CARBON ENERGY CORP, S-4/A, 1999-12-21

CARBON ENERGY CORP
S-4/A, 1999-12-21
CRUDE PETROLEUM & NATURAL GAS

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As filed with the Securities and Exchange Commission on December 21 , 1999

Registration No. 333-89783
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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Pre-Effective

Amendment No. 1

FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933

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CARBON ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 1311 84-1515097
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)

Carbon Energy Corporation
1700 Broadway, Suite 1150
Denver, CO 80290-1101
(303) 860-1575
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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Patrick R. McDonald
President and Chief Executive Officer
Carbon Energy Corporation
1700 Broadway, Suite 1150
Denver, CO 80290-1101
(303) 860-1575
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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COPIES TO:
Mark R. Levy, Esq. Holland & Hart LLP 555 17th Street, Suite 3200 Denver,
Colorado 80202 (303) 295-8000

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.

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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]

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

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

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.

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<PAGE>

Subject to Completion, dated December 21, 1999

CARBON ENERGY CORPORATION

OFFER TO EXCHANGE

Shares of Common Stock of Carbon Energy Corporation for any and all Shares of
Common Stock of CEC Resources Ltd.

Our offer will expire at 5:00 P.M., New York City time on , 2000,
unless extended.

Carbon Energy Corporation is offering to exchange one share of our common
stock for each share of common stock of CEC Resources Ltd. ("CEC"). If all
CEC's shareholders accept our offer, in the aggregate we will issue
approximately 1,521,400 shares of our common stock. CEC's Board of Directors
has approved this transaction.

CEC's common shares are traded on the American Stock Exchange under the
symbol "CGS." On , 2000, the closing price for CEC's common shares was
$ . Carbon's common stock is not currently traded on a national securities
exchange or other public trading market. Carbon's common stock has been
approved for listing on the American Stock Exchange, upon issuance of the
shares after the exchange offer, under the symbol " ."

You have until 5:00 p.m., New York City time, on , 2000 to accept our
offer, unless extended. At that time, our offer and your withdrawal rights
will expire. This prospectus and the enclosed letter of transmittal describe
how to accept our offer. Directors and executive officers of CEC who hold in
the aggregate 580,346 shares of CEC's common shares, representing
approximately 38% of CEC's voting power, have stated their intention to accept
our offer. After the exchange offer, CEC will be a subsidiary of Carbon.

The Carbon common stock we are offering involves a high degree of risk. See
"Risk Factors" beginning on page 12 of this prospectus for a discussion of the
risks you should consider in connection with our offer and an investment in
Carbon's common stock.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued in the
exchange offer or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.

The date of this prospectus is , 2000.

The information in this prospectus is not complete and may be changed. We
may not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>

CARBON ENERGY CORPORATION

PROSPECTUS

Introduction

Please read this prospectus carefully. It describes our and CEC's
businesses and finances. We have prepared this prospectus so that you will
have the information necessary to make a decision on the exchange offer.

You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to exchange shares of common
stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or any
sale of common stock.

Table of Contents

<TABLE>
<S> <C>
PROSPECTUS SUMMARY.......................................................... 3
RISK FACTORS................................................................ 13
SOURCES OF INFORMATION ABOUT CARBON AND CEC................................. 15
FORWARD-LOOKING STATEMENTS.................................................. 15
THE EXCHANGE OFFER.......................................................... 15
General.................................................................... 15
Background Of The Exchange Offer/Exchange Agreement........................ 15
CEC's Reasons For Recommending The Exchange Offer.......................... 19
Our Reasons For The Exchange Offer......................................... 20
Intentions Of The Directors And Officers Of CEC............................ 20
Interests Of Certain Persons In The Exchange Offer......................... 21
Description of Exchange Agreement.......................................... 23
Expiration Date............................................................ 23
Exchange Of CEC Stock For Carbon Common Stock.............................. 24
Book-Entry Transfer Procedures............................................. 26
Exchange Agent............................................................. 26
Guaranteed Delivery Procedures............................................. 26
Conditions To The Exchange................................................. 26
Termination Of The Exchange Offer.......................................... 26
Withdrawal Rights.......................................................... 27
Fees And Expenses.......................................................... 27
Regulatory Matters......................................................... 28
Accounting Treatment....................................................... 28
Possible Effects of the Exchange Offer..................................... 28
Second Step Merger......................................................... 29
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES............................... 29
Scope and Limitation Advice................................................ 29
Taxation of U.S. Shareholders.............................................. 30
Basic Treatment of Exchange Transaction for U.S. Shareholders.............. 30
Passive Foreign Investment Company Considerations for U.S. Shareholders.... 31
Taxation of Non-U.S. Shareholders.......................................... 32
Estate Tax for Non-U.S. Shareholders....................................... 33
Information Reporting and Backup Withholding............................... 33
CANADIAN FEDERAL INCOME TAX CONSEQUENCES.................................... 34
Holders Resident in Canada................................................. 34
Holders Not Resident in Canada............................................. 36
</TABLE>

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<TABLE>
<S> <C>
UNAUDITED PRO FORMA FINANCIAL INFORMATION.................................. 37
INFORMATION ABOUT CEC...................................................... 42
Overview of Business...................................................... 42
CEC Selected Financial Data............................................... 42
CEC Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 43
Properties................................................................ 50
Legal Proceedings......................................................... 56
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................... 56
Quantitative and Qualitative Disclosures about Market Risk................ 57
INFORMATION ABOUT CARBON................................................... 58
Business.................................................................. 58
Carbon Selected Financial Data............................................ 59
Our Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 59
Properties................................................................ 65
Legal Proceedings......................................................... 71
Charges in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................... 71
Quantitative and Qualitative Disclosures about Market Risk................ 71
OUR MANAGEMENT............................................................. 73
Executive Directors and Officers.......................................... 73
Committees of the Board of Directors...................................... 74
Executive Compensation.................................................... 75
Stock Option Grants and Exercises......................................... 75
1999 Stock Option and Restricted Stock Plans.............................. 76
Directors' Compensation................................................... 77
Indemnification and Limitation of Liability............................... 77
Employment Agreement...................................................... 78
PRINCIPAL SHAREHOLDERS OF OUR COMPANY...................................... 79
PRINCIPAL SHAREHOLDERS OF CEC.............................................. 80
CERTAIN RELATIONSHIPS AND TRANSACTIONS..................................... 81
DESCRIPTION OF OUR CAPITAL STOCK........................................... 81
Common Stock.............................................................. 81
Preferred Stock........................................................... 81
Certain Effects of Authorized but Unissued Stock.......................... 82
American Stock Exchange Listing........................................... 82
Transfer Agent............................................................ 82
COMPARISON OF SHAREHOLDERS' RIGHTS......................................... 83
LEGAL MATTERS.............................................................. 94
EXPERTS.................................................................... 94
WHERE YOU CAN FIND MORE INFORMATION........................................ 94
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
</TABLE>

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<PAGE>

PROSPECTUS SUMMARY

This Summary highlights selected information that we present more fully in
other sections of this prospectus. To understand this exchange offer, you
should read the entire prospectus carefully, including the "Risk Factors" and
the financial statements of Carbon Energy Corporation and its predecessor
Bonneville Fuels Corporation and the financial statements of CEC Resources Ltd.
included in this prospectus.

Carbon Energy Corporation

1700 Broadway, Suite 1150
Denver, Colorado 80290-1101
(303) 860-1575

We are an independent oil and gas company engaged in the exploration,
development and production of natural gas and crude oil, principally in the
states of Colorado, Kansas, New Mexico, Texas, and Utah. Our business and
assets are presently comprised of the assets and property of Bonneville Fuels
Corporation ("BFC") which we acquired on October 29, 1999 with the concurrence
of CEC. Yorktown Energy Partners III, L.P. ("Yorktown") formed Carbon for the
purpose of acquiring BFC and making this exchange offer.

CEC Resources Ltd.

1700 Broadway, Suite 1150
Denver, Colorado 80290-1101
(303) 860-1575

CEC is an independent oil and gas company engaged in the exploration,
development and production of natural gas and crude oil and the acquisition and
development of interests in oil and gas properties in the provinces of Alberta
and Saskatchewan, Canada. CEC also owns an interest in one natural gas liquids
extraction plant and several gas gathering and compression systems in Alberta.

Yorktown Energy Partners III, L.P.

410 Park Avenue, Suite 1900

New York, New York 10025

(212) 515-2113

Yorktown Energy Partners III, L.P. was formed in 1997 with $253.7 million of
commmitted capital. Yorktown has invested in companies in different sectors of
the energy industry. The manager of Yorktown is Yorktown Partners LLC
("Yorktown Partners") which manages two predecessor partnerships which invested
$75 million from February 1991 through June 1997. Yorktown's equity investment
in Carbon provided the funds for our purchase of BFC. Yorktown owns almost all
of Carbon shares outstanding prior to the exchange offer and will continue to
own at least 74% of outstanding Carbon shares after the exchange offer.

Summary of Exchange Offer

Terms of Our Offer

We are offering to exchange one share of our common stock for each share of
CEC common stock held by you.

All shares of CEC common stock properly tendered and not withdrawn will be
exchanged at the one-for-one exchange rate, on the terms and subject to the
conditions of the exchange offer. We will promptly return any shares of CEC
common stock if the conditions of the exchange offer are not met. The exchange
offer does not require any minimum number of shares of CEC common stock to be
tendered and does not have a maximum amount of CEC common stock that can be
tendered and accepted.

3
<PAGE>

Expiration Date

Withdrawal Rights

You may withdraw tenders of your shares of CEC common stock at any time
before the exchange offer expires. If you change your mind again, you may
retender your shares of CEC common stock by following the exchange offer
procedures again prior to the expiration of the exchange offer.

Our offer may be terminated if any court or governmental authority issues an
order restraining, enjoining or otherwise prohibiting consummation of the
exchange offer.

Procedures For Tendering Your Shares Of CEC Common Stock

If you hold certificates for shares of CEC common stock, you must complete
and sign the letter of transmittal designating the number of CEC shares you
wish to tender and return the letter with your stock certificates and any other
documents required by the letter of transmittal, by registered mail, return
receipt requested, so that it is received by the exchange agent at one of the
addresses listed in "The Exchange Offer--The Exchange Agent" before the
expiration of the exchange offer on , 2000.

If you hold shares of CEC common stock through a broker, you should receive
instructions from your broker on how to participate. In this situation, you do
not need to complete the letter of transmittal. Please contact your broker
directly if you have not yet received instructions. Some financial institutions
may also effect tenders by book-entry transfer through The Depository Trust
Company.

If you hold certificates for shares of CEC common stock or if you hold CEC
shares through a broker, you may also comply with the procedures for guaranteed
delivery.

Guaranteed Delivery Procedures

Holders of CEC common stock who wish to tender their shares and whose shares
are not immediately available or who cannot deliver their certificates for CEC
common stock, the letter of transmittal or any other documentation required by
the letter of transmittal to the exchange agent prior to the expiration date
must tender their shares of CEC common stock according to the guaranteed
delivery procedures described in "The Exchange Offer--Guaranteed Delivery
Procedures."

Acceptance of CEC Common Stock and Delivery of Carbon Common Stock

Subject to the satisfaction or waiver of the conditions to the exchange
offer, we will accept for exchange any and all shares of CEC common stock that
are properly tendered in the exchange offer and not withdrawn prior to the
expiration date. The Carbon common stock to be delivered in exchange for your
shares of CEC common stock will be delivered promptly following the expiration
of our offer.

No Dissenters' Rights

No dissenters' rights are available to shareholders of CEC in connection
with the exchange offer.

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Exchange Agent

Harris Trust and Savings Bank is serving as the exchange agent in connection
with our exchange offer.

Possible Effects of the Exchange Offer

The exchange of shares of CEC common stock in the exchange offer will reduce
the number of holders of CEC common stock and the number of shares of CEC
common stock that might otherwise trade publicly. Depending on the number of
shares of CEC common stock exchanged, the liquidity and market value of the
remaining shares of CEC common stock could be adversely affected. CEC's common
stock is listed on the American Stock Exchange ("AMEX"). Depending on the
number of shares of CEC common stock exchanged pursuant to the exchange offer,
CEC common stock may no longer meet the requirements of the AMEX for continued
listing. AMEX will normally consider delisting a stock if:

. the number of shares publicly held (other than those held by officers,
directors, controlling shareholders or other family or concentrated
holdings) is less than 200,000; or

. the the total number of public shareholders is less than 300; or

. the aggregate market value of shares publicly held is less than
$1,000,000.

The delisting of CEC common stock from AMEX may be initiated by AMEX or by CEC.
Because holders of approximately 40% of the outstanding shares of CEC have
stated their intentions to accept the exchange offer, we anticipate that CEC
common stock will be delisted from the AMEX. If the shares of CEC common stock
were to be delisted from the AMEX, the market for such shares could be
adversely affected. It is possible that such shares might be traded on other
securities markets. The extent of the public market for the shares of CEC
common stock would, however, depend upon the number of holders and/or the
aggregate market value of such shares remaining at that time, the interest in
maintaining a market in such shares on the part of securities firms and the
possible termination of registration of CEC common stock under the Securities
Exchange Act of 1934 ("Exchange Act").

CEC's common stock is currently registered under the Exchange Act. Such
registration may be terminated by CEC upon application to the Securities and
Exchange Commission ("SEC") if the outstanding shares of CEC common stock are
not listed upon a national securities exchange and if there are fewer than 300
holders of record of such shares. Termination of registration of the CEC common
stock under the Exchange Act would reduce the information required to be
furnished by CEC to its shareholders and to the SEC and would make certain
provisions of the Exchange Act, such as the filing of periodic SEC reports, the
requirement of furnishing a proxy statement pursuant to Section 14(a), and the
short-swing profit recovery provisions of Section 16(b), no longer applicable
to CEC shares.

If we acquire control of CEC upon completion of the exchange offer, we
intend to conduct its business in substantially the same manner as currently
conducted. We expect that CEC will be able to finance its exploration and
development programs from cash generated by its operations and existing bank
financings. CEC's activities will be primarily limited to Canada. However, CEC
has acquired leases covering approximately 51,000 acres in Nebraska on which it
plans to drill an exploratory well in early 2000.

Carbon and CEC expect that Patrick R. McDonald and Kevin D. Struzeski will
continue as President and Chief Financial Officer of CEC, respectively, after
completion of the exchange offer.

Background of the Exchange Offer/Exchange and Financing Agreement

The information in this section regarding the deliberations of CEC's Board
of Directors and the actions of CEC's management and legal and financial
advisors is based on information furnished by CEC. Patrick R. McDonald, the
President of Carbon, is the President of CEC and a member of CEC's Board of
Directors.

5
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CEC and Carbon believe there are attractive opportunities available for
acquisitions of oil and gas properties and exploration and production in both
the United States and Canada as a result of improving oil and gas prices, lower
exploration and production costs, the divestiture of non-core properties by
major oil companies and large independent oil companies and consolidation
within the oil and gas industry. CEC's position as a small independent public
oil and gas company limits its potential for growth unless steps are taken to
increase its size and the value of its oil and gas reserves.

This exchange offer results from an acquisition of BFC, originally proposed
by CEC and completed by Carbon. In order to combine with BFC, obtain financing
for the combination with BFC and avoid adverse income tax consequences to CEC,
(1) CEC entered into an agreement to purchase the shares of BFC from BPC, (2)
CEC assigned the agreement to Carbon on Carbon's agreement to make this
exchange offer and comply with other terms of an exchange and financing
agreement, (3) Carbon closed an equity financing of $24,750,000 from Yorktown
for the purpose of Carbon's purchasing of all BFC shares, (4) Carbon completed
the purchase of the BFC shares, and (5) Carbon has made this exchange offer.
The overall goal of CEC and Carbon is to provide each CEC shareholder with the
opportunity to own shares in a company that consists of both BFC and CEC.

In early May, 1999, CEC learned that Bonneville Pacific Corporation ("BPC")
would be selling the stock of its Denver based 100% owned subsidiary, BFC.
During May, June, July and early August, 1999, CEC participated in a sale
process conducted by BPC for the sale of BFC. During that period, CEC conducted
due diligence concerning BFC and its properties, submitted various offers for
BFC and submitted comments on the form of the stock purchase agreement for the
acquisition of BFC prepared by BPC.

During this period, CEC also conducted discussions with Yorktown Partners
LLC (an energy investment firm which is the manager of Yorktown Energy Partners
III, L.P.) relating to the financing of the acquisition of BFC by Yorktown. As
a result, Yorktown Partners indicated that a partnership managed by Yorktown
Partners was willing to purchase common stock of CEC or economically equivalent
shares for a total of $24,750,000 at $5.50 per share in order to provide equity
financing for the purchase of BFC shares. Yorktown Partners also stated that it
wished to have this investment made through a United States corporation.

On August 11, 1999, CEC and BPC signed the BFC stock purchase agreement.
Under the BFC stock purchase agreement, CEC agreed to purchase all BFC
outstanding stock from BPC at a price of $23,857,951 in cash, subject to
certain adjustments, with debt less working capital of approximately $6,500,000
remaining at BFC (referred to as "net debt"). On October 14, 1999, Carbon, CEC
and Yorktown signed the exchange and financing agreement providing for an
assignment of the BFC stock purchase agreement to Carbon, the purchase of
common stock of Carbon by Yorktown for $24,750,000, and the exchange offer made
by this prospectus. This purchase of Carbon stock by Yorktown was at a price of
$5.50 per share. On October 29, 1999, Carbon completed the purchase of BFC.

The exchange offer gives each shareholder of CEC the opportunity to become a
shareholder in Carbon which will be a substantially larger oil and gas company
than CEC alone. Carbon owns BFC, and, it is anticipated Carbon will own more
than a majority of CEC. The formation of Carbon results from Yorktown's desire
for making its investment in a United States corporation and unfavorable tax
consequences that would have resulted by reincorporating CEC from an Alberta
corporation with Canadian assets into a U.S. corporation with both Canadian and
U.S. assets. For a more complete description of the background surrounding the
purchase of BFC, the formation of Carbon and the making of the exchange offer,
see "The Exchange Offer--Background of the Exchange Offer/Exchange Agreement".

Recommendation of the Board of Directors of CEC

CEC's Board of Directors believes that the terms of the exchange offer are
fair to and in the best interest of CEC and its shareholders. In reaching its
decision, CEC's Board considered a number of factors, including the

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terms and anticipated benefits of the acquistion of BFC, the opportunity for
CEC's shareholders to participate in Carbon by accepting the exchange offer,
the tax consequences of the exchange offer, and other factors. For a more
complete description of the factors considered by CEC's Board, see "The
Exchange Offer--CEC's Reasons for Recommending the Exchange Offer."

Intentions of the Board of Directors of CEC

Directors and executive officers of CEC who hold, in the aggregate, 580,346
shares of outstanding CEC common stock, representing approximately 38.1% of
CEC's outstanding shares, have stated their intention to accept our stock in
the exchange offer.

United States Federal Income Tax Consequences

Subject to a number of qualifications and conditions, and to the accuracy of
certain factual representations made by Carbon and CEC, Holland & Hart LLP, tax
counsel to CEC, has rendered an opinion, that for U.S. federal income tax
purposes, (1) the transactions contemplated by the exchange offer should
constitute a tax-free B reorganization, assuming that Carbon acquires at least
80% of the outstanding stock of CEC pursuant to the exchange offer, and (2) the
transactions contemplated by the exchange offer likely constitute part of a
tax-free Section 351 transaction even if the transactions contemplated by the
exchange offer do not qualify as a B reorganization. See "United States Federal
Income Tax Consequences." Tax counsel's opinion is not a substitute for each
individual CEC shareholder's review of the tax consequences of the exchange by
its own advisor. See "Risk Factors." Non-U.S. shareholders who receive Carbon
stock in the exchange may be subject to U.S. tax with respect to their
investment in Carbon common stock or may otherwise be affected by U.S. tax law.
The summary of U.S. federal income tax consequences of the exchange set forth
in "United States Federal Income Tax Consequences" does not cover all U.S.
federal income tax aspects of the exchange and may not be applicable to every
CEC shareholder exchanging shares. For these reasons, each CEC shareholder
participating in the exchange is urged and expected to consult with and rely on
its tax advisor regarding the U.S. federal income tax aspects of the exchange.

Canadian Federal Income Tax Consequences

Subject to the specific exceptions referred to under "Canadian Federal
Income Tax Consequences" below, the exchange of CEC common stock for Carbon
common stock will generally be tax-free to non-Canadian holders of CEC common
stock for Canadian federal income tax purposes.

Canadian holders of CEC common stock will not benefit from tax-free
treatment for Canadian federal income tax purposes and will have to recognize a
gain or loss equal to the difference between the fair market value of the
Carbon common stock and the aggregate of the adjusted cost base of the CEC
common stock and any reasonable costs of disposition.

The tax considerations to you resulting from your individual position and
the exchange may be complex. Carbon recommends that you read carefully the
discussion under "Canadian Federal Income Tax Consequences" and consult with
your own advisors as to the Canadian federal, provincial or territorial tax
consequences.

An opinion on these Canadian tax matters has been rendered by Bennett Jones,
counsel to CEC. Their opinion is subject to the assumptions and qualifications
set forth under "Canadian Federal Income Tax Consequences."

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Accounting Treatment

We will account for the exchange offer as a purchase of CEC in accordance
with generally accepted accounting principles. For a discussion of the
application of purchase accounting to this transaction, see "The Exchange
Offer--Accounting Treatment."

Comparison of Shareholders' Rights

CEC shareholders who accept our exchange offer will become shareholders of
Carbon and be governed by our articles of incorporation and bylaws and the
Colorado Business Corporation Act. There are a number of differences between
our articles of incorporation and bylaws and the Colorado Business Corporation
Act and the articles of association and bylaws of CEC and the Alberta Business
Corporations Act. These differences are discussed under "Comparison Of
Shareholders' Rights."

Interests of Certain Persons in the Exchange Offer

In considering whether to accept our offer, you should consider the
interests various executive officers and directors have in the exchange offer.
Patrick R. McDonald, President of CEC, and Kevin Struzeski, Chief Financial
Officer-Treasurer of CEC, have entered into employment agreements with Carbon.
In addition, Mr. McDonald and Mr. Struzeski have been granted restricted stock
of Carbon and stock options to acquire shares of its common stock. Mr.
McDonald, Mr. Struzeski and other officers of CEC are to receive bonuses from
CEC upon completion of the exchange offer if 50% or more of the CEC shares are
exchanged for Carbon shares. The employment agreements replace employment
agreements with CEC and were negotiated on an arms'-length basis with Yorktown.
For a description of these interests, see "The Exchange Offer--Interests of
Certain Persons in the Exchange Offer."

Second Step Merger

After the exchange offer, it is possible that we may merge CEC with a
wholly-owned Canadian subsidiary of Carbon. We will not make any decision as to
whether to do a second-step merger until after completion of the exchange
offer. Whether we decide to proceed with the merger depends on a number of
factors which cannot be ascertained at the present time, including the number
of CEC shares acquired in our offer, the relative attractiveness of the merger
compared to other possible investments, the availability of financing to fund
any cash payments required to effect the merger and the U.S. and Canadian tax
consequences of the merger. In such a merger, shareholders of CEC may receive
cash, shares of our stock, other securities or a combination of some or all of
the foregoing. If CEC common stock is listed on the AMEX on the record date for
determining shareholders entitled to vote on the merger, no dissenters' rights
will be available to CEC's shareholders in connection with the merger. In
contrast, if CEC common stock is not listed on the AMEX on such record date,
CEC shareholders will be entitled to dissenters' rights in connection with the
merger. The continued listing of CEC common stock will depend upon the effect
of the exchange offer on the shares of CEC held by persons other than Carbon,
and it is currently contemplated that the CEC shares will be delisted from
AMEX.

We do not currently intend to engage in a second step merger. If we
eventually decide to merge CEC with a wholly-owned Canadian subsidiary of
Carbon, we will not engage in such a transaction without informing, and
receiving approval from, our tax counsel, so that there will be no adverse tax
effect on shareholders who have accepted the exchange offer.

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circumstances of the second step merger including, without limitation, the
consideration received by such U.S. Shareholder in the second step merger.

For a Canadian Holder (as defined in "Canadian Federal Tax Consequences--
Holders Resident in Canada") whose CEC common stock is not exchanged under the
exchange offer and is disposed of in connection with a second step merger, the
consequences under the Canadian Tax Act would depend on the circumstances of
the second step merger including, without limitation, the consideration
received by such Canadian Holder in the second step merger.

However, it is possible that both a U.S. Shareholder and a Canadian Holder
will have a taxable event as a result of a second step merger. For example,
this would be the case if cash were to be paid in the second step merger.

Summary Selected Financial Data of Carbon

The following table summarizes financial data for our business. The data is
derived from the financial statements of our predecessor, BFC, included
elsewhere in this prospectus. In addition to this information, please read our
financial statements and the financial statements of Bonneville Fuels
Corporation starting on page F-7 and "Information About Carbon--Our
Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 58.

<TABLE>
<CAPTION>
As of or for
the
Nine Months
Ended September As of or for the Year
30, Ended December 31,
---------------- -------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenue............... $18,254 $12,595 $21,092 $16,539 $15,067 $12,675 $14,956
Net income (loss)..... 683 114 (1,941) 732 4,060 172 (2,950)

Cash Flow Data:
Cash provided by (used
in) operating
activities........... $ (734) $ 2,587 $ 4,696 $ 3,193 $ 4,136 $ 3,016 $ 3,091
Cash used in investing
activities........... (4,654) (3,828) (5,948) (4,442) (1,025) (859) (1,181)
Cash provided by (used
in) financing
activities........... 2,950 1,300 3,450 1,019 (2,760) (2,090) (2,046)

Balance Sheet Data:
Total assets.......... $21,627 $18,726 $22,840 $16,054 $14,524 $13,177 $16,321
Working capital....... 1,603 688 812 1,491 1,725 628 405
Long term debt........ 8,800 3,700 5,850 2,400 1,700 4,760 6,850
Stockholder's
equity(1)............ 9,997 9,709 9,313 9,591 8,859 6,774 6,552
</TABLE>
- --------
(1) Includes debt to parent company (BPC) of $3,787 in 1995 and $3,737 in 1994,
which was converted to equity in 1996.

9
<PAGE>

Summary Selected Financial Data of CEC

The following table summarizes financial data for CEC's business. The data
is derived from the financial statements of CEC included elsewhere in this
prospectus which were prepared in accordance with Canadian generally accepted
accounting principles. In addition to this information, please read the
financial statements of CEC starting on page F-27 and "Information About CEC--
CEC Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 42.

