of stratigraphic test

F-16
<PAGE> 79
PRIZE ENERGY CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

wells, will be initially capitalized but charged to expense if and when the well
is determined to be unsuccessful.

The acquisition costs of proved properties are depleted by the
unit-of-production method based on estimated proved oil and gas reserves.
Capitalized exploratory drilling costs which result in the discovery of proved
reserves and development costs are amortized by the unit-of production method
based on estimated proved developed oil and gas reserves. Gas is converted to
equivalent barrels at the rate of six MCF of gas to one barrel of oil.

Other property and equipment is recorded at cost and depreciated using the
straight-line method with estimated useful lives ranging from three to five
years. Expenditures for repairs and maintenance are charged to expense as
incurred; improvements which materially prolong the lives of the assets are
capitalized.

Impairment of Oil and Gas Properties.

The Company has evaluated its oil and gas properties under the provisions
of Statement of Financial Accounting Standards 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
(SFAS 121). SFAS 121 requires that proved oil and gas properties be assessed for
an impairment in their carrying value whenever events or changes in
circumstances indicate that such carrying value may not be recoverable. SFAS 121
requires that this assessment be performed by comparing the undiscounted future
net cash flows and net carrying value of oil and gas properties. For the periods
ended December 31, 1999 and June 30, 2000, there was no impairment of the
Company's oil and gas properties.

Environmental

The Company's environmental expenditures are expensed or capitalized
depending on their future economic benefit. Expenditures that relate to an
existing condition caused by past operations and that have no future economic
benefits are expensed. Liabilities for expenditures of a noncapital nature are
recorded when environmental assessment and/or remediation is probable and the
costs can be reasonably estimated. Such liabilities are generally undiscounted
unless the timing of cash payments for the liability are fixed or reliably
determinable. The Company believes that the costs for compliance with current
environmental laws and regulations have not had and will not have a material
effect on the Company's financial position or results of operations.

Revenue Recognition

The Company uses the sales method of accounting for oil and gas revenues.
Under the sales method, revenues are recognized based on actual volumes of oil
and natural gas sold to purchasers.

F-17
<PAGE> 80
PRIZE ENERGY CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Earnings Per Share

The following table provides a reconciliation between basic and diluted
earnings per common share for the periods ended June 30, 2000, June 30, 1999,
and December 31, 1999.

<TABLE>
<CAPTION>
JUNE 30, 2000 (UNAUDITED)
----------------------------------------
WEIGHTED PER SHARE
INCOME AVERAGE SHARES AMOUNT
----------- -------------- ---------
<S> <C> <C> <C>
Basic earnings per share
Income available to common stockholders...... $12,283,689 11,448,049 $1.07
Effect of dilutive securities:
Employee stock options....................... -- 805,571
Warrants..................................... -- 104
Convertible preferred shares................. 458,514 1,992,098
----------- ----------
Diluted earnings per share................... $12,742,203 14,245,822 $0.89
=========== ==========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------
WEIGHTED PER SHARE
INCOME AVERAGE SHARES AMOUNT
---------- -------------- ---------
<S> <C> <C> <C>
Basic earnings per share
Income available to common stockholders........ $8,202,201 6,820,606 $1.20
Effect of dilutive securities:
Convertible preferred shares................... 906,750 2,058,171
---------- ---------
Diluted earnings per share..................... $9,108,951 8,878,777 $1.03
========== =========
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1999 (UNAUDITED)
-------------------------------------
WEIGHTED PER SHARE
INCOME AVERAGE SHARES AMOUNT
-------- -------------- ---------
<S> <C> <C> <C>
Basic earnings per share
Income available to common stockholders.......... $109,383 5,238,678 $0.02
Effect of dilutive securities:
Convertible preferred shares..................... -- 48,291
-------- ---------
Diluted earnings per share....................... $109,383 5,286,969 $0.02
======== =========
</TABLE>

Employee stock options for 2,141,430 shares have been excluded from the
dilutive earnings per share calculation as antidilutive for the period ended
December 31, 1999. Warrants to purchase 1,388,014 shares of common stock have
been excluded from the earnings per share calculation as antidilutive for the
six months ended June 30, 2000.

Benefit Plan

The Company provides a 401(k) benefit plan (the Plan) covering
substantially all employees. Under the Plan, employees having attained the age
of 21 are eligible to participate and can contribute up to 15% of their
compensation each year subject to certain Internal Revenue Code limitations. The
Plan provides for matching contributions by the Company, at the discretion of
the Board of Directors, to be determined on an annual basis. Additionally, the
Company can provide a profit sharing contribution, at the discretion of the
Board of Directors, to be determined on an annual basis. Employees vest in the
employee contribution over a three year period. The Company made total matching
contributions of $134,627 in 1999.

F-18
<PAGE> 81
PRIZE ENERGY CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock-Based Compensation

The Company accounts for employee stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25). Accordingly, the Company has
only adopted the disclosure provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123).

Hedging

The Company has entered into derivative contracts to hedge a portion of the
price risk of its future production and its interest rate risk. Changes in the
value of the financial instruments are recognized in the statement of operations
when the underlying transactions are recognized.

The Company's criteria for a derivative instrument to qualify for hedge
accounting treatment are as follows:

- The timing or duration and characteristics of the underlying exposure
must have been identified with reasonable certainty;

- Changes in the value of the derivative must correlate to a high degree
with changes in the present value of the exposure;

- The derivative has been designated as a hedge or is a synthetic
alteration of a specific asset, liability or anticipated transaction; and

- The derivative instrument either: (a) reduces exposure of net income or
cash flow to fluctuations caused by movements in commodity prices or
interest rates; or (b) alters the profile of the Company's interest rate
exposure to achieve a resulting overall exposure in line with policy
guidelines. For any termination of derivatives receiving hedge accounting
treatment, gains and losses will be deferred when the relating underlying
exposures remain outstanding and will be included in the measurement of
the related transaction or balance.

Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash,
accounts receivable and accounts payable approximate their fair value.
Management believes the carrying amount of the Company's long-term debt also
approximates fair value because the interest rates applicable to the debt
presently approximate current market rates. See Notes 2 and 7 for the fair value
of the Company's derivative positions.

Impact of Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," (SFAS 133) which, as amended, is required to be adopted
in years beginning after June 15, 2000. The Statement will require the Company
to recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The Company has not yet determined what effect SFAS 133 will have on
the earnings and financial position of the Company.

F-19
<PAGE> 82
PRIZE ENERGY CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. CREDIT FACILITIES

In connection with the acquisition of the Pioneer Properties, the Company
entered into a $250 million credit facility (Senior Facility) and a $13 million
senior subordinated credit facility (Subordinated Facility) with a bank. The
Subordinated facility provided for a single advance of $13 million and was
repaid in full in conjunction with the sale of the mineral interest in July,
1999.

On February 8, 2000, in connection with the merger agreement with Vista
Resources, Inc., the Company amended its Senior Facility to provide for total
borrowings of $400 million. The amended Senior Facility is due June 29, 2009.
The revised Senior Facility provides for letters of credit in addition to a
revolving credit facility. The Company may request letters of credit in addition
to a revolving credit facility up to an aggregate of $5 million with an
additional supplemental letter of credit (as defined by the credit agreement) of
$5 million. At June 30, 2000, $2.5 million was outstanding under the letter of
credit provisions of the facility. The revolver converts to a term loan on June
29, 2002 with quarterly principal payments after that date through June 29,
2009. Interest is due quarterly at either the bank's prime rate or eurodollar
rate plus a margin as defined in the agreement. The Company assumed $54 million
of debt and $1.3 million of accrued interest and bank fees when it purchased
Vista. At June 30, 2000 and December 31, 1999, $211.4 million and $127 million,
respectively, was outstanding. The bank credit facility has various restrictions
including a limit on incurred debt and asset dispositions. The Company is
required to maintain certain financial and non-financial covenants including
minimum current and interest coverage ratios. Borrowings under the credit
facility are secured by substantially all of the Company's assets.

The Company is required to pay a commitment fee on the revolving credit
facility ranging from .25% to .5% based on a ratio of outstanding credit to the
borrowing base and a letter of credit fee ranging from 1.25% to 1.875% based on
a ratio of the average daily amount outstanding during the quarter to the
borrowing base. Both fees terminate upon conversion of the revolver to a term
loan.

In July 1999, the Company entered into two interest rate protection
agreements with its bank (the "Swap Agreements") to modify the interest
characteristics of an aggregate principal amount of $100 million of the
revolving line of credit from a variable rate to a fixed rate. The Swap
Agreements require the Company to pay a fixed rate interest obligation of 5.76%
and 6.07%, respectively, and receive an interest obligation based on variable
LIBOR rates. The Swap Agreements terminate on July 2, 2000 and 2001,
respectively. At December 31, 1999 the Swap Agreements had a fair value of
$454,012.

The Company assumed $1,607,791 of debt when it purchased the remaining
interest of Sunterra. This debt was paid in full prior to December 31, 1999.

Maturities of long-term debt as of December 31, 1999 are as follows:

<TABLE>
<S> <C>
2000.................................................. $ --
2001.................................................. --
2002.................................................. 23,812,500
2003.................................................. 31,750,000
2004.................................................. 31,750,000
Thereafter............................................ 39,687,500
------------
$127,000,000
============
</TABLE>

3. CAPITAL STOCK

In conjunction with the Purchase Agreement, the Company amended its
Certificate of Incorporation to create a convertible preferred class of capital
stock. Effective with the amendment, the Company has

F-20
<PAGE> 83
PRIZE ENERGY CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the authority to issue 49,955,610 shares (as adjusted for the conversion factor
of the Vista merger) of capital stock, consisting of 16,651,870 shares of
convertible voting preferred stock and 33,303,740 shares of common stock.

The convertible voting preferred stock was redeemable at the Company's
option in whole or in part, at any time subsequent to the Company becoming a
publicly traded company provided the average of the closing prices of the
Company's common stock during any period of at least 30 consecutive trading days
exceeded 120% of the conversion price of the preferred stock. The redemption
price was payable in cash equal to $7.81 per share (as adjusted for the Vista
merger) adjusted for any stock splits, combination, or adjustments plus accrued
dividends. The preferred stock was also convertible into one share of common
stock at any time, in whole or in part, at the option of the stockholder,
subject to anti-dilution adjustments defined in the agreement. Accordingly,
3,958,879 shares of common stock were reserved for issuance upon conversion at
December 31, 1999. The preferred stock earned cumulative dividends at 6%,
payable quarterly. Unpaid dividends on preferred stock accrued interest at 6%.
Prior to January 1, 2002, all dividends were required to be paid in kind with
additional shares of preferred stock. Accordingly, 25,318 and 115,627 shares
have been issued as a dividend in kind during the six months ended June 30, 2000
and the period ended December 31, 1999, respectively.

The former preferred stockholder had the right to elect one-third of the
Company's board of directors provided the former preferred stockholder continued
to own at least 30% of the outstanding common stock (computed on an
"as-converted" basis) or prior to an initial public offering, the former
preferred stockholder continued to own at least 60% of the initially issued
preferred shares. If the former preferred stockholders ownership fell below
these levels and provided the former preferred stockholder owned at least 16.7%
of the outstanding common stock (computed on an "as-converted" basis), the
former preferred stockholder had the right to elect one-sixth of the Company's
board of directors. Preferred and common stockholders voted as a single class
except for those matters for which a separate class vote of the preferred stock
was specifically required under Delaware law.

Each stockholder agrees that it will not sell any portion of preferred or
common stock unless the Company is given the right to purchase all of the shares
offered by the stockholders at the offered price. In the event the Company does
not purchase the shares, the other stockholders have the right to purchase a
proportionate number of shares at the same price and on the same terms.

At any time after January 1, 2002, the former preferred stockholder has the
right to require that the Company initiate an initial public offering for a
gross offering price of at least $35 million. At any time after the earlier of
the first anniversary of the initial public offering or secondary offering, the
former preferred stockholder has the right to require registration of the common
shares owned by the former preferred stockholder. Additionally, the former
preferred stockholder was granted unlimited piggyback rights, subject to
limitations imposed by the underwriters. During the period the former preferred
stockholder continued to own at least 80% of the shares of preferred stock or
underlying common stock initially issued, the stockholder had the right to joint
participation in significant opportunities, as defined by the preferred stock
agreement.

On March 28, 2000, the Company entered into an agreement with the former
preferred stockholder to acquire 1,346,482 shares of Prize common stock for
approximately $18.4 million. Prior to the acquisition, the former preferred
stockholder agreed to convert all convertible preferred stock to common stock,
resign the two board seats held by the former preferred stockholder, and cancel
the exploration and participation agreement associated with the convertible
preferred stock. Subsequently, the preferred stockholder owned approximately 2.6
million shares of common stock. The transaction was effective March 31, 2000 and
was funded through the Company's Senior Credit Facility.

F-21
<PAGE> 84
PRIZE ENERGY CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. STOCK OPTIONS

The Company has instituted a stock option plan (the Option Plan) for key
employees. Under the Option Plan, the Board of Directors has the authority to
grant to key employees of the Company options to purchase shares of the
Company's common stock. Each unit vests ratably over a three year period
commencing on the date of grant and the holders have five years to exercise the
options. Upon exercise, the holder is to pay a cash amount equal to $7.84 per
share (as adjusted for the Vista merger) subject to adjustment as defined by the
Option Plan. The maximum number of shares that may be issued is 2,141,300 shares
(as adjusted for the Vista merger), with a proportionate adjustment to reflect
any stock splits, reverse splits, or retirement. Total outstanding options as of
December 31, 1999 were 2,141,300 (as adjusted for the Vista merger).
Accordingly, 2,141,300 shares of common stock has been reserved for issuance
upon exercise.

The Company applies APB 25 and related interpretations in accounting for
its stock option awards. Accordingly, no compensation expense has been
recognized for its stock option awards. If compensation expense for the stock
option awards had been determined consistent with SFAS 123, the Company's net
income would have been approximately $8,865,241 for the period from inception
(January 15, 1999) to December 31, 1999. Basic and diluted earnings per share
would have been $1.17 and $1.00 per share, respectively.

Under SFAS 123, the fair value of each stock option grant is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in 1999:

<TABLE>
<CAPTION>
1999
-------
<S> <C>
Risk-free interest rate.................................... 5.94%
Expected life.............................................. 5 years
</TABLE>

At December 31, 1999, the options have a remaining contractual life of four
years and six months and the weighted-average fair value of the options granted
during the period ended December 31, 1999 was $0.18 each (as adjusted for the
Vista merger). In conjunction with the merger with Vista, all outstanding
options under the Option Plan became fully vested.

5. INCOME TAXES

Significant components of the provision for income taxes for the period
ended December 31, 1999, are as follows:

<TABLE>
<S> <C>
Current................................................. $4,756,255
Deferred................................................ 158,361
----------
$4,914,616
==========
</TABLE>

The difference between the 1999 provision for income taxes and income taxes
computed using the statutory federal income tax rate are as follows:

<TABLE>
<S> <C>
Federal income tax provision at statutory rate (34%).... $4,768,013
Nondeductible expenses and other........................ 146,603
----------
Provision for income taxes.............................. $4,914,616
==========
</TABLE>

F-22
<PAGE> 85
PRIZE ENERGY CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, the components of the net deferred tax liability are as
follows:

<TABLE>
<S> <C>
Deferred tax assets:
Accounts receivable.................................... $(35,000)
Deferred tax liabilities:
Properties and equipment............................... 193,361
--------
Net deferred tax liability............................. $158,361
========
</TABLE>

6. COMMITMENTS AND CONTINGENCIES

The Company has obligations under noncancelable operating leases for
certain equipment and office space expiring in various years through 2003. Rent
expense incurred was approximately $101,000 during 1999. Minimum annual rental
commitments at December 31, 1999 are:

The Company is involved in various litigation and other contingencies
arising in the normal course of business primarily related to matters involving
the properties purchased from Pioneer. Based on currently available information,
management believes that any possible liability from these actions will not be
material to the Company's financial position or results of operations. However,
there can be no assurances that future costs would not be material to results of
operations of the Company for a particular period. In addition, the Company's
estimates of future costs are subject to change as circumstances change and
additional information becomes available during the course of litigation.

7. DERIVATIVE FINANCIAL INSTRUMENTS

During June 1999, the Company entered into commodity price hedge agreements
to protect against price declines which may be associated with the volatility in
oil and gas spot prices. The commodity price hedges were achieved through the
purchase of over the counter costless collars and swaps by the Company. The
Company's positions are with highly rated and prominent counterparties. Thus,
management believes the credit risk associated with there positions is minimal,
and no collateral is required by the Company or the counterparties. Set forth
below is the contract amount and material terms of all natural gas hedging
instruments held by the Company at December 31, 1999 (daily volumes are
expressed in million cubic feet (Mcf) and all prices are expressed in the daily
NYMEX closing prices for natural gas at actual index prices.)

<TABLE>
<CAPTION>
CALL FAIR
TRADE TYPE DAILY PUT FLOOR CEILING MARKET
DATE TRANSACTION VOLUME PRICE PRICE TERM VALUE
-------- ----------- ------ ------------ ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
6/14/99 Collar 10,000 $ 2.30 $2.57 7/99-6/01 $ (17,880)
6/22/99 Collar 5,000 $ 2.10 $2.42 8/99-7/01 $(109,691)
6/22/99 Collar 5,000 $ 2.15 $2.43 8/99-7/01 $(123,292)
6/30/99 Collar 5,000 $ 2.37 $2.58 9/99-8/01 $ (94,813)
7/01/99 Collar 5,000 $2.295/1.995 $2.64 9/99-8/01 $(103,912)
10/04/99 Collar 5,000 $ 2.44 $2.84 1/00-12/00 $ 256,340
</TABLE>

F-23
<PAGE> 86
PRIZE ENERGY CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Set forth below is the contract amount and material terms of all crude oil
hedging instruments held by the Company at December 31, 1999 (daily volumes are
expressed in barrels (Bbls) and all prices are expressed in the daily NYMEX
closing prices for Crude Oil).

<TABLE>
<CAPTION>
CALL FAIR
TRADE TYPE DAILY PUT FLOOR CEILING MARKET
DATE TRANSACTION VOLUME PRICE PRICE TERM VALUE
-------- ----------- ------ ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
6/14/99 Swap 1,500 $17.44 Bbl $17.44 Bbl 7/99-6/01 $(3,289,059)
6/18/99 Collar 1,000 $17.00 Bbl $19.00 Bbl 7/99-6/01 $(1,488,162)
7/1/99 Collar 500 $17.15 Bbl $20.05 Bbl 9/99-8/01 $ (714,625)
10/4/99 Collar 1,000 $19.40 Bbl $23.70 Bbl 1/00-6/00 $ (211,422)
</TABLE>

8. RELATED PARTY TRANSACTIONS

Beginning July 1, 1999, the Company is committed to pay an advisory fee of
$150,000 per year to a stockholder. $75,000 was paid in conjunction with this
agreement in 1999.

9. SIGNIFICANT CUSTOMERS

Five customers accounted for approximately 47% of net sales for the period
ended December 31, 1999. Virtually all of the Company's receivables are due from
companies involved in the oil and gas business. To date credit losses have been
insignificant.

10. ACQUISITION

The following condensed pro forma financial information reflects the pro
forma balance sheet assuming the merger with Vista was consummated on December
31, 1999 and the pro forma statement of operations assuming that the Pioneer
purchase, the Minerals sale, the Sunterra purchase, and the Vista Merger all
occurred on January 1, 1999. The Company emphasizes that this information is not
necessarily indicative of future performances.

F-24
<PAGE> 87
PRIZE ENERGY CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<S> <C>
Current assets.............................................. $ 33,238,000
Properties and equipment, net............................... 307,445,000
Other assets................................................ 2,724,000
------------
Total assets...................................... $343,407,000
============
Current liabilities......................................... $ 29,171,000
Long-term debt.............................................. 180,000,000
Deferred income taxes....................................... 19,271,000
Other long term liabilities................................. 206,000
Stockholders' equity........................................ 114,759,000
------------
Total liabilities and stockholders' equity........ $343,407,000
============
Oil and gas sales........................................... $101,258,000
Lease operating expenses.................................... 34,670,000
Exploration costs........................................... 53,000
Depreciation, depletion and amortization.................... 25,748,000
General and administrative.................................. 8,846,000
Interest expense, net....................................... 15,186,000
Other income................................................ 388,000
------------
Income before income taxes........................ 17,143,000
Provision for income taxes.................................. 6,338,000
------------
Net Income........................................ $ 10,805,000
============
Earnings per share:
Basic..................................................... $ .84
Diluted................................................... $ .74
</TABLE>

11. OIL AND NATURAL GAS PRODUCING ACTIVITIES

Costs capitalized for oil and natural gas producing activities as of
December 31, 1999 are as follows:

<TABLE>
<S> <C>
Oil and Gas Properties
Proved.............................................. $219,226,854
Less accumulated depletion.......................... (8,644,313)
------------
Net capitalized costs for oil and gas properties...... $210,582,541
============
</TABLE>

Cost incurred for oil and gas producing activities during 1999 are as
follows:

<TABLE>
<S> <C>
Proved property acquisition costs..................... $249,572,307
Development costs..................................... 1,654,547
------------
Total costs incurred............................. $251,226,854
============
</TABLE>

F-25
<PAGE> 88
PRIZE ENERGY CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. UNAUDITED SUPPLEMENTARY INFORMATION

Reserve Quantity Information

<TABLE>
<CAPTION>
CRUDE OIL NGL'S NATURAL GAS
(MBBLS) (MBBLS) (MMCF) MBOE
--------- ------- ----------- ------
<S> <C> <C> <C> <C>
Total proved reserves:
Balance, January 15, 1999................... -- -- -- --
Purchases of minerals-in-place........... 27,085 10,101 275,199 83,052
Production............................... (990) (382) (10,236) (3,078)
Sales of minerals-in-place............... (489) (9) (22,986) (4,329)
------ ------ ------- ------
Balance, December 31, 1999............... 25,606 9,710 241,977 75,645
====== ====== ======= ======
Proved developed reserves..................... 21,042 7,538 188,488 59,995
====== ====== ======= ======
</TABLE>

Oil and gas reserve quantity estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved reserves and in
the projection of future rates of production and the timing of development
expenditures. The accuracy of such estimates is a function of the quality of the
available data and of engineering and geological interpretation and judgment.
Results of subsequent drilling, testing and production may cause either upward
or downward revisions of previous estimates. Further, the volumes considered to
be commercially recoverable fluctuate with changes in prices and operating
costs. The Company emphasizes that reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of currently
producing oil and gas properties. Accordingly, these estimates are expected to
change as additional information becomes available in the future.

The following is a summary of the Company's standardized measure of
discounted future net cash flows related to the proved oil and gas reserves as
of December 31, 1999. For these calculations, estimated future cash flows from
estimated future production or proved reserves were computed using oil and gas
prices as of December 31, 1999. Future development and production costs
attributable to the proved reserves were estimated assuming that existing
conditions would continue over the economic life of the properties, and costs
were not escalated for the future. The information presented below should not be
viewed as an estimate of the fair value of the properties, nor should it be
considered indicative of any future trends.

F-26
<PAGE> 89
PRIZE ENERGY CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Standardized Measure of Discounted Future Net Cash Flows:

<TABLE>
<S> <C>
Future cash inflows................................. $1,276,946,208
Future production costs............................. (442,478,307)
Future development costs............................ (52,732,290)
Future income tax expense........................... (191,252,977)
--------------
590,482,634
10% annual discount factor.......................... (267,058,843)
--------------
Standardized measure of discounted future net cash
flows............................................. $ 323,423,791
==============

Changes in standardized measure:
Oil and gas sales, net of production costs.......... $ (31,370,696)
Sales of minerals-in-place.......................... (32,000,000)
Purchases of minerals-in-place...................... 492,951,149
--------------
Changes in present value of future net revenues..... 429,580,453
Net change in present value of future income
taxes............................................. (106,156,662)
--------------
323,423,791
Balance, beginning of period........................ --
--------------
Balance, at December 31, 1999....................... $ 323,423,791
==============
</TABLE>

The weighted average prices of oil and gas at December 31, 1999 used in the
calculation of the standardized measure were $25.60 per barrel for oil and $2.30
per MMBTU for gas, respectively.

F-27
<PAGE> 90

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Prize Energy Corp.

We have audited the accompanying statements of revenues and direct
operating expenses for the producing properties acquired by Prize Energy Corp.
from Pioneer Natural Resources USA, Inc. (Acquired Properties) for the years
ended December 31, 1998 and 1997. These statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
statements based on our audits.

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

The accompanying statements were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission and are not
intended to be a complete presentation of the revenues and expenses of the
Acquired Properties.

In our opinion, the statements referred to above present fairly, in all
material respects, the operating revenues and direct operating expenses of the
Acquired Properties for the years ended December 31, 1998 and 1997, in
conformity with accounting principles generally accepted in the United States.

ERNST & YOUNG LLP

Fort Worth, Texas
September 3, 1999

F-28
<PAGE> 91

PRODUCING PROPERTIES ACQUIRED BY PRIZE ENERGY CORP.
FROM PIONEER NATURAL RESOURCES USA, INC.

STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 -------------------------
(UNAUDITED) 1998 1997
------------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Crude sales......................................... $13,554,676 $30,576,824 $49,697,127
Natural gas sales................................... 19,050,159 48,485,086 74,836,148
Natural gas liquids sales........................... 2,513,683 5,493,151 3,477,148
----------- ----------- -----------
35,118,518 84,555,061 128,010,423
Direct operating expenses:
Lease operating expenses............................ 7,356,807 18,318,306 22,561,641
Oil and gas production taxes........................ 3,769,505 8,685,884 11,293,089
----------- ----------- -----------
11,126,312 27,004,190 33,854,730
----------- ----------- -----------
Revenues in excess of direct operating expenses....... $23,992,206 $57,550,871 $94,155,693
=========== =========== ===========
</TABLE>

See accompanying notes.

F-29
<PAGE> 92

PRODUCING PROPERTIES ACQUIRED BY PRIZE ENERGY CORP.
FROM PIONEER NATURAL RESOURCES USA, INC.

NOTES TO STATEMENTS OF REVENUES AND
DIRECT OPERATING EXPENSES

1. BASIS OF PRESENTATION

Pursuant to the terms of a Purchase and Sale Agreement dated May 16, 1999
and effective as of July 1, 1999, Prize Energy Corp. (the Company) completed the
acquisition of interests in certain oil and gas producing properties (Acquired
Properties), primarily located in Texas, Louisiana, and Oklahoma from Pioneer
Natural Resources USA, Inc. (Pioneer), for a total of $242 million, including
transaction costs, payable in cash and 6% convertible preferred stock.

The oil and gas revenues and direct operating expenses presented herein
relate only to the interests in the Acquired Properties and do not represent all
of the oil and gas operations of Pioneer. Oil and gas revenues of the Acquired
Properties are recorded on the entitlements method. Direct operating expenses
include all costs incurred which are necessary for the production, marketing and
distribution of the products produced from the subject properties including,
without limitation, costs and expenses of field separation; treatment;
dehydration; direct overhead charges (other than costs associated with general
corporate activities); pumper, roustabout and field supervision labor; meter
calibrations; engineering supervision charges; fuel and electricity; valves,
connections and other minor equipment repair; oil and lubricants; major repairs;
rental tools and equipment; pipe inspection; trucking; reservoir testing;
pressure testing; well plugging; site remediation; operator bonding; insurance
charges; salt water disposal; water injection and pressure maintenance; gas
compression; hot oil and hot water treatments; filing fees; make-up water
purchases; electrician charges; mud and chemicals; pulling and workover units;
other miscellaneous supplies and services; and severance, ad valorem and other
production related taxes and charges. In addition, lease operating expenses are
net of gas plant processing fees and oil and gas production taxes include
production and severance taxes and ad valorem taxes associated with the
properties. Direct operating expenses do not include charges for depletion,
depreciation, amortization and abandonment; federal and state income taxes;
interest; or corporate general and administrative expenses. The oil and gas
revenues and direct operating expenses for the periods presented may not be
indicative of the results of future operations of the properties acquired.

2. SUBSEQUENT EVENT

Effective July 1, 1999, the Company sold certain mineral interests included
in the properties purchased from Pioneer to Blackstone Minerals Co., LP for $32
million. The revenues and direct operating expenses associated with these
properties included in the Statements of Revenues and Direct Operating Expenses
were as follows:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31
JUNE 30, 1999 -----------------------
(UNAUDITED) 1998 1997
------------- ---------- ----------
<S> <C> <C> <C>
Revenues........................................ $1,911,603 $5,136,967 $7,189,442
Direct operating expenses....................... 259,018 793,131 1,115,379
---------- ---------- ----------
Revenues in excess of direct operating
expenses...................................... $1,652,585 $4,343,836 $6,074,063
========== ========== ==========
</TABLE>

3. SUPPLEMENTAL OIL AND GAS RESERVE AND STANDARDIZED MEASURE INFORMATION
(UNAUDITED)

F-30
<PAGE> 93
PRODUCING PROPERTIES ACQUIRED BY PRIZE ENERGY CORP.
FROM PIONEER NATURAL RESOURCES USA, INC.

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

recovered from new wells on undrilled acreage or from existing wells on which a
relatively major expenditure is required for recompletion.

Oil and gas reserve quantity estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved reserves and in
the projection of future rates of production and the timing of development
expenditures. The accuracy of such estimates is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Results of subsequent drilling, testing and production may cause either upward
or downward revision of previous estimates. Further, the volumes considered to
be commercially recoverable fluctuate with changes in prices and operating
costs. The Company emphasizes that reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of currently
producing oil and gas properties. Accordingly, these estimates are expected to
change as additional information becomes available in the future.

The following tables present the proved oil and gas reserves of the
Acquired Properties and a rollforward of the changes in proved reserves for 1998
and 1997. Because reserve data prior to December 31, 1998 is not available,
these tables assume that the only change in reserve quantities was due to
production.

ESTIMATED QUANTITIES OF PROVED RESERVES

<TABLE>
<CAPTION>
1998
-------------------------------------
OIL & NGLS GAS
(BBL) (MCF) BOE
---------- ----------- ----------
<S> <C> <C> <C>
Proved reserves................................. 26,051,394 224,026,656 63,389,170
Proved developed reserves....................... 23,136,377 193,193,545 55,335,301
Proved undeveloped reserves..................... 2,915,017 30,833,111 8,053,869
</TABLE>

<TABLE>
<CAPTION>
OIL & NGLS GAS
(BBL) (MCF) BOE
---------- ----------- ----------
<S> <C> <C> <C>
Balance, January 1, 1998........................ 29,185,695 248,955,853 70,678,337
Production...................................... 3,134,301 24,929,197 7,289,167
---------- ----------- ----------
Balance, December 31, 1998...................... 26,051,394 224,026,656 63,389,170
========== =========== ==========
</TABLE>

<TABLE>
<CAPTION>
1997
-------------------------------------
OIL & NGLS GAS
(BBL) (MCF) BOE
---------- ----------- ----------
<S> <C> <C> <C>
Proved reserves................................. 29,185,695 248,955,853 70,678,337
Proved developed reserves....................... 25,916,897 214,699,528 61,700,152
Proved undeveloped reserves..................... 3,268,798 34,256,325 8,978,185
</TABLE>

<TABLE>
<CAPTION>
OIL & NGLS GAS
(BBL) (MCF) BOE
---------- ----------- ----------
<S> <C> <C> <C>
Balance, January 1, 1997........................ 32,097,153 280,688,539 78,878,576
Production...................................... 2,911,458 31,732,686 8,200,239
---------- ----------- ----------
Balance, December 31, 1997...................... 29,185,695 248,955,853 70,678,337
========== =========== ==========
</TABLE>

The following tables are a summary of the standardized measure of
discounted future net cash flows related to the proved oil and gas reserves of
the Acquired Properties and a rollforward of the standardized measure for 1998
and 1997. Similar to the preceding tables on reserve quantities, because reserve
data

F-31
<PAGE> 94
PRODUCING PROPERTIES ACQUIRED BY PRIZE ENERGY CORP.
FROM PIONEER NATURAL RESOURCES USA, INC.

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

prior to December 31, 1998 is not available, the tables assume that the only
change in reserve quantities was due to production. For these calculations,
estimated future cash flows from the future production of proved reserves were
computed using oil and gas prices as of the end of each year. The estimates for
1997 cash flows also assume that differentials between published prices,
development and production costs and decline curve estimates are consistent with
these estimates as of December 31, 1998. Future development and production costs
attributable to proved reserves were estimated assuming that conditions existing
in 1998 would continue over the economic life of the properties, and costs were
not escalated for the future. The Acquired Properties are not a separate tax
paying entity. Accordingly, the standardized measure of discounted future net
cash flows from proved reserves is presented before deduction of federal income
taxes. The information presented below should not be viewed as an estimate of
the fair value of the acquired interests, nor should it be considered indicative
of any future trends.

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
Future cash inflows.................................... $ 621,543,244 $ 903,476,000
Future production and development costs................ (267,522,684) (287,390,214)
Discounts of future net cash flows at 10% per annum.... (154,852,977) (270,121,156)
------------- -------------
Standardized measure of discounted future net cash
flows................................................ $ 199,167,583 $ 345,964,630
============= =============
Standardized measure of discounted future net cash
flows, beginning of year............................. $ 345,964,430 $ 536,606,060
Oil and gas sales net of production costs.............. (57,550,871) (94,155,693)
Development costs, accretion of discount, etc.......... (89,245,976) (96,485,737)
------------- -------------
Standardized measure of discounted future net cash
flows, end of year................................... $ 199,167,583 $ 345,964,630
============= =============
</TABLE>

The weighted-average prices of oil and gas at December 31, 1998 and 1997
used in the calculation of the Standardized Measure were $9.63 and $15.18 per
barrel, respectively, for oil, $6.52 and $10.32 per barrel, respectively, for
NGL's, and $1.76 and $2.06 per MCF, respectively, for gas.

Development costs for the year ended December 31, 1998 were $21,138,128.
Exploration costs and incremental general and administrative costs were
insignificant for all periods presented.

F-32
<PAGE> 95

OLD PRIZE

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

On February 8, 2000, Prize Natural Resources, Inc., formerly known as Prize
Energy Corp. (Old Prize) merged with Vista Energy Resources, Inc. (Vista) to
form Prize Energy Corp. (Prize). Pro forma financial statements for the merger
have been included elsewhere in this prospectus. The accompanying pro forma
statements of operations reflect certain adjustments for transactions entered
into by Old Prize, prior to the merger.

The accompanying Unaudited Pro Forma Consolidated Condensed Statements of
Operations have been prepared by recording pro forma adjustments to the audited
Consolidated Statement of Operations of Old Prize for the period ended December
31, 1999, the unaudited consolidated condensed statement of operations of Old
Prize for the six months ended June 30, 1999, and the unaudited statement of
revenue and direct operating expenses of the producing properties acquired by
Prize Energy Corp. from Pioneer Natural Resources USA, Inc. for the six months
ended June 30, 1999 (Acquired Properties). The Unaudited Pro Forma Consolidated
Condensed Statements of Operations have been prepared assuming the purchase of
properties from Pioneer, the subsequent sale of the mineral interests and the
purchase of the remaining interest in Sunterra occurred on January 1, 1999.

The Unaudited Pro Forma Consolidated Condensed Statements of Operations are
not necessarily indicative of the results of operations that would have occurred
had the transactions been effected on the assumed date. Additionally, future
results may vary significantly from the results reflected in the Unaudited Pro
Forma Consolidated Condensed Statements of Operations due to normal production
declines, changes in prices, future transactions, and other factors. These
statements should be read in conjunction with the Consolidated Financial
Statements of Prize (Old Prize) and the unaudited statement of revenue and
direct operating expenses of the producing properties acquired by Prize Energy
Corp. from Pioneer Natural Resources USA, Inc. for the six months ended June 30,
1999.