<TABLE>
<CAPTION>
As of or for
the
Nine Months
Ended August As of or for the
31, Year Ended November 30,
---------------- -------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -------
(in Canadian dollars)
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues.............. $ 3,463 $ 2,364 $ 3,253 $ 3,309 $ 3,212 $ 3,794 $ 3,673
Net income (loss)..... (188) 268 240 605 526 870 1,033

Cash Flow Data:
Cash provided by
operating activities
..................... $ 1,389 $ 1,218 $ 1,366 $ 1,724 $ 1,656 $ 1,933 $ 2,145
Cash used in investing
activities .......... (7,751) (489) (564) (1,265) (2,333) (2,064) (1,989)
Cash provided by (used
in) financing
activities........... 4,696 (79) (209) (98) 604 -- --

Balance Sheet Data:
Total assets.......... $15,981 $11,444 $11,235 $11,378 $10,166 $ 8,729 $ 7,852
Working capital....... 182 2,039 2,120 1,149 981 937 684
Long term debt........ 4,850 -- -- -- -- -- --
Stockholders' equity.. 8,380 8,880 8,722 8,691 $ 8,184 $ 7,054 $ 6,184
</TABLE>

Summary Pro Forma Consolidated Condensed Financial Information

The following is summary pro forma consolidated financial information of
Carbon and is derived from the historical financial statements of BFC and CEC.
This information assumes that the acquisition of BFC and the exchange offer of
Carbon shares for CEC shares were consummated at the beginning of relevant
periods. This information should be read in connection with the financial
statements of Carbon and CEC, beginning on page F-1 of this prospectus and the
unaudited pro forma consolidated financial information beginning on page 37 of
this prospectus.

<TABLE>
<CAPTION>
As of or for the As of or for the
Year Ended Nine Months Ended
December 31, 1998 September 30, 1999
----------------- ------------------
(In thousands)
<S> <C> <C>
Operating Data:
Revenues........................... $24,332 $20,671
Net loss........................... (895) (263)
Balance Sheet Data:
Total assets....................... $49,089
Working capital.................... 2,648
Long term debt..................... 12,042
Stockholders' equity............... 31,493
</TABLE>

10
<PAGE>

Comparative Per Share Data

The table below sets forth, for the periods indicated, the following:

. the pro forma basic and diluted net income (loss) and book value per share
of Carbon common stock after giving effect to the closing of the exchange
offer and assuming all shareholders of CEC accept our offer; and

. the historical basic and diluted net income (loss) and book value per share
of CEC common stock which is the same as the equivalent pro forma per share
data because the exchange offer is on a one-to-one basis.

Neither we nor CEC have declared or paid any cash dividends on our common
stock. We currently expect to retain any future earnings for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future. The information presented in this table
should be read in conjunction with the pro forma consolidated condensed
financial information and the separate financial statements of Carbon and CEC
included elsewhere in this prospectus.

<TABLE>
<CAPTION>
As of or for the As of or for the
nine months ended year ended
September 30, 1999(1) December 31, 1998(1)
---------------------- --------------------
<S> <C> <C>
Unaudited Carbon pro forma data:
Net income (loss) per common
share--basic.................... $(.04) $(.15)
Net income (loss) per common
share--diluted.................. $(.04) $(.15)
Cash dividends paid per common
share........................... -- --
Book value per common share...... $5.22 $5.20
</TABLE>
- --------

(1) Net income (loss) per common share data assumes that the acquisition of BFC
was consummated on January 1, 1998 and the exchange offer of Carbon shares
for CEC shares was consummated on December 1, 1997. The book value per
common share data assumes that the acquisition of BFC was consummated on
September 30, 1999 and the exchange offer of Carbon shares for CEC shares
was consummated on August 31, 1999.

<TABLE>
<CAPTION>
As of or for the As of or for the
nine months year ended
ended August 31, 1999 November 30, 1998
---------------------- -----------------
<S> <C> <C>
CEC historical equivalent pro forma
data (translated to US$):
Net income (loss) per common
share--basic...................... $(.08) $ .11
Net income (loss) per common
share--diluted.................... $(.08) $ .11
Cash dividends paid per common
share............................. -- --
Book value per common share........ $ 3.68 $3.71
</TABLE>

11
<PAGE>

CEC Per Share Market Information

The common stock of CEC has traded on the American Stock Exchange regular
list since July 6, 1995. The common stock initially began trading on the
American Stock Exchange Emerging Companies Marketplace on March 24, 1995 about
one month after it was divested by Columbus Energy Corp. to its shareholders by
a rights offering. The reported high and low sales prices in U.S. dollars for
the periods ending below were as follows:

<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
1999:
First quarter.......................................... $4.7500 $4.1250
Second quarter......................................... 4.8125 4.1250
Third quarter.......................................... 5.1250 4.1250
Fourth quarter (through December , 1999)
1998:
First quarter.......................................... $6.2500 $4.8750
Second quarter......................................... 5.1250 4.8750
Third quarter.......................................... 5.6250 4.8750
Fourth quarter......................................... 5.6875 4.2500
1997:
First quarter.......................................... $5.8750 $4.7500
Second quarter......................................... 5.2500 4.5000
Third quarter.......................................... 5.1875 4.8750
Fourth quarter......................................... 7.2500 4.8750
</TABLE>

As of August 11, 1999, the day prior to announcement of the proposed
acquisition of BFC stock under the BFC stock purchase agreement, the closing
sales price of CEC common stock was $4.375.

As of , 2000 the most recently reported closing sales price of CEC
common stock was $ per share.

As of , 2000, there were approximately holders of record of
CEC common stock and an estimated 430 or more beneficial owners who hold their
shares in brokerage accounts.

12
<PAGE>

RISK FACTORS

You should carefully consider the following risk factors and all other
information contained in this prospectus before you decide to accept or reject
the exchange offer. The risks and uncertainties we describe below are not the
only risks we face. We also face risks common to companies engaged in the
exploration, development and production of oil and gas. You should consider
all of these risk factors along with the other information contained in the
documents to which we have referred you.

If any of the adverse events described in the following risk factors
actually occur or we do not accomplish necessary events described in the risk
factors, our business, financial condition and operating results could be
materially and adversely affected, the trading price of our common stock could
decline and you could lose all or part of your investment.

We may not be able to successfully integrate BFC and CEC.

Carbon acquired BFC in October, 1999. The integration and consolidation of
the assets and operations of Carbon, BFC and CEC after the exchange offer will
present significant management challenges for Carbon. Currently we and CEC use
different accounting and computer systems. We plan to integrate these systems
but we have not established a definitive time table for integration of such
systems or determined the capital required for such integration. In addition,
there may be adverse short-term effects on our reported operating results
caused by severance payments to certain terminated employees, acquisition
costs including legal and accounting fees, difficulties with retention, hiring
and training of key employees and risks associated with unanticipated problems
or legal liabilities. Carbon cannot assure you that it will be able to
successfully integrate the Carbon, BFC and CEC business operations or that the
combined company will realize any of the anticipated benefits of the
transactions.

You or Carbon could incur United States income taxes.

As described in the section of this prospectus entitled "United States
Federal Income Tax Consequences," no ruling will be requested from the IRS
regarding the United States income tax aspects of the exchange. Although
Holland and Hart LLP, tax counsel for Carbon, has rendered the opinion set
forth in the section of this prospectus entitled "United States Federal Income
Tax Consequences," the opinion is limited in scope, is subject to a number of
qualifications, limitations and conditions and is subject to the accuracy of
certain factual representations made by Carbon. As discussed in "United States
Federal Income Tax Consequences," holders of more than 80% of CEC shares must
participate in the exchange in order for the exchange to constitute a tax-free
B reorganization. If holders of less than 80% of the CEC shares accept the
exchange offer, tax-free treatment is less certain, (although still likely),
and depends on whether Yorktown's contribution of cash to Carbon and CEC
shareholders' subsequent exchange of CEC common stock for Carbon common stock
constitute transfers pursuant to the same plan or arrangement for purposes of
a tax-free Section 351 transaction. Moreover, an opinion of counsel is not
binding on the IRS, and the IRS may successfully take a position contrary to
tax counsel's opinion. For these reasons, each CEC shareholder participating
in the exchange is urged and expected to consult with and rely on its tax
advisor regarding the exchange.

Shareholders of CEC who reside in Canada may incur Canadian income taxes by
accepting the exchange offer.

Canadian holders of CEC common stock will not benefit from tax-free
treatment for Canadian federal income tax purposes and will have to recognize
a gain or loss equal to the difference between the fair market value of the
Carbon common stock and the aggregate of the adjusted cost base of the CEC
common stock and any reasonable costs of disposition.

13
<PAGE>

The tax considerations to you resulting from your individual position and
the exchange may be complex. You should read carefully the discussion under
"Canadian Federal Income Tax Consequences" and consult with your own advisors
as to the Canadian federal, provincial or territorial tax consequences.

Yorktown is Carbon's controlling stockholder.

After the exchange offer, Yorktown will own 74% of Carbon's common stock if
all of CEC's shareholders accept the exchange offer and a greater percentage
if some of CEC's shareholders do not accept the exchange offer. Accordingly,
Yorktown will be able to determine virtually all matters submitted for
shareholder approval. The nomination and election of Carbon's directors are
subject to the terms of the exchange and financing agreement among Carbon, CEC
and Yorktown. Upon termination of the provisions of the exchange and financing
agreement relating to the nomination and election of directors, Yorktown will
be able to control the election of directors and to determine the corporate
and management policies of Carbon. See "The Exchange Offer--Description of
Exchange Agreement."

No prior market for Carbon shares exists, and the market price for Carbon
shares may decrease after the exchange offer.

Prior to the exchange offer, there has been no public market for our
shares. CEC shares have been traded on the AMEX, but the market was very thin
and little trading occurred. There can be no assurance that an active trading
market for our common stock will develop or be sustained. There is also
uncertainty as to the prices at which our shares will trade. The possibility
exists that the trading price for our shares may be lower than the prior
market prices for CEC shares. Also, the price of CEC shares may decrease after
the exchange offer if holders with a relatively large number of shares decide
to sell the shares immediately or shortly after the exchange offer.

CEC shareholders will not have a readily available market for CEC shares after
the exchange offer.

We anticipate that most CEC shareholders will tender their shares in
exchange for Carbon shares. We therefore contemplate that CEC shares will be
delisted from the AMEX and may not be traded or quoted on any public market.

We depend heavily on our key personnel.

We depend to a substantial extent on the expertise and services of our
senior management personnel and upon the expertise and services of Patrick R.
McDonald, who is our President and Chief Executive Officer and one of our
directors. The loss of Mr. McDonald's or of any of our other senior management
personnel's services could have a material adverse effect on us. We do not
maintain key-man life insurance on any of our personnel.

We may be unable to obtain additional financing.

We expect to be able to finance our development and exploration programs
for the next twelve months from cash generated by our operations and from bank
financing. We will seek and evaluate opportunities for the acquisition of oil
and gas businesses and properties. Although there are presently no agreements
or understandings for any significant acquisitions, future acquisitions may
require additional capital investment and bank financing. We cannot assure you
as to the availability or terms of any additional capital investment or bank
financing that may be required or whether financing will continue to be
available under existing or new credit facilities. If sufficient capital
resources are not available to us, our ability to make acquisitions may be
curtailed, which could have a material adverse effect upon our results of
operations and financial condition.

14
<PAGE>

Carbon's technology systems may not be ready for the Year 2000.

Carbon has not completed a comprehensive analysis of the operational
problems and costs that would be reasonably likely to result from any failure
of the technology systems of Carbon or of other third parties with which
Carbon has significant relationships to be Year 2000 compliant by January 1,
2000. Carbon has made inquiries of the suppliers and manufacturers of its
computer systems, including equipment supplied by third parties, and it has
been advised that these systems are Year 2000 compliant except in the case of
its property management software, which is currently under review regarding
Year 2000 compliance. If Carbon's property management software is not Year
2000 compliant, Carbon believes that the cost of replacing such software would
not exceed $25,000.

Carbon has not reviewed all Year 2000 issues with third parties of business
importance to Carbon such as its natural gas purchasers, gathering system and
plant operators, downstream pipeline operators, equipment and service
providers, operators of its oil and gas properties, financial institutions and
vendors providing payroll and medical benefits and services. If any of these
third parties have Year 2000 issues, Carbon believes that the most serious
effect on Carbon would be delays in receiving payment for oil and gas sold to
its purchasers. This could have a material adverse effect upon the results of
operations and financial condition of Carbon.

SOURCES OF INFORMATION ABOUT CARBON AND CEC

Our business now consists only of BFC's business. Because BFC was acquired
in October, 1999, much of the information in this prospectus with respect to
BFC is derived from data and records prepared or developed under the prior
management of BFC.

Information and data in this prospectus with respect to CEC has been
developed or derived from CEC data and records.

FORWARD-LOOKING STATEMENTS

This prospectus contains certain forward-looking statements that involve
risks and uncertainties. These statements relate to our future plans,
objectives, expectations and intentions. These statements may be identified by
the use of words such as "believes," "expects," "estimates," "anticipates,"
"intends," "plans" and similar expressions. Our actual results could differ
materially from those anticipated in the forward-looking statements as a
result of various factors, including all the risks discussed in "Risk Factors"
and elsewhere in this prospectus.

THE EXCHANGE OFFER

General

We are offering to exchange one share of our common stock for each share of
CEC common stock. If all CEC shareholders accept our offer, in the aggregate
we will issue approximately 1,521,400 shares of our common stock. Our common
stock has been approved for listing on the AMEX, upon issuance of the shares
after the exchange offer, under the symbol " ." CEC's Board of Directors
has approved this exchange offer.

The exchange offer is open to all holders of CEC common stock. We are
sending this prospectus and related exchange offer documents to persons who
held CEC common stock at the close of business on , 2000. On
that date, there were shares of CEC common stock outstanding, which
were held of record by approximately shareholders. We will also
furnish this prospectus and related exchange offer documents to brokers, banks
and similar persons whose names or the names of whose nominees

15
<PAGE>

appear on CEC's shareholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of CEC common stock.

Background Of The Exchange Offer/Exchange Agreement

CEC furnished the information in this section regarding the deliberations
of CEC's Board of Directors and the actions of CEC's management and legal and
financial advisors.

This exchange offer results from an acquisition of Bonneville Fuels
Corporation, originally proposed by CEC and completed by Carbon. In order to
combine with BFC, obtain financing for the acquisition of BFC and avoid
adverse income tax consequences to CEC and its shareholders, (1) CEC entered
into the BFC stock purchase agreement, (2) CEC assigned the BFC stock purchase
agreement to Carbon in return for Carbon's agreement to make this exchange
offer and comply with other terms of an exchange and financing agreement, (3)
Carbon closed an equity financing of $24,750,000 from Yorktown for the purpose
of Carbon's purchasing all BFC shares, (4) Carbon completed the purchase of
the BFC shares, and (5) Carbon has made this exchange offer. The overall goal
of CEC and Carbon is to provide each CEC shareholder with the opportunity to
own shares in a company that consists of both BFC and CEC.

The background information stated below explains the long-standing desire
of CEC to increase its size through a business combination. It also describes
negotiations for the acquisition of BFC from BPC and the separate, although
concurrent, discussions by CEC's President with Yorktown Partners for a
financing of the purchase of the BFC shares. Prior to the purchase of the BFC
shares and this exchange offer, CEC, BPC and Yorktown (including its manager,
Yorktown Partners) did not have any affiliations or relationships.

CEC's Prior Efforts for a Business Combination

CEC was acquired by the former parent of Columbus Energy Corp. ("Columbus")
in 1969 and was acquired by Columbus on July 31, 1984. In February, 1995,
Columbus spun off CEC by means of a rights offering. As stated in public
reports, since becoming a public company by this spin-off, CEC has pursued a
potential business combination. CEC publicly stated that it preferred a
company directed by Canadian-based enterpreneurial management who would manage
the surviving entity. CEC's management believed that it may be desirable for
the surviving entity, if there was sufficient Canadian ownership, to have a
dual listing by continuing a listing of common stock on the American Stock
Exchange and adding a listing on the Toronto Stock Exchange. In the spring and
fall of 1996, CEC assembled a data room and spoke with five Canadian oil and
gas companies selected by CEC's management about a possible combination. None
of these contacts went beyond preliminary discussions for several reasons,
including lack of interest on the part of two companies and in one case a
differing view of valuations. CEC then put on hold further efforts for a
combination until CEC could assign a reasonable asset value to a multi-zone
oil discovery in Canada. In the spring of 1997, CEC restarted its efforts. CEC
discussed for approximately four months in 1997 a potential business
combination with a private company whose size was approximately five times
that of CEC. The management of CEC deferred discussions with other prospective
companies because of the likelihood of reaching a possible transaction with
that party. Ultimately, the private company made continuous sales of shares
for an active acquisition program, and it was not possible to reach a final
agreement with that company.

In February, 1998, CEC resumed its search for a business combination and
also expanded the search to include a sale of a substantial equity interest to
one or more potential investors. In the spring of 1998, McDonald Energy, LLC
("McDonald Energy"), a limited liability company owned solely by Patrick R.
McDonald, contacted CEC about a potential investment. After negotiations, CEC
entered into a stock purchase agreement with McDonald Energy. Under this
agreement, McDonald Energy purchased from CEC 70,000 shares of newly issued
CEC common stock, representing approximately 4.5% of the outstanding common
stock of CEC, for US$5.50 per share.

16
<PAGE>

In connection with the stock purchase agreement, McDonald Energy was
granted a one year option to purchase 250,000 shares of CEC common stock at
US$6.00 per share, which was not exercised by McDonald Energy. In accordance
with other provisions of the stock purchase agreement, McDonald Energy,
through a related entity called CEC Resources Holdings, Inc., acquired 73,800
shares on the open market. Mr. McDonald also entered into an employment
agreement with CEC. As required by the employment agreement, Mr. McDonald was
granted an option to purchase 78,000 shares of CEC common stock at an exercise
price of $5.50 per share.

In July, 1998, after acquiring CEC shares, Mr. McDonald became President,
Chief Executive Officer and a member of the Board of Directors of CEC. Under
the stock purchase agreement, he was granted the right to nominate a Canadian
resident as a director to stand for election at the 1998 annual shareholders
meeting. Loyola Keough was that nominee and was elected as a director at the
1998 annual meeting of CEC. Pursuant to the stock purchase agreement, Harry L.
Trueblood, Jr. resigned as President and Chief Executive Officer of CEC in
July 1998. Mr. Trueblood continued to serve as Chairman of CEC until the 1998
annual meeting, at which time Mr. Trueblood stood for a re-election as a
director, but not as Chairman.

Mr. McDonald was previously Chairman, President, founder and a substantial
shareholder of Interenergy Corporation, which had operated profitably for ten
years and was sold in 1997. One of the significant investors in Interenergy
Corporation was a partnership managed by Yorktown Partners.

With Mr. McDonald as its President, CEC adopted a strategy of increasing
its natural gas and oil reserves through acquisitions and exploration and
development. Mr. McDonald hired a team of professional oil and gas managers
and began to develop CEC's Canadian natural gas properties through the
acquisition of additional interests in the Carbon Gas Field in Alberta,
Canada. Since July, 1998, CEC has completed five transactions resulting in an
increase in CEC's proved natural gas and oil reserves in Canada. During 1998
and 1999, CEC management also reviewed and evaluated oil and gas acquisition
opportunities in the Rocky Mountain region of the United States.

In 1998 and early 1999, CEC, through visits by Mr. McDonald as its
President, approached institutional investors about providing capital to CEC.
CEC is a small oil and gas, exploration and development company with most of
its assets in Canada and all of its operations in Canada. CEC has a
significant portion of its shares owned by its Board of Directors, a
relatively small public float of shares and inactive trading in its common
stock on the American Stock Exchange. Potential institutional investors in the
United States and Canada expressed to Mr. McDonald disinterest in making a
capital investment in CEC because of one or more of these attributes. For
example, United States investors expressed concern about the size of CEC and
the location of its properties in Canada; Canadian investors expressed concern
that CEC was small, that trading of its public stock was in the United States,
and that most holders were United States persons. Potential investors were
also concerned about a lack of liquidity in the shares.

Purchase of BFC Shares

In early May, 1999, an employee of CEC contacted an employee of BFC for
advice about an unrelated matter and learned that BPC planned to sell the
stock of its Denver-based 100% owned subsidiary, BFC. The CEC employee
provided this information to Mr. McDonald, and Mr. McDonald contacted an
investment banking firm which represented BPC and was conducting the sale of
BFC. As part of the process established by BPC, on May 10, 1999, CEC executed
a confidentiality letter and received information relating to the oil and gas
wells and reserves owned by BFC. In accordance with the schedule established
by BPC, CEC submitted an initial non-binding expression of interest in
purchasing BFC for a total of $24,500,000 in cash, plus net debt remaining at
BFC equal to approximately $6,500,000. BPC advised CEC that several other
parties had also submitted proposals and that BPC would conduct a sale process
designed to result in a transaction with the most preferred

17
<PAGE>

buyer. BPC also informed CEC that parties who would participate in the next
phase of the sales process would be notified between May 19 and May 21, 1999,
that the potential bidders could participate in due diligence presentations
and a review of information in a data room from May 26 to June 9, 1999, and
that final binding bids were due on June 21, 1999.

On May 21, 1999, CEC was notified that it should conduct additional due
diligence and on May 27 and 28, 1999, CEC met with management of BFC and
reviewed the business and operations of BFC.

On June 9, 1999, based on the results of due diligence, CEC advised BPC
that if BPC would negotiate on an exclusive basis, CEC would be willing to
discuss a transaction to acquire BFC in the range of $28,500,000 in cash plus
$6,500,000 in net debt remaining with BFC. Based on discussions with Yorktown,
the proposal was not subject to a financing contingency. BPC informed CEC that
it would not accept CEC's offer to negotiate exclusively and requested that
CEC continue to participate in the sale process.

On June 18, 1999, BPC advised CEC that a final offer for BFC would be due
June 28, 1999. On June 28, 1999, CEC submitted an offer to BPC in the amount
of $20,000,000 in cash for the assets of BFC plus the assumption of $6,500,000
in net debt outstanding at March 31, 1999.

BPC informed CEC in early July that BPC had decided to negotiate a stock
purchase agreement with another party. In mid-July, CEC inquired as to whether
BPC's position had changed and whether BPC would be willing to discuss further
CEC's June 28, 1999 offer. BPC indicated that it would consider that offer if
CEC would submit for review comments on the form of the stock purchase
agreement prepared by BPC and increase the price it was willing to pay for
BFC.

On July 27, 1999, CEC submitted comments on the form of the stock purchase
agreement to BPC for review. During the period July 28 to July 30, BPC and CEC
conducted additional negotiations relating to the terms of the proposed stock
purchase agreement and the price to be paid for the stock of BFC. BPC advised
CEC that CEC's June 28 offer would not be sufficient to ensure the purchase of
BFC. Based on discussions with the Board of CEC and Yorktown, on July 30, 1999
CEC agreed to increase its offer for BFC to $24,000,000 in cash for the stock
of BFC plus $6,500,000 of net debt remaining with BFC. On July 31, 1999, CEC
and BPC executed a letter of intent proposing to accept CEC's offer to
purchase BFC and agreeing to negotiate a definitive stock purchase agreement.

On August 11, 1999, CEC and BPC signed the BFC stock purchase agreement.
CEC issued a press release on August 12, 1999 announcing the execution of that
agreement. The press release also described the terms of the financing and
overall structure involved in the purchase of the BFC shares.

Yorktown Financing

CEC realized prior to making any proposed bid that it needed to obtain
external financing for its proposed purchase of BFC. Because of Mr. McDonald's
past dealings with Yorktown Partners, Mr. McDonald apprised Yorktown Partners
of CEC's interest in BFC at the time of CEC's receiving initial information
about BFC, and he requested that Yorktown Partners consider providing
financing for the transaction. All discussions between Yorktown and CEC were
conducted by Mr. McDonald with managers of Yorktown Partners. Mr. McDonald
informed Yorktown Partners of each significant step being taken by CEC to
acquire BFC. In July, 1999 and early August, 1999, Yorktown Partners indicated
that a partnership managed by Yorktown Partners was willing to purchase common
stock of CEC or economically equivalent shares for a total of $24,750,000 at
$5.50 per share in order to provide equity financing for the purchase of BFC
shares.

18
<PAGE>

Yorktown Partners also stated that it wished to have this investment made
through a United States corporation. In late July and August, 1999, advisors
of CEC reviewed possible transactions for CEC's acquiring BFC through a United
States corporation. They concluded that a merger of CEC into a United States
corporation would have materially adverse Canadian income tax consequences for
CEC and that the exchange offer now being made was the best form for the
transaction. The formation of a new Colorado corporation and the assignment of
the BFC stock purchase agreement to the new corporation would allow the
investment by Yorktown in a United States corporation, Carbon; the exchange
offer would permit CEC shareholders to become shareholders of Carbon; and the
exchange offer should be tax-free for shareholders of CEC, except for a small
number of shareholders who reside in Canada.

CEC informed BPC that its financing may require that the purchase of BFC
stock be made by a United States corporation. As a result, the parties
provided in the BFC stock purchase agreement for the possible assignment of
the stock purchase agreement to an entity controlled by CEC or a party
providing financing for the purchase of the BFC shares.

CEC did not seriously consider financing sources other than Yorktown
Partners for the BFC purchase. Mr. McDonald and the Board of Directors had
confidence in the ability and willingness of Yorktown to provide the
financing. Yorktown Partners indicated that it was receptive to the idea of a
Rocky Mountain based oil and gas exploration and development company, with
both Canadian and United States operations. Mr. McDonald and the Board of
Directors believed that having Yorktown Partners as the financing party had a
number of advantages, including: Yorktown's willingness to provide the
financing in the form of common stock; Yorktown's long-term view of
investments in businesses like CEC and BFC; Yorktown Partners' focus on energy
companies, with all investments made by entities controlled by Yorktown
Partners in these types of companies; Yorktown's track record of successes in
these investments; Yorktown's successful dealings in the past with Mr.
McDonald; and intangible benefits from association with Yorktown Partners.
These intangible benefits include enhancing the reputation of Carbon and CEC
in the oil and gas industry, because Yorktown Partners is recognized for its
quality investments, and thereby improving Carbon's access to opportunities to
acquire oil and gas properties.

Board Actions

The Board of CEC was advised of actions taken by CEC in discussing and
negotiating the acquisition of BFC and requesting and obtaining financing from
Yorktown Partners.

On July 22, 1999, the Board of Directors of CEC met at a regularly
scheduled Board meeting. Among items discussed at the meeting, Mr. McDonald
explained the then current status of the proposed purchase of BFC stock,
including the history of the BFC transaction. The Board reviewed the status of
a proposed financing of the BFC purchase by Yorktown Partners, including
Yorktown Partners' general willingness to go forward with the financing on the
basis of acquiring common stock at $5.50 per share and Yorktown Partners'
desire for a United States corporation in which to make the equity financing.
The Board discussed the nature of BFC's oil and gas properties including the
geographic location, the mix of oil versus gas and the development potential
of the assets. CEC's Board directed Mr. McDonald to continue discussions with
BPC and Yorktown Partners and to report back to the Board as to the results of
those discussions.

On August 11, 1999, CEC conducted a special Board of Directors meeting
during which the BFC transaction and the Yorktown financing were discussed and
the purchase of BFC was approved. The Board considered the factors described
in "--CEC's Reasons For Recommending The Exchange Offer."

The Board reviewed the valuation of CEC and BFC by Yorktown based on what
would be the economic equivalent of paying $5.50 per share of CEC. The Board
believed that this price was fair and consistent with valuation of independent
oil and gas companies of similar size based on the experience of the Board,
the current market price for the stock of CEC and by the Board's view of
general industry guidelines of value including discounted cash flow and
multiple cash flow methods.