F-33
<PAGE> 96

OLD PRIZE

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
ACQUIRED
OLD PRIZE PROPERTIES
JANUARY 15, 1999 SIX MONTHS
(INCEPTION) ENDED
THROUGH JUNE 30, PRO FORMA PRO FORMA
DECEMBER 31, 1999 1999 ADJUSTMENTS OLD PRIZE
----------------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales.................... $47,978 $35,119 $ (594)(a)(b) $82,503
Cost and expenses:
Lease operating expenses............. 16,607 11,127 260(a)(b) 27,994
Depreciation, depletion and
amortization...................... 8,714 -- 8,924(c) 17,638
General and administrative........... 2,831 -- 3,250(d) 6,081
------- ------- -------- -------
Total costs and expenses..... 28,152 11,127 12,434 51,713
------- ------- -------- -------
Operating income (loss)................ 19,826 23,992 (13,028) 30,790
Other:
Interest (income) expense............ 6,070 -- 4,984(e) 11,054
Other................................ (268) -- 88(b) (180)
------- ------- -------- -------
Total other.................. 5,802 -- 5,072 10,874
------- ------- -------- -------
Income before income tax............... 14,024 23,992 (18,100) 19,916
Provision for income tax............... 4,915 -- 2,448(f) 7,363
------- ------- -------- -------
Net income............................. 9,109 23,992 (20,548) 12,553
Less preferred dividends............... (907) -- (934)(g) (1,841)
------- ------- -------- -------
Income available to common
stockholders......................... $ 8,202 $23,992 $(21,482) $10,712
======= ======= ======== =======
</TABLE>

See accompanying notes.

F-34
<PAGE> 97

OLD PRIZE

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999

<TABLE>
<CAPTION>
ACQUIRED
OLD PRIZE PROPERTIES
JANUARY 15, 1999 SIX MONTHS
(INCEPTION) ENDED
THROUGH JUNE 30, PRO FORMA PRO FORMA
JUNE 30, 1999 1999 ADJUSTMENTS OLD PRIZE
---------------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales...................... $ -- $35,119 $ (594)(a)(b) $34,525
Cost and expenses
Lease operating expenses............... -- 11,127 260(a)(b) 11,387
Depreciation, depletion and
amortization........................ -- -- 8,717(c) 8,717
General and administrative............. 17 -- 3,250(d) 3,267
----- ------- -------- -------
Total costs and expenses....... 17 11,127 12,227 23,371
----- ------- -------- -------
Operating income (loss).................. (17) 23,992 (12,821) 11,154
Other:
Interest (income) expense.............. (102) -- 4,984(e) 4,882
Other.................................. (88) -- 88(b) --
----- ------- -------- -------
Total other.................... (190) -- 5,072 4,882
----- ------- -------- -------
Income before income tax................. 173 23,992 (17,893) 6,272
Provision for income tax................. 64 -- 2,255(f) 2,319
----- ------- -------- -------
Net income............................... 109 23,992 (20,148) 3,953
Less preferred dividends................. -- -- (907)(g) (907)
----- ------- -------- -------
Income available to common
stockholders........................... $ 109 $23,992 $(21,055) $ 3,046
===== ======= ======== =======
</TABLE>

See accompanying notes.

F-35
<PAGE> 98

OLD PRIZE

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

The unaudited pro forma consolidated condensed statement of operations of
Prize Natural Resources, Inc., formerly known as Prize Energy Corp. (Old Prize)
have been prepared to give effect to the 1999 acquisition of oil and gas
properties from Pioneer Natural Resources USA, Inc. (Pioneer), the subsequent
sale of certain mineral interests which were included in the purchase from
Pioneer and the purchase of the remaining interests of Sunterra Petroleum LLC
(Sunterra).

In July 1999, Old Prize sold a group of mineral interests for $32 million
which were acquired with the oil and gas properties purchased from Pioneer. The
properties were located outside Old Prize's principal operating area of Texas
and Oklahoma, and the sale was effective July 1, 1999. Accordingly, the
properties were assigned a value of $32 million when purchased and no gain or
loss was recognized on disposal.

Upon the formation of Old Prize, certain stockholders contributed a
minority investment in Sunterra. In July 1999, Old Prize purchased the remaining
interest in Sunterra. Prior to the purchase of the remaining interest, Prize's
investment in Sunterra was accounted for under the equity method.

The pro forma statements of operations assume the transactions took place
on January 1, 1999.

The following is a description of the individual columns included in this
unaudited pro forma condensed consolidated statements of operations.

Old Prize -- Represents the audited consolidated statement of operations of
Old Prize for the period January 15, 1999 (Inception) through December 31, 1999
and the unaudited consolidated statement of operations of Old Prize for the
period January 15, 1999 (Inception) through June 30, 1999.

Acquired Properties -- Represents the unaudited statement of revenues and
direct operating expenses of the oil and gas properties acquired from Pioneer
for the six months ended June 30, 1999.

(2) PRO FORMA ADJUSTMENTS

(a) To reduce the revenues and direct operating expenses associated with
the mineral interests acquired from Pioneer, which were subsequently sold.

(b) To increase revenues and direct operating expenses for Sunterra's
production and operating expenses and reverse the equity method income
recognized prior to the purchase of the remaining interest in Sunterra.

(c) To recognize depletion, depreciation, and amortization associated with
the Acquired Properties and the properties of Sunterra.

(d) To recognize estimated incremental general and administrative expense
necessary to administer the properties acquired in the Pioneer and Sunterra
acquisitions of approximately $3,250,000. In the aggregate, these costs include
the salary and benefits of an estimated 40 employees, insurance coverage, office
space, communication, accounting and legal costs.

(e) To recognize interest expense associated with the borrowings used to
finance the acquisition of the Acquired Properties and the debt assumed from
Sunterra based on the weighted average interest rate of 6.84%.

(f) To adjust income tax expense based on the pro forma earnings before
income tax and an assumed tax rate of 37%.

(g) To reflect the dividends on the preferred stock issued to Pioneer as
partial consideration for the Acquired Properties. The preferred stock earns a
dividend of 6%, which is payable in additional preferred shares prior to January
1, 2002. Accordingly, this adjustment assumes that additional preferred shares
of 70 and 142 (not adjusted for the Vista merger) were issued as of June 30,
1999 and December 31, 1999, respectively.

F-36
<PAGE> 99

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of Vista Energy Resources, Inc.:

We have audited the accompanying consolidated balance sheets of Vista
Energy Resources, Inc. (a Delaware corporation) as of December 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vista Energy Resources, Inc.
as of December 31, 1999 and 1998, and the results of its operations and cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Dallas, Texas
February 16, 2000

F-37
<PAGE> 100

VISTA ENERGY RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents................................. $ 454,890 $ --
Accounts receivable:
Oil and gas sales...................................... 2,654,005 1,498,727
Trade.................................................. 560,521 900,401
Other..................................................... 315,143 262,218
------------ ------------
Total current assets.............................. 3,984,559 2,661,346
PROPERTY AND EQUIPMENT:
Oil and gas properties, based on successful efforts
accounting............................................. 94,965,190 86,970,665
Other..................................................... 596,807 529,771
------------ ------------
95,561,997 87,500,436
Less accumulated depreciation, depletion and
amortization........................................... (35,618,237) (30,956,448)
------------ ------------
Property and equipment, net............................... 59,943,760 56,543,988
OTHER ASSETS................................................ 829,215 537,983
------------ ------------
Total Assets...................................... $ 64,757,534 $ 59,743,317
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable.......................................... $ 4,671,916 2,829,495
Accrued expenses.......................................... 499,145 259,117
------------ ------------
Total current liabilities......................... 5,171,061 3,088,612
LONG-TERM DEBT.............................................. 53,000,000 50,730,894
DEFERRED TAX LIABILITY...................................... 1,003,000 350,000
OTHER LONG-TERM LIABILITIES................................. 205,116 205,116
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share;
Authorized -- 7,142,857 shares; 2,339,090 issued and
2,338,190 outstanding at December 31, 1999; 2,339,090
issued and 2,330,334 outstanding at December 31,
1998;.................................................. 163,736 163,736
Treasury Stock -- 900 and 8,756 shares at December 31,
1999 and 1998, respectively............................ (21,798) (212,070)
Additional paid in capital................................ 24,983,937 25,071,099
Retained earnings (deficit)............................... (19,747,518) (19,654,070)
------------ ------------
Total stockholders' equity........................ 5,378,357 5,368,695
------------ ------------
Total liabilities and stockholders' equity........ $ 64,757,534 $ 59,743,317
============ ============
</TABLE>

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

F-38
<PAGE> 101

VISTA ENERGY RESOURCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
REVENUES:
Oil and gas sales.................................. $18,754,647 $ 8,737,056 $ 8,874,961
----------- ------------ -----------
Total revenues............................. 18,754,647 8,737,056 8,874,961
COSTS AND EXPENSES:
Lease Operating.................................... 6,676,143 4,398,384 3,688,695
Exploration Costs.................................. 52,850 32,077 97,211
Depreciation, depletion and amortization........... 4,777,352 3,014,707 2,169,098
Impairment of oil and gas properties............... -- 24,849,632 --
General and administrative......................... 2,764,596 1,743,814 987,020
Amortization of Unit Option Awards................. -- 4,262,089 315,518
----------- ------------ -----------
Total costs and expenses................... 14,270,941 38,300,703 7,257,542
----------- ------------ -----------
Operating income (loss).................... 4,483,706 (29,563,647) 1,617,419
Gain (loss) on sale of property.................... 146,231 (317,293) (87,678)
Interest income.................................... 12,112 5,833 --
Interest expense................................... (4,144,392) (1,597,350) (1,048,009)
Other income....................................... 61,895 111,745 115,949
----------- ------------ -----------
NET INCOME (LOSS) BEFORE TAXES....................... 559,552 (31,360,712) 597,681
Income tax expense (benefit):
Current......................................... -- -- N/A
Deferred........................................ 653,000 (6,560,351) N/A
----------- ------------ -----------
NET INCOME (LOSS).................................... $ (93,448) $ 24,800,361) $ 597,681
=========== ============ ===========
Earnings (loss) per share:
Basic.............................................. $ (.04) $ (13.68) $ .34
Diluted............................................ (.04) (13.68) .34
=========== ============ ===========
Actual Net Income (Loss)............................. $ (93,448) $(24,800,361) $ 597,681
Pro Forma tax expense.............................. N/A N/A 211,720
----------- ------------ -----------
PRO FORMA NET INCOME (LOSS).......................... $ (93,448) $(24,800,361) $ 385,961
=========== ============ ===========
Pro Forma earnings (loss) per share:
Basic.............................................. $ (.04) $ (13.68) $ .22
Diluted............................................ $ (.04) $ (13.68) $ .22
Weighted Average Shares Outstanding (Note 10)........ 2,332,298 1,812,473 1,750,501
=========== ============ ===========
</TABLE>

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

F-39
<PAGE> 102

VISTA ENERGY RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
TREASURY PAID IN PARTNERS' STOCKHOLDERS'
SHARES AMOUNT STOCK CAPITAL RETAINED DEFICIT EQUITY EQUITY
--------- -------- --------- ----------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE at December
31, 1996............ -- -- -- -- -- 6,783,453 6,783,453
Unit option awards.... -- -- -- -- -- 315,518 315,518
Net income............ -- -- -- -- -- 597,681 597,681
--------- -------- --------- ----------- ------------ ----------- ------------
BALANCE at December
31, 1997............ -- -- -- -- -- 7,696,652 7,696,652
Net loss through
October 28, 1998.... -- -- -- -- -- (5,146,291) (5,146,291)
Midland Merger........ 2,339,090 163,736 (212,070) 25,071,099 -- (6,812,450) 18,210,315
Unit option awards.... -- -- -- -- -- 4,262,089 4,262,089
Net loss subsequent to
Midland Merger...... -- -- -- -- (19,654,070) -- (19,654,070)
--------- -------- --------- ----------- ------------ ----------- ------------
BALANCE at December
31, 1998............ 2,339,090 163,736 (212,070) 25,071,099 (19,654,070) -- 5,368,695
Reissuance of treasury
stock............... -- -- 190,272 (87,162) -- -- 103,110
Net Loss.............. -- -- -- -- (93,448) -- (93,448)
--------- -------- --------- ----------- ------------ ----------- ------------
BALANCE at December
31, 1999............ 2,339,090 $163,736 $ (21,798) $24,983,937 $(19,747,518) $ -- $ 5,378,357
========= ======== ========= =========== ============ =========== ============
</TABLE>

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

F-40
<PAGE> 103

VISTA ENERGY RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ (93,448) $(24,800,361) $ 597,681
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Impairment of oil and gas properties........... -- 24,849,632 --
Depreciation, depletion and amortization....... 4,777,352 3,014,707 2,169,098
Provision for income taxes..................... 653,000 (6,560,351) --
Treasury stock issued for compensation......... 103,110 -- --
Amortization of unit option awards............. -- 4,262,089 315,518
Exploration cost............................... 15,000 32,077 97,211
(Gain) loss on sale of property................ (146,231) 317,293 87,678
Changes in working capital
Increase in Accounts Receivable................ (815,399) (649,975) (365,595)
Increase in other current assets............... (52,925) (178,699) (10,594)
Increase in other non-current assets........... (406,794) (391,100) (95,828)
(Decrease) increase in Accounts Payable and
accrued expenses............................. 1,842,421 (520,550) 578,641
(Decrease) increase in other non-current
liabilities.................................. 240,028 (30,395) --
----------- ------------ ------------
Net cash provided by (used in) operating
activities.............................. 6,116,114 (655,633) 3,373,810
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............... (8,265,549) (22,805,360) (13,038,815)
Proceeds from sales of property and Equipment..... 335,219 548,364 390,000
----------- ------------ ------------
Net cash used in investing activities..... (7,930,330) (22,256,996) (12,648,815)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of borrowings............................. (1,030,894) (31,446,022) (418,649)
Proceeds from issuance of debt.................... 3,300,000 53,831,522 9,703,572
----------- ------------ ------------
Net cash provided by financing
activities.............................. 2,269,106 22,385,500 9,284,923
----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... 454,890 (527,129) 9,918
CASH AND CASH EQUIVALENTS:
Beginning of period............................... -- 527,179 517,211
----------- ------------ ------------
End of period..................................... $ 454,890 $ -- $ 527,129
=========== ============ ============
</TABLE>

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

F-41
<PAGE> 104

VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION:

Vista Energy Resources, Inc. and its subsidiaries (collectively, "Vista" or
the "Company") is a Delaware corporation whose common stock is listed and traded
on the American Stock Exchange. The Company was incorporated in May 1998 for the
purpose of continuing and consolidating the operations of Vista Resources
Partners, L.P., a Texas limited partnership (the "Vista Partnership"), and
Midland Resources, Inc., a publicly traded Texas corporation ("Midland
Resources"). The merger of the Vista Partnership and Midland Resources (the
"Midland Merger") was completed on October 28, 1998. The Company is an
independent oil and gas company engaged in the acquisition, exploration,
production and development of oil and natural gas primarily in the Permian Basin
of West Texas, Southeastern New Mexico and the onshore Gulf Coast region of
South Texas.

Vista Resources I, Inc., a Texas corporation (the "General Partner"), now a
wholly-owned subsidiary of the Company, serves as the sole general partner of
the Vista Partnership. Vista Resources, Inc., a wholly owned subsidiary of the
Company ("Vista Resources"), currently serves as the operator of properties in
which the Company or its subsidiaries acquires or otherwise owns operating
working interests.

On October 28, 1998, pursuant to the terms of an Exchange Agreement dated
June 15, 1998 (the "Exchange Agreement"), the Company acquired all of the
outstanding partnership interests of the Vista Partnership and all of the
outstanding shares of common stock of the General Partner in exchange for shares
of Common Stock of the Company (the "Conversion"). The Conversion was accounted
for as a transfer of assets and liabilities between affiliates under common
control and resulted in no change in carrying values of these assets and
liabilities. The Conversion and other transactions contemplated by the Exchange
Agreement were consummated immediately prior to the closing of the Midland
Merger. As a result of the Conversion and the Midland Merger, security holders
of Midland Resources acquired 638,589 shares (after giving effect to the 1 for 7
reverse stock split in conjunction with the Prize merger) or 27.3 percent of the
outstanding "Common Stock" of the Company, and security holders of the Vista
Partnership acquired 1,700,501 shares of Common Stock, or 72.7 percent.
Accordingly, the accompanying financial statements include the results of
operations of the Company and Midland Resources since October 28, 1998, and the
results of the Vista Partnership prior to that date.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

USE OF ESTIMATES

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

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include financial
statements of the Company and its wholly-owned subsidiaries, including Midland
Resources, the General Partner, Vista Resources and Vista Resources Partners,
L.P. All significant intercompany transactions and balances have been eliminated
in preparation of the consolidated financial statements.

CASH AND CASH EQUIVALENTS

All highly-liquid investments with original maturities of three months or
less are considered to be cash equivalents.

F-42
<PAGE> 105
VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTS RECEIVABLE

Trade receivables represent billings to other working interest owners for
their share of costs on wells for which the Company serves as the operator.

OIL AND GAS PROPERTIES

The Company follows the successful efforts method of accounting for its oil
and gas properties whereby costs of productive wells, developmental dry holes
and productive leases are capitalized and amortized on a unit-of-production
basis over the respective properties' remaining proved reserves. Amortization of
capitalized costs of oil and gas properties is provided on a
property-by-property basis. Gains or losses are recorded on the sale of oil and
gas properties if the entire amortization base is sold.

Leasehold costs are capitalized when incurred. Unproved oil and gas
properties with significant acquisition costs are periodically assessed and any
impairment in value is charged to exploration costs. The costs of unproved
properties which are not individually significant are assessed periodically in
the aggregate based on historical experience, and any impairment in value is
charged to exploration costs. The costs of unproved properties which are
determined to be productive are transferred to proved oil and gas properties.

Exploration costs, such as geological and geophysical expenses and annual
delay rentals, are charged to expense as incurred. Exploratory drilling costs,
if any, including the costs, if any, of stratigraphic test wells, are initially
capitalized but charged to expense if and when the well is determined to be
unsuccessful or one year has passed, whichever comes first.

IMPAIRMENT OF OIL AND GAS PROPERTIES

The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." SFAS 121 requires that proved oil and
gas properties be assessed for an impairment in their carrying value whenever
events or changes in circumstances indicate that such carrying value may not be
recoverable. SFAS 121 requires that this assessment be performed by comparing
the undiscounted future net cash flows and net carrying value of oil and gas
properties. This assessment must generally be performed on a
property-by-property basis. No impairment was recognized by the Company for the
year ended December 31, 1999. For the year ended December 31, 1998, the Company
recognized an impairment of its oil and gas properties in the amount of $24.8
million due to the significant decline in oil and gas commodity prices realized
during 1998, coupled with the effect of applying purchase accounting to the
Midland Merger. No such impairment of the carrying value of oil and gas
properties was required in 1997.

SFAS 121 requires that future revenue from the Company's oil and gas
production be estimated at prices at which management expects such products will
be sold. In evaluating its oil and gas properties for impairment at December 31,
1999, management has estimated such future product prices at levels which it
believes are reasonable and supportable. Any downward revisions to management's
estimates of product prices could result in additional impairments of its oil
and gas properties in future periods.

OTHER PROPERTY AND EQUIPMENT

Other property and equipment are comprised of furniture, office equipment,
fixtures and automobiles. These items are amortized on a straight-line basis
over their estimated useful lives, which range from five to seven years.

F-43
<PAGE> 106
VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

OTHER ASSETS

Other assets are primarily comprised of deferred debt issuance costs and
are presented net of accumulated amortization in the financial statements. For
the year ended December 31, 1998, the Company expensed all previously
capitalized organization costs and the debt issuance costs associated with its
former bank financing with Union Bank of California in accordance with SOP 98-5,
"Reporting on the Costs of Start-Up Activities" totaling $0.6 million. Deferred
debt issuance costs associated with the existing BankBoston, N.A. ("BankBoston")
credit facility of $.6 million and $.4 million at December 31, 1999 and 1998,
respectively, are being amortized over the life of the related debt agreements.

REVENUE RECOGNITION POLICY

Revenues are recorded when products have been delivered and services have
been performed. The Company uses the sales method to account for gas imbalances.
Under this method, revenue is recognized based on the cash received rather than
the Company's proportionate share of gas produced. The Company's imbalances at
year ended December 31, 1999 and 1998 were not significant.

INCOME TAXES

Prior to the Conversion, the results of operations of the Company were
included in the tax returns of its owners. As a result, tax strategies were
implemented that are not necessarily reflective of strategies the Company would
have implemented as a taxable entity. In addition, the tax net operating losses
generated by the Company during the period from its inception, September 21,
1995, to the date of the Conversion, October 28, 1998, will not be available to
the Company to offset future taxable income as such benefit accrued to the
owners.

In conjunction with the Conversion, the Company adopted SFAS 109,
"Accounting for Income Taxes." Under this method of accounting for income taxes,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the 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 those temporary
differences are expected to be recovered or settled. Under SFAS 109, the effect
on deferred tax assets and liabilities of a change in enacted tax rates is
recognized in income in the period that includes the enactment date. SFAS 109
requires that the net deferred tax liabilities of the Company on the date of the
Conversion be recognized as a component of income tax expense. The Company
recognized approximately $2.6 million in deferred tax liabilities and income tax
expense as of the date of the Conversion.

Upon the Conversion, the Company became taxable as a corporation. Pro forma
income tax information presented in the accompanying consolidated statements of
operations, reflects the income tax expense (benefit) and net income (loss) as
if all Vista Partnership income had been subject to corporate federal income
tax, exclusive of the effects of recording the Company's net deferred tax
liabilities upon the Conversion.

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest for the year ended December 31, 1999, 1998 and 1997
was $4.1 million, $1.2 million and $0.7 million, respectively. No amounts have
been paid for income taxes.

F-44
<PAGE> 107
VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FINANCIAL INSTRUMENTS

The Company uses derivatives on a limited basis to hedge against interest
rate and product prices risks, as opposed to their use for trading purposes. The
Company's policy is to ensure that a correlation exists between the financial
instruments and the Company's pricing in its sales contracts prior to entering
into such contracts. Gains and losses on commodity futures contracts and other
price risk management instruments are recognized in oil and natural gas revenues
when the hedged transaction occurs. Cash flows related to derivative
transactions are included in operating activities.

ACCOUNTING FOR STOCK OPTIONS

Upon the Conversion, the Company adopted the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). In accordance with APB 25, no compensation will be recorded for
stock options or other stock-based awards that are granted with an exercise
price equal to or above the common stock price on the date of the grant. The
Company will, however, follow the disclosure requirements of SFAS 123,
"Accounting for Stock-Based Compensation" which requires the Company to present
pro forma disclosures of net income and earnings per share as if compensation
expense was recognized for employee stock options.

CREDIT AND PERFORMANCE RISKS

Credit risk is the risk of loss as a result of nonperformance by financial
counterparties of their contractual obligations. Because the loss can occur at
some point in the future, a potential exposure is added to current replacement
value to arrive at a total expected credit exposure. Performance risk results
when a counterparty fails to fulfill its contractual obligation such as
commodity pricing or volume commitments. Typically these risk obligations are
defined within the trading agreements. The Company believes these credit and
performance risks are negligible.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of the Company's cash and cash equivalents approximates
their fair value of those instruments due to their short maturity. The fair
value of the Company's long-term debt is based on the current rates offered to
the Company for debt with the same remaining maturity. The Company believes the
fair value of its long-term debt approximates its carrying value due to its
variable interest rate.

REVERSE STOCK SPLIT

Effective as of February 8, 2000, the Company's stockholders approved a
one-for-seven reverse stock split. All earnings per share and share amounts in
these financial statements have been restated for all periods presented to
reflect the reverse stock split.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income." SFAS 130 establishes standards for reporting
and displaying of comprehensive income and its components (revenue, expenses,
gains and losses) in a full set of general-purpose financial statements. For the
years ended December 31, 1999, 1998 and 1997, the Company reported no
differences between comprehensive income (loss) and net income (loss).

In June 1997, the FASB issued SFAS 131,"Disclosures about Segments of an
Enterprise and Related Information," which requires reporting of financial and
descriptive information about a company's reportable operating segments. The
Company has identified only one operating segment, which is the exploration and
production of oil and gas.
F-45
<PAGE> 108
VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In June 1998, the FASB issued Statement of SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities," which is required to be adopted
for fiscal years beginning after June 15, 2000. SFAS 133 requires that
derivatives be reported on the balance sheet at fair value and, if the
derivative is not designated as a hedging instrument, changes in fair value must
be recognized in earnings in the period of change. If the derivative is
designated as a hedge, and to the extent such hedge is determined to be
effective, changes in fair value are either offset by the change in fair value
of the hedged asset or liability (if applicable) or reported as a component of
other comprehensive income in the period of change, and subsequently recognized
in earnings when the offsetting hedged transaction occurs. The definition of
derivatives has also been expanded to include contracts that require physical
delivery of oil and gas if the contract allows for net cash settlement. The
Company primarily uses derivatives to hedge product price and interest rate
risks. These derivatives are recorded at cost, and gains and losses on such
derivatives are reported when the hedged transaction occurs. Accordingly,
adoption of SFAS 133 will have an impact on the reported financial position of
the Company, and although such impact has not been determined, it is currently
not believed to be material. Adoption of SFAS 133 should have no significant
impact on reported earnings, but could materially affect comprehensive income.

RECLASSIFICATIONS

Certain amounts in the prior periods' financial statements have been
reclassified to conform with the current year presentation.

3. SIGNIFICANT ACQUISITIONS OF OIL AND GAS PROPERTIES AND OTHER ASSETS:

1999 Acquisitions

The Company made no material asset acquisitions during 1999.

1998 Acquisitions

On October 28, 1998, the Company completed the Conversion and the Midland
Merger (see Note 1). The Company issued 638,589 shares of common stock and
165,896 warrants with an exercise price of $28.00 per share to the Midland
Resources shareholders and warrant holders and assumed 261,800 Midland Resources
employee options (which expired without exercise in February 1999). The Company
also assumed 2,522,670 Midland Resources warrants to effect the Midland Merger.
In connection with the Midland Merger, the Company issued 1,700,501 shares of
common stock and 8,563,028 warrants with an exercise price of $28.00 per share
to the Vista Partnership's existing partners so that the security holders of the
Vista Partnership would own 72.7 percent of the Company's outstanding stock and
warrants. The estimated value recorded for the consideration paid to the Midland
Resources shareholders was based on the market value of the Midland Resources
securities at the announcement of the Midland Merger on May 26, 1998. The
allocation of the purchase price for the assets acquired and liabilities assumed
was as follows:

<TABLE>
<S> <C>
Working capital....................................... $ (895,132)
Oil and gas properties................................ 37,296,391
Debt assumed.......................................... (10,445,394)
Deferred income taxes................................. (6,910,351)
------------
Purchase Price...................................... $ 19,045,514
============
</TABLE>

From the announcement of the Midland Merger in May 1998 to the closing in
October 1998, the trading price of the Midland Resources common stock declined.
In addition, oil prices decreased significantly from May 1998 to December 1998.
Accordingly, at December 31, 1998 the Company

F-46
<PAGE> 109
VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recorded a significant impairment charge to the allocated value of oil and gas
properties recorded in purchase accounting for the Midland Merger. The total
impairment recognized related to the properties acquired from Midland Resources
was approximately $22.2 million.

On December 18, 1998 (effective date of October 1, 1998), the Company
acquired working interests ranging from 65 percent to 85 percent in a group of
oil and gas producing leases from IP Petroleum Company, Inc. and certain of its
working interest partners. These leases are located primarily in the War-Wink
area of Ward and Winkler Counties, Texas, and the interests were acquired for a
purchase price of $19.1 million (the "IP Acquisition"). Collectively, the
Midland Merger and the IP Acquisition are referred to herein as the "1998
Acquisitions."

Pro Forma Condensed Statements of Operations

The following unaudited Pro Forma Condensed Combined Statements of
Operations for the years ended December 31, 1998 and 1997 give effect to the
1998 and 1997 Acquisitions as if the acquisitions had been consummated at
January 1, 1998 and 1997. The unaudited pro forma data is presented for
illustrative purposes only and is not necessarily indicative of the operating
results that would have occurred had the transactions been consummated at the
dates indicated, nor are they necessarily indicative of future operating
results.

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1998 1997
------------ -----------
<S> <C> <C>
Total revenues............................................ $ 17,201,844 $25,366,211
Net income (loss)......................................... (25,583,668) 2,548,993
Basic income (loss) per share............................. (10.99) .16
Diluted net income (loss) per share....................... (10.99) .16
</TABLE>

1997 Acquisitions

In addition to acquiring various additional small working interests and
overriding royalty interests in properties already owned and operated by the
Company, the Company closed two significant producing property acquisitions in
1997 (collectively, the "1997 Acquisitions"). In May 1997, the Company acquired
all of the interests of Coastal Oil and Gas Corporation in three producing
leases located in the Howard Glasscock Field, Howard County, Texas, for a net
purchase price of $1.1 million. The interests acquired were attributable to
leases in which the Company already owned interests and which were operated by
the Company.

Effective as of July 1, 1997, the Company acquired substantially all of the
producing oil and gas properties (representing working interests ranging from 25
percent to 100 percent in approximately 44 wells located in West Texas, South
Texas, East Texas and Southeastern New Mexico) from E.G. Operating, a division
of FGL, Inc., for a net purchase price of $6.1 million. All of the Company's
1997 acquisitions were funded through a combination of proceeds from long-term
borrowings and cash provided by operating activities.

All of the acquisitions described above (1998 and 1997) were accounted for
using the purchase method of accounting. Accordingly, results of operations from
these acquisitions are included in the accompanying financial statements only as
of the closing dates for each of the acquisitions involved.

F-47
<PAGE> 110
VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. SALE OF OIL AND GAS PROPERTIES:

During 1999, the Company sold certain oil and gas properties for a total
net consideration of $.3 million, which resulted in a recognized gain of $.1
million. During 1998, the Company sold certain oil and gas properties for a
total net consideration of $0.5 million, which resulted in a recognized loss of
$0.3 million. During 1997, the Company sold certain oil and gas properties for a
total net consideration of $0.4 million, which resulted in a recognized loss of
$0.1 million. All of the properties sold in 1999, 1998 and 1997 were lower-end,
non-strategic, producing oil and gas leases located primarily in the Permian
Basin of West Texas.

5. OIL AND GAS PRODUCING ACTIVITIES:

The following table sets forth certain information regarding the aggregate
capitalized costs of oil and gas properties:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Proved properties........................................ $ 93,368,275 $ 86,142,634
Unproved properties...................................... 1,596,915 828,031
Accumulated depreciation, depletion and amortization... (35,438,170) (30,850,079)
------------ ------------
Net Capitalized Costs.......................... $ 59,527,020 $ 56,120,586
============ ============
</TABLE>

The following table sets forth certain information regarding costs incurred
in connection with the Company's oil and gas producing activities:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
Property acquisitions:
Proved properties............................ $3,019,815 $53,822,839 $ 7,217,464
Unproved properties.......................... 895,955 681,665 19,295
Development costs............................ 4,076,436 603,396 5,381,429
Exploration costs............................ 52,850 32,077 176,792
---------- ----------- -----------
$8,045,056 $57,139,977 $12,794,980
========== =========== ===========
</TABLE>

6. LONG-TERM DEBT:

As of December 31, 1999, $53.0 million was outstanding under a $100 million
revolving Credit Agreement dated December 18, 1998, and accompanying note (the
"Credit Facility") with BankBoston subject to a borrowing base, which is
redetermined on a semi-annual basis. The borrowing base at December 31, 1999 was
$55 million. The next scheduled borrowing base redetermination is scheduled for
February 28, 2000. Borrowings under the Credit Facility are to be used for the
acquisition and development of oil and gas properties and for other Company
purposes.

The Company has two options with respect to interest rate elections on
borrowings under the Credit Facility. The Company may either elect an interest
rate equal to (i) the Alternate Base Rate plus the Applicable Margin ("Prime
Basis") or (ii) a Eurodollar rate (i.e., London Interbank Offered Rate) plus the
Applicable Margin ("LIBOR Basis"). The Applicable Margin (as defined in the
Credit Facility) will be adjusted for Borrowing Base usage. The LIBOR Basis
option provides for one-, two-, three-, six- and twelve- month interest periods.
At December 31, 1999, the effective interest rate on the amount outstanding was
8.98 percent.

F-48
<PAGE> 111
VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Unless otherwise extended by BankBoston, the Credit Facility converts to a
three-year fully amortizing term loan at December 15, 2001.

The obligations of the Company under the Credit Facility are secured by a
first lien deed of trust on the Company's interests in certain of its oil and
gas properties.

The Credit Facility contains two financial covenants including a minimum
current ratio, including available borrowings, of 1:1 and an interest coverage
to EBITDA test (2.0 to 1.0 for the four-fiscal quarter period ending December
31, 1998; 2.25 to 1.0 for the four-fiscal quarter period ending March 31, 1999;
and 2.5 to 1.0 for each four-fiscal quarter period thereafter). The Credit
Facility also includes covenants which, among other things, restrict the
incurrence of additional indebtedness and the sale or acquisition of oil and gas
properties above certain levels without the consent of the lender.

Effective as of December 23, 1997, the Company entered into an interest
rate swap accounted for as a hedge with any realized gains or losses
appropriately recorded as interest expense (See Note 12 for further discussion
of hedge accounting). The swap consists of a $10 million notional amount of
indebtedness at a fixed swap rate of 6.02 percent three-month LIBOR for the
Company. Effective as of January 1, 1999, this interest rate swap was assigned
to BankBoston. In conjunction with such assignment the terms of the swap were
modified to reduce the fixed swap rate from 6.02 percent to 5.65 percent and to
provide for the right of BankBoston, at its option, to extend the term of the
swap until December 23, 2000. BankBoston elected not to extend the term of the
swap. Accordingly, the swap terminated on December 23, 1999.

The aggregate maturities of long-term debt at December 31, 1999, are as
follows:

<TABLE>
<S> <C>
2000................................................... $ 0
2001................................................... 0
2002................................................... 17,666,667
2003................................................... 17,666,667
2004................................................... 17,666,666
-----------
Totals....................................... $53,000,000
===========
</TABLE>

7. EMPLOYEE BENEFIT PLANS:

Stock Option Plan

In October 1998, the Company adopted its 1998 Key Employee Stock Option
Plan (the "1998 Plan") for key employees of the Company. Under the 1998 Plan,
options to acquire up to 128,571 shares of common stock of the Company may be
granted and outstanding at any given time. The specific terms of grant and
exercise are determinable by the Compensation Committee of the Board of
Directors of the Company. No options were issued in 1998 or 1999. The exercise
price for the options must not be less than the fair market value per common
share at the date of grant. The options vest over a three-year period (33
percent, 66 percent and 100 percent) and expire five years from the date of
grant.

Prior Vista Partnership Option Plan

Effective September 26, 1995, the board of directors of the General Partner
of the Vista Partnership adopted an original Option Plan (the "Plan") for
certain officers and employees of the Vista Partnership and its affiliates. The
Plan authorizes the grant of options to acquire units of limited partnership
interests in the Vista Partnership ("Units"). Effective April 1, 1997, the board
of directors of the General Partner of the Vista Partnership amended and
restated the Plan in order to provide for additional options to be added to the
Plan (the "Amended Plan"). As of December 31, 1997, the Amended Plan provided
for future awards of options of up to 165,000 Units.