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Exchange Agreement

On October 14, 1999, Carbon, CEC and Yorktown signed the exchange and
financing agreement ("Exchange Agreement"). Under the Exchange Agreement,
Yorktown agreed to acquire 4,500,000 shares of Carbon common stock at a
purchase price of $24,750,000 in cash, which is $5.50 per share. Carbon agreed
to use the proceeds for the purchase of BFC shares under the BFC stock
purchase agreement and to add any remaining proceeds to the working capital of
Carbon. CEC agreed to assign to Carbon its rights and obligations under the
BFC stock purchase agreement for BFC stock, and Carbon agreed to assume the
obligations and terms of CEC under the BFC stock purchase agreement. Also,
Carbon, CEC and Yorktown agreed that Carbon would make an offer to all holders
of shares of CEC to exchange one share of common stock of Carbon for each
outstanding share of CEC, subject only to a few conditions. CEC and its Board
of Directors approved this exchange offer. The Exchange Agreement also
provided for the adoption of a stock option and restricted stock plan of
Carbon, employment agreements with Mr. McDonald and Kevin D. Struzeski,
Carbon's Treasurer and Chief Financial Officer.

The Exchange Agreement further contained provisions regarding the
composition of Board of Directors of Carbon. These provisions are described
under "--Description of Exchange Agreement" below.

BFC Closing

On October 28, 1999, CEC assigned the BFC stock purchase agreement to
Carbon. On October 29, 1999, Carbon completed the purchase of BFC for
$23,581,000 in cash.

CEC's Reasons For Recommending The Exchange Offer

CEC's Board of Directors believe that the terms of the exchange offer are
fair to and in the best interests of CEC and its shareholders. In reaching its
conclusion to approve the BFC stock purchase agreement, the exchange and
financing agreement and the exchange offer, CEC's Board consulted with
management, as well as its legal advisors, and considered the following
factors:

. The acquisition of BFC and the exchange offer would result in Carbon
being led by the existing management team which has a strong track
record in the oil and gas industry. The Board of Directors of CEC
believes that the management is a significant component for the future
success of Carbon.

. The structure of the transaction with CEC's current shareholders having
the opportunity to participate in the future value of both BFC and CEC
as part of Carbon by accepting the exchange offer.

. Reasons for the acquisition of BFC, including potential growth, the
nature of BFC's properties and cost savings that may be realized in the
operation of BFC by Carbon. CEC is currently a small independent oil and
gas company, with operations in Canada, United States shareholders and
limited access to outside capital.

. The terms of the BFC stock purchase agreement, including the parties'
representations, warranties and covenants and the conditions to their
respective obligations.

. United States and Canadian tax consequences of the transaction.

. The requirement of Yorktown that its equity financing be made through a
United States corporation.

. The valuation of CEC involved in the equity financing made by Yorktown;
alternatives to Yorktown's proposal that had been considered or sought
in the past; a previous search by CEC for a business combination, which
was conducted prior to Patrick R. McDonald's becoming a significant
shareholder, and resulted in no offers.

. Valuation methods applicable to CEC, including discounted cash flow,
multiple of cash flow and public stock market values. The Board decided
not to engage an investment banker for a fairness opinion regarding the
equity financing proposed by Yorktown Partners because of the expense
involved in any such opinion and the experience of all of CEC's
directors in buying and selling oil and gas companies.

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<PAGE>

The Board also recognized that Yorktown's investment in Carbon or CEC
would bring other benefits, as described above under "Background of the
Exchange Offer/Exchange Agreement." In regard to values for CEC shares
and shares of the combined CEC and BFC, members of the Board were aware
of and considered general industry guidelines for the purchase price.
One guideline for the value of a small company is an amount equal to 75%
to 100% times the discounted future cash flow from proved developed
reserves plus 50% of the discounted future cash flow from proved
undeveloped reserves; another guideline is 5 to 6 1/2 multiplied by
EBITDA (earnings before interest, taxes and depreciation, depletion and
amortization). Both guidelines indicated that $5.50 per share was
favorable. The price of $5.50 per share was also a premium of 26% over
the market price for CEC common stock on August 11, 1999, the day prior
to announcing the proposed BFC transaction.

. Current financial market conditions, historical market prices since
1996, volatility and trading information with respect to CEC's common
stock. CEC's stock has been inactively traded since CEC became a
publicly-held corporation, resulting in illiquid shares. Securities
analysts have not followed the common stock of CEC.

. The likelihood of continuing consolidation in the energy industry and
increased competition from larger, well-financed companies.

. The reports from CEC's management as to the results of its due diligence
investigation of BFC and its business.

The foregoing discussion of the information and factors considered by CEC's
Board of Directors is not intended to be exhaustive but is believed to include
all material factors considered by CEC's Board. In reaching its determination
to approve the stock purchase agreement, the exchange and financing agreement
and the exchange offer, the CEC Board concluded that the potential benefits of
the purchase of BFC stock and exchange offer outweighed the potential risks,
but did not, in view of the wide variety of information and factors
considered, assign any relative or specific weights to the foregoing factors,
and individual directors may have given differing weights to different
factors. Although directors, executive officers and other personnel of CEC
have interests in the exchange offer, as described under "Interests of Certain
Persons in the Exchange Offer," CEC's Board did not consider the potential
benefits to be received by these individuals as a factor in reaching its
decision to approve the BFC stock purchase agreement, the Exchange Agreement
and the exchange offer.

Our Reasons For The Exchange Offer

As part of the Exchange Agreement in which Carbon obtained the right to
purchase BFC stock from CEC, Carbon agreed to make the exchange offer. In
approving the Exchange Agreement and the making of the exchange offer,
Carbon's Board of Directors concluded that the purchase of the BFC stock and
the acquisition of control of CEC pursuant to the exchange offer would result
in Carbon being a more significant independent oil and gas company and having
a management team with a strong track record in the oil and gas industry.

Intentions Of The Directors And Officers Of CEC

The directors and executive officers of CEC who own, in the aggregate,
580,346 shares of outstanding CEC common stock, representing approximately
38.1% of CEC's outstanding shares, have stated they intend to accept our
offer.

Interests Of Certain Persons In The Exchange Offer

In considering whether to accept the exchange offer, you should be aware of
the interests various executive officers and a director of CEC may have in the
exchange offer. In this regard, you should consider, among other things, the
employment agreements, stock options, restricted stock grants and bonuses
described below.

In October, 1999, Patrick R. McDonald and Carbon entered into a three-year
employment agreement, which provides for Mr. McDonald to be the President and
Chief Executive Officer of Carbon at a base salary of not

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<PAGE>

less than US$200,000 per year, to be adjusted on each July 1 for cost of
living increases in the U.S. consumer price index. Carbon is to provide Mr.
McDonald benefits that he currently receives as an executive of CEC, and is to
maintain for his benefit a life insurance policy in the amount of $1 million
and a disability insurance policy with terms mutually agreeable to us and Mr.
McDonald. According to the employment agreement, Carbon is also to nominate
and endorse Mr. McDonald as a director on Carbon's Board of Directors so long
as he is an officer of Carbon.

Either Carbon or Mr. McDonald may terminate the agreement if there is a
change in control of Carbon. A change in control includes (1) the acquisition
by a third party or a group of 50% or more of the combined voting power for
election of Carbon's directors (excluding those owned by Yorktown or entities
controlled by
Yorktown), or (2) the acquisition of Carbon by merger after which Carbon
shareholders do not own more than 2/3
of the outstanding voting securities of the surviving corporation in
substantially the same proportion as they owned
Carbon prior to the merger, or any sale or exchange or other disposition of
all or substantially all of our assets, (3) or the sale or other disposition
of more than 50% in fair market value of our assets other than in the ordinary
course of business, whether in a single transaction or related transactions,
or (4) there is a change in more than a majority of our Board of Directors as
a result of a proxy contest waged by a third party unaffiliated with the
officer who is the party to the employment agreement and not endorsed by that
officer. In the event of a change in control not supported by a majority of
our then-existing Board of Directors, Mr. McDonald is to be paid 400% of his
compensation upon termination of the employment agreement. In the event of a
change in control supported by our then-existing Board of Directors, Mr.
McDonald is to be paid 300% of his compensation upon termination of the
employment agreement by us or 200% of his compensation upon termination of his
employment by him. For this purpose, the term compensation means the average
of Mr. McDonald's annual base salary and incentive compensation for the three
years prior to the termination date (or such lesser period as he has been
employed), taking his base salary and incentive compensation into account at
their full annualized rates for any partial year or years. In addition, upon a
change in control, any restrictions on outstanding incentive awards (including
restricted stock and performance shares) granted to Mr. McDonald will lapse
and such incentive awards will become 100% vested. Further, in the event of a
change in control, any stock options and stock appreciation rights held by Mr.
McDonald will become immediately exercisable and 100% vested.

If Mr. McDonald's employment is terminated by us for any reason other than
"cause" (as defined below) or upon the death or disability of Mr. McDonald or
if Mr. McDonald terminates his employment because of a material breach of the
employment agreement by Carbon or because of a change in the position of Mr.
McDonald with Carbon, then Mr. McDonald is to be paid a lump sum payment equal
to 300% of his compensation as defined above. Also, in that event, all his
options and restricted stock become 100% vested. "Cause" means (1) repeated
refusal to obey written directions of our Board or a superior officer, (2)
repeated acts of substance abuse which are materially injurious to Carbon, (3)
fraud or dishonesty which is materially injurious to Carbon, (4) breach of any
material obligation of nondisclosure or confidentiality owed to Carbon, (5)
commission of a criminal offense involving our money or property, or (6)
commission of a criminal offense that constitutes a felony.

If a payment to Mr. McDonald is subject to an excise tax under the Internal
Revenue Code, we will pay to Mr. McDonald an additional amount to cover the
excise tax on an after-tax basis.

As required by his employment agreement, Carbon has granted under its 1999
stock option plan to Mr. McDonald an option to acquire 70,000 shares of our
common stock at $5.50 per share. Carbon has also granted to Mr. McDonald
30,000 shares of restricted common stock under its 1999 restricted stock plan.
The shares subject to the option and the restricted stock vest over three
years, with one-third of the stock vested on October 14, 2000 (which is one
year from the date of grant) and one-third of the stock vested on each of the
second and third anniversaries of the date of grant.

In October, 1999, we entered into a two-year employment agreement with Mr.
Struzeski, which provides for Mr. Struzeski to be the Chief Financial Officer
of Carbon at a base salary of US$100,000 per year, together with all benefits
offered by us to our employees generally. The employment agreement with Mr.
Struzeski

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<PAGE>

provides that either Carbon or Mr. Struzeski may terminate the contract if
there is a change in control of Carbon. Change in control is defined in the
same manner under this contract as our employment agreement with Mr. McDonald.
In the event of a change in control not supported by a majority of our then-
existing Board of Directors, Mr. Struzeski is to be paid 300% of his
compensation upon termination of the employment agreement. In the event of a
change in control supported by our then-existing Board of Directors, Mr.
Struzeski is to be paid 200% of his compensation upon termination of his
employment agreement by us or 100% of his compensation upon termination of his
employment by him. For this purpose, compensation means the average of Mr.
Struzeski's annual base salary and incentive compensation for the two years
prior to the date of termination, (or, if he has been employed for less than
two years, such lesser number of calendar years during any part of which he
has been employed, with his base salary and incentive compensation taken into
account at their full annualized rates for any partial year or years),
prorated to be a monthly amount and multiplied by the remaining months of the
term of his agreement (but not less than 12 months). Also, in the event of a
change in control, the restrictions on any outstanding incentive awards
(including restricted stock and performance shares) granted to Mr. Struzeski
will lapse and such awards and all stock options and stock appreciation rights
granted to him will become immediately exercisable and will become 100%
vested.

If Mr. Struzeski's employment is terminated by us for any reason other than
"cause" (defined the same as in Mr. McDonald's employment agreement) or upon
the death or disability of Mr. Struzeski or if Mr. Struzeski terminates his
employment because of a change in the position of Mr. Struzeski with Carbon,
Carbon is pay Mr. Struzeski an amount equal to his compensation (pro rated on
a monthly basis) multiplied by the remaining months of his employment
agreement. Also, in that event, all his options and restricted stock become
100% vested.

Carbon has also granted to Mr. Struzeski an option to acquire 25,000 shares
of common stock at $5.50 per share under its 1999 stock option plan and 10,000
shares of restricted common stock under its 1999 restricted stock plan. The
shares subject to the options and the restricted stock vest over three years,
with one-third of the stock vested on October 14, 2000 (which is one year from
the date of grant) and one-third of the stock vested on each of the second and
third anniversaries of the date of grant.

Messrs. McDonald and Struzeski negotiated with Yorktown for their
employment agreements with Carbon and for their stock options and restricted
stock grants from Carbon, and each of these items was approved by Carbon's
full Board. The discussions with Yorktown on these items were held after CEC
had entered into the agreement with BFC for the purchase of BFC shares and
after Yorktown had stated the general terms for its investing in Carbon common
stock. The employment agreements are similar to agreements existing with CEC,
except that Mr. McDonald receives a base annual salary of $200,000 from Carbon
(compared to $120,000 which he has received from CEC) and Mr. Struzeski
receives a base salary of $100,000 from Carbon (compared to $75,000 from CEC).
Messrs. McDonald and Struzeski also participate in a group life insurance
program and a disability program for all employees of Carbon and BFC, which
were not available from CEC.

In recognition of Mr. McDonald's role in the purchase of BFC by Carbon and
the exchange offer, the Board of Directors of CEC has determined that CEC will
pay to Mr. McDonald a bonus of $200,000 Canadian (approximately $134,000 U.S.)
when 50% or more of CEC shares are exchanged for Carbon shares. Similarly,
other officers of CEC, including Mr. Struzeski, are to receive bonuses from
CEC at the same time. Mr. Struzeski's bonus will be $ Canadian
(approximately $ U.S.).

Description of Exchange Agreement

Under the Exchange Agreement, Yorktown agreed to acquire 4,500,000 shares
of Carbon common stock at a purchase price of $24,750,000 in cash, or $5.50
per share. Carbon agreed to use these proceeds for the purchase of BFC shares
under the BFC stock purchase agreement with any remaining proceeds to be added
to its working capital. CEC agreed to assign to Carbon its rights and
obligations under the BFC stock purchase agreement and Carbon agreed to assume
those rights and obligations. Carbon, CEC and Yorktown agreed that Carbon
would

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<PAGE>

make the exchange offer to all CEC shareholders. CEC agreed that its Board
would recommend acceptance of the exchange offer. The Exchange Agreement also
provided for the adoption of our 1999 stock option plan and our 1999
restricted stock plan, and employment agreements with Mr. McDonald and Mr.
Struzeski.

Carbon, CEC and Yorktown agreed that the Board of Directors of Carbon would
consist of five directors. Carbon, CEC and Yorktown agreed that the five
directors initially would be David H. Kennedy, Lambros J. Lambros, Bryan H.
Lawrence, Peter A. Leidel and Patrick R. McDonald. Upon completion of the
exchange offer, if Harry A. Trueblood accepts the exchange offer for all CEC
common stock owned beneficially by him, the number of Carbon directors will be
six and Mr. Trueblood will be the sixth director. As long as Yorktown
beneficially owns shares with 50% or more of the outstanding votes in the
election of directors of Carbon, Yorktown has the right to designate for
nomination two directors. If Yorktown owns beneficially shares with 25% or
more but less than 50% of the outstanding votes in the election of directors
of Carbon, then Yorktown has the right to designate for nomination one
director. Yorktown has no right to designate directors for nomination under
the Exchange Agreement if Yorktown owns beneficially shares with less than 25%
of the outstanding votes in the election of directors of Carbon. So long as
Mr. McDonald is an officer of Carbon, he is to be designated for nomination as
a director of Carbon.

Under the Exchange Agreement, a nominating committee of our Board was
established. The nominating committee consists of one Yorktown designated
director, Mr. McDonald so long as he is a director of Carbon, and two
independent directors. The nominating committee is responsible for determining
nominees for the positions of directors of Carbon or persons to be elected by
the Board of Directors or shareholders of Carbon to fill any vacancy in the
Board of Directors. The nominating committee is required to nominate for
director each Yorktown director which Yorktown has the right to designate and
has designated. The nominating committee is required to nominate Mr. McDonald
if he is entitled to be nominated. The nominating committee will then nominate
the remaining directors; at least two of the persons nominated will be
independent directors. If the size of the Board is changed and there are not
sufficient positions for the election of two independent directors after
taking into account the directors designated by Yorktown and Mr. McDonald,
then the nominating committee is not required to nominate two independent
directors. If there is a vacancy in the position relating to a Yorktown
director, the remaining Yorktown director has the right to designate any
replacement to fill the vacancy. The nominating committee has the right to
designate any replacement to fill any other vacancy. The Exchange Agreement
requires that any change in the size or composition of the Board of Directors
or the nominating committee be approved by a supermajority vote of the Board
consisting of a majority of the entire Board which includes a majority of all
Yorktown directors and at least one independent director. Yorktown and Mr.
McDonald agreed to take such actions as shareholders of Carbon as necessary to
effectuate the election of directors nominated pursuant to the foregoing
provisions. The provisions relating to election of directors cease to be
effective on October 29, 2009 or, if earlier, when Yorktown owns beneficially
shares with less than 25% of the outstanding votes in the election of
directors and Mr. McDonald is no longer an officer of Carbon.

We agreed to grant under our stock option plan substitute options for each
option outstanding under the CEC stock option plan. Any option granted by us
in substitution for an option granted under the CEC stock option plan will
provide that it is being granted in full satisfaction of, and in substitution
for, any and all options for CEC stock previously granted under the CEC stock
option plan. The material terms and conditions will be the same as those
relating to the specific options granted under the terms of CEC stock option
plan.

Expiration Date

You have until 5:00 p.m., New York City time, on , 2000 to
accept our offer, unless extended. At that time, our offer will expire. If we
extend the expiration date, we will publicly announce the extension as soon as
practicable after we make the extension, and in any event no later than 9:00
a.m. New York City time on the next business day after the previously
scheduled expiration date. Without limiting the manner in which we may choose
to make a public announcement, we will not have any obligation to publish or
communicate the public announcement other than by making a release to the Dow
Jones News Services.

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<PAGE>

Exchange Of CEC Stock For Carbon Common Stock

If you deliver a properly completed and executed letter of transmittal,
which you received along with this prospectus, and stock certificates
representing your shares of CEC common stock prior to the expiration date to
the exchange agent at its address, then you will have accepted the exchange
offer as to the number of shares reflected on the stock certificates
delivered. Alternatively, you may comply with the procedures for book-entry
transfer or guaranteed delivery described below.

Except as provided below, all signatures on a letter of transmittal must be
guaranteed by a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, which is a member of one of the recognized
signature guarantee programs identified in the letter of transmittal (each
such institution is referred to in this prospectus as an "eligible
institution"). Signatures on a letter of transmittal need not be guaranteed
if:

. the letter of transmittal is signed by the registered holder of the
shares of the CEC common stock tendered therewith and the registered
holder has not completed the box entitled "Special Exchange
Instructions" on the letter of transmittal, or

. the shares of the CEC common stock tendered therewith are for the
account of an eligible institution.

You must choose how to deliver the letter of transmittal, stock
certificates and other necessary documents to the exchange agent, and you bear
the risk of how you make this delivery. We recommend that you use an overnight
or hand delivery service rather than a mail service. In all cases, you should
allow sufficient time to assure timely delivery. You should send the letter of
transmittal, stock certificates and other necessary documents to the exchange
agent at the address provided in this prospectus and the letter of
transmittal.

If you want us to issue the Carbon common stock in a name other than the
name in which your CEC stock certificates are registered, you must properly
endorse or otherwise place in proper form for transfer your stock certificates
so surrendered. The person requesting this exchange must pay to Carbon or the
exchange agent any applicable transfer or other taxes required due to the
issuance of this certificate. If your CEC certificates are registered in the
name of your broker, dealer, commercial bank, trust company, or other nominee
and you wish to tender your shares, you should contact the registered holder
promptly and instruct the registered holder to tender on your behalf. If your
stock certificates are registered in the name of the registered holder and you
wish to tender on your own behalf, you must, before completing and executing
the letter of transmittal and delivering the letter of transmittal, stock
certificates, and other necessary documents, either arrange to register your
shares in your name or obtain a properly completed stock power from the
registered holder.

If the letter of transmittal is signed by a person other than the
registered holder of any of the CEC common stock listed therein, the stock
certificates reflecting ownership of this CEC common stock must be endorsed or
accompanied by appropriate stock powers that authorize this person to tender
the CEC common stock on behalf of the registered holder, in either case signed
as the name of the registered holder or holders appears on these stock
certificates.

If the letter of transmittal, any stock certificates representing the CEC
common stock tendered, or any stock powers are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of a corporation or
others acting in a fiduciary or representative capacity, these persons should
so indicate when signing and, unless waived by us, submit with the letter of
transmittal evidence satisfactory to us of their authority to so act.

After the expiration date the exchange agent will send us written notice of
the amount of the outstanding CEC common stock validly tendered in the
exchange offer. Promptly after we receive this notice, if all the conditions
to the offer are satisfied or waived, then we will exchange each validly
tendered share of CEC common stock for shares of Carbon common stock at the
exchange rate described above. We then will deliver by registered mail Carbon
common stock representing the CEC common stock that has been tendered.

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<PAGE>

All questions as to the validity, form, eligibility, acceptance and
withdrawal of the tendered shares of the CEC common stock will be determined
by us in our sole discretion, and our determination will be final and binding.
We reserve the absolute right to reject any and all shares of the CEC common
stock not properly tendered or any shares of the CEC common stock our
acceptance of which would, in the opinion of our counsel, be unlawful. We
reserve the absolute right to waive any irregularities or conditions of
tenders as to particular shares of the CEC common stock. Unless waived by us,
any defects or irregularities in connection with tenders of shares of the CEC
common stock must be cured within the time we determine. Neither we, the
exchange agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of shares of
the CEC common stock or withdrawal of shares nor shall any of them incur any
liability for failure to give any notification. Tenders of shares of the CEC
common stock will not be deemed to have been made until such defects or
irregularities have been cured or waived. As soon as practicable following the
expiration date, the exchange agent will return without cost any stock
certificates representing the CEC common stock that were not properly tendered
and as to which defects or irregularities have not been cured or waived to the
tendering holder of these stock certificates, unless otherwise provided in the
letter of transmittal. In the case of shares delivered by book-entry transfer
within Depository Trust Company ("DTC"), CEC shares which are properly
tendered will be credited to the account of the exchange agent in DTC.

If any of the stock certificates representing your CEC common stock have
been mutilated, lost, stolen or destroyed, you should contact the exchange
agent at the address below for further instruction.

Book-Entry Transfer Procedures

The exchange agent will establish a new account or utilize an existing
account with respect to the CEC common stock at DTC promptly after the date of
this prospectus, and any financial institution that is a participant in DTC's
system may make book-entry delivery of the CEC common stock by causing DTC to
transfer these outstanding shares into the exchange agent's account in
accordance with DTC's procedures for transfer. However, the exchange for the
CEC common stock so tendered will only be made after timely confirmation of
the book-entry transfer of the shares into the exchange agent's account, and
timely receipt of an agent's message and all other documents required by the
letter of transmittal. The term "agent's message" means a message transmitted
by DTC to, and received by, the exchange agent and forming a part of a book-
entry confirmation, that states that DTC has received an express
acknowledgement from a participant in DTC tendering outstanding securities
that are the subject of the book-entry conformation stating:

.the number of shares of CEC common stock that have been tendered by such
participant,

.that such participant has received and agrees to be bound by the terms of
the letter of transmittal, and

.that we may enforce such agreement against the participant.

Although delivery of outstanding securities may be effected through book-
entry transfer into the exchange agent's account at DTC, the letter of
transmittal, properly completed and validly executed, with any required
signature guarantees, or an agent's message in lieu of the letter of
transmittal, and any other required documents, must be delivered to and
received by the exchange agent at one of its addresses listed below before
5:00 p.m. New York City time, on the expiration date or the guaranteed
delivery procedure described below must be properly utilized.

Delivery of documents to DTC in accordance with this procedure does not
constitute delivery to the exchange agent.

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<PAGE>

Exchange Agent

Harris Trust and Savings Bank has been appointed as exchange agent of the
exchange offer. Questions and requests for assistance, requests for additional
copies of this prospectus or of the letter of transmittal and requests for
notice of guaranteed delivery (see below) should be directed to the exchange
agent addressed as follows:

By Registered or By Hand Delivery: By Overnight Delivery:
Certified Mail:

Harris Trust and Savings Harris Trust and Savings
Harris Trust and Savings Bank Bank
Bank Corporate Trust Corporate Trust
P.O. Box 830 Operations Operations
Chicago, IL 60606-0830 311 West Monroe Street 311 West Monroe Street
11th Floor 11th Floor
Chicago, IL 60606 Chicago, IL 60606

Guaranteed Delivery Procedures

CEC's shareholders who wish to tender their shares of the CEC common stock
and whose stock certificates representing the CEC common stock are not
immediately available or who cannot deliver the letter of transmittal, their
stock certificates, or any other required documents to the exchange agent
prior to the expiration date or who cannot complete the procedure for book-
entry transfer on a timely basis, may effect a tender if:

. the tender is made through an eligible institution, and

. prior to the expiration date, the exchange agent receives from this
eligible institution a properly completed and duly executed notice of
guaranteed delivery, which you received along with this prospectus, that
sets forth the name and address of the holder of the CEC common stock,
the certificate number or numbers of the CEC common stock, and the
number of shares of the CEC common stock tendered thereby, and

. states that the tender is being made thereby, and

. guarantees that, within three business days after the expiration date,
the letter of transmittal, the stock certificates representing the CEC
common stock to be tendered in proper form for transfer or confirmation
of book-entry transfer of the CEC common stock to be tendered into the
exchange agent's account at DTC, and any other necessary documents will
be deposited by the eligible institution with the exchange agent, and

. a properly completed and executed letter of transmittal, together with
the stock certificates representing all the tendered CEC common stock in
proper form for transfer or confirmation of book-entry transfer of the
CEC common stock to be tendered into the exchange agent's account at
DTC, and all other necessary documents are received by the exchange
agent within three business days after the expiration date.

Conditions To The Exchange

We will be under no obligation to accept shares of CEC common stock
tendered if prior to the expiration date any court or other governmental
entity shall have issued an order restraining, enjoining or otherwise
prohibiting consummation of the exchange offer.

Termination Of The Exchange Offer

Our exchange offer, as well as the Exchange Agreement may be terminated at
any time prior to the expiration date if:

. the parties to the Exchange Agreement agree to the termination, or

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. by any party if any court or governmental authority of competent
jurisdiction shall have issued a final order restraining, enjoining or
otherwise prohibiting consummation of the transactions contemplated by
the Exchange Agreement.

If the exchange offer is terminated without our acceptance of any shares of
the CEC common stock tendered, we will promptly return all shares tendered to
the appropriate CEC shareholders.

Withdrawal Rights

You may withdraw tenders of your shares of the CEC common stock at any time
before the exchange offer expires. If you change your mind again, you may
retender your shares of the CEC common stock by following the exchange offer
procedures again prior to the expiration of the exchange offer.

For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of its addresses set forth in the
section of this prospectus titled "--The Exchange Agent." The notice of
withdrawal must:

. specify the name of the person having tendered the shares of the CEC
common stock to be withdrawn,

. identify the number of shares of the CEC common stock to be withdrawn,
and

. specify the name in which physical share certificates representing the
CEC common stock are registered, if different from that of the
withdrawing holder.

If certificates for the CEC common stock have been delivered or otherwise
identified to the exchange agent, then, before the release of such
certificates, the withdrawing holder must also submit the serial numbers of
the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an eligible institution unless such holder is an
eligible institution.

Any shares of the CEC common stock withdrawn will be deemed not to have
been validly tendered for exchange for purposes of our offer. Any shares which
have been tendered for exchange but which are not exchanged for any reason
will be promptly returned to the holder who tendered the shares. Properly
withdrawn shares may be retendered by following one of the procedures
described in this prospectus and the letter of transmittal.

Except as otherwise provided above, any tender of shares of the CEC common
stock made under the exchange offer is irrevocable.

Fees And Expenses

We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telephone or in person by our officers and regular employees and
the officers and regular employees of our affiliates.

We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable out-of-pocket expenses in connection therewith.

We will pay the cash expenses to be incurred in connection with the
exchange offer, which are estimated in the aggregate to be approximately
. Such expenses include registration fees, fees and expenses of the
exchange agent for our offer and, accounting and legal fees and printing
costs, among others.

We will pay all transfer taxes, if any, applicable to the exchange of
Carbon common stock for the CEC common stock in the exchange offer. If,
however, a transfer tax is imposed for any reason other than the exchange of
Carbon common stock for CEC common stock in the exchange offer, then the
amount of any transfer taxes

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will be payable by the tendering shareholder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the letter
of transmittal, the amount of such transfer taxes will be billed directly to
the CEC stockholder.

Regulatory Matters

We believe that the exchange offer may be made without notification being
given or information being furnished to the Federal Trade Commission or the
Antitrust Division of the Department of Justice under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and that no waiting period
requirements under the Hart-Scott-Rodino Act are applicable to our offer.

Accounting Treatment

For accounting purposes, neither Carbon nor CEC will recognize a gain or
loss as a result of the exchange offer. The exchange offer of Carbon shares
for CEC shares will be, and the purchase of BFC by Carbon has been, accounted
for by Carbon as a purchase in accordance with generally accepted accounting
principles. The purchase method requires that the cost of the acquisition
(i.e., cash, stock and net liabilities assumed), plus deferred taxes related
thereto, be allocated among the assets and liabilities acquired based upon
their fair value. The preliminary allocation of the purchase prices to the
assets of BFC and CEC does not result in any excess of the purchase prices
over the fair market value of the assets acquired. The assets and liabilities
and results of operations of CEC will be consolidated into the assets and
liabilities and results of operations of Carbon after consummation of the
exchange offer.

Possible Effects of the Exchange Offer

The exchange of shares of CEC common stock in the exchange offer will
reduce the number of holders of CEC common stock and the number of shares of
CEC common stock that might otherwise trade publicly. Depending on the number
of shares of CEC common stock exchanged, the liquidity and market value of the
remaining shares of CEC common stock could be adversely affected. CEC's common
stock is listed on the AMEX. Depending on the number of shares of CEC common
stock exchanged pursuant to the exchange offer, the CEC common stock may no
longer meet the requirements of the AMEX for continued listing. Currently,
AMEX will normally consider suspending trading in shares of an issuer when any
one or more of the following conditions exist:

. the number of shares publicly held exclusive of holdings of officers,
directors and controlling shareholders such as Yorktown (or other family
or concentrated holdings) is less than 200,000; or

. the total number of public shareholders is less than 300; or

. the aggregate market value of shares publicly held is less than
$1,000,000

Upon completion of the exchange offer, it is likely that the CEC common stock
will be delisted from the AMEX.

If the shares of CEC common stock are delisted from the AMEX, the market
for such shares could be adversely affected. It is possible that such shares
might not be traded on other public securities exchanges. The extent of any
public market for the shares of CEC common stock would, however, depend upon
the number of holders and/or the aggregate market value of such shares
remaining at that time, the interest in maintaining a market in such shares on
the part of securities firms and the possible termination of registration of
CEC common stock under the Exchange Act. The trading in CEC common stock prior
to the exchange offer was thin and inactive; it can be expected that there
will be no public market for CEC common stock after the exchange offer.

CEC's common stock is currently registered under the Exchange Act. Such
registration may be terminated by CEC upon application to the SEC if the
outstanding shares of CEC common stock are not listed upon a national
securities exchange and if there are fewer than 300 holders of record of such
shares. Termination of registration of the CEC common stock under the Exchange
Act would reduce the information required to be furnished by CEC to its
shareholders and to the SEC and would make certain provisions of the Exchange
Act,

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such as the short-swing recovery provisions of Section 16(b) and the
requirement of furnishing a proxy statement pursuant to Section 14(a), no
longer applicable to such shares.

Second Step Merger

After the exchange, it is possible that we may merge CEC with a wholly-
owned Canadian subsidiary of Carbon. In such a merger, shareholders of CEC may
receive cash, shares of our stock, other securities or a combination of some
or all of the foregoing. Whether we decide to proceed with a merger depends
upon a number of factors which cannot be ascertained at the present time.
These factors include the number of shares which are tendered in our offer,
the relative attractiveness of completing the merger compared to investing our
resources in other investments, the availability of financing to fund the cash
portion of the consideration required to effect the merger, and the U.S. and
Canadian tax consequences of the merger. The more CEC shares tendered in the
exchange offer, the more likely it is that we will effect the merger as less
cash will be required to pay for the remaining shares. The merger will have no
effect on CEC shareholders who accept our current exchange offer. It will
affect, however, CEC shareholders who do not accept our offer. If we proceed
with a merger, we may give those shareholders cash for their shares of CEC
common stock.

For a U.S. Shareholder (as defined in "United States Federal Income Tax
Consequences--Scope and Limitation Advice") whose CEC common stock is not
exchanged under the exchange offer and is disposed of in connection with a
second step merger, the United States federal income tax consequences would
depend on the circumstances of the second step merger including, without
limitation, the consideration received by such U.S. Shareholder in the second
step merger.

If CEC common stock is listed on the AMEX on the record date for
determining shareholders entitled to vote on the merger, no dissenters' rights
will be available to CEC's shareholders in connection with the merger. In
contrast, if CEC's common stock is not listed on the AMEX on such record date,
CEC's shareholders will be entitled to dissenters' rights in connection with
the merger.

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

Scope and Limitation Advice.

In the opinion of Holland & Hart, LLP, tax counsel to CEC, the following
are the material United States federal income tax considerations arising from
and relating to the exchange of CEC common stock for Carbon common stock that
are generally applicable to you if you are a "U.S. Shareholder" and, in some
cases, if you are a "non-U.S. Shareholder." You are a U.S. Shareholder if you
are a United States citizen or resident, domestic corporation, domestic
partnership, estate subject to United States federal income tax on its income
regardless of source, or trust, but only if a court within the United States
is able to exercise primary supervision over the

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administration of the trust and one or more United States fiduciaries have the
authority to control all the substantial decisions of the trust. You are a
non-U.S. Shareholder if you are not a U.S. Shareholder.

This discussion does not address all aspects of U.S. federal income
taxation that may be relevant to you, particularly if you are subject to
special treatment under United States federal income tax laws. For example,
this discussion does not address the potential application of the alternative
minimum tax; or the tax consequences to certain types of investors subject to
special treatment under U.S. federal income tax laws, such as: banks, life
insurance companies, tax-exempt organizations, broker-dealers or holders of
Carbon common or CEC common stock who received such stock as compensation.

In addition, this discussion does not address any aspect of state, local or
foreign tax laws.

This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed regulations, IRS rulings and
pronouncements, reports of congressional committees, judicial decisions and
current administrative rulings and practice, all as of October 20, 1999, which
are subject to change. Any such change could be retroactive and change the tax
consequences discussed below. No advance ruling from the Internal Revenue
Service with respect to these matters has been requested.

The following does not address all aspects of federal income taxation that
may be relevant to you in light of your individual circumstances and tax
situation. The federal income tax consequences will in all likelihood differ
from one investor to the next. Therefore, you are urged to consult your tax
advisor regarding the federal income tax consequences unique to your
situation.

Taxation of U.S. Shareholders.

The following discussion applies to you if you are a U.S. Shareholder and:

. you hold CEC common shares and/or will hold Carbon common stock as
"capital assets" within the meaning of Section 1221 of the Code;

. your ownership, receipt or disposition of CEC common shares and/or
Carbon common stock is not attributable to a permanent establishment in
a country other than the United States for purposes of an income tax
treaty to which the United States is a party; and

. you are not a resident of a country other than the United States for
purposes of an income tax treaty to which the United States is a party.

Basic Treatment of Exchange Transaction for U.S. Shareholders.

The following represents Holland & Hart LLP's opinion regarding the United
States federal income tax consequences of the exchange of CEC common shares
for Carbon common stock.

First, the exchange may, if certain requirements are satisfied, qualify as
a so-called "B Reorganization" under relevant U.S. federal income tax law. A
transaction generally constitutes a B Reorganization if, among other things,
an acquiring corporation (Carbon) has "control" of a target corporation (CEC)
immediately following an exchange of the target corporation's shares for the
acquiring corporation's shares, but only if stock representing "control" of
the target corporation (CEC) was acquired solely for voting stock. For this
purpose, "control" means at least 80% of the total combined voting power of
all classes of stock entitled to vote and at least 80% of the total number of
shares of all other classes of stock of the corporation. Assuming that Carbon
acquires at least 80% of the outstanding stock of CEC solely in exchange for
the stock of Carbon, and that the representations made by Carbon and CEC to
tax counsel are accurate, tax counsel is of the opinion that the exchange
should qualify for tax-free treatment as a B Reorganization.

Even if the exchange does not satisfy the requirements for a tax-free B
Reorganization, there nevertheless may be a second means of characterizing the
exchange as tax-free. Specifically, if certain requirements are satisfied, it
is likely that the exchange may qualify as a tax-free transaction under
Section 351 of the Code. Under

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Section 351 of the Code, persons transferring property to a corporation in
exchange for stock of the corporation generally do not recognize gain or loss
on the transfer of their property to the corporation. However, this favorable
treatment applies only if, among other things, immediately following the
exchange, the persons transferring property to the corporation hold at least
80% of the total combined voting power of all classes of stock entitled to
vote and at least 80% of the total number of shares of all other classes of
stock of the corporation. In addition, in order for multiple transferors to be
taken into account in computing this 80% control test, the transferors must
transfer property to the corporation as part of the same plan or arrangement.

Although the matter is not free from doubt, tax counsel believes that
Yorktown's contribution of cash to Carbon and CEC shareholders' subsequent
exchange of CEC common stock for Carbon common stock likely constitute
transfers pursuant to the same plan or arrangement for purposes of Section 351
of the Code. Accordingly, and based upon the representations of Carbon and
CEC, in tax counsel's opinion, the exchange of CEC common stock for Carbon
common stock likely constitutes part of a tax-free Section 351 transaction. It
is possible that the IRS would view Yorktown's contribution of cash to Carbon
and the subsequent exchange as separate, unrelated events, in which case tax-
free treatment would be unavailable under Section 351 of the Code.

Neither CEC nor Carbon has requested, nor will request, a ruling by the
Internal Revenue Service that the exchange of shares will be treated as tax
free. No assurance can be given that the Internal Revenue Service will not
challenge the tax-free nature of the exchange for U.S. federal income tax
purposes. If such a challenge were sustained by a court, each U.S. Shareholder
of CEC would recognize a capital gain or loss, assuming CEC is not a "passive
foreign investment company" (described below) to the extent of the difference
between the fair market value of the Carbon shares received by such
shareholder and such shareholder's tax basis of the CEC shares surrendered
therefor.

If the exchange is tax-free as a B Reorganization or a Section 351
transaction, it is the opinion of Holland & Hart LLP that the following will
be the material United States federal income tax consequences of the exchange
of CEC common shares for Carbon common shares:

. You should not recognize gain or loss on the exchange of CEC common
shares solely for Carbon common stock;

. The tax basis of the Carbon common stock received should be the same as
the basis of the CEC common shares constructively surrendered in
exchange therefor; and

. The holding period for the shares of Carbon common stock should include
the holding period of CEC common shares surrendered in exchange
therefor.

Under Code Section 367(b) and the regulations thereunder, U.S. Shareholders
participating in the exchange are required to file an "exchange notice" with
the IRS. This exchange notice must be filed on or before the last date for
filing a federal income tax return (taking into account any extensions of time
for such filing) for the U.S. Shareholder's taxable year in which the exchange
takes place. The exchange notice must be filed with the IRS office with which
the U.S. Shareholder would be required to file a federal income tax return for
the year. This filing requirement will apply whether the exchange is treated
as tax-free B reorganization or a tax-free Section 351 transaction. You should
consult your tax advisors regarding the Section 367(b) exchange notice and its
required content.

Passive Foreign Investment Company Considerations for U.S. Shareholders.

For U.S. federal income tax purposes, CEC generally would be classified as
a Passive Foreign Investment company, or PFIC, for any taxable year during
which either: (1) 75 percent or more of its gross income is passive income, as
defined for U.S. federal income tax purposes; or (2) on average for such
taxable year, 50 percent or more of its assets by value produce or are held
for the production of passive income. The classification of CEC as a PFIC
could have adverse tax consequences with respect to the exchange that may be
substantial for U.S. Shareholders. However, CEC has represented that the
factual conditions that give rise to PFIC status have not

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existed with respect to CEC during any taxable year ending at or prior to
consummation of the exchange. Therefore, based on this factual representation,
the PFIC rules will not affect U.S. Shareholders who participate in the
exchange.

Taxation of Non-U.S. Shareholders.

The following discussion applies to you if you are a non-U.S. Shareholder:

. who holds CEC common shares or will hold Carbon common stock as capital
assets within the meaning of Section 1221 of the Code;

. who does not actually or constructively own, nor at any time in the
preceding five-year period actually or constructively owned, five
percent or more of the stock of CEC;

. whose ownership, receipt or disposition of CEC common shares and/or
Carbon common stock is not attributable either to the conduct of a trade
or business in the United States or to a permanent establishment in the
United States; and

. who are not residents of the United States for purposes of United States
federal income tax law or an income tax treaty to which the United
States is a party.

If you are a non-U.S. Shareholder who does not meet one or more of the
foregoing criteria, you are urged and expected to consult your own tax
advisors regarding your particular U.S. federal income tax consequences.

Generally, you will not be subject to U.S. federal income tax on gain
recognized, if any, upon the exchange of the shares of CEC common shares for
the shares of Carbon common stock, unless:

. the gain is effectively connected with the conduct of a trade or
business within the United States by you;

. the gain is attributable to a permanent establishment in the United
States;

. if you are a nonresident alien and hold CEC common shares as a capital
asset, you are present in the United States for 183 or more days in the
taxable year and certain other circumstances are present; or

. you are subject to tax pursuant to the provisions of the Code applicable
to some United States expatriates.

Generally, dividends received by you with respect to Carbon common stock
will be subject to United States withholding tax at a rate of 30 percent,
which rate may be subject to reduction by an applicable income tax treaty. For
example, 15 percent is the applicable rate with respect to dividends paid to
residents of Canada who qualify for the benefits of the income tax treaty
between the U.S. and Canada. If the dividends you receive are effectively
connected with the conduct of a U.S. trade or business or are attributable to
a permanent establishment in the U.S. of yours, they will be taxed at the
graduated rates that are applicable to U.S. citizens, resident aliens and
domestic corporations and will not be subject to United States withholding tax
if you give an appropriate statement to the withholding agent in advance of
the dividend payment. A non-U.S. Shareholder that is a corporation may be
subject to an additional branch profits tax on effectively connected
dividends.

Generally, foreign persons are not subject to U.S. federal income tax on
gain recognized, if any, upon the sale of shares of U.S. companies. However,
the gain on such sales can be taxable, including gain on the sale of Carbon
common stock, if:

. the gain is effectively connected with conduct of a trade or business
within the United States;

. you are a nonresident alien individual and hold the Carbon common stock
as a capital asset, you are present in the United States for 183 or more
days in the taxable year and other specific circumstances are present;

. you are subject to tax pursuant to the provisions of the Code applicable
to U.S. expatriates; or

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. Carbon likely is or will be a "United States real property holding
corporation," a "USRPHC," for federal income tax purposes, as such term
is defined by Section 897(c) of the Code. If Carbon is a USRPHC, then
the gain from the disposition of its stock by a non-U.S. shareholder can
be taxable in the United States. However, if Carbon's common stock is
regularly traded on an established securities market, within the meaning
of Section 897(c)(3) of the Code, an exception to this gain recognition
rule is available. Carbon believes that as of the date of the exchange,
Carbon common stock will be treated as being traded on an established
exchange. However, this exception is available to non-U.S. shareholders
only if the non-U.S. shareholder has not owned, directly or indirectly,
pursuant to attribution rules, more than 5% of the Carbon stock at any
time during the five-year period ending on the date of the disposition.

Estate Tax for Non-U.S. Shareholders.

Carbon common stock owned, or treated as such, by an individual may be
includible in his or her gross estate for United States federal estate tax
purposes and thus if you are an individual you may be subject to United States
federal estate tax, unless an applicable estate tax treaty provides otherwise.

Information Reporting and Backup Withholding.

Carbon must report annually to the IRS and to you and all other
shareholders the amount of dividends paid that year, and the tax withheld with
respect to such dividends, if any. These information reporting requirements
apply regardless of whether withholding tax is reduced by an applicable income
tax treaty. Copies of these information returns reporting such dividends and
withholding are made available to the tax authorities in the country in which
a non-U.S. Shareholder resides under the provisions of an applicable income
tax treaty or other agreement with the tax authorities in that country.

In general, information reporting requirements may apply to dividend
distributions on Carbon common stock, or the proceeds of a sale, exchange,
retraction or redemption of Carbon common stock. A 31% backup withholding tax
may apply to these payments unless you are a corporation, non-U.S. Shareholder
or come within specific exempt categories and, when required, demonstrate your
exemption or provide a correct taxpayer identification number, certify as to
no loss of exemption from backup withholding and otherwise comply with
applicable requirements of the backup withholding rules. If you are required
to provide your correct taxpayer identification number and fail to do so, you
may be subject to penalties imposed by the IRS.

United States backup withholding tax generally will not apply to dividends
paid on Carbon common stock that are subject to the 30% or reduced treaty rate
of withholding previously discussed if the beneficial owner certifies its non-
U.S. status under penalties of perjury, otherwise establishes an exemption or,
with respect to payments made after December 31, 1999, satisfies certain
documentary evidence requirements for establishing that it is a non-U.S.
holder. Under current law, dividends paid on Carbon common stock to you at an
address outside the United States are generally exempt from backup withholding
tax, but not from 30% withholding tax, as discussed above.

On October 14, 1997 the IRS issued final regulations which affect your
United States taxation. Under these regulations, for dividends paid after
December 31, 1999, a non-United States person must generally provide proper
documents indicating their status to a withholding agent in order to avoid
backup withholding tax. However, dividends paid to exempt recipients, not
including individuals, will not be subject to backup withholding even if such
documentation is not provided, if the withholding agent is allowed to rely on
certain presumptions concerning the recipient's non-United States status (i.e.
payment to an address outside the United States).

If you are a non-U.S. Shareholder, payments of proceeds from the sale of
Carbon common shares by you made to or through a non-United States office of a
broker generally will not be subject to information reporting or backup
withholding. However, payments made to or through a non-United States office
of a United States

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broker or a non-United States office of a non-United States broker that has
certain specified connections with the United States, are generally subject to
information reporting, but not backup withholding unless you certify your non-
United States status under penalties of perjury or otherwise establish your
entitlement to an exemption. Payments of proceeds from the sale of Carbon
common stock by you made to or through a U.S. office of a broker are generally
subject to both information reporting and backup withholding at a rate of 31%
unless you certify your non-United States status under penalties of perjury or
otherwise establish your entitlement to an exemption.

Any amounts withheld under the backup withholding rules from a payment to
you will be allowed as a credit against your United States federal income tax,
provided that the required information is furnished to the IRS.

Under Code Section 367(b) and the regulations thereunder, non-U.S.
Shareholders participating in the exchange might technically be required to
file an "exchange notice" with the IRS. You should consult your tax advisors
regarding the Section 367(b) exchange notice, its timing, its required
content, and the effect of failure to file such notice.

CANADIAN FEDERAL INCOME TAX CONSEQUENCES

Subject to the qualifications and assumptions contained herein in the
opinion of Bennett Jones, Canadian counsel to CEC, the following is a general
summary of the material Canadian federal income tax consequences generally
applicable to holders of CEC common stock who dispose of CEC common stock
pursuant to the exchange offer. This summary:

(i) is based on the current provisions of the Income Tax Act (Canada)
(the "Canadian Tax Act"), the regulations thereunder (the "Regulations")
and counsel's understanding of the current administrative practices of
Revenue Canada, Customs, Excise and Taxation. This summary also takes into
account the amendments to the Canadian Tax Act and Regulations publicly
announced by the Canadian Minister of Finance prior to the date hereof (the
"Proposed Amendments") and assumes that all such Proposed Amendments will
be enacted in their present form. However, no assurances can be given that
the Proposed Amendments will be enacted in the form proposed, or at all.
Except for the foregoing, this summary does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax consequences described herein;
and

(ii) applies only to persons who, within the meaning of the Canadian
Tax Act, acquire, hold and dispose of CEC common stock and Carbon common
stock as capital property, deal at arm's length with CEC and Carbon and are
not "financial institutions" for the purposes of the mark-to-market rules.
CEC common stock and Carbon common stock will generally be considered to be
capital property to a holder thereof provided that the holder does not hold
any such shares in the course of carrying on a business of buying and
selling shares and has not acquired such shares in a transaction considered
to be an adventure in the nature of trade. Certain holders who are resident
in Canada and who might not otherwise be considered to hold CEC common
stock as capital property may be entitled to have such shares treated as
capital property by making the election provided by subsection 39(4) of the
Canadian Tax Act.

The tax consequences of the exchange will in all likelihood differ from one
holder to the next. Therefore, we urge you to consult your tax advisor
regarding the tax consequences unique to your situation.

Holders Resident in Canada

The following portion of the summary is applicable only to holders of CEC
common stock who are resident or deemed to be resident in Canada for the
purposes of the Canadian Tax Act (a "Canadian Holder").

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Disposition of CEC Common Stock

On the exchange of CEC common stock for Carbon common stock, a Canadian
Holder will be considered to have disposed of the CEC common stock for
proceeds of disposition equal to the fair market value at the time of the
exchange of the Carbon common stock received by the holder. A Canadian Holder
will realize a capital gain or capital loss, as appropriate, equal to the
amount by which such proceeds of disposition, net of any reasonable costs
associated with the disposition, exceed or are less than, as appropriate, the
holder's adjusted cost base of the CEC common stock. The cost to the Canadian
Holder of the Carbon common stock received by such holder will be equal to the
fair market value of such shares at the time of the exchange. The computation
of the adjusted cost base of Carbon common stock is discussed below in this
section under the heading "Disposition of Carbon Common Stock." The general
tax treatment of capital gains and losses is discussed in this section under
the heading "Capital Gains and Losses."

Disposition of Carbon Common Stock

A disposition or deemed disposition by a Canadian Holder of Carbon common
stock will generally give rise to a capital gain or capital loss, as
appropriate, equal to the amount by which the proceeds of disposition of the
Carbon common stock, net of any reasonable costs associated with the
disposition, exceed or are less than, as appropriate, the holder's adjusted
cost base of the Carbon common stock. In that regard, the cost to the holder
of the Carbon common stock acquired on the exchange will be averaged with the
adjusted cost base of any other Carbon common stock then owned by such holder
as capital property for the purposes of determining the adjusted cost base of
such Carbon common stock. The general tax treatment of capital gains and
losses is discussed below in this section under the heading "Capital Gains and
Losses".

Capital Gains and Losses

A Canadian Holder's taxable capital gain or allowable capital loss from the
disposition of CEC common stock or Carbon common stock will be equal to three-
quarters of the amount of the holder's capital gain or capital loss, as
appropriate, in respect of such disposition. A Canadian Holder must include
any such taxable capital gain in income for the taxation year of disposition,
and may, subject to the detailed provisions of the Canadian Tax Act, deduct
any such allowable capital loss from taxable capital gains in the year in
which such allowable capital loss is realized. Subject to the detailed rules
contained in the Canadian Tax Act, any remaining allowable capital loss may
generally be applied to reduce net taxable gains realized by the holder in the
three preceding and in all subsequent taxation years.

If a Canadian Holder is a corporation, the amount of any capital loss
arising from a disposition or deemed disposition of CEC common stock or Carbon
common stock may be reduced by the amount of dividends received or deemed to
have been received by it on such shares to the extent and under circumstances
prescribed by the Canadian Tax Act. Similar rules may apply where a
corporation is a member of a partnership or a beneficiary of a trust that owns
CEC common stock or Carbon common stock.

Capital gains realized by a Canadian Holder who is an individual may be
subject to alternative minimum tax under the Canadian Tax Act, depending on
the individual's circumstances.

A Canadian Holder that is a "Canadian-controlled private corporation," as
defined in the Canadian Tax Act, may be liable to pay an additional refundable
tax of 6 2/3% on certain investment income, including amounts in respect of
taxable capital gains.

Eligibility for Investment

The Carbon common stock issued pursuant to the offer, when listed on a
prescribed stock exchange, which includes the American Stock Exchange, will be
qualified investment under the Canadian Tax Act for trusts governed by
registered retirement savings plans, registered retirement income funds and
deferred profit sharing

36
<PAGE>

plans. However, such shares will constitute "foreign property," as defined in
the Canadian Tax Act, for the purposes of such plans.

Subsequent Transaction

As described in "The Exchange Offer--Second Step Merger", Carbon may, in
certain circumstances, merge CEC with a wholly-owned Canadian subsidiary of
Carbon (the "Second Step Merger"). The consequences under the Canadian Tax Act
to a holder whose CEC common stock is not exchanged under the exchange offer
and is disposed of in connection with the Second Step Merger will depend upon
the circumstances of the merger including, without limitation, the
consideration received by the holder and the person from whom such
consideration is received.

If a holder receives Carbon common stock or cash in consideration for the
disposition of CEC common stock to Carbon, the holder will realize a capital
gain (or a capital loss) to the extent that the proceeds received for such
common stock, net of any reasonable costs associated with the disposition,
exceed (or are less than) the adjusted cost base of the CEC common stock
disposed of.