F-49
<PAGE> 112
VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Amended Plan provided for the issuance of 1,580,321 options in six
separate series with an initial exercise price of $1 (series A-D or "$1
options") and $2 (series E-F or "$2 options") which were to be increased 10
percent per annum from the initial plan adoption date of September 26, 1995, for
the $1 options and April 1, 1997, for the $2 options. Option A series, covering
550,358 units, was to vest at a rate of one-third of the options at each of the
dates of April 1, 1998, 1999 and 2000. Option B, C, D and E series were to vest
on the dates that the board determines that the current value of partnership
units had increased by a factor of 3, 4, 5 and 6, respectively, or on the date
that such per unit amounts of cash or other assets have been or are authorized
to be distributed to the partners. Option B, C, D and E series covered 152,877;
159,826; 167,260 and 350,000 units, respectively.

Prior to the closing of the Midland Merger, all options under the Amended
Plan vested and such options were exercised by the option holders. At the
closing of the Midland Merger, the Units issued as a result of the exercise of
the options were exchanged for shares of Common Stock of the Company pursuant to
the Exchange Agreement (See Note 1). Accordingly, the Amended Plan was
terminated effective with the closing of the Midland Merger.

Prior to the closing of the Midland Merger, the Company accounted for the
Units issued under the Amended Plan under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." Based on an estimated fair
value of $2 per unit, the Company recorded a noncash charge for the expected
value of the vested $1 options in the amount of $0.3 million for the year ended
December 31, 1997. As a result of the exercise of the options, the exchange of
the Units received pursuant to such exercise under the Exchange Agreement and
the termination of the Amended Plan, the Company recorded a noncash charge in
the amount of $4.3 million for the year ended December 31, 1998. Had
compensation cost for the Amended Plan been determined consistent with SFAS 123,
"Accounting for Stock-Based Compensation," the Company would not have reported
any compensation cost related to the Amended Plan for any periods presented in
the accompanying Consolidated Statements of Operations.

401(k) Savings

The Company has a 401(k) profit sharing and savings plan (the "401(k)
Plan"). The initial plan was established by Midland Resources, however; upon
closing of the Midland Merger, the Company adopted the 401(k) Plan. Eligible
employees may make voluntary contributions to the 401(k) Plan. The amount
contributed by the employees to the 401(k) Plan are limited as specified by the
401(k) Plan. The Company may, at its discretion, make additional contributions
to the 401(k) Plan. The Company has historically made a profit sharing
contribution to the 401(k) Plan in an amount equal to the employees contribution
up to 3 percent of the employees gross salary. The Company incurred costs of
$40,884, $24,086 and $18,515 in 1999, 1998 and 1997, respectively, with respect
to its defined contribution plan.

Treasury Stock

Under its 1999 Restricted Stock Plan, the Company issued 54,992 shares of
Common Stock (7,856 shares after giving effect to a one-for-seven reverse stock
split) to certain employees. The issuance of such stock was recorded as
compensation expense at the market price of the stock at the time of issuance
which was $103,110.

F-50
<PAGE> 113
VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES:

The Company leases 10,963 square feet of office space at 550 West Texas
Avenue, Suite 700 Midland, Texas from Fasken Center, Ltd. under an office lease
dated October 10, 1996 (as amended from time to time, the "Lease"). The Lease is
a non-cancelable operating office lease containing standard and customary lease
provisions and runs from January 1, 1997, through August 31, 2002. The annual
rental payments due under the Lease are as follows:

<TABLE>
<CAPTION>
PERIOD AMOUNT
------ --------
<S> <C>
September 1, 1999 -- August 31, 2000........................ $ 86,676
September 1, 2000 -- August 31, 2001........................ 86,676
September 1, 2001 -- August 31, 2002........................ 86,676
--------
$260,028
========
</TABLE>

The Company also has office space leased at 616 F.M. 1960 West, Suite 600,
Houston, Texas 77090. This lease space is space previously leased by Midland
Resources. The Company has sublet its space in Houston since it conducts no
operations in the Houston area. This lease expires in 2002.

Litigation

The Company and its subsidiaries are involved in various other lawsuits and
certain governmental proceedings arising in the ordinary course of business.
Company management and legal counsel do not believe that the ultimate resolution
of these claims will have a material effect on the Company's financial position
or the results of its operations.

9. SIGNIFICANT CUSTOMERS:

The Company's revenues are derived principally from uncollateralized sales
to customers in the oil and gas industry. The concentration of credit risk in a
single industry affects the Company's overall exposure to credit risk because
customers may be significantly affected by changes in economic and other
conditions. In addition, the Company sells a significant portion of its oil and
natural gas revenue each year to a few customers. Oil and gas sales to two
purchasers in 1999 were approximately 11 percent and 15 percent of total 1999
oil and gas revenues. Oil and gas sales to three purchasers in 1998 were
approximately 10 percent, 14 percent and 18 percent of total 1998 oil and gas
revenues. Oil sales to three purchasers in 1997 were approximately 20 percent,
19 percent and 18 percent of total 1997 oil and gas revenues.

Management does not believe that the loss of any one customer would have a
significant impact on the Company's results of operations.

10. EARNINGS PER SHARE:

Effective December 31, 1997, the Company adopted the provisions of SFAS
128, "Earnings Per Share," which prescribes standards for computing and
presenting earnings per share ("EPS") and supersedes APB Opinion 15, "Earnings
Per Share."

The computation of basic and diluted earnings (loss) per share were
identical for the years ended December 31, 1999, 1998 and 1997 due to the
following:

Options to purchase 37,408 shares of common stock were outstanding
since October 28, 1998, but were not included in the computation of diluted
EPS because the options' exercise price was

F-51
<PAGE> 114
VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

greater than the average market price of the Common Stock. All outstanding
options expired in February 1999.

Warrants to purchase 1,783,724 shares of Common Stock were not
included in the computation of EPS as the Company's common stock market
price did not exceed the exercise price of $28.00 per share and the
warrants are antidilutive as a result of the Company's net loss for the
year ended December 31, 1999. All of these warrants, 11,811,073 of which
expire on November 1, 2002, with the remaining warrants expiring from March
1999 through June 2002, were still outstanding at December 31, 1999.

As the Conversion was not completed until October 28, 1998, there were no
potentially dilutive equity securities outstanding at either December 31, 1997
and 1996.

EPS has been calculated for all periods presented as if the Conversion had
been completed on January 1, 1996.

Effective February 8, 2000, the Company's stockholders approved a
one-for-seven reverse stock split in connection with the Prize Merger (see Note
14, Subsequent Event). The earnings per share information has been adjusted to
reflect the reverse split retroactively for all periods presented.

11. INCOME TAXES:

Upon the Conversion, the Company became taxable as a corporation. Pro forma
income tax information presented in the accompanying statements of operations,
reflects the income tax expense (benefit) and net income (loss) as if all Vista
Partnership income had been subject to corporate federal income tax, and
summarizes the effects of recording the Company's net deferred tax liabilities
upon the Conversion.

The effective income tax rate for the company was different than the
statutory federal income tax rate for the following reasons:

<TABLE>
<CAPTION>
1999 1998
-------- ------------
<S> <C> <C>
Income tax expense (benefit) at the Federal statutory rate
of 35 percent............................................. $196,000 $(10,976,249)
Nondeductible Merger Costs.................................. 243,000 --
Effect of change in tax status at Conversion................ -- 2,635,353
Unit option awards not deductible for Tax................... -- 1,491,731
Tax loss generated prior to Conversion...................... -- 288,814
Valuation Allowance on Net Operating Loss................... 214,000 0
-------- ------------
Income tax expense (benefit)................................ $653,000 $ (6,560,351)
======== ============
</TABLE>

Components of income tax expense (benefit) are as follows:

<TABLE>
<CAPTION>
1999 1998
-------- -----------
<S> <C> <C>
Current income tax.......................................... $ -- $ --
Deferred income tax expense (benefit)....................... 653,000 (6,560,351)
-------- -----------
Income tax expense (benefit)................................ $653,000 $(6,560,351)
======== ===========
</TABLE>

F-52
<PAGE> 115
VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred tax assets and liabilities are the result of temporary differences
between the financial statement carrying values and tax bases of assets and
liabilities. The Company's net deferred tax liabilities are recorded as a
long-term liability of $1 million and $0.4 million as of December 31, 1999 and
1998, respectively. Significant components of net deferred tax assets and
liabilities are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforward.......................... $ 4,520,000 $ 2,304,000
Valuation Allowance...................................... (214,000) --
----------- -----------
4,306,000 2,304,000
Deferred Tax Liabilities:
Book property basis in excess of tax basis............... (5,309,000) (2,654,000)
----------- -----------
Net deferred tax liabilities............................. $ 1,003,000 $ 350,000
=========== ===========
</TABLE>

As of December 31, 1999, the Company has estimated tax loss carryforwards
of approximately $13.1 million, which are scheduled to expire in 2000 through
2020. Net operating loss carryforwards of $5.6 million at December 31, 1999 are
subject to separate return limitations regarding Midland Resources. Based on the
expiration date of certain net operating loss carryforwards, the Company
determined at December 31, 1999 that the realization of certain of these tax
loss carryforwards was not likely. Accordingly, at December 31, 1999, a
valuation allowance was provided for these carryforwards.

12. FINANCIAL INSTRUMENTS:

Commodity Price Hedging Instruments

The Company periodically uses derivative financial instruments to manage
crude oil and natural gas price risk. These instruments qualify as hedges under
generally accepted accounting principles and are properly recorded as
adjustments to oil and gas sales in the consolidated statements of operations.
In order to qualify for hedge accounting, each financial instrument must be
initially designated as a hedge, must appropriately reduce the price risk and
must have correlation to the commodity being hedged. If an instrument does not
qualify as a hedge, then it is accounted for as a speculative transaction. It is
the Company's policy not to engage in speculative transactions of this nature.
The Company's realized gains and losses attributable to its price risk
management activities were $(2.8) million, $0.9 million and $(0.2) million for
the years ended December 31, 1999, 1998 and 1997.

In the tables set forth below, "Transaction Date" is the date on which the
Company entered into the hedge. The Company typically enters into "swaps" or
"collars." A swap is a fixed-price hedge and a collar is a hedge that has a
ceiling price and a floor price. If the particular product price stays in
between the ceiling and the floor prices, then no payments are made by either
party under a collar. The terms "Put Floor Price" and "Call Ceiling Price" refer
to the prices at which the Company has hedged its production and are expressed
in the calendar monthly average of daily NYMEX closing prices for Light Sweet
Crude Oil or monthly NYMEX (Henry Hub) closing prices for natural gas. Volumes
refer to barrels of crude oil or Mcf of gas, where one Mcf is equivalent to one
MMBtu. The "Term" refers to the time period of the hedge.

F-53
<PAGE> 116
VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Set forth below is the contract amount and material terms of all crude oil
hedging instruments held by the Company at December 31, 1999:

<TABLE>
<CAPTION>
TYPE MONTHLY PUT FLOOR CALL CEILING FAIR VALUE (LOSS)
TRADE DATE TRANSACTION VOLUME PRICE PER BBL PRICE PER BBL TERM AT DECEMBER 31, 1999
---------- ----------- ------- ------------- ------------- ---- --------------------
<S> <C> <C> <C> <C> <C> <C>
12-11-98 Swap 40,000 $14.20 $14.20 8-1-99 to 6-30-00 $(2,192,475)
4-19-99 Collar 20,000 15.00 17.00 1-1-00 to 6-30-00 (777,737)
4-19-99 Collar 40,000 15.00 16.85 7-1-00 to 12-31-00 (939,039)
</TABLE>

Set forth below is the contract amount and material terms of all NYMEX
natural gas hedging instruments held by the Company at December 31, 1999:

<TABLE>
<CAPTION>
TYPE MONTHLY PUT FLOOR CALL CEILING FAIR VALUE (LOSS)
TRADE DATE TRANSACTION VOLUME PRICE PER MCF PRICE PER MCF TERM AT DECEMBER 31, 1999
---------- ----------- ------- ------------- ------------- ---- --------------------
<S> <C> <C> <C> <C> <C> <C>
1-12-99 Swap 120,000 $2.12 $2.12 1-1-00 to 12-31-00 $ (475,000)
2-8-99 Swap 120,000 $2.35 $2.35 1-1-01 to 12-31-01 (221,640)
</TABLE>

The Company also hedges from time to time the basis for its natural gas
production which depends upon the location of its gas production. Such basis
hedges are immaterial to the financial performance of the Company. As of
December 31, 1999, the Company had hedged approximately 30 percent of estimated
2000 oil production and 40 percent of estimated 2000 natural gas production. As
of December 31, 1999, the Company had hedged 39 percent of estimated 2001
natural gas production.

Interest Rate Swap Agreement

Effective as of December 23, 1997, the Company entered into an interest
rate swap accounted for as a hedge with any realized gains or losses
appropriately recorded as interest expense. The swap consists of a $10 million
notional amount of indebtedness at a fixed swap rate of 6.02 percent three-month
LIBOR for the Company. Effective as of January 1, 1999, this interest rate swap
was assigned to BankBoston. In conjunction with such assignment the terms of the
swap were modified to reduce the fixed swap rate from 6.02 percent to 5.65
percent and to provide for the right of BankBoston, at its option, to extend the
term of the swap until December 23, 2000. BankBoston elected not to extend the
term of the swap. Accordingly, the swap terminated on December 23, 1999.

13. OIL AND GAS RESERVES INFORMATION (UNAUDITED):

The estimates of the Company's proved oil and gas reserves, which are
located entirely within the United States, were prepared in accordance with
guidelines established by the Securities and Exchange Commission and the
Financial Accounting Standards Board. Williamson Petroleum Consultants reviewed
leases containing 98 percent of the estimated reserves prepared by the Company
as of December 31, 1999. Williamson Petroleum Consultants, Inc. evaluated leases
containing 97 percent of the estimated reserves prepared by the Company as of
December 31, 1998. The estimates as of December 31, 1997, were prepared by the
Company based on work done in conjunction with Williamson Petroleum Consultants,
Inc.

F-54
<PAGE> 117
VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

held constant throughout the life of the properties. Average prices used in
estimating the future net cash flows at December 31, 1999, 1998 and 1997 were as
follows: $25.60, $10.64 and $16.10 per barrel for oil, respectively, and $2.30,
$1.83 and $2.01 per Mcf for natural gas, respectively.

There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures. Oil and gas reserve engineering is and must be
recognized as a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in any exact way, and estimates of other
engineers might differ materially from those shown below. The accuracy of any
reserve estimate is a function of the quality of available data and engineering
and estimates may justify revisions. Accordingly, reserves estimates are often
materially different from the quantities of oil and gas that are ultimately
recovered. Reserve estimates are integral in management's analysis of
impairments of oil and gas properties and the calculation of depreciation,
depletion and amortization on its properties.

The following unaudited table sets forth proved oil and gas reserves at
December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
1999 1998 1997
----------------------- ----------------------- -----------------------
OIL (BBLS) GAS (MCF) OIL (BBLS) GAS (MCF) OIL (BBLS) GAS (MCF)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Proved Reserves:
Beginning of year... 10,458,770 31,645,967 7,216,559 11,295,325 4,540,419 7,185,636
Revisions of
previous
estimates........ 4,440,500 6,222,728 (1,669,606) (2,576,510) 1,304,819 (969,377)
Extensions and
discoveries...... 59,091 1,127,502 465,458 4,182,533 1,161,953
Purchase of minerals
in place......... 270,866 816,787 5,118,101 20,024,034 762,282 6,206,929
Sale of minerals in
place............ (7,484) (7,780) (142,316) (28,925) (148,902) (343,565)
Production.......... (910,663) (2,901,263) (529,426) (1,250,490) (403,812) (784,298)
---------- ---------- ---------- ---------- --------- ----------
End of year......... 14,311,080 36,903,941 10,458,770 31,645,967 7,216,759 11,295,325
========== ========== ========== ========== ========= ==========
Proved Developed
Reserves:
Beginning of year... 6,708,844 22,613,532 3,559,850 7,909,902 3,092,149 5,510,499
---------- ---------- ---------- ---------- --------- ----------
End of year......... 9,426,593 24,324,839 6,708,844 22,613,532 3,559,850 7,909,902
========== ========== ========== ========== ========= ==========
</TABLE>

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

(1) Proved reserves have historically been revised upward as a result of
successful in-field drilling and implementation of secondary recovery
projects which result in the reclassification of "probable" reserves to the
"proved" category. Other less significant revisions occurred and are
attributable to properties Vista purchased which, as a result of additional
in-depth geological and engineering reviews, were determined to have
additional proved reserves (i.e., more than were originally identified at
the time of purchase). During 1998, negative reserve revisions were the
result of significantly lower prices from the previous year. During 1999,
reserve revisions were also the result of significantly higher prices from
the pervious year.

F-55
<PAGE> 118
VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the standardized measure of discounted
future net cash flows relating to proved reserves at December 31, 1999, 1998 and
1997:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Cash Flows Relating to Proved Reserves:
Future cash flows.................... $ 433,726,012 $170,551,299 $131,921,276
Future costs:
Production......................... (142,258,888) (69,536,325) (45,194,356)
Development........................ (21,058,186) (15,369,172) (12,371,206)
Income taxes....................... (55,436,594) -- (10,032,197)
------------- ------------ ------------
Future net cash flows................ 214,972,344 75,613,605 74,355,714
10% discount factor.................. (77,845,272) (25,376,691) (35,775,170)
------------- ------------ ------------
Standardized measure of discounted future
net cash flows.......................... $ 137,127,072 $ 50,236,914 $ 38,580,544
============= ============ ============
</TABLE>

Had the Company been a taxable entity at December 31, 1997, the future
income taxes would have been $14.1 million on an undiscounted basis and $7.8
million on a discounted basis, and the standardized measure of discounted future
net cash flows at December 31, 1997 would have been $37.0 million.

The following table sets forth the changes in the standardized measure of
discounted future net cash flows relating to proved reserves for the years ended
December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Standardized Measure, Beginning of Year.... $ 50,236,914 $ 38,580,544 $ 40,851,543
Net change in sales prices, net of
production costs...................... 69,796,078 (17,336,320) (12,557,771)
Development costs incurred during the
year which were previously
estimated............................. 3,252,000 3,000,000 5,073,000
Revisions of quantity estimates.......... 45,963,149 (6,361,075) 6,325,872
Extensions, discoveries and improved
recovery, net of future production and
development costs..................... 1,606,189 4,296,455 2,382,351
Accretion of discount.................... 5,023,691 3,858,054 4,085,154
Change in future development costs....... (6,787,182) 4,484,697 (4,116,068)
Change in timing and other............... (6,723,708) (2,830,538) (5,394,793)
Purchases of reserves in place........... 3,302,009 27,382,247 8,289,041
Sales of reserves in place............... (4,874) (498,478) (1,171,519)
Sales, net of production costs........... (13,310,719) (4,338,672) (5,186,266)
Net change in income taxes............... (15,226,475) 0 0
------------ ------------ ------------
Standardized Measure, End of Year........ $137,127,072 $ 50,236,914 $ 38,580,544
============ ============ ============
</TABLE>

F-56
<PAGE> 119
VISTA ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. SUBSEQUENT EVENT:

On February 8, 2000, the Company and Prize Energy Corp., a Delaware
corporation ("Prize"), merged pursuant to the terms of an Agreement and Plan of
Merger dated October 8, 1999. The combined company's focused growth strategy is
concentrated on the acquisition and exploitation of oil and gas properties in
its core operating areas of the Permian Basin of West Texas and Southeastern New
Mexico, onshore Gulf Coast area of Texas and Louisiana and the Mid-Continent
area of Western Oklahoma and the Texas panhandle.

Under the terms and conditions of the merger between the Company and Prize,
Prize became a wholly-owned subsidiary of the Company in exchange for 8.3
million shares of common stock of the Company, and 3.9 million shares of a newly
created Series A 6% convertible preferred stock of the Company. The Company's
outstanding warrants remain outstanding in accordance with their terms. The
merger with Prize was structured as a reorganization for tax purposes. The
merger resulted in the previous holders of common stock of the Company owning
approximately 16 percent of the outstanding common stock of the combined company
and the holders of common stock and preferred stock of Prize collectively
owning, on a fully converted basis, approximately 84 percent of the outstanding
common stock of the combined company.

The combined company is headquartered in Dallas, Texas, with operating
offices in Midland and Victoria, Texas and Elmore City, Oklahoma. The combined
company has a capital structure consisting of approximately 10.7 million shares
of common stock outstanding, approximately $30.0 million of convertible
preferred securities and approximately $195 million of net long-term debt.

F-57
<PAGE> 120

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Vista Energy Resources, Inc.:

We have audited the accompanying statements of revenues and direct
operating expenses of the I.P. Acquisition (see Note 1) for the nine months
ended September 30, 1998, and the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the management of Vista Energy
Resources, Inc. 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, such statements present fairly, in all material respects,
the revenues and direct operating expenses of the I.P. Acquisition described in
Note 1 for the nine months ended September 30, 1998, and the years ended
December 31, 1997 and 1996, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Dallas, Texas,
February 25, 1999

F-58
<PAGE> 121

I.P. ACQUISITION

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998,
AND THE YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
NINE MONTHS YEAR YEAR
ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Oil and gas.......................................... $4,244,847 $8,897,264 $7,782,319
Total Revenues............................... 4,244,847 8,897,264 7,782,319
---------- ---------- ----------
Direct Operating Expenses:
Lease operating and production taxes................. 950,695 1,762,352 1,411,343
---------- ---------- ----------
Total direct operating expenses.............. 950,695 1,762,352 1,411,343
---------- ---------- ----------
Excess of Revenues Over Direct Operating Expenses...... $3,294,152 $7,134,912 $6,370,976
========== ========== ==========
</TABLE>

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

F-59
<PAGE> 122

I.P. ACQUISITION

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSE

1. BASIS OF PRESENTATION

On December 18, 1998, with an effective date of October 1, 1998, Vista
Energy Resources, Inc. (Vista or the Company) acquired working interests ranging
from 65 percent to 85 percent in a group of oil and gas producing leases from IP
Petroleum Company, Inc. and certain of its working interest partners. These
leases are located primarily in the War-Wink area of Ward and Winkler Counties,
Texas, and the interests were acquired for a purchase price of $19.1 million
(the "IP Acquisition").

The items of "direct operating expenses" included in the accompanying
statements of revenues and direct operating expense include all costs incurred
which are necessary for the production, marketing and distribution of the
products produced from the subject properties including costs and expenses of
field separation; treatment; dehydration; direct overhead charges, other than
costs associated with general corporate activities; pumper, roustabout and field
supervision labor; meter calibrations; engineering supervision charges; fuel and
electricity; valves, connections and other minor equipment repair; oil and
lubricants; major repairs, both downhole and surface; rental tools and
equipment; pipe inspection; trucking; reservoir testing; pressure testing; well
plugging; site remediation; operator bonding; insurance charges; salt water
disposal; water injection and pressure maintenance; gas compression; hot oil and
hot water treatments; filing fees; make-up water purchases; electrician charges;
mud and chemicals; pulling and workover units; other miscellaneous supplies and
services; and severance, ad valorem and other production related taxes and
charges. The accompanying statements of revenues and direct operating expenses
do not include costs associated with general corporate activities, interest
income or expense, a provision for depreciation, depletion and amortization or
any provision for income taxes because the subject properties acquired by Vista
from IP Petroleum, Inc. represent only a portion of a business and such items of
revenue, income, cost and expense are not necessarily indicative of the costs to
be incurred by Vista.

Historical financial information reflecting the financial position, results
of operations, and cash flows of the I.P. Acquisition are not presented because
the entire acquisition cost was assigned to the oil and gas property interests.
Accordingly, the historical statement of revenues and direct operating expenses
has been presented in lieu of the financial statements required under Rule 3-05
of Securities Exchange Commission Regulation S-X.

Revenue Recognition Policy

Revenues are recorded when products have been delivered and services have
been performed.

2. SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)

Reserve information presented below has been estimated by Vista's internal
engineers using September 30, 1998 and December 31, 1997 and 1996, prices and
costs. Proved reserves are estimated quantities of crude oil and natural gas
which, based on geologic and engineering data, are estimated to be reasonably
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are those which are expected to
be recovered through existing wells with existing equipment and operating
methods. Because of inherent uncertainties and the limited nature of reservoir
data, such estimates are subject to change as additional information becomes
available.

STANDARDIZED MEASURE OF DISCOUNTED NET CASH FLOWS RELATING TO PROVED OIL AND GAS
RESERVES

The standardized measure of discounted future net cash flows ("Standardized
Measure") is prepared using assumptions required by the Financial Accounting
Standards Board. Such assumptions include the use of year-end prices for oil and
gas and year-end costs for estimated future development and production
expenditures to produce year-end estimated proved reserves. Discounted future
net cash flows are calculated using a 10% rate.

F-60
<PAGE> 123
I.P. ACQUISITION

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

Future prices received for production and future production costs may vary,
perhaps significantly from the prices and costs assumed for purposes of these
estimates. There can be no assurance that the proved reserves will be developed
within the periods indicated or that prices and costs will remain constant.
There can be no assurance that actual production will equal the estimated
amounts used in the preparation of reserve projections. In accordance with the
Securities and Exchange Commission's guidelines, the Company's estimates of
future net cash flows from the Company's proved properties and the
representative value thereof are made using oil and natural gas prices in effect
as of the dates of the calendar year periods indicated and are held constant
throughout the life of the properties. Weighted-average prices of oil and gas at
September 30, 1998, December 31, 1997, and December 31, 1996 used in estimating
future net cash flows were as follows: $13.38, $16.43 and $24.69 per barrel for
oil, respectively, and $2.17, $2.01 and $3.43 per Mcf for natural gas,
respectively.

There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures. Oil and gas reserve engineering is and must be
recognized as a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in any exact way, and estimates of other
engineers might differ materially from those shown below. The accuracy of any
reserve estimate is a function of the quality of available data and engineering
and estimates may justify revisions. Accordingly, reserve estimates are often
materially different from the quantities of oil and gas that are ultimately
recovered. Reserve estimates are integral in management's analysis of
impairments of oil and gas properties and the calculation of depreciation,
depletion and amortization on its properties. Additionally, the Company did not
prepare any reserve information for the IP properties prior to September 30,
1998. Therefore, the previous years' reserves were estimated based on adjusting
the September 30, 1998 reserves for actual production and estimated additions to
proved reserves.

The following unaudited table sets forth proved oil and gas reserves at
September 30, 1998, December 31, 1997, and December 31, 1996:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
NINE MONTHS ENDED -----------------------------------------------
SEPTEMBER 30, 1998 1997 1996
---------------------- ---------------------- ----------------------
OIL GAS OIL GAS OIL GAS
(BBLS) (MCF) (BBLS) (MCF) (BBLS) (MCF)
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Proved Reserves:
Beginning of year............... 3,874,336 11,089,341 4,202,083 12,219,092 4,492,833 12,981,557
Extension and Discoveries....... -- -- -- -- -- --
Production...................... (134,336) (551,341) (327,747) (1,129,751) (290,750) (762,465)
--------- ---------- --------- ---------- --------- ----------
End of Year..................... 3,740,000 10,538,000 3,874,336 11,089,341 4,202,083 12,219,092
========= ========== ========= ========== ========= ==========
Proved Developed Reserves:
Beginning of Year............... 1,331,336 5,395,341 1,459,083 5,725,092 949,833 3,287,557
End of year..................... 1,247,000 5,044,000 1,331,336 5,395,341 1,459,083 5,725,092
</TABLE>

F-61
<PAGE> 124
I.P. ACQUISITION

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

The following table sets forth the standardized measure of discounted
future net cash flows relating to proved reserves at September 30, 1998,
December 31, 1997, and December 31, 1996:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Cash Flows Relating to Proved Reserves:
Future cash flows........................ $ 67,444,000 $ 93,600,000 $155,455,000
Future costs:
Production............................ (20,628,000) (21,578,000) (23,341,000)
Development........................... (5,948,000) (6,248,000) (7,448,000)
------------ ------------ ------------
Future net cash flows.................... 40,868,000 65,774,000 124,666,000
10% discount factor...................... (14,802,000) (26,750,000) (56,995,000)
------------ ------------ ------------
Standardized measure of discounted future
net cash flows........................ $ 26,066,000 $ 39,024,000 $ 67,671,000
============ ============ ============
</TABLE>

The following table sets forth the changes in the standardized measure of
discounted future net cash flows relating to proved reserves for the periods
ended September 30, 1998, December 31, 1997, and December 31, 1996:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------
1998 1997 1996
------------- ------------ -----------
<S> <C> <C> <C>
Standardized Measure, Beginning of Period... $ 39,024,000 $ 67,671,000 $37,095,000
Net change in sales price, net of
production costs....................... (13,730,000) (28,953,000) 25,284,000
Development costs incurred during the
period and changes in future
development costs...................... 178,000 651,000 2,401,000
Accretions of discount.................... 2,927,000 6,767,000 3,710,000
Change in timing and other................ 961,000 23,000 5,552,000
Sales, net of production costs............ (3,294,000) (7,135,000) (6,371,000)
------------ ------------ -----------
Standardized Measure, End of Period......... $ 26,066,000 $ 39,024,000 $67,671,000
============ ============ ===========
</TABLE>

F-62
<PAGE> 125

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
Midland Resources, Inc.

We have audited the accompanying consolidated balance sheets of Midland
Resources, Inc. and subsidiaries as of December 31, 1997 and 1996, 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.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Midland Resources, Inc. and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
each of the two years ended December 31, 1997, in conformity with generally
accepted accounting principles.

GRANT THORNTON LLP

Houston, Texas
March 13, 1998, except as to
Note N as to which the date is
April 9, 1998

F-63
<PAGE> 126

MIDLAND RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
SEPTEMBER 30, -------------------------
1998 1997 1996
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash................................................. $ 37,404 $ 150,890 $ 366,677
Accounts receivable:
Oil and gas sales................................. 359,363 670,093 834,269
Related parties................................... -- 60,822 360,479
Sales of properties............................... -- 563,757 --
Property operations and other..................... 302,247 296,052 359,600
Property held for sale............................... -- 200,000 1,241,515
Reimbursable merger costs and other.................. 379,060 57,531 104,180
Deferred tax asset................................... 37,000 37,000 378,000
----------- ----------- -----------
Total current assets......................... 1,115,074 2,036,145 3,644,720
Property and equipment, at cost...................... 29,949,921 29,210,699 27,889,580
Less accumulated depreciation, depletion and
amortization...................................... 16,950,287 15,975,838 14,076,100
----------- ----------- -----------
Property and equipment, net.................. 12,999,634 13,234,861 13,813,480
Deferred tax asset................................... 1,441,271 1,011,193 --
Goodwill, net of amortization of $106,754 in 1997 and
$80,067 in 1996................................... 700,588 720,584 747,271
Contracts and leases, net of amortization of $84,352
in 1997 and $78,411 in 1996....................... -- 199,116 414,633
Non-current note receivable.......................... -- 302,490 317,759
Other assets......................................... 270,933 116,094 38,783
----------- ----------- -----------
Total assets................................. $16,527,500 $17,620,483 $18,976,646
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................... $ 900,000 $ 583,481 $ 1,680,830
Accounts payable and accrued expenses................ 666,219 981,202 1,194,344
Drilling advances.................................... -- -- 393,254
----------- ----------- -----------
Total current liabilities.................... 1,566,219 1,564,683 3,268,428
Long-term debt......................................... 8,770,974 9,115,370 7,166,421
Deferred tax liability................................. -- -- 47,044
Payable for the purchase of subsidiary and other....... 205,116 221,404 317,493
----------- ----------- -----------
Total liabilities............................ 10,542,309 10,901,457 10,799,386
Stockholders' equity:
Preferred stock, $0.01 par value; 20,000,000 shares
authorized, none issued........................... -- -- --
Common stock, $0.001 par value; 80,000,000 shares
authorized; 4,463,499 and 4,401,031 shares issued
in 1997 and 1996, respectively.................... 4,470 4,463 4,401
Additional paid in capital........................... 8,505,716 8,487,801 7,898,199
Unearned compensation................................ (81,420) (164,516) --
Retained earnings (deficit).......................... (2,443,575) (1,608,722) 274,660
----------- ----------- -----------
Total stockholders' equity................... 5,985,191 6,719,026 8,177,260
----------- ----------- -----------
Total liabilities and stockholders' equity... $16,527,500 $17,620,483 $18,976,646
=========== =========== ===========
</TABLE>

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

F-64
<PAGE> 127

MIDLAND RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------- ------------------------
1998 1997 1997 1996
---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating revenue:
Oil and gas sales........................... $3,119,835 $4,758,502 $ 6,396,249 $6,958,491
Management income........................... -- -- -- 45,000
Property operations income.................. 77,216 89,792 119,012 111,862
Partnership income.......................... -- 101,260 72,275 --
Other....................................... 23,067 10,721 12,951 26,372
---------- ---------- ----------- ----------
Total operating revenue............. 3,220,118 4,960,275 6,600,487 7,141,725
Operating costs and expenses:
Oil and gas production...................... 1,988,305 2,293,627 3,088,886 2,981,837
Exploration costs:
Dry holes................................ 39,808 -- 796,852 416,892
Geological and geophysical............... 4,709 378,153 52,682 349,963
Depreciation, depletion and amortization.... 1,027,447 973,706 1,964,658 1,306,287
Abandonment costs........................... -- -- 93,760 --
General and administrative.................. 752,647 1,199,841 1,451,404 1,295,298
Impairment of properties.................... -- 356,000 1,277,342 114,904
---------- ---------- ----------- ----------
Total operating costs and
expenses.......................... 3,812,916 5,201,327 8,725,584 6,465,181
---------- ---------- ----------- ----------
(592,798) (241,052) (2,125,097) 676,544
Other income and (expenses):
Gain (loss) on sale of property and
equipment................................ (48,953) 400,932 462,571 36,308
Interest income............................. 16,931 25,466 32,337 61,997
Interest expense............................ (640,113) (648,047) (970,430) (722,447)
---------- ---------- ----------- ----------
Total other income and expenses..... (672,135) (221,649) (475,522) (624,142)
---------- ---------- ----------- ----------
Income (loss) before income
taxes....................................... (1,264,933) (462,701) (2,600,619) 52,402
Income taxes:
Deferred federal income tax expense
(benefit)................................ (430,078) (163,108) (717,237) 30,280
---------- ---------- ----------- ----------
Net income (loss)............................. $ (834,855) $ (299,593) $(1,883,382) $ 22,122
========== ========== =========== ==========
Earnings (loss) per share:
Basic....................................... $ (0.19) $ (0.07) $ (0.42) $ 0.01
========== ========== =========== ==========
Diluted..................................... $ (0.19) $ (0.07) $ (0.42) $ 0.01
========== ========== =========== ==========
</TABLE>