If in the course of the Second Step Merger, CEC common stock is acquired by
CEC from an individual holder (including upon the exercise by an individual
holder of certain dissent rights), the individual holder will be deemed to
have received a taxable dividend in the amount by which the amount received
(other than in respect of interest awarded by a Court) exceeds the paid-up
capital of such CEC common stock. This amount will be excluded from the former
individual holder's proceeds of disposition for the purposes of computing any
taxable gain on the disposition. If the former individual holder is a resident
of Canada, the deemed dividend will be treated in the same manner as a regular
taxable dividend received from CEC. Corporations or trusts or partnerships
which have corporations as beneficiaries or partners should consult their own
tax advisors with respect to the income tax consequences where CEC common
stock is acquired by CEC.

Upon the merger of CEC and a wholly-owned Canadian affiliate of Carbon, the
Canadian Tax Act deems the CEC common stock to be disposed of and the shares
of the amalgamated corporation to be acquired for an amount equal to the
adjusted cost base to the former holders of the CEC common stock.
Consequently, no capital gain or capital loss would be realized by the former
holders upon such amalgamation. A subsequent disposition of the shares of the
amalgamated corporation acquired on the amalgamation may give rise to a
capital gain, a capital loss, or if such shares are repurchased by the
amalgamated corporation, a deemed dividend. If on such amalgamation the former
holder receives property other than shares of the amalgamated corporation
(such as Carbon shares or cash) or exercises a dissent right pursuant to the
Alberta Business Corporations Act and receives cash in consideration for his
CEC common stock, such former holder will have a capital gain (or a capital
loss) to the extent that the proceeds received for such CEC common stock
(other than in respect of interest awarded by a Court), net of any reasonable
costs associated with the disposition, exceed (or are less than) the adjusted
cost base of the CEC common stock disposed of by the former holder.

Holders Not Resident in Canada

The following portion of the summary is applicable only to holders of CEC
common stock who are not and will not be resident nor deemed to be resident in
Canada for the purposes of the Canadian Tax Act and any applicable tax treaty
at any time they hold such shares, who do not use or hold and are not deemed
to use or hold their CEC common stock in carrying on a business in Canada, and
in the case of a holder who carries on an insurance business in Canada and
elsewhere, whose shares are not "designated insurance property" and are not
effectively connected with an insurance business carried on in Canada at any
time (a "Non-Resident Holder").

A Non-Resident Holder will not be subject to tax in respect of capital
gains realized on the disposition of CEC common stock provided that the CEC
common stock is not "taxable Canadian property" of the Non-Resident Holder
immediately before the exchange. The CEC common stock will not constitute
"taxable Canadian property" of a Non-Resident Holder provided that such shares
are listed on a prescribed stock

37
<PAGE>

exchange (which currently includes the American Stock Exchange), and the
holder, persons with whom such holder does not deal at arm's length, or the
holder together with all such persons, has not owned (or had under option) 25%
or more of the issued shares of any class or series of the capital stock of
CEC at any time within five years preceding the date of the exchange, and the
shares were not acquired in a transaction which deemed them to be "taxable
Canadian property."

The Canadian federal income tax consequences to a Non-Resident Holder who
does not tender to the offer of the transactions described in this summary
under "Subsequent Transaction" may be substantially different than those
described above and may include, without limitation, the recognition of a gain
which is subject to tax in Canada and/or the receipt of deemed dividends
and/or interest which would be subject to Canadian withholding tax. If CEC
common stock ceases at any time to be listed on a prescribed exchange, the
stock will at that time be considered "taxable Canadian property" to the Non-
Resident Holder. Non-Resident Holders who are considering not tendering to the
exchange offer are urged to consult their tax advisors as to the potential
consequences to them of such transactions.

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma financial information is derived from the
historical financial statements of BFC and CEC. The historical financial
statements are adjusted to reflect the following:

The Carbon Unaudited Pro Forma Condensed Balance Sheet as of September 30,
1999 has been prepared assuming that the acquisition of BFC was consummated on
September 30, 1999 and the exchange offer of Carbon shares for CEC shares was
consummated on August 31, 1999. The Carbon Unaudited Pro Forma Statements of
Income for the twelve months ended December 31, 1998 and for the nine months
ended September 30, 1999 have been prepared assuming that the acquisition of
BFC was consummated on January 1, 1998 and the exchange offer of Carbon shares
for CEC shares was consummated on December 1, 1997.

The historical financial statements of CEC were prepared in Canadian
dollars in accordance with Canadian generally accepted accounting principles.
CEC's historical balance sheet as of August 31, 1999 and statements of income
for the year ended November 30, 1998 and the nine months ended August 31, 1999
have been adjusted to present the results in accordance with United States
generally accepted principles and have been translated to U.S. dollars.

The Unaudited Pro Forma Balance Sheet reflects the allocation of the
purchase price of the BFC acquisition to the assets and liabilities of Carbon.
This statement also reflects the preliminary allocation of the exchange offer
of Carbon shares for CEC shares to the assets and liabilities of Carbon. The
valuation of the exchange offer for pro forma purposes was calculated using
the average of the three quoted closing prices for CEC shares prior and
subsequent to the announcement date of the signing of the BFC purchase and
sales agreement. The final allocation of the CEC exchange will differ from the
preliminary estimates because the final allocation will be based on the level
of acceptance of the exchange offer and the estimated fair values of the CEC
assets and liabilities assumed upon the consummation of the exchange offer.

The Carbon Unaudited Pro Forma Financial Information should be read in
conjunction with the accompanying notes thereto, and the historical financial
statements and notes thereto for Carbon, BFC, and CEC included elsewhere in
this prospectus. The pro forma information presented is not necessarily
indicative of the financial position or results of operations that would have
actually occurred had the acquisition of BFC and the exchange offer of Carbon
shares for CEC shares been consummated on the dates previously assumed. The
pro forma information presented is not intended to be a projection of future
financial position or results of operation.

38
<PAGE>

CARBON ENERGY CORPORATION

PRO FORMA BALANCE SHEET

September 30, 1999

(in US dollars, unless otherwise indicated, in thousands)

<TABLE>
<CAPTION>
Carbon
Yorktown Acquisition Exchange
BFC CDN $ CEC CEC Investment of BFC Offer Carbon
09/30/99 08/31/99 (a) 08/31/99 (b) Adjustments Adjustments Adjustments Pro Forma
-------- ------------ ------------ ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash.................. $ 304 $ -- $ -- $24,805 (c) $(23,581)(d) $ -- $ 1,528
Accounts receivable... 2,213 973 650 -- -- -- 2,863
Amount due from
broker............... 1,761 -- -- -- -- -- 1,761
Prepaid expenses and
other................ 155 -- -- -- -- -- 155
------- ------- ------- ------- -------- ------ -------
Total current
assets............. 4,433 973 650 24,805 (23,581) -- 6,307
Property and equipment:
Oil and gas
properties........... 37,115 21,358 14,280 -- (6,833)(d) (4,327(e)(f)(g) 40,235
Liquids extraction
plant................ -- 1,477 987 -- -- (592)(e) 395
Compression/gathering. -- 665 445 -- -- (125)(e) 320
Furniture, equipment
and other............ 499 200 134 -- (273)(d) (44)(e) 316
------- ------- ------- ------- -------- ------ -------
37,614 23,700 15,846 -- (7,106) (5,088) 41,266
DD&A.................. (20,721) (10,556) (7,057) -- 20,721 (d) 7,057 (e) --
------- ------- ------- ------- -------- ------ -------
Property and
equipment, net..... 16,893 13,144 8,789 -- 13,615 1,969 41,266
Other assets:
Deposits and other.... 270 1,864 1,246 -- -- -- 1,516
Deferred loan costs,
net.................. 31 -- -- -- (31)(d) -- --
------- ------- ------- ------- -------- ------ -------
Total other assets.. 301 1,864 1,246 -- (31) -- 1,516
------- ------- ------- ------- -------- ------ -------
Total assets............ $21,627 $15,981 $10,685 $24,805 $ (9,997) $1,969 $49,089
======= ======= ======= ======= ======== ====== =======
Current liabilities:
Accounts payable and
accrued expenses..... $ 1,838 $ 284 $ 190 $ -- $ -- $ 300 (g) $ 2,328
Accrued production
taxes payable........ 415 -- -- -- -- -- 415
Undistributed revenue. 577 507 339 -- -- -- 916
------- ------- ------- ------- -------- ------ -------
Total current
liabilities........ 2,830 791 529 -- -- 300 3,659
Long-term debt.......... 8,800 4,850 3,242 -- -- -- 12,042
Future site restoration
costs.................. -- 221 148 -- -- -- 148
Deferred income taxes... -- 1,739 1,163 -- -- 584 (f) 1,747
Stockholders' equity:
Share capital......... -- 1,512 1,011 -- -- (1,011)(e) --
Paid in capital....... 3,475 24,805 (c) (3,475)(d) 6,688 (e) 31,493
Retained earnings..... 6,522 6,868 4,592 -- (6,522)(d) (4,592)(e) --
------- ------- ------- ------- -------- ------ -------
Total stockholders'
equity............. 9,997 8,380 5,603 24,805 (9,997) 1,085 31,493
------- ------- ------- ------- -------- ------ -------
Total liabilities and
stockholders' equity... $21,627 $15,981 $10,685 $24,805 $ (9,997) $1,969 $49,089
======= ======= ======= ======= ======== ====== =======
</TABLE>

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

39
<PAGE>

CARBON ENERGY CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT

Nine Months Ended September 30, 1999

(in US dollars, unless otherwise indicated, in thousands)

<TABLE>
<CAPTION>
CEC
BCF CDN $ CEC CEC Acquisition Acquisition Carbon
09/30/99 08/31/99(a) 08/31/99(b) 08/31/99(j) Adjustments Pro Forma
-------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales..... $ 6,730 $3,386 $2,254 $112 $ -- $ 9,096
Field services........ -- 75 50 -- -- 50
Gas marketing and
transportation....... 11,059 -- -- -- -- 11,059
Electricity sales..... -- -- -- -- -- 0
Other................. 465 2 1 -- -- 466
------- ------ ------ ---- ------ -------
18,254 3,463 2,305 112 -- 20,671
Expenses:
Oil and gas production
costs................ 2,701 585 389 43 -- 3,133
Field services........ -- 65 43 -- -- 43
Gas marketing and
transportation....... 11,009 -- -- -- -- 11,009
Costs of electricity.. -- -- -- -- -- --
DD&A.................. 1,789 1,597 1,063 72 1,545 (h) 4,469
Exploration expense... 681 -- -- -- (681)(i) --
Impairment expense.... 60 -- -- -- (60)(i) --
General and
administrative....... 985 1,522 1,013 -- -- 1,998
Interest expense...... 346 136 91 27 -- 464
------- ------ ------ ---- ------ -------
17,571 3,905 2,599 142 804 21,116
Income (loss) before
taxes.................. 683 (442) (294) (30) (804) (445)
Tax expense:
Current............... -- 2 1 -- -- 1
Deferred.............. -- (256) (170) (17) 4 (183)
------- ------ ------ ---- ------ -------
-- (254) (169) (17) 4 (182)
------- ------ ------ ---- ------ -------
Net income (loss)....... $ 683 $ (188) $ (125) $(13) $ (808) $ (263)
======= ====== ====== ==== ====== =======
Earnings per share:
Basic................. $(0.12) $(0.08) $ 0.04 $ (0.04)
Fully diluted......... (0.12) (0.08) 0.04 (0.04)
Average number of common
shares outstanding:
Basic................. 1,529 1,529 4,510 6,039
Fully diluted......... 1,529 1,529 4,510 6,039
</TABLE>

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

40
<PAGE>

CARBON ENERGY CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED INCOME SHEET

Year Ended December 31, 1998

(in US dollars, unless otherwise indicated, in thousands)

<TABLE>
<CAPTION>
CEC
BFC CEC Acquisitions
Year Ended CDN $ CEC Year Ended Year Ended Acquisition Carbon
12/31/98 11/30/99(a) 11/30/98(b) 11/30/98(j) Adjustments Pro Forma
---------- ----------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales..... $ 6,758 2,958 $2,007 $1,033 $ -- $ 9,798
Field services........ -- 246 167 -- -- 167
Gas marketing and
transportation....... 12,610 -- -- -- -- 12,610
Electricity sales..... 1,331 -- -- -- -- 1,331
Other................. 393 49 33 -- -- 426
------- ----- ------ ------ ------- -------
21,092 3,253 2,207 1,033 -- 24,332
Expenses:
Oil and gas production
costs................ 3,004 710 482 433 -- 3,919
Field services........ -- 148 100 -- -- 100
Gas marketing and
transportation....... 12,674 -- -- -- -- 12,674
Costs of electricity.. 1,137 -- -- -- -- 1,137
DD&A.................. 2,086 1,087 737 602 1,370 (h) 4,795
Exploration expense... 556 -- -- -- (556)(i) --
Impairment expense.... 1,858 -- -- -- (1,858)(i) --
General and
administrative....... 1,655 988 671 -- -- 2,326
Interest expense...... 238 -- -- 212 -- 450
------- ----- ------ ------ ------- -------
23,208 2,933 1,990 1,247 (1,044) 25,401
Income (loss) before
taxes.................. (2,116) 320 217 (214) 1,044 (1,069)
Tax expense (benefit):
Current............... (225) 19 13 (13) -- (225)
Deferred.............. 50 61 41 (40) -- 51
------- ----- ------ ------ ------- -------
(175) 80 54 (53) -- (174)
------- ----- ------ ------ ------- -------
Net income (loss)....... $(1,941) 240 $ 163 $ (161) $ 1,044 $ (895)
======= ===== ====== ====== ======= =======
Earnings per share:
Basic................. $0.16 $ 0.11 $(0.26) $ (0.15)
Fully diluted......... 0.16 0.11 (0.26) (0.15)
Average number of common
shares outstanding:
Basic................. 1,545 1,545 4,510 6,055
Fully diluted......... 1,549 1,549 4,506 6,055
</TABLE>

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

41
<PAGE>

NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION

(a) CEC historical financial statements, prepared in accordance with
Canadian generally accepted accounting principles, stated in Canadian dollars.

(b) CEC's historical financial statements have been translated from
Canadian dollars to U.S. dollars as follows:

CEC's assets and liabilities were translated to U.S. dollars using the
exchange rate in effect at August 31, 1999 of $1 Canadian to $.6685 U.S.

CEC's revenues and expenses for the year ended November 30, 1998 and the
nine months ended August 31, 1999 were translated to U.S. dollars using the
weighted average exchange rate for the period of $1 Canadian to $.6785 U.S.
and $1 Canadian to $.6657 U.S., respectively.

(d) To reflect the purchase of BFC stock by Carbon for $23,581,000 in cash.
This adjustment also eliminates the historical book value of BFC assets and
reflects the allocated book value of the assets acquired resulting from the
purchase method of accounting. The allocated book value was determined by
maintaining the historical book value of working capital and long-term debt,
allocating historical net book value for furniture, equipment and other
($226,000), with the remainder of the purchase price allocated to oil and gas
properties.

(e) Adjustment to eliminate the historical book value of CEC assets and to
reflect the allocated book value of CEC's assets and liabilities resulting
from the exchange offer. The allocated book value was determined by
maintaining the historical book value of working capital line items and long-
term debt, allocating historical net book value for the liquids extraction
plant ($395,000), compression/gathering facilities ($320,000) and furniture,
equipment and other ($90,000), with the remainder of the purchase price
allocated to oil and gas properties. The purchase price allocated to oil and
gas properties includes provisions for deferred taxes and exchange offer
costs. See footnotes (f) and (g) below. The exchange offer value was
calculated based on the average of the three quoted closing prices for CEC
shares prior and subsequent to the announcement date of the signing of the BFC
purchase and sale agreement ($4.25, $4.125, $4.375, $4.25, $4.625 and $4.75)
and the number of CEC shares outstanding at August 31, 1999 of 1,521,400.

(f) Adjustment to reflect an increase in oil and gas properties and
deferred taxes of $584,000 resulting from the exchange of CEC shares for
Carbon shares. The allocation of exchange offer value to oil and gas
properties resulted in a difference between book basis and tax basis of the
CEC assets.

(g) Adjustment to reflect the estimated legal, accounting and printing
costs incurred in the exchange offer. Pro forma oil and gas properties were
increased by $300,000 to reflect costs of the exchange offer.

(h) Adjustment to reflect the impact on historical depletion attributed to
the acquisition of BFC and the exchange offer to current CEC shareholders. The
depletion amounts were calculated on the units-of-production method based on
estimates of total proved reserves. Separate cost pools were established for
CEC and BFC due to accounting rules that require cost centers be established
on a country-by-country basis. Based on the preliminary purchase price
allocation and the discounted future net cash flows attributable to the CEC
and BFC properties calculated using November 30, 1998 oil and gas prices for
CEC and December 31, 1998 prices for BFC, a ceiling test deficit would exist
on the properties. As a result of improved oil and gas prices subsequent to
year-end, the CEC and BFC properties had a cushion for ceiling test purposes
using August 31, 1999 oil and gas prices for CEC and September 30, 1999 prices
for BFC. Accordingly, the accompanying pro forma financial statements do not
reflect any ceiling test write down for the CEC and BFC properties.
Depreciation on the extraction plant and compression/gathering equipment are
calculated using the straight-line method with an estimated useful life of 15
years while furniture, equipment, and other assets are depreciated on a
straight line basis with an estimated useful life of 5 years.

42
<PAGE>

(i) To adjust for the capitalization of certain items under the full cost
method of accounting utilized by Carbon as compared to the successful efforts
method utilized by BFC. As a result of improved oil and gas prices subsequent
to year-end, the CEC and BFC properties had a cushion for ceiling test
purposes using August 31, 1999 oil and gas prices for CEC and September 30,
1999 prices for BFC. Accordingly, the accompanying pro forma financial
statements do not reflect any ceiling test write down for the CEC and BFC
properties.

(j) Between December 1998 and April 1999, CEC purchased producing oil and
gas properties and natural gas gathering and compression facilities in
Alberta, Canada. These acquisitions were accounted for as purchases and
considered material in the aggregate by management for pro forma disclosure
purposes. The results of operations are presented as though the acquisition
had occurred at the beginning of the period being reported on. Revenues and
expenses subsequent to the purchase dates have been included in the 1999
operating results of CEC and are not included in this column. These results of
operations are not indicative of the results that would have occurred if the
acquisitions had been in effect for the entire periods presented and are not
intended to be a projection of future results.

(k) An estimated bonus of $200,000 will be paid to certain Carbon employees
in the fourth quarter of 1999 related in large part to the acquisition of BFC
and the exchange offer for CEC. These estimated expenditures are not reflected
in the pro forma financial statements.

INFORMATION ABOUT CEC

Overview of Business

CEC is an independent oil and natural gas company incorporated on May 31,
1955 under the Business Corporations Act (Alberta) in Canada. CEC was acquired
by the former parent of Columbus Energy Corp. ("Columbus") in 1969 and by
Columbus on July 31, 1984. It remained a wholly-owned subsidiary of Columbus
until spun-off from Columbus by a rights offering in February 1995. CEC
engages in the exploration, development and production of crude oil and
natural gas and acquires and develops leaseholds and other interests in oil
and gas properties in the provinces of Alberta and Saskatchewan. CEC owns
working interests in 16 oil wells located in Saskatchewan, Canada and 47
natural gas wells located in Alberta, Canada. CEC also has ownership interests
in a natural gas processing plant and several gas gathering and compression
systems in Alberta. Prior to the end of 1998, substantially all of CEC's oil
and gas properties were operated by other industry companies. With certain
acquisitions completed in fiscal 1999, CEC has increased the percent of oil
and gas properties which it operates. CEC's business strategy is to grow
through exploitation of existing oil and gas properties by development of
proved non-producing and proved undeveloped reserves; acquisitions of
complementary working interests in existing and adjacent properties; and
optimization of gathering, compression and processing facilities. CEC will
also conduct oil and gas exploration activities in its core area of
operations. In addition CEC will evaluate acquisition and merger opportunities
in Canada and the United States.

CEC employs a staff of professional oil and gas engineers, geologists, land
personnel and accountants to direct this effort. CEC's principal office is
located at Suite 1605, 700 6th Avenue S.W., Calgary, Alberta, Canada T2P 0T8.
CEC also has a United States office located at 1700 Broadway, Suite 1150,
Denver, Colorado 80290.

CEC Selected Financial Data

The table below sets forth selected historical financial and operating data
for CEC as of the dates and for the periods indicated. The historical
financial data for the nine months ended August 31, 1999 and August 31, 1998
were derived from CEC's unaudited financial statements. The historical
financial data for each of the years in the five-year period ended November
30, 1998 were derived from CEC's financial statements, which were audited by
PricewaterhouseCoopers LLP and were prepared in accordance with Canadian
generally accepted accounting principles. See pages F-43 and F-55 for a
discussion regarding comparisons between U.S. and Canadian Generally Accepted
Accounting Principles. For purposes of the table below, there were no
differences in presentation between Canadian generally accepted accounting
principles and U.S. generally accepted accounting principles. Currency amounts
are in Canadian dollars unless otherwise indicated. The information set forth
below should be read in conjunction with "CEC Management's Discussion and

43
<PAGE>

Analysis of Financial Condition and Results of Operations" and CEC's Financial
Statements and notes thereto, included elsewhere in this document.

<TABLE>
<CAPTION>
As of or for
the Nine Months
Ended As of or for the
August 31, Year Ended November 30,
---------------- -----------------------------------------
1999(4) 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------ ------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues.............. $ 3,463 $ 2,364 $ 3,253 $ 3,309 $ 3,212 $3,794 $3,673
Net earnings (loss)... (188) 268 240 605 526 870 1,033
Earnings (loss) per
share................ (0.12) 0.17 0.16 0.38 0.35 0.58 0.69
Average common shares
outstanding (3)...... 1,529 1,542 1,545 1,580 1,505 1,500 1,500

Cash Flow Data: (1)(2)
Cash provided by
operating activities. $ 1,389 $ 1,218 $ 1,366 $ 1,724 $ 1,656 $1,933 $2,145
Cash used in investing
activities........... (7,751) (489) (564) (1,265) (2,333) (2,064) (1,989)
Cash provided by (used
in) financing
activities........... 4,696 (79) (209) (98) 604 -- --

Balance sheet data:
Total assets.......... $15,981 $11,235 $11,235 $11,378 $10,166 $8,729 $7,852
Working capital....... 182 2,120 2,120 1,149 981 937 684
Long-term debt........ 4,850 -- -- -- -- -- --
Stockholders' equity.. 8,380 8,722 8,722 8,691 8,184 7,054 6,184
</TABLE>
- --------
(1) See discussion of cash flows in "CEC Management's Discussion and Analysis
of Financial Condition and Results of Operations" below.
(2) In 1998, CEC elected to adopt Canadian Institute of Chartered Accountants
("CICA") 1540, Cash Flow Statements. Cash flow data for years ended
November 30, 1998, 1997 and 1996 have been restated to reflect
presentation in conformance with CICA 1540.
(3) Restated for a five-to-one stock split on October 27, 1994.

(4) Between December 1998 and April 1999 CEC purchased producing oil and gas
properties and natural gas gathering and compression facilities in
Alberta, Canada. As such, revenues and expenses presented in 1999 may not
be comparable to those recorded in previous periods. See "CEC Management's
Discussion and Analysis of Financial Condition and Results of Operations."

CEC Management's Discussion and Analysis of Financial Condition and Results of
Operations

The discussion below summarizes CEC's financial condition and results of
operations and should be read in conjunction with the financial statements and
related notes. The financial related comments contained in this section are
derived from financial statements prepared in accordance with Canadian GAAP.

Results of Operations--Nine Months Ended August 31, 1999 Compared to the Nine
Months Ended August 31, 1998

Revenues for the nine months ended August 31, 1999 totaled $3,463,000, a
46% increase from the prior year period. The increase was due primarily to
increased natural gas and plant liquid volumes, including production resulting
from CEC's acquisitions and higher natural gas, oil and plant liquid prices.
The net loss in the first nine months of 1999 was $188,000 compared to net
income of $268,000 in the first nine months of 1998. The decrease was
primarily due to increased general and administrative expenses, increased
depletion, depreciation and amortization expenses partially offset by higher
oil, natural gas and plant liquid revenues.

44
<PAGE>

Oil and Gas Revenues. The following table shows comparative revenue, sales
volume, average prices and percentage changes between periods, for natural
gas, oil, and plant liquids for the first nine months of 1999.

<TABLE>
<CAPTION>
Nine Months Ended
August 31,
--------------------
%
1999 1998 Change
------ ------ ------
<S> <C> <C> <C>
Natural gas revenue M$............................... 2,934 1,716 71%
Oil revenue M$....................................... 385 367 5%
Natural gas liquids revenues M$...................... 365 297 23%
Natural gas sales volumes:
Millions of cubic feet............................. 1,115 889 25%
Mcf/day............................................ 4,069 3,244
Oil sales volumes:
Barrels............................................ 18,395 19,797 -7%
Barrels/day........................................ 67 72
Natural gas liquids sales volumes:
Barrels............................................ 23,802 20,206 18%
Barrels/day........................................ 87 74
Average price received:
Natural gas--$/Mcf................................. 2.63 1.93 36%
Oil--$/Bbl......................................... 20.91 18.51 13%
Plant liquids--$/Bbl............................... 15.34 14.69 4%
</TABLE>

Average daily oil and plant liquid production for the first nine months of
1999 were 67 and 87 barrels, respectively. Average daily gas production for
the first nine months of 1999 was 4,069 mcf. This is an increase of 21% on a
barrels of oil equivalent ("boe") basis compared to the same period in 1998.

CEC's continued success with the exploitation of properties acquired during
1999 and current development activity have resulted in increasing production
for three successive quarters. Exploration activities are expected to continue
for the balance of 1999.

Average oil prices increased 13% from $18.51 per barrel in the first 9
months of 1998 to $20.91 in 1999. Average plant liquids prices increased 4%
from $14.69 per barrel for the first nine months of 1998 to $15.34 in 1999.
Average natural gas prices increased 36% from $1.93 per mcf for the first nine
months of 1998 to $2.63 in 1999.

Royalty expense consists primarily of Crown Royalties as well as smaller
amounts of freehold and gross overriding royalties. CEC is eligible for the
Alberta Royalty Tax Credit ("ARTC") which varies inversely with prevailing
prices for oil and gas sales in Alberta. For the first nine months of 1999 and
1998 the net Crown Royalty rate was 6%.

Field Services Business Segments. CEC receives operating service revenue
generated by its share of processing fees at the Carbon field liquid
extraction plant. Because of CEC's acquisitions in the East Carbon area, the
amount of unrelated third party gas processed through the plant has declined,
resulting in a decline in field service revenue for 1999 relative to 1998.

Lease Operating Expense. Lease operating expenses totaled $585,000 or $2.57
per boe for the first nine months of 1999 compared to $563,000 or $2.99 per
boe in the prior year period. This reduction in per boe expense is due to
overall lower 1999 lease operating expenses on CEC's properties, including
acquired properties, and the fact that lease operating expenses for 1998 were
higher due to well workovers at CEC's Hoffer properties.