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

F-65
<PAGE> 128

MIDLAND RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TREASURY NOTE
------------------ PAID IN EARNINGS STOCK RECEIVABLE UNEARNED
SHARES AMOUNT CAPITAL (DEFICIT) AT COST OFFICER/DIRECTOR COMPENSATION
--------- ------ ---------- ----------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995... 4,393,531 4,394 7,859,794 252,538 (15,053) (453,641) --
Stock options exercised......... 7,500 7 17,805 -- -- -- --
Additional proceeds from 1995
warrants exercised............ -- -- 9,191 -- -- -- --
Treasury stock contributed to
ESOP (7,300 shares)........... -- -- 11,409 -- 15,053 -- --
Reduction of note receivable
officer/director.............. -- -- -- -- -- 453,641 --
Net income...................... -- -- -- 22,122 -- -- --
--------- ------ ---------- ----------- -------- --------- ---------
Balances at December 31, 1996... 4,401,031 4,401 7,898,199 274,660 -- -- --
Stock options exercised......... 36,000 36 109,276 -- -- -- --
Warrants exercised.............. 11,428 11 45,701 -- -- -- --
Stock issued for property....... 15,040 15 52,625 -- -- -- --
Stock-based compensation........ -- -- 382,000 -- -- -- (382,000)
Amortization of unearned
compensation.................. -- -- -- -- -- -- 217,484
Net loss........................ -- -- -- (1,883,382) -- -- --
--------- ------ ---------- ----------- -------- --------- ---------
Balances at December 31, 1997... 4,463,499 4,463 8,487,801 (1,608,722) -- -- (164,516)
Warrants exercised.............. 424 1,696
Stock options exercised......... 6,200 7 16,219
Amortization of stock-based
compensation (unaudited)...... -- -- -- -- -- -- 83,096
Net loss (unaudited)............ -- -- -- (834,853) -- -- --
--------- ------ ---------- ----------- -------- --------- ---------
Balance at September 30, 1998
(unaudited)................... 4,470,123 $4,470 $8,505,716 $(2,443,575) -- -- $ (81,420)
========= ====== ========== =========== ======== ========= =========
</TABLE>

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

F-66
<PAGE> 129

MIDLAND RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------ -------------------------
1998 1997 1997 1996
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ (834,855) $ (299,593) $(1,883,382) $ 22,122
Depreciation, depletion and amortization.......... 1,027,447 973,706 1,964,658 1,306,287
Abandonments and exploratory dry holes............ -- -- 890,612 416,892
Impairment of properties.......................... -- 356,000 1,277,342 114,904
(Gain) loss on sale of properties and equipment... 48,953 (400,932) (462,571) (36,308)
Noncash stock-based compensation.................. 83,096 167,264 217,484 --
Deferred income tax expense (benefit)............. (430,078) (163,108) (717,237) 30,280
Partnership distributions in excess of income..... -- -- 45,875 --
(Increase) decrease in accounts receivable related
to operations................................... 407,371 251,269 166,902 (265,521)
Decrease (increase) in other current assets....... 248 53,092 22,610 (8,300)
Increase (decrease) in accounts payable and
accrued expenses related to operations.......... (400,777) 286,306 (213,142) 218,581
Decrease in note receivable....................... -- -- -- --
Other............................................. 40,998 37,222 84,310 94,704
---------- ----------- ----------- -----------
Net cash provided by operating activities......... (57,597) 1,261,226 1,393,461 1,893,641
Cash flows from investing activities:
Additions to oil and gas properties............... (699,387) (1,909,268) (2,588,150) (3,714,110)
Additions to other property and equipment......... -- -- (17,765) (40,554)
Investment in limited partnership................. -- (1,576,478) (1,536,130) --
Sale and salvage recoveries on oil and gas
properties...................................... 802,805 1,797,982 1,657,385 32,975
Sale of other property and equipment.............. -- -- 205,851 1,000
Reimbursable partnership expenditures............. -- 360,479 360,479 (360,479)
Purchase of marketable securities................. -- -- -- (326,155)
Sale of marketable securities..................... -- -- -- 350,332
Purchase of Summit, less cash acquired............ (16,288) (95,214) (89,139) (1,217,280)
Loan origination costs and other.................. (12,761) (37,500) (119,219) --
Vista acquisition................................. (379,060) -- -- --
---------- ----------- ----------- -----------
Net cash used in investing activities............. (304,691) (1,459,999) (2,126,688) (5,274,271)
Cash flows from financing activities:
Net proceeds from warrants exercised.............. 17,922 130,525 45,712 9,191
Collections on note receivable from
officer/director................................ 258,757 10,468 -- --
Net proceeds from options exercised............... -- -- 109,312 29,221
Borrowings on long-term debt...................... 720,000 1,856,250 2,617,250 3,770,000
Principal payments on long-term debt.............. (747,877) (1,745,367) (1,876,849) (983,067)
Drilling advances................................. -- 617,573 (393,254) 393,254
Other............................................. -- -- 15,269 14,098
Repayment of drilling advances.................... -- (1,001,214) -- --
---------- ----------- ----------- -----------
Net cash provided by financing activities......... 248,802 (131,765) 517,440 3,232,697
---------- ----------- ----------- -----------
Increase (decrease) in cash......................... (113,486) (330,538) (215,787) (147,933)
Cash, beginning of year............................. 150,890 366,677 366,677 514,610
---------- ----------- ----------- -----------
Cash, end of year................................... $ 37,404 $ 36,139 $ 150,890 $ 366,677
========== =========== =========== ===========
</TABLE>

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

F-67
<PAGE> 130

MIDLAND RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation

Midland Resources, Inc. ("Company"), was organized in 1990 with the issue
of common stock and warrants in exchange for oil and gas partnership interests.
The Company and its wholly owned subsidiaries are headquartered in Houston,
Texas. The Company is involved in the acquisition, exploration, development and
production of oil and gas and owns producing properties and undeveloped acreage
and royalty interests in Texas, Illinois and Colorado. The majority of its
activities are centered in the Permian Basin of West Texas. Midland Resources
Operating Company Inc. ("MRO"), a wholly owned subsidiary, is in the business of
oil and gas property operations. Summit Petroleum Corporation ("Summit") is a
wholly owned subsidiary engaged in oil and gas acquisition, exploration,
development and production. (See Note B.)

Principles of Consolidation

The accompanying consolidated balance sheets include the accounts of the
Company and its wholly owned subsidiaries. All significant inter-company balance
sheet accounts have been eliminated in consolidation. All significant
inter-company transactions have been eliminated from the consolidated statements
of operations and cash flows for the years ended December 31, 1997 and 1996.

Reclassifications

Certain reclassifications have been made to conform to the 1997
presentation.

Oil and Gas Operations

The Company follows the "successful efforts" method of accounting for oil
and gas properties. All costs associated with the acquisition and development of
proved oil and gas properties are capitalized.

Costs associated with exploratory drilling are capitalized pending
evaluation of drilling results. Costs of exploratory wells which do not find
proved results are expensed. Geological, geophysical and delay rental costs are
expensed as incurred.

Depreciation, depletion and amortization of oil and gas properties is
computed on a property-by-property basis using the units-of-production method
based upon estimated oil and gas reserve quantities.

Oil and gas revenues are recognized under the sales method at the point of
delivery to the purchaser. No significant over or under produced positions
between the Company and its working interest partners exist.

FAS 121 requires impairment losses to be recognized on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by these assets are less than
the assets' carrying amount. It also requires assets held for sale to be valued
at the lesser of their original carrying amount or fair value. Estimated fair
value of oil and gas properties is based on estimates of future net cash flows,
discounted at appropriate rates, prepared by independent petroleum engineers. In
1996 and 1997, the Company recognized losses of $114,904 and $1,277,342,
respectively, on its oil and gas properties. In addition, in 1997, the Company
recognized abandonment losses of $93,760 resulting from expired and worthless
leasehold acreage.

Other Property and Equipment

All other property and equipment is depreciated on the straight-line method
over lives ranging from 5 to 6 years.

F-68
<PAGE> 131
MIDLAND RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Intangible Assets

Goodwill is amortized on the straight-line method over 30 years. Property
operating contracts are amortized on the straight-line method over the lives of
the respective oil and gas properties which range from 3 to 19 years. The
carrying amounts and amortization lives of goodwill and property operating
contracts are evaluated annually. These costs are combined with net capitalized
oil and gas property costs in testing for impairment.

Accounting for Stock Options

The Company accounts for employee stock option grants in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations, whereby compensation costs are recognized only in situations
where stock compensatory plans award intrinsic value to recipients at the date
of grant.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. The most
significant estimates affecting the Company's financial statements are the
determination of hydrocarbon reserves, the estimated useful lives of depreciable
and amortizable assets, and the fair value of assets held for sale.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the future
tax consequences of differences between the financial statement carrying amounts
of assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates applicable to the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

Earnings (Loss) Per Common Share

Effective December 31, 1997, the Company retroactively adopted the
provisions of Statement of Financial Accounting Standards No. 128 for all
periods presented. Basic earnings per share is calculated by dividing net income
by the weighted average number of common shares outstanding during each year.
Dilutive earnings per share is calculated by dividing net income by the weighted
average number of common and dilutive potential common shares. Stock options and
warrants may be potential dilutive common shares and are therefore considered in
the earnings per share calculation, if dilutive. The number of dilutive
potential common shares is determined using the treasury stock method. Shares
used to compute basic and diluted earnings (loss) per share were 4,433,113 and
4,395,414 in 1997 and 1996, respectively. Dilutive potential shares (options and
warrants) not included in these computations because either their effect was
antidilutive, or dilution was immaterial, were 2,754,094 and 2,726,022 in 1997
and 1996, respectively.

Employee Benefits

Prior to 1995, the Company maintained a 401(k) Plan which covered
substantially all full-time employees. In 1995, the Board of Directors
authorized the restatement of the plan as the Midland Resources Operating
Company, Inc. 401(k) Employee's Stock Ownership Plan and Trust and the
contribution of 5,000 shares of treasury stock to the restated plan. An
additional 7,300 shares of treasury

F-69
<PAGE> 132
MIDLAND RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stock were contributed in 1996. As of December 31, 1996 and 1997, all shares had
been allocated to participants in the plan. The Company matches employee
contributions up to 3 percent of gross salary. The expense related to the
Company's contributions and plan administration was $26,517 and $50,092, in 1997
and 1996, respectively.

Financial Instruments

The carrying amount of cash approximates fair value. Interest rates
associated with substantially all the Company's long-term debt are linked to
current market rates. As a result, management believes that the carrying amount
approximates the fair value of the Company's credit facilities.

Interim Financial Statements

The financial statements as of September 30, 1998 and 1997 and for the nine
month periods then ended, included herein, are unaudited. These financial
statements include all adjustments, (consisting only of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
presentation of the financial statements for these periods. The results of
operations for these nine month periods are not necessarily indicative of the
results for a full year.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted for the period ended September 30, 1998 and 1997
pursuant to the rules and regulations of the Securities and Exchange Commission.
Information as of September 30, 1998 or for the nine months ended September 30,
1998 or 1997 is unaudited.

NOTE B. PURCHASE OF SUBSIDIARY CORPORATION

On September 18, 1996, the Company, through MRI Acquisition Corp. (a wholly
owned subsidiary), acquired 81.5% of the issued and outstanding common stock and
all outstanding stock options of Summit Petroleum Corporation (See Note F.) for
cash of $1,081,188 and cancellation of a note receivable from an
officer/stockholder of both the Company and Summit of $479,648. In December
1996, the Summit stockholders approved a plan of merger whereby Summit became a
wholly owned subsidiary of the Company. Pursuant to this plan, stockholders
possessing the remaining 18.5% interest (443,633 shares), upon tendering their
shares, receive $0.70 per share. During 1997, payments of $89,139 were made for
127,341 shares tendered. The Company's liability for the purchase of these
remaining shares, which is being funded through long-term borrowings under the
Company's revolving credit agreement (See Note C.), is included as a non-current
liability in the accompanying balance sheet. The purchase price ($0.70 per share
and $0.6375 per option) was based on the fair value of Summit's net assets as
determined by the Board of Directors of each respective corporation. The
transaction was subject to a fairness opinion provided by a recognized
investment banking firm relative to these values. In addition to the purchase
price, the Company incurred $139,254 in costs directly related to this
acquisition, resulting in a total investment through December 31, 1997, of
$2,010,633. This acquisition is accounted for under the purchase method of
accounting, which provides that the results of operations are combined from the
date of acquisition (September 18, 1996). In December 1996, MRI Acquisition
Corp. was dissolved and Summit became a wholly-owned subsidiary of the Company.

F-70
<PAGE> 133
MIDLAND RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of the allocation of the cost to the assets
acquired and liabilities assumed in this acquisition:

<TABLE>
<S> <C>
Current assets, including cash of $3,162.................... $ 155,742
Current liabilities......................................... (250,701)
Oil and gas properties...................................... 2,408,259
Other assets................................................ 20,773
Contracts and leases........................................ 200,000
Deferred income tax liability (non-current)................. (279,729)
Long-term debt.............................................. (243,711)
----------
Total............................................. $2,010,633
==========
</TABLE>

The following is a summary of the pro forma results of operations as though
this transaction had occurred on January 1, 1996.

<TABLE>
<CAPTION>
1996
----------
<S> <C>
Total revenue............................................... $7,749,621
==========
Net income (loss)........................................... $ (7,396)
==========
Loss per weighted average common share:
Basic..................................................... $ --
==========
Diluted................................................... $ --
==========
</TABLE>

NOTE C. LONG-TERM DEBT

The Company's long-term debt consisted of the following at December 31,
1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$30 million revolving credit agreement with Compass Bank,
expiring December 1, 1999................................. $9,651,615 $ --
Credit facility with First Union National Bank
Principal balance......................................... -- 8,500,000
Less discount thereon..................................... -- (25,863)
Note payable to First Union National Bank................... -- 324,711
Other, primarily secured monthly installment notes.......... 47,236 48,403
---------- ----------
9,698,851 8,847,251
Less portion due within one year............................ 583,481 1,680,830
---------- ----------
Long-Term Portion........................................... $9,115,370 $7,166,421
========== ==========
</TABLE>

In December, 1997 the Company entered into a revolving credit agreement
with Compass Bank (Compass) which provides for a credit facility of $30 million
and an initial borrowing base of $10,500,000. Concurrent with the execution of
this agreement, the Company's outstanding debt to First Union National Bank
(FUNB) in the amount of $9,151,615 was paid by an advance under the Compass
agreement. Amounts borrowed under the Compass agreement are collateralized by a
first lien on substantially all of the Company's oil and gas properties.
Interest under this agreement is payable monthly at an annual rate which, at the
Company's option, is equal to either (a) the Compass prime lending rate (8.5% at
December 31, 1997) or (b) the London Interbank Offered Rate, plus 2.5%. In
addition, a commitment fee equal to 1/2% per annum on the unused portion of the
borrowing base is required. The borrowing base is

F-71
<PAGE> 134
MIDLAND RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

reduced at the rate of $120,000 per month beginning February 1, 1998 and is
subject to redetermination on each April 1st and October 1st. This agreement
also requires that the Company maintain certain financial ratios and generally
restricts the Company's ability to incur debt, sell assets, materially change
the nature of the Company's business structure or pay dividends.

Future maturities of long term debt at December 31, 1997 are as follows:

NOTE D. ISSUANCE OF COMMON STOCK AND WARRANTS

In November 1990, the Company issued 2,264,522 shares of common stock, as
discussed in Note A, based on an exchange value of $2.00 per share. For each
share of common stock issued, two warrants were issued entitling the holder to
purchase one share of common stock at $2.50 and one share at $4.00 during the
period from November 1990 to November 2002. On October 6, 1995, the 90 day
common stock market price requirement (as defined in the Warrant Agreement) was
met and the Company called its $2.50 warrants. Holders of record on December 22,
1995 received a redemption payment of $0.05 per warrant for aggregate payments
of $63,373, which was charged to additional paid in capital. 997,009 of the
$2.50 warrants were exercised. As of December 31, 1997, 11,428 of the $4.00
warrants had been exercised.

The warrants are subject to certain antidilution provisions contained in
the warrant agreement, which could cause adjustments to the exercise price and
the number of shares issuable.

The Company has two employee stock option plans which reserve an aggregate
of 700,000 shares of common stock for issuance to officers and other key
employees. As of December 31, 1997 options to acquire 260,000 shares at prices
ranging from $2.375 to $4.00 were outstanding under these plans with scheduled
expiration dates of 1998 through 2002. As of December 31, 1997, 376,500 shares
were available for future grant.

Under the Midland Resources, Inc. 1995 Directors' Stock Option Plan, 20,000
stock options with a five year term were granted to directors in 1995. As of
December 31, 1995, all 20,000 options were outstanding under this plan. In 1996,
an additional 30,000 stock options were granted to directors. Each option
entitles the holder to purchase one share of common stock for the fair market
value of common stock on the date of the grant of the option. As of December 31,
1997, 50,000 options were outstanding under this plan at exercise prices ranging
from $2.75 to $3.75 and 50,000 options were available for future grant. Options
outstanding at December 31, 1997, if not exercised, are scheduled to expire in
1999 through 2001.

In May 1997, the Stockholders ratified the Midland Resources, Inc. 1997
Board of Directors Stock Incentive Plan under which 1,000,000 options were
issued to non-employee directors, 175,000 options were issued to the advisory
director and 60,000 were issued to the corporate secretary, all to acquire
shares at $3.00 per share. These options are vested as certain stipulated
trading prices for the Company's common stock are achieved and, exercisability
is further restricted by time delay provisions which limited the number of
vested shares that may be exercised each year beginning in March 1998. As of
December 31, 1997, 247,000 of these options were vested. Upon a change of
control, as defined, all of these options became exercisable. These options, if
not exercised, expire in March, 2002. Also in February, 1997, the Company issued
a five year warrant to purchase 50,000 shares to a consultant for future
services. These options and warrants are expected to give rise to the
recognition of compensation expenses of up to

F-72
<PAGE> 135
MIDLAND RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$616,250 through year 2000. In 1997, stock-based compensation expense of
$217,484 was recognized in connection with these issuances.

In June 1995, the Company issued 150,000 warrants to purchase common stock
at $4.00 per share for a term of seven years to FUNB. In exchange the Company's
credit facility loan agreement was amended to reduce the interest rate by 0.75%
and allow 25% of its borrowing base to be used for working capital purposes. The
fair value of the warrants at the date of grant was recorded as debt discount
and additional paid in capital. None of these warrants have been exercised as of
December 31, 1997.