45
<PAGE>

Field netbacks commonly reported by Canadian energy companies equate to oil
and gas sales less royalties and lease operating expenses. Resources' average
field netback increased significantly for the first nine months of 1999 to
$12.28 per boe compared to $8.50 per boe for the first nine months of 1998
primarily due to the positive revenue and lease operating expense variances
previously discussed.

CEC has always followed the U.S. practice of converting its natural gas to
boe based on the heating value ratio of six mcf of natural gas to one barrel
of oil. A ratio of 10:1 which historically has more closely approximated price
ratios, is used by nearly all Canadian public companies.

If natural gas volume had been converted to boe using the Canadian practice
of a 10:1 ratio, then reported field netbacks would have been $18.22 and
$12.40 per boe for the first nine months of 1999 and 1998 respectively.

General and Administrative Expenses. General and administrative ("G&A")
expenses, net of third party reimbursements, for the first nine months of 1999
totaled $1,522,000, a $907,000 or 148% increase from the same period in 1998.
The increase in G&A expense was primarily due to the hiring of full time
employees, partially offset by a reduction in charges for management services
provided by Columbus Energy under a management contract which was terminated
March 31, l999.

Depletion, Depreciation and Amortization Expense. Depletion, depreciation
and amortization expense for the nine month period ended August 31, l999
totaled $1,597,000, an increase of $911,000 or 133% from the 1998 level.
Depletion expense increased primarily due to increased gas sales and a
downward adjustment to CEC's 1998 year end developed non-producing and proved
undeveloped natural gas reserves that resulted in an increased depletion rate
per boe in 1999 compared to 1998. For the first nine months of 1999 the
depletion rate was $6.29 per boe, compared to $3.20 per boe for the same
period in 1998.

Interest Expense. Interest and other expenses increased to $136,000 for the
first nine months of 1999, a $159,000 increase from the prior year period.
Interest expense increased as a result of incurring long-term debt in 1999 to
partially fund acquisitions. See "Acquisitions" and "Liquidity and Capital
Resources". CEC's average interest rate for the first nine months of 1999 was
7.25%.

Acquisitions

In December 1998 CEC acquired for $2.3 million working interests in 16
natural gas wells, associated natural gas gathering and compression facilities
and undeveloped lands in the East Carbon Field (Wayne-Rosedale), located in
Alberta, Canada from Neutrino Resources, Ltd. The acquisition was funded with
cash and bank financing. The acquisition increased CEC's working interest
ownership in the East Carbon Field from 33 1/3% to 64%. CEC estimates that as
of November 30, 1998, the remaining proved reserves before royalty of the
acquired properties are approximately 51,000 barrels of oil and natural gas
liquids and approximately 2.3 billion cubic feet of natural gas.

In March 1999, CEC acquired for $800,000 a 100% working interest in one
natural gas well, associated natural gas gathering facilities and
underdeveloped lands in the East Carbon Field, located in Alberta, Canada from
Westdrum Energy Ltd. and C. & D. Oil and Gas Ltd. The acquisition was funded
with bank financing. CEC estimates that as of March 1, 1999, the remaining
proved reserves before royalty of the acquired property are approximately
19,000 barrels of oil and natural gas liquids and approximately 720,000 mcf of
natural gas.

In March 1999, CEC acquired for $2.1 million working interests in 17
natural gas wells, associated natural gas gathering and compression facilities
in the East Carbon Field, located in Alberta, Canada from Cometra Energy
(Canada) Ltd. The acquisition was funded with bank financing. The acquisition
increased CEC's working interest ownership in the East Carbon Field from 64%
to 97%. CEC estimates that as of March 1, 1999, the remaining proved reserves
before royalty of the acquired properties are approximately 48,000 barrels of
oil and natural gas liquids and approximately 2.1 billion cubic feet of
natural gas.

46
<PAGE>

In April 1999, CEC acquired for $125,000 working interests in 13 natural
gas wells, associated natural gas gathering and compression facilities and
undeveloped lands in the East Carbon Field, located in Alberta, Canada from
Springroad Resources, Inc. The acquisition was funded with bank financing. The
acquisition increased CEC's working interest ownership in the East Carbon
Fields from 97% to approximately 100%. CEC estimates that as of March 1, 1999,
the remaining proved reserves before royalty of the acquired properties are
approximately 4,000 barrels of oil and natural gas liquids and approximately
180,000 mcf of natural gas.

On August 12, 1999, CEC entered into the BFC Stock Purchase Agreement to
acquire all of the stock of BFC, a company with working interests in
approximately 290 oil and natural gas wells and over 150,000 net acres located
in Colorado, Kansas, New Mexico, Texas and Utah. The purchase price for the
stock of BFC is approximately $24,000,000, subject to adjustments, plus net
debt of approximately $6,500,000 remaining at BFC.

Exploration Activities

Under the full cost method of accounting, all exploration costs associated
with continuing efforts to acquire or review prospects including outside
geological and seismic consultants are capitalized. A total of $201,000 of
exploration costs were capitalized during the first nine months of 1999
compared to $40,000 in the first nine months of 1998.

Liquidity and Capital Resources

CEC has positive working capital, a history of strong cash flow from
operating activities relative to its modest market capitalization and has
secured a financing commitment with Canadian Imperial Bank of Commerce
("CIBC").

The principal sources of CEC's funds are cash flows from operating
activities and available borrowings under CEC's financing commitment.

For the first nine months of 1999, net cash from operating activities was
$1,389,000 compared to $1,218,000 for the same period in 1998. The increase is
primarily due to increased oil and gas sales, a positive net change in
operating assets and liabilities, partially offset by increased general and
administrative expenses. Net cash used in investing activities was $7,751,000
for the first nine months of 1999 compared to $489,000 in 1998. This increase
was primarily due to acquisitions in the East Carbon Area and a deposit
related to the BFC acquisition. "See Acquisitions". Net cash provided by
financing activities in the first nine months of 1999 was $4,696,000 which was
primarily due to the proceeds from long-term debt, partially offset by the
acquisition of 23,000 shares of CEC's common stock. Net cash used in financing
activities in the first nine months of 1998 was $79,000 due to the acquisition
of 83,000 shares of CEC's common stock partially offset by the issuance of
70,000 shares of CEC's common stock.

In December 1998, CEC received a financing commitment from CIBC. The
purpose of the loan is to provide financing for the acquisition of oil and gas
reserves and for normal operating requirements. The loan is secured by CEC's
oil and gas assets. The interest rate on outstanding borrowings is the CIBC
Prime Rate plus 3/4%. The initial commitment was a $2.5 million revolving
loan. In March, 1999, the commitment was increased to a $5.0 million revolving
loan. In October 1999, the commitment was increased to a $6.5 million
revolving loan. The commitment will be reduced to $5.75 million upon closing
of the BFC acquisition. "See Acquisitions." The revolving phase of the loan
will expire on April 30, 2000 and may be renewed by CIBC. If the revolving
commitment is not renewed by CIBC, the loan would be converted into a term
loan and will be permanently reduced by way of consecutive monthly principal
payments over a period not to exceed 36 months. This loan is secured by all of
CEC's assets. Borrowings under the loan during 1999 have resulted in increased
interest expense during 1999 compared to 1998.

47
<PAGE>

Income Taxes

In 1997, the Company adopted CICA 3465, Income Taxes. Since 1993, CEC had
paid current taxes to Revenue Canada based on its taxable income after
utilization, to the extent allowed, of its tax pool carry forwards. Currently
payable taxable income for future periods is dependent upon the level and type
of capital expenditures incurred in those future periods as well as percentage
limitations for utilization of existing tax pools. For 1999, the Company
anticipates little or no current income tax liability based upon current and
anticipated 1999 activity. For 1998, federal and provincial taxes were
$41,000.

Exchange Rate of the Canadian Dollar

All dollar amounts in this report are in Canadian dollars except where
otherwise indicated. The following table sets forth the rates of exchange for
the Canadian dollar, expressed in United States dollars:

<TABLE>
<CAPTION>
Nine Months
Ended August
31,
-------------
1999 1998
------ ------
<S> <C> <C>
Rate at end of period....................................... 0.6685 0.6361
Average rate during period.................................. 0.6657 0.6880
High........................................................ 0.6894 0.7105
Low......................................................... 0.6440 0.6343
</TABLE>

On September 30, 1999, the noon buying rate in Canadian dollars was 0.6803
U.S.=$1.00 Canadian.

Year 2000 Issues

The Year 2000 issue is the result of computer programs being written using
two digits rather than four, or other methods, to define the applicable year.
Computer programs that have date sensitive software may recognize a date using
"00" as the year 1900, rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including
among other things, a temporary inability to price transactions, send invoices
or engage in similar normal business activities. In addition to affecting
mainframe and mid-range computer systems, this problem potentially impacts
computer chips integrated in security, plant automation, and pipeline control
and metering systems.

CEC is currently completing an external review of all Year 2000 issues by
contacting and/or sending out questionnaires to all of its natural gas
purchasers, gathering system and plant operators, downstream pipeline
operators, equipment and service providers, operators of its oil and gas
properties, financial institutions and vendors providing payroll and medical
benefits and services. The preliminary phase of this review has been
completed. Based upon this review, a schedule of revisions (if any) to
existing systems as well as requisite contingency plans will be designed and
implemented.

CEC utilizes a service bureau for its accounting processing. The service
bureau has represented that the oil and gas accounting system utilized by the
service bureau is Year 2000 compliant. CEC has selected an accounting system
and is in the process of bringing all accounting services and processing in-
house. The oil and gas accounting system vendor has represented that the
software is Year 2000 compliant. CEC is also dependent upon personal computer
based software programs and files that may not be Year 2000 compliant. CEC has
set a revised deadline of November 1999, to be internally compliant with Year
2000 specifications.

Management expects costs for CEC to become Year 2000 compliant will not be
significant. CEC does not believe that any loss of revenue will occur as a
result of the Year 2000 problem. However, despite CEC's efforts to identify
and remedy Year 2000 problems, there may be related failures that disrupt
CEC's business temporarily. In addition, the timetable for CEC's planned
completion of its own Year 2000 modifications and the estimated costs to
accomplish this are management's best estimates. These assessments involve
many assumptions concerning future events, including the continued
availability of certain resources, particularly

48
<PAGE>

personnel able to locate, reprogram or replace, and test CEC's hardware and
software in accordance with CEC's established schedule. There can be no
guarantee that CEC's estimates will prove accurate, and actual results could
differ significantly because of the non-compliance of third parties of
business importance to CEC.

Results of Operations--Year 1998 Compared to 1997 and 1997 Compared to 1996

Oil and Gas Revenues. The following table shows comparative revenues, sales
volumes, average prices and the percentage changes between periods for natural
gas, oil, and plant liquids for 1998, 1997, and 1996.

<TABLE>
<CAPTION>
Year ended November Year ended November
30, 30,
-------------------- --------------------
% %
1998 1997 Change 1997 1996 Change
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Natural gas revenues M$.............. 2,367 2,281 4% 2,281 2,168 5%
Oil Revenues M$...................... 491 591 -17% 591 380 55%
Plant liquids revenues M$............ 377 579 -35% 579 545 7%
Natural gas sales volumes:
Millions of cubic feet............. 1,147 1,244 -8% 1,244 1,502 -17%
Mcf/day............................ 3,142 3,408 3,408 4,115
Oil sales volumes:
Barrels............................ 26,552 22,624 17% 22,624 14,436 57%
Barrels/day........................ 73 62 62 40
Plant liquids sales volumes:
Barrels............................ 25,805 26,301 -2% 26,301 28,223 -7%
Barrels/day........................ 71 72 72 77
Average price received:
Natural gas--$/Mcf................. 2.06 1.83 13% 1.83 1.44 27%
Oil--$/Barrel...................... 18.49 26.10 -29% 26.10 26.34 -1%
Plant liquids--$/Barrel............ 14.61 22.03 -35% 22.03 19.28 14%
</TABLE>

Natural gas revenues in 1998 were 4% higher than in 1997. Natural gas
prices were 13% higher and natural gas sales volumes were 8% lower due to a
gas processing plant and compressor down time and normal well productivity
decline. Revenues from oil were 17% lower in 1998 compared to 1997 because of
a 29% decrease in oil prices, partially offset by a 17% increase in volume.
Natural gas processing plant liquids sales volumes declined slightly from 1997
to 1998 due to lower natural gas production. Revenues were lower due to lower
oil and natural gas liquids prices in 1998 versus 1997.

Natural gas revenues for 1997 were 5% higher than 1996 because of 27%
higher average prices which more than offset 17% lower gas sales volume due to
well productivity decline. Revenues from oil were 55% higher in 1997 compared
to 1996 because of a 57% increase in sales volumes due to a new oil well.
Plant liquids sales volumes decreased 7% and natural gas liquids prices
increased 14% in 1997 compared to 1996.

Royalty expense consists primarily of Crown royalties in addition to
freehold and gross overriding royalties. CEC is eligible for the ARTC that
varies inversely with prevailing prices for oil and gas sales in Alberta. For
1998 the net Crown royalty rate was 6% of oil and gas sales compared to 8% in
1997. This decrease was attributed to a 13% increase from 1997 to 1998 in the
gas sales price received by CEC coupled with a 4% decrease from 1997 to 1998
in the reference price used to calculate Crown royalty expense.

Field Services Business Segment. CEC receives operating service revenue
generated by its share of processing fees at the Carbon area liquid extraction
plant. CEC also processes its own gas, and that portion of the processing fee
revenue attributable thereto is not reported in this segment and offsets an
identical amount of process expense otherwise chargeable to lease operations.
The Carbon plant also processes gas of unrelated third parties which in 1998
amounted to approximately 37% of the plant's volumes and represents the
majority of field services profit.

49
<PAGE>

CEC also derives revenues and net cash flow from separate gathering and
compression facilities in which it has ownership. Amounts applicable to CEC's
own production have likewise been eliminated from both revenue and expense of
these operations.

Lease Operating Expense. Lease operating expenses for 1998 were 22% as a
percentage of oil and gas sales compared to 17% for 1997 and 20% for 1996. The
increase in 1998 compared to 1997 is attributed to well workovers and a full
year of production of oil wells in CEC's Hoffer area and additional
compression in the East Carbon area. This increase was partially offset by
variable expense decreases related to production declines. Lease operating
expenses per boe sold were $2.92, $2.27 and $2.12 for 1998, 1997 and 1996,
respectively. This trend is attributed to increased well workovers and fixed
costs allocated to a declining production base.

CEC has always followed the U.S. practice of converting its natural gas to
boe based on the heating value ratio of six mcf of natural gas to one barrel
of oil rather than a ratio of 10 to 1 which historically has approximated
price ratios. The latter ratio is used almost exclusively by Canadian public
companies. CEC's share of processing fees charged to its wells have been
deducted from its field services revenues where CEC's one-third Carbon plant
ownership is involved.

Field netbacks which are commonly reported by Canadian energy companies
equate to oil and gas sales less royalties and lease operating expenses. CEC's
average field netback was $9.23/boe in 1998, $9.69/boe in 1997 and $7.68/boe
in 1996. If natural gas had been converted to oil using the Canadian practice
of a 10:1 ratio, then reported field netbacks would have been $13.45/boe in
1998, $14.32/boe in 1997 and $11.67/boe in 1996.

General and Administrative Expenses. G&A expenses relate to the direct
costs of CEC which do not originate from either its operation of properties or
the providing of services. Historically CEC had incurred certain direct and
indirect G&A costs for management services provided by Columbus Energy. These
costs were primarily for labor, related benefits and other overhead costs. G&A
costs increased by $223,000 in 1998 compared to 1997 primarily due to the
hiring of full time employees, which was partially offset by a reduction in
Columbus expenses. The management agreement with Columbus was terminated on
March 31, 1999.

Depreciation, Depletion and Amortization Expense. DD&A costs of oil and gas
assets are determined based upon the units of production method. Natural gas
gathering, compression and processing facilities are depreciated on a straight
line method. For 1998, the depletion rate of oil and gas properties was $4.02
per boe for CEC, compared to $3.01 per boe for 1997, and $2.15 per boe for
1996. The 1998 increase in the depletion rate was primarily due to a downward
adjustment to CEC's year end proved reserves. The above calculated amounts for
1998, 1997 and 1996 include $62,000, $33,000 and $30,000 respectively, for
estimated future site restoration costs.

Interest Expense. Interest expense in 1998 compared and 1997 was minimal
due to the fact that the company maintained significant cash balances and no
borrowings.

Exploration Activities

Under the full cost method of accounting, all exploration costs associated
with continuing efforts to acquire or review prospects and outside geological
and seismic consulting work are capitalized. A total of $54,000 of exploration
costs were capitalized during 1998. These charges include seismic and
consulting costs in the Carbon, East Carbon and Harmon areas of Alberta. A
total of $230,000 of exploration costs were capitalized during 1997. These
charges included seismic costs in the Maxim area of Saskatchewan and in the
East Carbon area of Alberta. Exploration costs capitalized in 1996 were
$181,000, primarily in the Hoffer area of Saskatchewan and for seismic cost in
the Carbon field.

Income Taxes

In 1997, CEC adopted CICA 3465, Income Taxes. Since 1993, CEC has paid
current taxes to Revenue Canada based on its taxable income after utilization,
to the extent allowed, of its tax pool carryforwards.

50
<PAGE>

Currently payable taxable income for future periods is dependent upon the
level and type of capital expenditures that are incurred in these periods as
well as percentage limitations for utilization of existing tax pools. For
1998, current income taxes are estimated to be $19,000. For the 1997 and 1996
fiscal years CEC paid no current federal tax because additions to deductible
property tax pools and carryover balances were sufficient to result in no
taxable income.

Effects of Changing Prices

The Canadian economy experienced considerable inflation during the late
1970's and early 1980's but in recent years inflation has been fairly stable
at relatively low levels. CEC, along with most other business enterprises, was
then and will be affected in the future by any recurrence of such inflation.
Changing prices, or a change in the Canadian dollar's purchasing power,
distorts the traditional measures of financial performance which are generally
expressed in terms of the actual number of dollars exchanged and do not take
into account changes in the purchasing power of the monetary unit. This
results in the reporting of many transactions over an extended period as
though the dollars received or expended were of common value, which does not
accurately portray financial performance.

Inflation, as well as a recessionary period, can cause significant swings
in the interest rates that companies pay on bank borrowings. These factors are
anticipated to continue to affect CEC's operations both positively and
negatively for the foreseeable future.

Oil and gas prices fluctuate over time as a function of market economics.
Refer to the price change table in the discussion "Oil and Gas Operations
Comparisons 1998, 1997 and 1996" for information on product price fluctuation
over the past three years. This table depicts the effect of changing prices on
CEC's revenue stream.

Operating expenses have been relatively stable but are a critical component
of profitability since they represent a larger percentage of revenues when
lower product prices prevail. Competition in the industry can significantly
affect the cost of acquiring leases, although in recent years this factor has
been less important as more operators have withdrawn from active exploration
programs.

Exchange Rate of the Canadian Dollar

All dollar amounts set forth in the CEC report are in Canadian dollars
except where otherwise indicated. The following table sets forth the rates of
exchange for the Canadian dollar, expressed in United States dollars:

<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Rate at end of period........................ 0.6563 0.7021 0.7414 0.7362 0.7272
Average rate during period................... 0.6785 0.7251 0.7331 0.7278 0.7347
High......................................... 0.7105 0.7292 0.7515 0.7474 0.7632
Low.......................................... 0.6343 0.7019 0.7215 0.7025 0.7167
</TABLE>

Properties

Estimated Oil and Gas Reserve Quantities and Revenues

The estimated reserve amounts and future net revenues for 1998 were
determined by Sproule Associates Limited, an independent geological and
petroleum engineering firm, and for 1997 and 1996 by Reed Ferrill &
Associates, an independent petroleum engineering firm. CEC owned only Canadian
reserves during the periods.

CEC's reserves are sensitive to natural gas and oil sales prices and their
effect on economic production rates and are based on the spot market price in
effect at year end and the sales prices of long-term contracts in effect prior
to year-end.

51
<PAGE>

Price declines decrease reserve values by lowering the future net revenues
attributable to the reserves and reducing the quantities of reserves that are
recoverable on an economic basis. Price increases have the opposite effect. A
significant decline in prices of oil or natural gas could have a material
adverse effect on CEC's financial condition and results of operations.

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

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

Future prices received from 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.

The present values shown should not be construed as the current market
value of the reserves. The 10% discount factor used to calculate present
value, which is specified by the Securities and Exchange Commission, is not
necessarily the most appropriate discount rate, and present value, no matter
what discount rate is used, is materially affected by assumptions as to timing
of future production, which may prove to be inaccurate. For properties
operated by CEC, expenses exclude CEC's share of overhead charges. In
addition, the calculation of estimated future net revenues does not take into
account the effect of various cash outlays, including among other things
general and administrative costs and interest expense.

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 natural gas reserve engineering must be
recognized as a subjective process of estimating underground accumulations of
oil and natural gas that cannot be measured in an exact way, and estimates of
other engineers might differ materially from those shown above. The accuracy
of any reserve estimate is a function of the quality of available data and
engineering and geological interpretation and judgment. Results of drilling,
testing and production after the date of the estimate may justify revisions.
Accordingly, reserve estimates are often materially different from the
quantities of oil and natural gas that are ultimately recovered. The
meaningfulness of such estimates depends primarily on the accuracy of the
assumptions upon which they were based. In general, the volume of production
from oil and gas properties CEC owns declines as reserves are depleted. Except
to the extent CEC acquires additional properties containing proved reserves or
conducts successful exploration and development activities or both, the proved
reserves will decline as reserves are produced.

52
<PAGE>

Changes in Proved Oil and Gas Reserves

<TABLE>
<CAPTION>
Natural Gas
Oil and Liquids (Millions
(Thousands of of Cubic
Barrels) Feet)
--------------- -----------
<S> <C> <C>
Proved Reserves:
November 30, 1995................................... 363 23,115
Revision to previous estimates.................... (9) (2,664)
Extensions and discoveries........................ 366 414
Sales and abandonments............................ 0 (217)
Production........................................ (40) (1,468)
---- ------
November 30, 1996................................... 680 19,180
Revision to previous estimates.................... (271) (2,020)
Extensions and discoveries........................ 7 331
Production........................................ (46) (1,217)
---- ------
November 30, 1997................................... 370 16,274
Revision to previous estimates.................... (56) (9,965)
Extensions and discoveries........................ 57 400
Production........................................ (49) (1,123)
---- ------
November 30, 1998................................... 322 5,586
==== ======
Proved developed reserves:
November 30, 1996................................... 513 16,068
November 30, 1997................................... 287 13,180
November 30, 1998................................... 285 4,439
</TABLE>

Proved Developed Reserves

At November 30, 1998, CEC had approximately 4.4 billion cubic feet of
proved developed gas reserves representing 79% of CEC's total proved gas
reserves and 285,000 barrels of oil and natural gas liquids representing 89%
of CEC's total proved oil reserves. Approximately 3.9 of the 4.4 billion cubic
feet of proved developed gas reserves and 225,000 of the 285,000 barrels of
proved developed oil reserves are presently being provided from completion
intervals open for production in existing wells. The remainder of the proved
developed reserves are primarily behind the casing in existing wells and
recompletion of those zones will be required to place them on production. Also
included are any wells which have been completed and were awaiting connection
to a gas pipeline as of year end, provided such pipeline connection does not
require significant investment.

Proved Undeveloped Reserves

At November 30, 1998, CEC's proved undeveloped reserves total approximately
1.1 billion cubic feet of gas, or 21% of its total proved gas reserves, and
approximately 38,000 barrels of oil and liquids, or 11% of its total proved
oil reserves.

These reserves are attributable to undrilled locations offsetting
production in the Carbon, East Carbon, Harmon and Rowley areas of Alberta.

53
<PAGE>

Comparison of Proved Reserves

The following table compares CEC's estimated proved reserves at November
30, 1997 and 1998.

<TABLE>
<CAPTION>
Oil and Natural
Liquids Gas
(Thousands (Millions
of of Cubic
Barrels) Feet)
---------- ---------
<S> <C> <C>
Proved Reserves:
November 30, 1997
Proved developed......................................... 287 13,180
Proved undeveloped....................................... 83 3,094
--- ------
Total.................................................. 370 16,274
=== ======
November 30, 1998
Proved developed......................................... 285 4,439
Proved undeveloped....................................... 37 1,147
--- ------
Total.................................................. 322 5,586
=== ======
</TABLE>

On a BOE basis, approximately 18% of the decrease in November 30, 1998
proved reserves compared to November 30, 1997 is due to 1998 production. The
majority of the remainder of the decrease in proved reserves is due to the
following factors:

The unsuccessful completion of a well in the East Carbon area resulted in
more stringent reservoir engineering interpretations of log characteristics
and analogous production in two natural gas zones. The unsuccessful completion
also disproved a geological hypothesis that was formerly presumed in the
determination of proved undeveloped reserves in these two natural gas zones.

In 1998, a zone in the East Carbon area was remapped due to new offset well
information, resulting in geologic interpretations that did not support the
assignment of proved reserves for a location.

Standardized Measure

The Standardized Measure schedule is presented below pursuant to the
disclosure requirements of the Securities and Exchange Commission and
Statement of Financial Accounting Standards No. 69, "Disclosures About Oil and
Gas Producing Activities" (SFAS 69). Future cash flows are calculated using
year-end oil and gas prices and operating expenses, and are discounted using a
10% discount factor.

Under SEC guidelines, Future Net Revenues shown below must be calculated
using prices that were in effect on November 30 of each year and are projected
forward based on existing contracts or the spot market price on that date.
Accordingly, the Future Net Revenues have been calculated using the spot
market sales price in effect at year end and the sales prices of long-term
contracts in effect prior to year end.

The prices utilized in this calculation for Future Net Revenues at November
30, 1998 are summarized as follows:

<TABLE>
<S> <C>
Natural Gas
1998....................... $ 2.80/mcf
1999....................... 2.69/mcf
2000....................... 2.60/mcf
2001....................... 2.58/mcf
2002-forward............... 2.49/mcf
Ngl........................ $12.67/barrel
Oil........................ $16.94/barrel
</TABLE>

54
<PAGE>

The standardized measure is intended to provide a standard of comparable
measurement of CEC's estimated proved oil and gas reserves based on economic
and operating conditions existing as of November 30, 1998, 1997 and 1996.
Pursuant to SFAS 69, the future oil and gas revenues are calculated by
applying to the proved oil and gas reserves the oil and gas prices at November
30 of each year relating to such reserves. Future price changes are considered
only to the extent provided by contractual arrangements in existence at year
end. Production and development costs are based upon costs at each year end.
Future income taxes are computed by applying statutory tax rates as of the
year end with recognition of tax basis, resource allowance, tax pool
carryforwards and earned depletion carryforwards as of that date and relating
to the proved properties. Discounted amounts are based on a 10% annual
discount rate. Changes in the demand for oil and gas, price changes and other
factors make such estimates inherently imprecise and subject to revision.

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

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Future oil and gas revenue.......................... $19,260 $31,984 $59,858
Future cost:
Production cost................................... (4,351) (7,620) (10,521)
Crown royalty..................................... (1,646) (5,515) (9,982)
Development cost.................................. (536) (1,260) (1,712)
Future income taxes................................. (2,368) (3,039) (9,144)
------- ------- -------
Future net cash flows............................... 10,359 14,550 28,499
Discount at 10%..................................... (2,334) (4,584) (10,800)
------- ------- -------
Standardized measure of discounted future net cash
flows.............................................. $ 8,025 $ 9,966 $17,699
======= ======= =======
</TABLE>

As required by SFAS 69, the tax computation does not consider CEC's annual
interest expense and general and administrative expenses or future drilling
and equipment costs. Because of these factors, the tax provisions shown do not
represent the much lower future tax expense expected as long as CEC remains an
active operating company.

Change in Standardized Measure of Discounted Future
Net Cash Flows from Estimated Proved Oil and Gas Reserves
For the Three Years Ended November 30, 1998
(thousands of dollars)

<TABLE>
<CAPTION>
November 30,
--------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Standardized measure--beginning of year............ $ 9,966 $17,699 $ 9,286
Sale of oil and gas net of production costs........ (2,248) (2,482) (2,250)
Net changes in prices, crown royalty and production
costs ............................................ 8,662 (8,672) 11,238
Extensions and discoveries......................... 787 358 4,936
Sales and abandonments............................. -- 0 (129)
Revisions to previous estimates.................... (11,804) (2,207) (3,590)
Previously estimated development costs incurred
during the period ................................ -- 90 411
Changes in development costs....................... 771 316 (49)
Accretion of discount.............................. 1,131 2,242 1,066
Other.............................................. 844 (758) 133
Change in future income tax........................ (84) 3,380 (3,353)
-------- ------- -------
Net increase (decrease)............................ (1,941) (7,733) 8,413
======== ======= =======
Standardized measure--end of year.................. $ 8,025 $ 9,966 $17,699
======== ======= =======
</TABLE>

55
<PAGE>

Production

CEC's net oil and gas production for each of the past three years is shown
on the following table:

<TABLE>
<CAPTION>
Year ended November
30,
--------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Oil--barrel.......................................... 25,000 22,000 15,000
Ngl--barrel.......................................... 24,000 24,000 25,000
Gas--Mmcf............................................ 1,124 1,217 1,468
</TABLE>

Average price and cost per unit of production for the past three years are
as follows (gas prices include net hedging gains and losses):

<TABLE>
<CAPTION>
Year Ended November
30,
--------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Average sales price per barrel of oil............... $18.49 $26.10 $26.34
Average sales price per mcf of gas.................. 2.06 1.83 1.44
Average sales price per barrel of Ngl............... 14.61 22.03 19.28
Average production cost per boe..................... 3.01 2.33 2.17
</TABLE>

Natural gas is converted to oil at the ratio of six mcf of natural gas to
one barrel of oil. Production costs include only lease operating expenses.

Gas sales are generally made pursuant to gas purchase contracts with
unrelated third parties. Our gas sales are subject to price adjustment
provisions of the gas purchase contracts as well as general economic and
political conditions affecting the production and price of natural gas.

Developed Properties and Acreage

A summary of the gross and net interest in producing wells and gross and
net interest in producing acres as of November 30, 1998 is shown in the
following table:

<TABLE>
<CAPTION>
Gross Net
------- -------
Oil Gas Oil Gas
--- --- --- ---
<S> <C> <C> <C> <C>
Wells..................................................... 16 47 5 19
=== === === ===
Acres..................................................... 18,876 6,993
====== =====
</TABLE>

Undeveloped Acreage

The following table sets forth CEC's ownership in undeveloped acreage as of
November 30, 1998:

<TABLE>
<CAPTION>
Gross Acres Net Acres
----------- ---------
<S> <C> <C>
Alberta............................................. 7,360 3,242
Saskatchewan........................................ 9,840 4,710
------ -----
Total Undeveloped Acreage....................... 17,200 7,952
====== =====
</TABLE>

56
<PAGE>

Drilling Activities

CEC engages in exploratory and development drilling on its own and in
association with other oil and gas companies. The table below sets forth
information regarding CEC's drilling activity for the last three years. The
net interest shown is CEC's working interest.

<TABLE>
<CAPTION>
Year Ended November 30,
-------------------------------
1998 1997 1996
--------- ---------- ----------
Gross Net Gross Net Gross Net
----- --- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
EXPLORATORY
Wells Drilled:
Oil........................................... -- -- -- -- 3 1.50
Gas........................................... -- -- 1 0.60 2 0.67
Dry........................................... -- -- -- -- 1 0.20
DEVELOPMENT
Wells Drilled:
Oil........................................... -- -- 1 0.50 -- --
Gas........................................... -- -- 1 1.00 6 2.83
Dry........................................... -- -- -- -- -- --
TOTAL
Wells Drilled:
Oil........................................... -- -- 1 0.50 3 1.50
Gas........................................... -- -- 2 1.60 8 3.50
Dry........................................... -- -- -- -- 1 0.20
--- --- --- ---- --- ----
-- -- 3 2.10 12 5.20
=== === === ==== === ====
</TABLE>

Current Operations Activity

CEC engages in the exploration, development and production of crude oil and
natural gas and acquires and develops leaseholds and other interests in oil
and gas properties in the provinces of Alberta and Saskatchewan. CEC owns
working interests in 16 oil wells located in Saskatchewan, Canada and 47
natural gas wells located in Alberta, Canada. CEC also has ownership interests
in a natural gas processing plant and several gas gathering and compression
systems in Alberta. Prior to the end of 1998, substantially all of CEC's oil
and gas properties were operated by other industry companies. With certain
acquisitions completed in fiscal 1999, CEC has increased the percent of oil
and gas properties which it operates. CEC's business strategy is to grow
through exploitation of existing oil and gas properties by development of
proved undeveloped reserves; acquisitions of complementary working interests
in existing and adjacent properties; and optimization of gathering,
compression and processing facilities. CEC will also conduct oil and gas
exploration activities in its core area of operations. In addition CEC will
evaluate acquisition and merger opportunities.

Acquisition Activities. See "CEC Management's Discussion and Analysis of
Financial Condition and Results of Operations"--"Acquisitions."

Legal Proceedings

There are no material legal proceedings pending or, to our knowledge,
threatened against CEC.

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

PricewaterhouseCoopers LLP were engaged as CEC's independent auditors for
the 1998 fiscal year. On April 16, 1999, CEC, upon approval of its Board of
Directors, determined that the appointment of PricewaterhouseCoopersLLP should
not be renewed and that Arthur Andersen LLP should be proposed to CEC's
shareholders as its independent auditors for the 1999 fiscal year. The
President and Chief Executive Officer of

57
<PAGE>

CEC, as well as the Chief Financial Officer, both of whom joined CEC during
the last half of 1998, have a previous relationship with Arthur Andersen LLP
as a result of work at another oil and gas company. In addition for fiscal
1999, Arthur Andersen LLP proposed a fee structure for the year end audit,
quarterly reviews and accounting consultation that was economically beneficial
to CEC.

During CEC's two most recent fiscal years and subsequent interim period
preceding this determination, there were no disagreements with the former
auditors on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure. The auditors' report
during CEC's two most recent fiscal years preceding this determination did not
contain an adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

In 1999, CEC established a $6.5 million credit facility with a Canadian
bank as described in "CIBC Relationship" under "CEC Management's Discussion
and Analysis of Financial Condition and Results of Operations". The interest
rate for borrowings under this facility are variable.

Foreign Currency Risk

CEC's operations, except for certain administration functions performed in
its Denver, Colorado office, are conducted in Canada. CEC does not use
financial instruments relating to currency and exchange rates. For information
on the exchange rate of the Canadian dollar, refer to "Exchange Rate of the
Canadian Dollar" under "CEC Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Commodity Price Risk

CEC uses certain financial instruments in an attempt to manage commodity
price risk. CEC attempts to manage these risks by minimizing its commodity
price exposure through the use of derivative contracts as described in Note 9
to the November 30, 1998 Financial Statements of CEC and Note 5 to the August
31, 1999 Financial Statements of CEC. Gains and losses on these contracts are
deferred and recognized in income as an adjustment to oil and gas sales
revenues during the period in which the physical product to which the
contracts relate is actually sold.

Oil and gas commodity markets are influenced by global as well as regional
supply and demand. Worldwide political events can also impact commodity
prices. Management's policy is to mitigate its exposure to fluctuations in
sales prices received for natural gas production through the use of various
hedging tools. These tools include, but are not limited to: commodity futures
and option contracts; fixed-price swaps; basis swaps; and term sales
contracts. Contract terms generally range from one month to three years. While
we mitigate our exposure to declining natural gas sales prices, we may be
subject to lost opportunity costs resulting from increasing natural gas prices
in excess of those committed. Should production from existing facilities under
existing operating conditions not fulfill committed contracts, we may be
required to acquire natural gas in the open market, while volumes produced in
excess of those contracted are sold at market prices.

58
<PAGE>

INFORMATION ABOUT CARBON

Business

Carbon was incorporated on September 14, 1999 under the Colorado Business
Corporation Act and has its principal executive offices in Denver, Colorado.
Our business is currently comprised of the assets and properties of BFC, which
were acquired on October 29, 1999 in a stock purchase. The total cash purchase
price after adjustments was $23,581,000. On August 11, 1999, CEC entered into
a stock purchase agreement with BPC which provided for the purchase by CEC
from BPC of all outstanding shares of BFC for $23,858,000 in cash, subject to
certain adjustments.

The purchase of BFC stock under the stock purchase agreement was completed
by Carbon rather than CEC. Rights and obligations of CEC under the stock
purchase agreement were assigned to Carbon. Yorktown purchased 4,500,000
shares of Carbon for $24,750,000. The funds from this purchase were used to
acquire the BFC shares under the stock purchase agreement and pay expenses
incurred in connection with the purchase and related transactions.

As described above, we now own all of the stock of BFC. As the parent
company of BFC, we provide management and other services to BFC. Carbon itself
has not engaged in other activities, except for the acquisition of BFC and
preparations for the exchange offer made by this prospectus. BFC is an
independent oil and gas company engaged in the exploration, development, and
production of natural gas and crude oil. All of the properties and activities
described below were acquired or conducted by the prior management of BFC.
Through our acquisition of BFC, our activities are currently concentrated in
the Piceance and Uintah Basins in northwestern Colorado and eastern Utah, the
San Juan Basin in northwest New Mexico, the Permian Basin in southeast New
Mexico and western Texas, and southwestern Kansas. BFC owns working interests
in approximately 292 oil and gas wells, of which, approximately 190 wells are
operated by BFC. BFC employs a staff of oil and gas professionals to manage
its operations.

Our business strategy is to grow through exploitation of existing oil and
gas properties by development of proved undeveloped reserves; acquisitions of
complementary working interests in existing and adjacent properties; and
optimization of gathering, compression and processing facilities. We will also
conduct oil and gas exploration activities and evaluate acquisition and merger
opportunities. Our activities will be conducted in the United States primarily
through BFC and in Canada through CEC.

Our oil and gas properties are located in the western United States and are
principally natural gas properties as discussed below and in "Properties."

Piceance and Uintah Basins

The Piceance and Uintah Basins have been core production areas since BFC's
inception. The productive formations are the Morrison, Dakota, Mancos, Castle
Gate, Mesa Verde and Wasatch formations. All of these formations produce
natural gas; however, in some areas, the Castle Gate sands formations are
known to contain oil reserves. We operate 132 wells and own working interests
in 146 wells in the Piceance Basin in Colorado and the Uintah Basin in Utah.
Carbon has not drilled any wells in these basins during 1999, however,
additional drilling locations have been identified for further analysis and
possible future drilling. We have leasehold rights in approximately 164,000
gross and 122,500 net acres of which approximately 41,500 gross and 37,500 net
acres are undeveloped.

San Juan Basin

Production in the San Juan Basin of northwest New Mexico is predominantly
natural gas. The primary productive formations on our acreage is the Dakota,
Gallup, Pictured Cliffs, and Fruitland (Coal Sands). We operate 41 wells and
own working interests in 42 wells in the San Juan Basin. We have lease rights
in approximately 5,200 gross and 2,600 net acres, all of which are developed.

59
<PAGE>

Permian Basin

Our well interests in the Permian Basin are both operated and non-operated
in nature. We own working interests in 76 wells in the Permian Basin and
operate 11 of these wells. During 1999 we have participated in the drilling of
five wells, all of which were completed or are in the process of being
completed as producing gas wells. Additional wells are scheduled for drilling
during the balance of 1999. We have lease rights in approximately 23,500 gross
and 11,500 net acres, of which 1,400 gross and 1,000 net acres are
undeveloped.

Southwestern Kansas

The main exploratory efforts of Carbon are concentrated in southwestern
Kansas. We own working interests in 28 wells and operate 4 wells in this area.
We are conducting regional geologic and geophysical work to identify
additional drilling prospects. We are also currently acquiring acreage
covering the most attractive prospects. We have lease rights in approximately
33,000 gross and 25,500 net acres of which 30,000 gross and 24,500 net acres
are undeveloped.

Carbon Selected Financial Data

The table below sets forth our selected historical financial and operating
data as of the dates and for the periods indicated. All the historical
financial data in the table is that of our predecessor, BFC. The historical
financial data for the nine months ended September 30, 1998 and September 30,
1999 were derived from BFC's unaudited financial statements. The historical
financial data for each of the years in the five-year period ended December
31, 1998 were derived from BFC's financial statements, which were audited by
Hein + Associates LLP. Currency amounts are in U.S. dollars unless otherwise
stated. The information set forth below should be read in conjunction with
"Our Management's Discussion and Analysis of Financial Condition and Results
of Operations" and BFC's Financial Statements and notes thereto, included
elsewhere in this prospectus.

<TABLE>
<CAPTION>
As of or for the
Nine Months Ended As of or for the
September 30, Year Ended December 31,
------------------ ---------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues............... $ 18,254 $ 12,595 $21,092 $16,539 $15,067 $12,675 $14,956
Net earnings (loss).... 683 114 (1,941) 732 4,060 172 (2,950)
Cash Flow Data:
Cash provided by (used
in) operating
activities............ $ (734) $ 2,587 $ 4,696 $ 3,193 $ 4,136 $ 3,016 $ 3,091
Cash used in investing
activities............ (4,654) (3,828) (5,948) (4,442) (1,025) (859) (1,181)
Cash provided by (used
in) financing
activities............ 2,950 1,300 3,450 1,019 (2,760) (2,090) (2,046)
Balance Sheet Data:
Total assets........... $21,627 $18,726 $22,840 $16,054 $14,524 $13,177 $16,321
Working capital........ 1,603 688 812 1,491 1,725 628 405
Long-term debt......... 8,800 3,700 5,850 2,400 1,700 4,760 6,850
Stockholder's
equity(1)............. 9,997 9,709 9,313 9,591 8,859 6,774(1) 6,552(1)
</TABLE>
- --------
(1) Includes debt to parent company (BPC) of $3,787 in 1995 and $3,737 in
1994, which was converted to equity in 1996.

Our Management's Discussion and Analysis of Financial Condition and Results of
Operations

Our financial statements and related notes included in this prospectus are
those of our predecessor, BFC. The discussion below summarizes our financial
condition and results of operations and should be read in connection with the
financial statements and related notes of BFC.

60
<PAGE>

Results of Operations- Nine Months Ended September 30, 1999 Compared to the
Nine Months Ended September 30, 1998.

Oil and gas production revenue increased $1,545,000 or 30% to $6,730,000 in
the nine months ended September 30, 1999 compared to $5,185,000 in the nine
months ended September 30, 1998. Natural gas volumes produced in the first
nine months of 1999 increased 643,000 mcf or 26% to 3,128,000 mcf from
2,485,000 mcf in the nine months ended September 30, 1998. Oil volumes
produced decreased 2,900 bbls or 5% to 49,900 bbls in the nine months ended
September 30, 1999 from 52,800 bbls in the nine months ended September 30,
1998. The average realized price received for oil production increased 15% to
$15.79 per bbl in the first nine months of 1999 from $13.76 per bbl in the
nine months of 1998. The average realized price received for gas production
increased 6% to $1.90 per mcf in the first nine months of 1999 from $1.79 per
mcf in the first nine months of 1998. Prices received for gas production are
net of hedging gains and/or losses in the respective periods.

The production increases in natural gas production resulted from successful
drilling and recompletion results in various basins, particularly in western
Kansas and in the Permian Basin of New Mexico. Some of these increases were
partially offset by production declines on previously existing properties.
Production volume realized in the first nine months of 1999 related to the
successful drilling efforts were: Oil production--13,800 bbls; and gas
production--822,000 mcf. The sales related to this production was $1,772,000.

Gas marketing revenue increased 54% in the first nine months of 1999 to
$11,059,000 from $7,157,000 in the first nine months of 1998. Gas marketing
related expenses increased 121% to $11,009,000 in the first nine months of
1999 from $7,133,000 in the first nine months of 1998. BFC entered into a
management contract which includes the first four months of 1999 for the
purchase and sale of a high volume of natural gas. The contract was not in
place in the first four months of 1998, and was terminated on April 30, 1999.

Net income in the first nine months of 1999 was $683,000 compared to net
income of $114,000 in the first nine months of 1998. The increase in net
income is primarily due to increased oil, gas, and other revenues, and
decreased general and administrative expense, partially offset by an increase
in lease operating, DD&A, exploration and interest expense.

Oil and Gas Revenues. The following table shows comparative revenues, sales
volumes, average prices and percentage changes between periods, for natural
gas and oil for the first nine months of 1999 and 1998.

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1999 1998 % Change
------ ------ --------
<S> <C> <C> <C>
Natural gas revenues M$........................... 5,942 4,459 33%
Oil revenues M$................................... 788 726 9%
Natural gas sales volumes:
Millions of cubic feet.......................... 3,128 2,485 26%
MCF/day......................................... 11,500 9,100
Oil sales volumes:
Barrels......................................... 49,900 52,800 (5)%
Barrels/day..................................... 183 194
Average price received:
Natural gas--$/Mcf.............................. 1.90 1.79 6%
Oil--$/Barrel................................... 15.79 13.76 15%
</TABLE>

Natural gas revenues for the first nine months of 1999 increased 33% over
the first nine months of 1998 because of a 6% price increase and a 26%
increase in sales volumes. The increase in sales volumes were primarily due to
successful drilling and recompletion results in various basins, particularly
in western Kansas and in the Permian Basin of New Mexico, partially offset by
production declines on existing properties. Oil revenues were 9% higher for
the first nine months of 1999 compared to the first nine months of 1998
because of a 15% price increase partially offset by a 5% decline in sales
volumes.

61
<PAGE>

Average daily oil and gas production for the first nine months of 1999
totaled 183 barrels of oil per day and 11,500 mcf of gas per day, an increase
of 22% on an barrel of oil equivalent basis (6:1) from the same period in
1998.

Carbon's current drilling activity and continued success with the
exploitation of properties has resulted in increasing production for the first
nine months of 1999. Exploitation and drilling activities are expected to
continue for the balance of 1999.

Average oil prices increased 15% from $13.76 per barrel in the first nine
months of 1998 to $15.79 in 1999. Average natural gas prices increased 6% from
$1.79 per mcf for the first nine months of 1998 to $1.90 per mcf in 1999.

Oil and Gas Production Costs. Oil and gas production costs consist of lease
operating expense and severance taxes. Oil and gas production costs for the
first nine months of 1999 were 40% as a percentage of oil and gas sales
compared to 43% for the first nine months of 1998. Oil and gas productions
costs for the first nine months of 1999 and 1998 were $4.73 and $4.75
respectively, per boe.

Gas and Electrical Marketing. Gas and electrical marketing revenue
increased 55% in the first nine months of 1999 compared to the first nine
months of 1998. Gas and electrical marketing related expenses increased 54% in
the first nine months of 1999 compared to the first nine months of 1998. The
primary reason for the increase is a management contract in place during the
first quarter of 1999 for the purchase and sale of a high volume of natural
gas. The contract was not in place in the first quarter of 1998, and was
terminated on April 30, 1999.

Depreciation, Depletion, Amortization and Impairment Expense. DD&A of oil
and gas assets are determined based upon the units of production method. This
expense is primarily dependent upon the historical capitalized costs incurred
to find, develop, and recover oil and gas reserves.

For the first nine months of 1999 the depletion rate was $3.13 per boe
(6:1) compared to $3.44 per boe for the first nine months of 1998.

For the first nine months of 1999 impairment losses related to a property
drilled in Oklahoma in 1998 at a cost to BFC of $60,000. Early reserve
estimates in 1999 indicated that this well had no value and the amount was
considered impaired at that time. There were no impairment losses recorded for
the first nine months of 1998.

Interest Expense. For the first nine months of 1999, interest expense was
$418,000 compared to $143,000 for the first nine months of 1998. The increase
is primarily due to higher levels of borrowing to finance drilling activity.
BFC capitalized $20,000 of interest in the first nine months of 1999 which
related to calendar year 1998 interest charges and $44,000 of interest in the
first nine months of 1999 related to drilling activity.

Exploration Expense. Exploration expense was recorded under the successful
efforts method of accounting and primarily consists of unsuccessful drilling
costs and Geological and Geophysical ("G&G") costs.

For the first nine months of 1999 exploration expense was $681,000 compared
to $276,000 for the first nine months of 1998. Unsuccessful drilling costs
amounted to $199,000 for the first nine months of 1999 compared to $49,000 for
the first nine months of 1998. G&G cost for the first nine months of 1999 were
$433,000 compared to $141,000 for the first nine months of 1998.

62
<PAGE>

Liquidity and Capital Resources

Management considers our liquidity to be favorable compared to other oil
and gas companies based on the fact BFC has positive working capital and a
credit facility with U.S. Bank National Association.

The purpose of the loan is to provide financing for the acquisition of oil
and gas reserves and for normal operating requirements. The facility is
collateralized by certain oil and gas properties of BFC and is scheduled to
convert to a term note July 1, 2001. This term loan is scheduled to have a
maturity of either the economic half life of BFC's remaining reserves on the
date of the conversion, or July 1, 2006, whichever is earlier. The borrowing
base is based upon the lender's evaluation of BFC's proved oil and gas
reserves, generally determined semi-annually. The future minimum principal
payment under the term note will be dependent upon the bank's evaluation of
BFC's reserves at that time. The borrowing base was $16.9 million at September
30, 1999 with interest at a variable rate that approximated 7.15% at September
30, 1999. BFC has issued letters of credits totaling $2.3 million which
further reduce the amount available for borrowing under the base. The Company
currently has approximately 41% of its proved reserves pledged against this
loan.

The principal sources of our funds are cash flows from operating activities
and available borrowings under our existing credit facility. We expect to be
able to fund our development and exploration programs for the next twelve
months from cash generated by our operations and from existing bank financing.
Although there are presently no agreements or understandings for any
significant acquisitions of oil and gas businesses and properties, future
acquisitions may require additional capital investment and bank financing.

In October, 1999, we sold 4,500,000 shares of our common stock to Yorktown
for $24,750,000 of which $23,581,000 was used to purchase the stock of BFC on
October 29, 1999 and the remaining proceeds have been added to our working
capital.

For the nine months ended September 30, 1999, net cash used in operating
activities was $734,000 compared to net cash provided by operating activities
of $2,587,000 for the same period in 1998. This decrease is due to changes in
operating assets and liabilities. Cash used in investing activities was
$4,654,000 for the nine months ended September 30, 1999 compared to $3,828,000
for the same period in 1998. This increase was primarily due to additions of
oil and gas properties. Net cash provided by financing activities for the nine
months ended September 30, 1999 was $2,950,000 due to an increase in net bank
borrowings used to fund capital expenditures.

Income Taxes. Carbon accounts for income taxes under the liability method
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. BFC's
operations were formerly included in BPC's consolidated tax return. Income
taxes were allocated to BFC as if BFC was a separate taxpayer.

BFC has not accrued an estimate for income taxes for the nine months ended
September 30, 1999 as it is anticipated that estimates of taxes due for the
period are offset by intangible drilling costs.

Year 2000 Compliance

63
<PAGE>

Our company has made inquiries of the suppliers and manufacturers of its
computer systems, including equipment supplied by third parties, and has been
advised that such systems are Year 2000 compliant except for our property
management software that is currently under review regarding Year 2000
compliance. If Carbon's property management software is not Year 2000
compliant, Carbon believes that the cost of replacing such software would not
exceed $25,000.

Management expects costs for Carbon to become Year 2000 compliant will not
be significant. However, despite Carbon's efforts to identify and remedy Year
2000 problems, there may be related failures that disrupt Carbon's business
temporarily. Carbon has not reviewed all Year 2000 issues with third parties
of business importance to Carbon such as its natural gas purchasers, gathering
system and plant operators, downstream pipeline operators, equipment and
service providers, operators of its oil and gas properties, financial
institutions and vendors providing payroll and medical benefits and services.
If any of these third parties have Year 2000 issues, Carbon believes that the
most serious effect on Carbon would be delays in receiving payment for oil and
gas sold to its purchasers. This could have a material adverse effect upon the
results of operations and financial condition of Carbon.

Results of Operations--1998 Compared to 1997 and 1997 Compared to 1996

Oil and Gas Revenues. The following table shows comparative revenue, sales
volumes, average prices and the percentage change between periods for natural
gas and oil for 1998, 1997 and 1996.

<TABLE>
<CAPTION>
Year ended December Year ended December
31, 31,
--------------------- ---------------------
1998 1997 %Change 1997 1996 %Change
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Natural gas revenues M$(1).......... 5,896 5,202 13% 5,202 4,038 29%
Oil Revenues M$..................... 862 1,227 -30% 1,227 1,224 0%
Natural gas sales volumes:
Millions of cubic feet(1)......... 3,272 2,908 13% 2,908 2,435 19%
MCF/day........................... 8,964 7,967 7,967 6,671
Oil sales volumes:
Barrels........................... 65,000 63,000 3% 63,000 58,000 9%
Barrels/day....................... 178 173 173 159
Average price received:
Natural gas--$/Mcf(1)............. 1.78 1.79 -1% 1.79 1.64 9%
Oil--$/Barrel..................... 13.26 19.48 -32% 19.48 21.10 -8%
</TABLE>
- --------
(1) Exclusive of a production payment used to pay down a related note. Volumes
attributed to this activity were 238,313 mcf in 1997 and 308,580 mcf in
1996.

Natural gas revenues for 1998 increased 13% compared to 1997 primarily due
to a 13% increase in sales volumes. Oil revenue for 1998 decreased 30%
compared to 1997 primarily due to a 32% decrease in sales prices. The
increases to sales volumes were primarily due to successful drilling and
recompletion activity, partially offset by production declines on previously
existing properties.

Natural gas revenue for 1997 increased 29% compared to 1996 primarily due
to a 19% increase in sales volumes and a 9% price increase. Oil revenue for
1997 was essentially flat compared to 1996 as a 9% increase in sales volumes
was offset by 8% price decline. The increases in sales volumes were primarily
due to successful drilling and recompletion activity, partially offset by
production declines on previously existing properties.

Oil and Gas Production Costs. Oil and gas production costs consist of lease
operating expense and severance taxes. Oil and gas production costs for 1998
were 44% as a percentage of oil and gas sales compared to 43% for 1997 and 40%
for 1996. Oil and gas production costs for 1998, 1997 and 1996 were $4.92,
$5.16 and $4.92 respectively, per boe. The increase in 1997 from 1996 was
largely the result of increased spending for environmental remediation
purposes. In addition, severance taxes increased 40% in 1997 compared to 1996.