Warrants to purchase an additional 70,000 shares of common stock were
issued in 1994 through 1996 in exchange for investment banking and other
services, with exercise prices ranging from $2.50 to $2.875.

Effective January 1, 1996, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 123, which provides for
an alternative method to valuation of the compensation element of stock based
compensation plans. The Company applies APB 25 and related Interpretations in
accounting for employee stock-based compensation. Had compensation costs been
determined based on the fair value at the grant dates for awards consistent with
the method of FASB Statement 123, the Company's net income (loss) and related
per share amounts would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Net income (loss):
As reported............................................... $(1,883,382) $ 22,122
Pro forma................................................. (2,078,360) (245,366)
Earnings (loss) per share
As reported:
Basic.................................................. $ (0.42) $ 0.01
Diluted................................................ (0.42) 0.01
Pro forma:
Basic.................................................. $ (0.47) $ (0.06)
Diluted................................................ (0.47) (0.06)
</TABLE>

The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for the grants issued in 1997, 1996 and 1995:

<TABLE>
<S> <C>
Expected volatility.................................. 61% to 110%
Risk free rate....................................... 6.02% to 6.49%
Expected life of options............................. 3 to 5 years
Expected dividend yield.............................. 0%
</TABLE>

F-73
<PAGE> 136
MIDLAND RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the status of the Company's stock option plans at December 31,
1996 and 1997, and changes therein during the years then ended is presented
below:

<TABLE>
<CAPTION>
EMPLOYEE PLANS DIRECTOR PLANS
-------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Outstanding, January 1, 1996............ 93,000 $2.48 20,000 $2.75
Granted................................. 188,000 3.45 30,000 3.75
Expired................................. (22,000) 2.92 -- --
Exercised............................... (7,500) 2.38 -- --
------- ----- --------- -----
Outstanding, December 31, 1996.......... 251,500 $3.18 50,000 $3.35
======= ===== ========= =====
Options exercisable at December 31,
1996................................. 191,500 $3.01 50,000 $3.35
======= ===== ========= =====
Weighted average fair value of options
granted during 1996.................. $2.70 $3.01
===== =====
Year ended December 31, 1997:
Outstanding, January 1, 1997............ 251,500 $3.18 50,000 $3.35
Granted................................. 123,000 3.33 1,235,000 3.00
Expired................................. (78,500) 3.16 -- --
Exercised............................... (36,000) 3.06 -- --
------- ----- --------- -----
Outstanding, December 31, 1997.......... 260,000 $3.18 1,285,000 $3.01
======= ===== ========= =====
Options exercisable at December 31,
1997................................. 181,000 $3.07 50,000 $3.00
======= ===== ========= =====
Weighted average fair value of options
granted during 1997.................. $2.05 $0.25
===== =====
</TABLE>

A summary of the status of stock purchase warrants at December 31, 1996 and
1997, and changes therein during the years then ended is presented below:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICES
---------- ----------------
<S> <C> <C>
Year ended December 31, 1996:
Outstanding, January 1, 1996............................ 2,459,522 $3.97
Issued.................................................. 25,000 3.25
Expired................................................. -- --
Exercised............................................... -- --
---------- -----
Outstanding, December 31, 1996.......................... 2,484,522 $3.97
========== =====
Warrants exercisable at December 31, 1996............... 2,484,522 $3.97
========== =====
Weighted average fair value of warrants issued during
1996................................................. $0.45
=====
Year ended December 31, 1997:
Outstanding, January 1, 1997............................ 2,484,522 $3.97
Issued.................................................. 50,000 3.00
Expired................................................. -- --
Exercised............................................... (11,428) 4.00
---------- -----
Outstanding, December 31, 1997.......................... $2,523,094 $3.89
========== =====
Warrants exercisable at December 31, 1997............... 2,523,094 $3.89
========== =====
Weighted average fair value of warrants issued during
1997................................................. $0.45
=====
</TABLE>

F-74
<PAGE> 137
MIDLAND RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE E. MAJOR CUSTOMERS

The Company and its subsidiaries operate exclusively within the United
States and their revenues and operating income are derived predominately from
the oil and gas industry. Oil and gas production is sold to various purchasers
and the receivables are generally uncollateralized. The Company has not
experienced significant credit losses on its oil and gas accounts and management
is of the opinion that significant credit risk does not exist. Management is of
the opinion that the loss of any one purchaser would not have an adverse effect
on the ability of the Company to sell its oil and gas production.

In 1997, three purchasers accounted for 18%, 15% and 12%, respectively, of
total oil and gas revenues. In 1996, three purchasers accounted for 18%, 12% and
15%, respectively, of total oil and gas revenues. In 1995, four purchasers
accounted for 18%, 17%, 11% and 11%, respectively, of total oil and gas
revenues.

NOTE F. RELATED PARTIES

Until December 1993, MRO was owned 80% by the Company's then President and
Chairman of the Board of Directors, Mr. Deas H. Warley III and 20% by a former
Vice President and Board Member, Sal J. Pagano. Mr. Warley currently owns
approximately 16% of the Company's outstanding common stock and 5% of the
related $4.00 warrants.

Effective November 1, 1995, the Company purchased a building and land in
Midland County, Texas, for $78,996 from Mr. Warley and another individual for
use as a district office. Mr. Warley and the other individual each financed 50%
of the purchase price less the down payment of $10,496. The two $34,250 ten year
notes bore interest at 7.5% and were payable in equal monthly installments of
$407 each. The cost to the Company was based on an independent written appraisal
and certain improvements completed before the property was purchased. This
property was sold in 1997 at a gain of $46,500.

In December 1995, Mr. Warley borrowed $582,805 from the Company under an
eighteen month term note bearing 7.5% interest, secured by 287,947 shares of the
Company's common stock. Mr. Warley used these funds to exercise his 233,122
warrants to buy common stock at $2.50 per share. The balance of the note payable
to Mr. Warley discussed above was netted against this note receivable and he
made a cash payment of $95,000 leaving a balance of $453,641 at December 31,
1995. This amount was reflected in the financial statements as a reduction of
stockholders' equity at December 31, 1995. This note was paid in full in
September 1996 by offsetting the balance of $479,648 against the payment to Mr.
Warley for his stock and options in Summit Petroleum Corporation (See Note B.).

The amounts due from a related party at December 31, 1996, represents
reimbursements due for certain acquisition and exploration costs from a limited
partnership, formed in January, 1997, for which the Company served as general
partner. Amounts due from a related party at December 31, 1997 represents
amounts due from this partnership for property operations and drilling costs.
The limited partnership group was initially comprised of 19 individuals of which
18 were also stockholders of the Company. In addition, two of these individuals
are directors of the Company. During 1997, the Company's interest was assigned
to the Company in the form of oil and gas property interests and, effective
December 31, 1997 the Company withdrew from the partnership.

During 1997, the Company acquired working interests from two directors and
a partnership interest from one of these directors for cash consideration of
$144,879 and 15,040 shares of common stock valued at $52,625.

F-75
<PAGE> 138
MIDLAND RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE G. COMMITMENTS AND CONTINGENCIES

The Company is involved in litigation arising in the ordinary course of
business. Management believes the ultimate resolution of these matters will not
have a material effect on the consolidated financial statements (see Note N.).

The Company leases its executive office space and a field office under
noncancellable operating leases expiring in 2002. Rental expense was $92,088 in
1996, and $93,988 in 1997. Future minimum rental commitments, as of December 31,
1997, for these leases are as follows:

NOTE H. INCOME TAXES

The deferred tax assets and liabilities reflected in the consolidated
balance sheets as December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Tax loss carry-forwards................................... $1,214,957 $1,193,719
Less valuation allowance............................... (146,385) --
Other..................................................... 80,579 9,405
---------- ----------
1,149,151 1,203,124
---------- ----------
Deferred tax liabilities:
Property and equipment.................................... 33,259 619,975
Property held for sale.................................... -- 108,317
Contracts and leases...................................... 67,699 143,876
---------- ----------
100,958 872,168
---------- ----------
Net deferred tax asset...................................... $1,048,193 $ 330,956
========== ==========
</TABLE>

For income tax purposes, the Company has net losses of approximately
$2,963,000 available for carryforward which, if not utilized, will begin to
expire in 2005. Management has determined that, based on future expectations, it
is more likely than not that the Company's future taxable income will be
sufficient to fully utilize these losses prior to their expiration. In addition,
the Company has losses of approximately $610,000 which, if not utilized, will
begin to expire in 1998. Management has determined that, based on future
expectations, it is more likely than not, that approximately $431,000 of this
amount will not be utilized and, accordingly, has established a valuation
allowance.

F-76
<PAGE> 139
MIDLAND RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of the provision for income taxes to the income taxes
computed using the federal statutory rate for the years 1997 and 1996 follows:

<TABLE>
<CAPTION>
1997 1996
--------- -------
<S> <C> <C>
Amount computed using statutory tax......................... $(884,211) $17,817
Increase (reduction) in taxes resulting from:
Valuation allowance against tax loss carry-forwards....... 146,385 --
Nondeductible expenses.................................... 10,886 2,642
All other................................................. 9,703 9,821
--------- -------
Federal income tax (benefit)................................ $(717,237) $30,280
========= =======
</TABLE>

NOTE I. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1997 and 1996, is comprised of the
following:

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Producing oil and gas properties........................... $27,041,136 $25,809,221
Non-producing oil and gas properties....................... 1,582,364 1,127,605
Transportation equipment................................... 215,749 282,532
Computer equipment and software............................ 244,138 229,155
Office furniture and equipment............................. 96,732 94,299
Land and buildings......................................... 14,000 96,545
Leasehold improvements..................................... 1,347 9,014
Wells in progress.......................................... 15,233 241,209
----------- -----------
$29,210,699 $27,889,580
=========== ===========
</TABLE>

NOTE J. HEDGING ACTIVITIES

Effective March 1, 1995, the Company entered into a one year gas swap
agreement to hedge against a portion of the price risk associated with gas price
declines. This agreement covers approximately 50% of the Company's total
estimated gas production. The Company's price under this agreement is a minimum
of $1.50 per Mcf with a 40% participation in prices over $1.50. This swap
agreement expired in February, 1996, and the Company has not entered into
another contract. Losses under this contract were $21,109 and $25,860 for 1995
and 1996, respectively. Gains or losses relating to the swap agreement are
measured, settled and recognized at the end of each month as part of oil and gas
sales.

NOTE K. OIL AND GAS INFORMATION

Capitalized costs related to the Company's oil and gas producing activities
are as follows:

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Proved producing properties subject to depreciation,
depletion and amortization............................... $27,041,136 $25,809,221
Less accumulated depreciation, depletion and
amortization............................................. 15,634,206 13,769,157
----------- -----------
11,406,930 12,040,064
Wells in progress.......................................... 15,233 241,209
Non-producing properties................................... 1,582,364 1,127,605
----------- -----------
Net capitalized cost....................................... $13,004,527 $13,408,878
=========== ===========
</TABLE>

F-77
<PAGE> 140
MIDLAND RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of costs incurred in acquisition, development and exploration of
oil and gas properties is as follows:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Incurred directly:
Acquisition costs -- Proven properties.................... $ 57,116 $2,391,228
Acquisition costs -- Unproven properties.................. 296,928 922,607
Development costs......................................... 1,645,774 2,368,448
Exploration costs......................................... 849,534 766,855
Share of limited partnership expenditures:
Acquisition -- Unproven properties........................ $ 539,935 $ --
Development costs......................................... 932,197 --
Exploration costs......................................... 2,050 --
</TABLE>

Depreciation, depletion and amortization per equivalent barrel of oil
produced (gas is converted to equivalent barrels at the rate of 6 Mcf per
barrel) are as follows:

<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Depreciation, depletion and amortization:
Based on production....................................... $4.95 $2.91
</TABLE>

NOTE L. CASH FLOWS

Supplemental disclosures of cash flow information are as follows:

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash paid during the year for:
Interest.................................................. $896,760 $625,948
Income taxes.............................................. -- --
Significant non-cash activities:
Issuance of stock for property............................ 52,625 --
Treasury stock contributed to ESOP........................ -- 26,462
Development costs incurred, unpaid at year end............ -- 110,700
Non-cash reduction in note receivable officer/director.... -- 479,648
Proceeds from property sales not collected at year end.... 563,757 --
</TABLE>

NOTE M. OIL AND GAS RESERVES (UNAUDITED)

The estimates of the Company's proved oil and gas reserves, which are
located entirely within the United States, were prepared in accordance with the
guidelines established by the Securities and Exchange Commission and Financial
Accounting Standards Board which require that reserve estimates be prepared
under existing economic and operating conditions, with no provision for price
and cost escalators, except by contractual agreement. These estimates as of
December 31, 1997 are based on evaluations prepared by Williamson Petroleum
Consultants, Inc., Independent Petroleum Engineers. The estimates as of December
31, 1996 are based on evaluations prepared by E. Ralph Green and Associates,
Independent Petroleum Engineers.

Management emphasizes that reserve estimates are inherently imprecise and
are expected to change as new information is available and as economic
conditions in the industry change.

F-78
<PAGE> 141
MIDLAND RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Changes in proved reserve quantities (UNAUDITED):

<TABLE>
<CAPTION>
OIL (BBLS) GAS (MCF)
---------- ----------
<S> <C> <C>
Proved reserves, December 31, 1995.......................... 2,387,609 18,468,742
Sales of minerals-in-place.................................. (1,521) (16,519)
Extensions, discoveries and improved recovery............... 279,444 223,243
Revision of previous estimates.............................. 171,677 (1,124,321)
Purchase of minerals-in-place............................... 44,528 327,466
Purchase of Summit.......................................... 175,656 1,418,424
Production.................................................. (215,913) (1,002,482)
--------- ----------
Proved reserves, December 31, 1996.......................... 2,841,480 18,294,553
Sales of minerals-in-place.................................. (252,087) (1,826,629)
Extensions, discoveries and improved recovery............... 549,834 349,664
Revision of previous estimates.............................. (291,648) (1,969,860)
Production.................................................. (192,580) (988,109)
--------- ----------
Proved reserves, December 31, 1997.......................... 2,654,999 13,859,619
--------- ----------
Proved developed reserves (UNAUDITED):
December 31, 1996......................................... 2,061,974 13,821,400
December 31, 1997......................................... 1,732,544 9,533,072
</TABLE>

The significant revision of estimated quantities of gas in 1997 is
attributable to lower gas prices in effect at year end, which adversely affects
the projected economic lives of the properties. The average gas price at
December 31, 1996 was $3.72 per Mcf, compared to $2.36 at December 31, 1997. In
1996, the gas revision of estimates was attributable to the results of drilling
which failed to prove the existence of previous reserve estimates in two fields.

Standardized measure of discounted future net cash flows relating to proved
reserves (UNAUDITED):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
----------- ------------
<S> <C> <C>
Future cash inflows....................................... $76,605,194 $139,037,425
Future production costs................................... 34,210,308 51,857,027
Future development costs.................................. 8,039,963 7,231,324
Future income taxes(a).................................... 5,521,700 18,372,157
----------- ------------
Future net cash flows..................................... 28,833,223 61,576,917
Annual discount (10%) for estimated timing of cash
flows................................................... 13,251,251 29,984,568
----------- ------------
Standardized measure of discounted future net cash
flows................................................... $15,581,972 $ 31,592,349
=========== ============
</TABLE>

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

(a) Future income taxes are computed at current statutory rates on future net
cash flows before income taxes less the income tax bases of the oil and gas
properties, available loss carry-forwards, and statutory depletion
carry-forwards.

F-79
<PAGE> 142
MIDLAND RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Changes in standardized measure of discounted future net cash flows from proved
reserves (UNAUDITED):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
------------ -----------
<S> <C> <C>
Sales of oil and gas produced, net of production costs.... $ (2,398,872) $(4,722,529)
Net changes in price and production....................... (20,928,554) 19,074,149
Previously estimated development costs incurred........... -- 35,190
Revisions of estimated future development costs........... (202,755) (84,478)
Revision of quantity estimates............................ (2,752,686) 167,303
Purchases of minerals-in-place............................ -- 840,715
Acquisition of Summit..................................... -- 2,875,995
Sales of minerals-in-place................................ (2,336,161) (31,888)
Extensions and discoveries................................ 2,520,441 1,857,974
Net change in income taxes................................ 6,042,379 (4,838,537)
Accretion of discount..................................... 3,981,784 1,768,766
Changes in timing of estimated cash flows and other....... 64,047 348,981
------------ -----------
Changes in standardized measure........................... (16,010,377) 17,291,641
Standardized measure, beginning of year................... 31,592,349 14,300,708
------------ -----------
Standardized measure, end of year......................... $ 15,581,972 $31,592,349
============ ===========
</TABLE>

NOTE N. SUBSEQUENT EVENT (SECOND PARAGRAPH IS UNAUDITED)

On April 9, 1998, The Board of Directors approved a plan to combine with
Vista Resources Partners, L.P., a Midland, Texas based entity engaged in oil and
gas exploration and production. Consummation of any transaction pursuant to
these negotiations depends upon the satisfaction or waiver of a number of
conditions, including, without limitation, stockholder approval, execution of a
definitive agreement and receipt of a fairness opinion.

The Company has been involved in pending litigation, the nature of which is
a claim for damages arising from the Company's actions as operator of certain
properties in which the plaintiff has an interest, and removal of the Company as
operator of the properties. The plaintiff had not specified a damage amount
until subsequent to April 1998, at which time damages of $230,000 were claimed.
The Company has filed a counterclaim against the plaintiff. Management believes
the ultimate resolution of this matter will not have a material adverse effect
on the Company.

F-80
<PAGE> 143

3,000,000 SHARES

PRIZE ENERGY CORP.

COMMON STOCK

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

PROSPECTUS
SEPTEMBER 21, 2000
----------------------------

LEHMAN BROTHERS

CIBC WORLD MARKETS

PETRIE PARKMAN & CO.

LOGO