64
<PAGE>

Gas and Electrical Marketing. Gas and electrical marketing revenue
increased 45% in 1998 compared to 1997 while gas and electrical marketing
expenses increased 53% in 1998 compared to 1997. Certain high margin contracts
expired early in 1997. The related margins were not present during most of
1997, nor in 1998.

Gas and electrical marketing revenue increased 1% in 1997 compared to 1996
while related expenses increased 31% in 1997 compared to 1996. Certain high
margin contracts which were in effect in 1996, expired early in 1997. The
related margins were not present during most of 1997.

General and Administrative Expenses. G&A expenses relate to the direct
costs of BFC which do not originate from either its operation of properties or
the providing of services and are presented net of amounts billed to unrelated
third parties. G&A expenses increased by $1,065,000 in 1998 compared to 1997.
In 1998 a court approved retention compensation accrual of $425,000 was
recorded. The remainder of the increase is primarily due to costs associated
with additional staffing related to anticipated increases in drilling
activity.

G&A expenses increased by $118,000 in 1997 compared to 1996.

DD&A Depreciation, Depletion, Amortization and Imparment Expense.
Depreciation, Depletion, Amortization and Impairment ("DD&A") of oil and gas
assets are determined based upon the units of production method. This expense
is primarily dependent upon historical capitalized cost incurred to find,
develop and recover oil and gas reserves.

For 1998 the depletion rate was $3.42 per boe compared to $3.24 per boe in
1997 and $2.40 per boe in 1996. The increase in 1997 compared to 1996 was
primarily due to increased production from high DD&A properties and from an
additional $200,000 recorded in 1997 for future plugging and abandonment
charges.

Impairment losses were $1,858,000 in 1998 compared to $312,000 in 1997.
Impairments taken in 1998 are as follows: South Humble City Field (SE New
Mexico)--$931,000; Taiga Mountain (Western Colorado)--$713,000; Other--
$133,000.

The major assumptions used for determining impairment losses were as
follows: Prices were year-end 1998 prices (not escalated); estimates of
declining production were based on estimates by independent 3rd party
engineers; estimated operating cost and severance taxes were based on past
experience and were not escalated.

Impairment losses in 1998 were generally calculated by: Comparing the cost
basis of proved properties with the undiscounted cash flows based on
unescalated pricing. If the unamortized cost on a property was higher than the
net undiscounted cash flow projected, the property was deemed to be possibly
impaired. A further test was done at this point to determine the amount (if
any) to impair. A subsequent test compared unamortized cost to the estimated
fair market value. This test looked at the price of the commodity used in the
initial test, and assessed whether it was representative of fair market value.
Both tests described above used estimates by independent third party engineers
to determine estimates of declining production. Additional considerations
included in-house assessment of reserves attributable to a property. After the
above tests, if a property was still deemed to require an impairment
allowance, impairment was then taken to reduce the carrying value to the
estimated fair value.

Reserve categories used in the impairment test include all categories of
proven reserves. There were no categories of reserves used other than proved
(i.e. no probable or possible).

There were no recorded impairment losses in 1996.

Interest Expense. Interest expense was $238,000 in 1998 compared to $83,000
in 1997 and $272,000 in 1996. The increase in 1998 is primarily due to
increased borrowings for drilling and development activity and because of
lower prices received from oil and gas sales. The decrease in interest expense
from 1997 compared to 1996 is primarily due to lower borrowings for drilling
and development activities.

65
<PAGE>

Exploration Expense. Exploration expense was recorded under the successful
efforts method of accounting and consists primarily of unsuccessful drilling
costs and G&G costs. Exploration expense in 1998 was $556,000 compared to
$772,000 in 1997 and $419,000 in 1996. The amount related to unsuccessful
drilling was $84,000 in 1998 compared to $599,000 in 1997, while G&G costs
increased in 1998 to $390,000 compared to $89,000 in 1997 because of increased
exploration activities. The amount related to unsuccessful drilling was
$599,000 in 1997 compared to $229,000 in 1996, and G&G costs decreased to
$89,000 in 1997 compared to $130,000 in 1996.

Income Taxes. BFC accounts for income taxes under the liability method
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. BFC's
operations were formerly included in BPC's consolidated tax return. Income
taxes were allocated to BFC as if BFC was a separate taxpayer.

Effects of Changing Prices

The U.S. economy experienced considerable inflation during the late 1970's
and early 1980's but in recent years inflation has been fairly stable at
relatively low levels. BFC, along with most other business enterprises, was
then and will be affected in the future by any recurrence of such inflation.
Changing prices, or a change in the dollar's purchasing power, distorts the
traditional measures of financial performance which are generally expressed in
terms of the actual number of dollars exchanged and do not take into account
changes in the purchasing power of the monetary unit. This results in the
reporting of many transactions over an extended period as though the dollars
received or expended were of common value, which does not accurately portray
financial performance.

Inflation, as well as a recessionary period, can cause significant swings
in the interest rates that companies pay on bank borrowings. These factors are
anticipated to continue to affect BFC's operations both positively and
negatively for the foreseeable future.

Oil and gas prices fluctuate over time as a function of market economics.
Refer to the price change table in the discussion "Oil and Gas Operations
Comparisons for 1998, 1997 and 1996" for information on product price
fluctuation over the past three years. This table depicts the effect of
changing prices on BFC's revenue stream.

Properties

We have approximately 234,000 gross acres and 152,000 net acres of land in
inventory. The majority of our proved reserves are concentrated in four
areas--the Piceance/Uintah Basins, the Permian Basin, the San Juan Basin and
Southwestern Kansas. All wells and acreage are located in the continental
United States.

Estimated Oil and Gas Reserve Quantities and Revenues

The estimated reserve amounts and future net revenues were determined by
Ryder Scott, an independent petroleum engineering firm, for 1998, 1997 and
1996.

BFC's reserves are sensitive to natural gas and oil prices and their effect
on future net revenues and the quantities of reserves that are recoverable at
economic producing rates are based on fixed price contracts or on the spot
market price in effect on December 31, 1998, 1997 and 1996.

66
<PAGE>

Price declines decrease reserve values by lowering the future net revenues
attributable to the reserves and reducing the quantities of reserves that are
recoverable on an economic basis. Price increases have the opposite effect. A
significant decline in prices of oil or natural gas could have a material
adverse effect on the company's financial condition and results of operations.

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

The present values shown should not be construed as the current market
value of the reserves. The 10% discount factor used to calculate present
value, which is specified by the Securities and Exchange Commission, is not
necessarily the most appropriate discount rate, and present value, no matter
what discount rate is used, is materially affected by assumptions as to timing
of future production, which may prove to be inaccurate. For properties
operated by BFC, expenses exclude BFC's share of overhead charges. In
addition, the calculation of estimated future net revenues does not take into
account the effect of various cash outlays, including among other things
general and administrative costs and interest expense.

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 natural gas reserve engineering must be
recognized as a subjective process of estimating underground accumulations of
oil and natural gas that cannot be measured in an exact way, and estimates of
other engineers might differ materially from those shown above. The accuracy
of any reserve estimate is a function of the quality of available data and
engineering and geological interpretation and judgment. Results of drilling,
testing and production after the date of the estimate may justify revisions.
Accordingly, reserve estimates are often materially different from the
quantities of oil and natural gas that are ultimately recovered. The
meaningfulness of such estimates depends primarily on the accuracy of the
assumptions upon which they were based. In general, the volume of production
from oil and gas properties we own declines as reserves are depleted. Except
to the extent we acquire additional properties containing proved reserves or
conduct successful exploration and development activities or both, the proved
reserves will decline as reserves are produced.

67
<PAGE>

Changes in Proved Oil and Gas Reserves

<TABLE>
<CAPTION>
Oil Natural
(Thousands Gas (Millions
of Barrels) of Cubic Feet)
----------- --------------
<S> <C> <C>
Proved Reserves:
December 31, 1995.................................... 207 19,807
Revision to previous estimates..................... 34 8,008
Extensions and discoveries......................... 44 935
Purchase of minerals in place...................... -0- 506
Production......................................... (58) (2,744)
---- ------
December 31, 1996.................................... 227 26,512
Revision to previous estimates..................... 3 (1,569)
Extensions and discoveries......................... 32 427
Purchase of minerals in place...................... 99 916
Production......................................... (63) (3,146)
---- ------
December 31, 1997.................................... 298 23,140
Revision to previous estimates..................... (101) 976
Extensions and discoveries......................... 34 5,011
Purchase of minerals in place...................... -0- -0-
Production......................................... (65) (3,272)
---- ------
December 31, 1998.................................... 166 25,855
==== ======
Proved developed reserves:
December 31, 1996.................................... 188 25,483
December 31, 1997.................................... 298 22,623
December 31, 1998.................................... 166 25,855
</TABLE>

Proved Developed Reserves

At December 31, 1998, BFC had approximately 25.4 billion cubic feet of
proved developed gas reserves representing 98% of BFC's total proved gas
reserves and 166,000 barrels of oil and natural gas liquids representing 100%
of BFC's total proved oil reserves. Approximately 16.8 of the 25.4 billion
cubic feet of proved developed gas reserves and 162,000 of the 166,000 barrels
of proved developed oil reserves are presently being produced from completion
intervals open for production in existing wells. The remainder of the proved
developed reserves are primarily reserves for wells which have been completed
and were awaiting connection to a gas pipeline as of year end, provided such
pipeline connection does not require significant investment. Also included are
reserves behind the casing in existing wells and recompletion of those zones
will be required to place them in production.

Proved Undeveloped Reserves

At December 31, 1998, BFC's proved undeveloped reserves total approximately
517 million cubic feet of gas, or 2% of its total proved natural gas reserves,
and no barrels of oil and liquids.

These reserves are primarily attributable to undrilled locations offsetting
production in various fields.

68
<PAGE>

Comparison in Proved Reserves

The following table compares BFC's estimated proved reserves as of December
31, 1997 and 1998.

<TABLE>
<CAPTION>
Oil and Liquids
(Thousands of Natural Gas
barrels) (Millions of cubic feet)
--------------- ------------------------
<S> <C> <C>
Proved Reserves:
December 31, 1997
Proved developed..................... 298 22,623
Proved undeveloped................... -- 517
--- ------
Total.............................. 298 23,140
=== ======
December 31, 1998
Proved developed..................... 166 23,338
Proved undeveloped................... 0 517
--- ------
Total.............................. 166 25,855
=== ======
</TABLE>

Standardized Measure

Under SEC guidelines, Future Net Revenues shown below must be calculated
using prices that were in effect on December 31 of each year and are projected
forward based on existing contracts or the spot market price on that date.
Accordingly, the Future Net Revenues have been calculated using the
appropriate sales price in effect on December 31, 1998, 1997 and 1996.

Oil and gas prices at December 31, 1998, 1997, and 1996 of $10.69, $16.91,
and $25.60, respectively, per barrel of oil and $1.84, $1.81, and $3.17
respectively, per mcf of gas were used in the estimation of BFC's reserves and
future net cash flows.

The standardized measure is intended to provide a standard of comparable
measurement of BFC's estimated proved oil and gas reserves based on economic
and operating conditions existing as of December 31, 1998, 1997 and 1996.
Pursuant to SFAS 69, the future oil and gas revenues are calculated by
applying to the proved oil and gas reserves the oil and gas prices at December
31 of each year relating to such reserves. Future price changes are considered
only to the extent provided by contractual arrangements in existence at year
end. Production and development costs are based upon costs at each year end.
Future income taxes are computed by applying statutory tax rates as of the
year end with recognition of tax basis and earned depletion carryforwards as
of that date relating to the proved properties. Discounted amounts are based
on a 10% annual discount rate. Changes in the demand for oil and gas, price
changes and other factors make such estimates inherently imprecise and subject
to revision.

69
<PAGE>

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

<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Future oil and gas revenue................. $ 49,428 $ 46,859 $ 89,985
Future production and development costs.... (18,507) (18,155) (26,608)
-------- -------- --------
Future net cash flows...................... 30,921 28,704 63,377
Discount at 10%............................ (10,426) (9,075) (23,366)
-------- -------- --------
Standardized measure of discounted future
net cash flows............................ $ 20,495 $ 19,629 $ 40,011
======== ======== ========
</TABLE>

As required by SFAS 69, the tax computation does not consider BFC's annual
interest expense and general and administrative expenses or future drilling
and equipment costs. Because of these factors, the tax provisions shown do not
represent the much lower future tax expense expected as long as BFC remains an
active operating company.

Change in Standardized Measure of Discounted Future
Net Cash Flows from Estimated Proved Oil and Gas Reserves
for the Three Years Ended December 31, 1998
(thousands of dollars)

<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Standardized measure-beginning of year........ $19,629 $40,011 $10,233
Sales and transfers of oil and gas produced,
net of production costs...................... (3,754) (3,650) (2,977)
Net changes in prices and production costs.... (999) (20,485) 19,056
Extensions, discoveries and other additions
recovery, less related costs................. 4,699 756 3,226
Purchases of reserves in place................ 147 1,610 436
Revisions of future development costs......... 87 1,069 (1,200)
Revisions of previous quantity estimates...... 279 (1,098) 12,475
Accretion of discount......................... 1,963 4,001 1,023
Other......................................... (1,556) (2,585) (2,261)
------- ------- -------
Net increase (decrease)....................... 866 (20,382) 29,778
------- ------- -------
Standardized measure-end of year.............. $20,495 $19,629 $40,011
======= ======= =======
</TABLE>

Production

The following table sets forth annual net production for each of the three
years ended December 31, 1998. Net production includes volumes related to a
production payment used to pay a related note. Volumes attributable to this
activity were 238,312 mcf in 1997 and 308,580 mcf in 1996.

<TABLE>
<CAPTION>
Year ended December
31,
--------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Oil--Barrels......................................... 65,000 63,000 58,000
Gas--Mmcf............................................ 3,272 3,146 2,744
</TABLE>

70
<PAGE>

Average price and cost per unit of production for the past three years are
as follows (gas prices are exclusive of hedging results):

<TABLE>
<CAPTION>
Year Ended December
31,
--------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Average sales price per barrel of oil............... $13.26 $19.48 $21.10
Average sales price per mcf of gas.................. $ 1.76 $ 1.99 $ 1.64
Average production cost per boe..................... $ 4.92 $ 5.16 $ 4.92
</TABLE>

Natural gas is converted to oil at the ratio of six mcf of natural gas to
one barrel of oil. Production costs include only lease operating expenses and
severance taxes.

We operate most of the wells in which we own interests and also hold
working interests in some wells operated by third parties. Gas sales are
generally made pursuant to gas purchase contracts with unrelated third
parties. Our gas sales are subject to price adjustment provisions of the gas
purchase contracts as well as general economic and political conditions
affecting the production and price of natural gas.

Disclosure of Capitalized Costs Relating to Oil and Gas Producing Activities

BFC's oil and gas producing activities are all located in the Western
United States. The aggregate amount of capitalized cost of oil and gas
properties at December 31 for the year indicated was comprised of the
following:

<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- -------
(in thousands)
<S> <C> <C> <C>
Proved developed and undeveloped properties........ $29,521 $26,519
Unproved oil and gas properties.................... 2,745 1,900
Gas transportation system.......................... 158 158
------- -------
Total.............................................. 32,424 28,577
Accumulated depreciation, depletion and
amortization...................................... (18,681) (16,709)
------- -------
Total net properties........................... $13,743 $11,868
======= =======
</TABLE>

Costs Incurred in Property Acquisition, Exploration and Development
Activities

<TABLE>
<CAPTION>
Year ended December
31,
--------------------
1998 1997 1996
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Acquisition of properties:
Proved properties.................................. $ 95 $2,230 $ 63
Unproved properties................................ 473 -- --
Exploration.......................................... 1,932 599 299
Development.......................................... 3,784 1,812 959
------ ------ ------
Total costs incurred............................. $6,284 $4,641 $1,321
====== ====== ======
</TABLE>

Developed Properties and Acreage

The following tables set forth the total gross and net productive oil and
gas wells and gross and net developed acres as of December 31, 1998. All wells
and acreage are located in the continental United States.

<TABLE>
<CAPTION>
Gross Net
------- -------
Oil Gas Oil Gas
--- --- --- ---
<S> <C> <C> <C> <C>
Wells..................................................... 28 258 10 167
=== === === ===
Acres..................................................... 116,000 85,000
======= =======
</TABLE>

71
<PAGE>

Undeveloped Acreage

The following table sets forth the gross and net undeveloped acres as of
December 31, 1998. All undeveloped acreage is located in the continental
United States.

<TABLE>
<CAPTION>
Gross Acres Net Acres
----------- ---------
<S> <C> <C> <C>
84,000 61,000
</TABLE>

Drilling Activities

BFC engages in exploratory and development drilling on its own and in
association with other oil and gas companies. The table below sets forth
information regarding BFC's drilling activity for the last three fiscal years.
The net interest shown is BFC's working interest.

<TABLE>
<CAPTION>
Year Ended
December 31
--------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
EXPLORATORY
Wells Drilled:
Productive............................................... 5 -- --
Dry...................................................... 2 8 2
DEVELOPMENT
Wells Drilled:
Productive............................................... 6 2 4
Dry...................................................... 3 1 --
TOTAL
Wells Drilled:
Productive............................................... 11 2 4
Dry...................................................... 5 9 2
--- --- ---
16 11 6
</TABLE>

Current Operations Activity

See "Information About Carbon--Business" for a description of present
activities.

Legal Proceedings

There are no material legal proceedings pending or, to our knowledge,
threatened against us.

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

Hein + Associates, LLP audited BFC's consolidated financial statements for
the years ending December 31, 1992--1998. Management has engaged Hein +
Associates to audit BFC's financial statements for the ten months ending
October 31, 1999. Carbon's new Board of Directors has appointed Arthur
Andersen LLP to be Carbon's accountants for the two month period ended
December 31, 1999.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily
to our long-term debt obligations. See Notes 3 and 10 to the December 31, 1998
Financial Statements of BFC.

72
<PAGE>

Foreign Currency Risk

To date our cash flows have been in U.S. dollars only, negating the need to
hedge against any foreign currency risks.

Commodity Price Risk

BFC uses certain financial instruments in an attempt to manage commodity
price risk. BFC attempts to manage these risks by minimizing its commodity
price exposure through the use of derivative contracts as described in Note 6
to the December 31, 1998 Financial Statements of BFC. Gains and losses on
these contracts are deferred and recognized in income as an adjustment to oil
and gas sales revenues during the period in which the physical product to
which the contracts relate is actually sold.

73
<PAGE>

OUR MANAGEMENT

Executive Officers and Directors

Our executive officers and directors are:

<TABLE>
<CAPTION>
Name Age Position
- ---- --- -------------------------------------
<S> <C> <C>
Patrick R. McDonald................... 42 President and Director
Kevin D. Struzeski.................... 40 Treasurer and Chief Financial Officer
David H. Kennedy...................... 50 Director
Cortlandt S. Dietler.................. 78 Director
Bryan H. Lawrence..................... 57 Director
Peter A. Leidel....................... 43 Director
Harry A. Trueblood, Jr................ 74 Director(1)
</TABLE>
- --------
(1) Mr. Trueblood will become a director upon completion of the exchange
offer.

Each current director, other than Mr. Dietler, has served since his
appointment on September 14, 1999. Mr. Dietler was elected to the Board on
December , 1999.

Brief descriptions of the background and business experience of our
executive officers and directors are set forth below.

Patrick R. McDonald. Mr. McDonald became our President on September 14,
1999. He has been President and Chief Executive Officer of CEC since July
1998. From 1987 until 1997 Mr. McDonald was Chairman and President of
Interenergy Corporation, Denver, Colorado. Since January 1998, he has been the
sole member of McDonald Energy, LLC. Mr. McDonald is a petroleum geologist.

Kevin D. Struzeski. Mr. Struzeski became our Treasurer and Chief Financial
Officer on September 14, 1999. He has been Chief Financial Officer-Treasurer
for CEC since November 1998. Mr. Struzeski was employed as Accounting Manager,
MediaOne Group from 1997 to 1998 and prior to that he was employed as
Controller, Interenergy Corporation from 1995 to 1997 and Accounting Manager,
Snyder Oil from 1993 to 1995.

Cortlandt S. Dietler. Mr. Dietler has served as a director of Carbon since
December , 1999. Mr. Dietler has been the Chairman of TransMontaigne, Inc.,
which owns and operates terminals and pipelines for the transportation of oil,
gas and other petroleum products, since April 1995. Mr. Dietler was Chief
Executive Officer of TransMontaigne from April 1995 through September 30,
1999. He was the founder, Chairman and Chief Executive Officer of Associated
Natural Gas Corporation, a natural gas gathering, processing and marketing
company, prior to its 1994 merger with PanEnergy Corporation, on whose Board
he served as an Advisory Director, prior to its merger with Duke Energy
Corporation. Mr. Dietler also serves as a director of Hallador Petroleum
Company, Key Production Company, Inc., Forest Oil Corporation and Grease
Monkey Holding Corporation.

David H. Kennedy. Mr. Kennedy has served as a director of Carbon since
September 14, 1999. From March, 1981 through December 31, 1998, Mr. Kennedy
was a managing director of First Reserve Corp. and was responsible for
investing and monitoring part of its portfolio of energy investments. Since
January 1, 1999, Mr. Kennedy has acted as a consultant to and investor in the
energy industry. He serves as a director of Maverick Tube Corporation, whose
common stock is traded on the Nasdaq market, and as a director of Berkley
Petroleum Corp. and Pursuit Resources Corp., oil and gas companies whose
stocks are listed on the Toronto Stock Exchange.

Bryan H. Lawrence. Mr. Lawrence is a founder and a senior manager of
Yorktown Partners LLC which was established in September, 1997, and manages
investment partnerships formerly affiliated with Dillon, Read & Co. Inc. Mr.
Lawrence had been employed at Dillon, Read & Co. Inc. since 1966, serving as a
Managing Director

74
<PAGE>

until the merger of Dillon Read with SBC Warburg in September, 1997. Mr.
Lawrence also serves as a Director of D&K Healthcare Services, Inc., Hallador
Petroleum Company, TransMontaigne Inc., and Vintage Petroleum, Inc. (each a
United States public company) and certain non-public companies in the energy
industry in which Yorktown partnerships hold equity interests.

Peter A. Leidel. Mr. Leidel is a co-founder and manager of Yorktown
Partners LLC which was established in September, 1997, and manages investment
partnerships affiliated with Dillon, Read & Co. Inc. Yorktown Partners LLC is
the manager of four private equity partnerships that invest in the energy
industry, with aggregate committed capital of approximately $700 million.
Previously, he was a partner of Dillon, Read & Co. Inc.'s venture capital fund
and has invested in a variety of private companies with a particular focus on
energy investments since 1983. He was previously in corporate treasury
positions at Mobil Corporation and worked for KPMG Peat Marwick and the U.S.
Patent and Trademark Office. Mr. Leidel is a director of Cornell Corrections,
(ASE-CRN), Willbros Group (NYSE-WG), Fintube, Meenan Oil Co., Roemer-Swanson
Energy, Athanor Resources, Inc., Tanglewood Companies, and Metal Supermarkets.

Harry A. Trueblood, Jr. Mr. Trueblood has served as the President and Chief
Executive Officer of CEC from 1972 until July 1, 1998. Mr. Trueblood has
served as Chairman and CEO of Columbus Energy Corp., the former parent of CEC,
since 1982 and was a founder and former President and/or Chairman and CEO of
Consolidated Oil & Gas, Inc., the former parent of both Columbus Energy and
CEC from 1958 to 1998.

Messrs. Lawrence and Leidel were designated as nominees for directors by
Yorktown pursuant to the Exchange Agreement. Mr. McDonald was also designated
as a director pursuant to that agreement. See "The Exchange Offer--Description
of Exchange Agreement."

Committees of the Board of Directors

Our Board of Directors has established a compensation committee, an audit
committee and a nominating committee.

Members of the compensation committee are Messrs. Leidel (Chairman),
Kennedy and Dietler. Mr. Trueblood will become a member of the Compensation
Committee upon completion of the exchange offer. The compensation committee
reviews and approves our compensation and benefits for our executive officers
and makes recommendations to the Board of Directors regarding these matters.

Members of the audit committee are Messrs. Kennedy (Chairman) and Dietler.
The functions of the audit committee are:

. Review the scope of the audit procedures utilized by our independent
auditors;

. Review with the independent auditors our accounting practices and
policies;

. Consult with our independent auditors during the year; and

. Report to our Board of Directors with respect to these matters and
to recommend the selection of independent auditors.

The nominating committee is responsible for determining, on behalf of the
Board of Directors of Carbon, nominees for the position of director of Carbon,
or persons to be elected by the Board of Directors or shareholders to fill any
vacancy in the Board of Directors of Carbon. The existence of the nominating
committee is required by the Exchange Agreement among Carbon, CEC and
Yorktown. The Exchange Agreement requires that the nominating committee be
comprised of one Yorktown director, Mr. McDonald, so long as he is a director
of Carbon, and two independent directors. The Yorktown directors who serve on
the nominating committee are selected by a majority vote of the Yorktown
directors. A majority of the independent directors are to designate the
independent directors to serve on the nominating committee. Mr. Lawrence
(Chairman) is the Yorktown director on the nominating committee, Mr. McDonald
serves on the committee, and the two independent directors on the committee
are Messrs. Kennedy and Dietler.

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<PAGE>

Executive Compensation

The following table depicts information regarding the annual and long-term
compensation paid during each of the last three years by CEC to the President
and Chief Executive Officer, who is the only executive officer of Carbon to
earn in excess of U.S. $100,000 in salary and bonus in fiscal 1998 from either
CEC or BFC.

Summary Compensation Table

<TABLE>
<CAPTION>
Long Term
Compensation
Number of
Securities
Underlying
Fiscal Salary Bonus Options
Name and Principal Position Year (U.S.$) (U.S.$) Granted
- --------------------------- ------ ------- ------- ------------
<S> <C> <C> <C> <C>
Patrick R. McDonald, President........... 1998 $50,000(1) 0 78,000
</TABLE>
- --------
(1) Appointed July 1, 1998

We currently pay to Patrick R. McDonald, our President, an annual salary of
US $200,000.

Stock Option Grants And Exercises

The following table sets forth information concerning individual grants of
stock options made by CEC during fiscal 1998 to CEC's President and Chief
Executive Officer. The stock options were granted at the market price on the
date of grant.

Option Grants In Fiscal 1998

<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Number of % of Total Price
Securities Options Appreciation for
Underlying Granted to Option Term (2)
Options Employees -----------------
Granted in Fiscal Exercise Price Expiration 5% 10%
Name (1) Year (U.S. $/Share) Date (U.S.$) (U.S.$)
---- ---------- ---------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Patrick R. McDonald..... 78,000 66.1 $5.50 7/1/03 $145,902 $331,000
</TABLE>
- --------
(1) Options were originally granted to acquire CEC common stock at the closing
price of CEC's common stock on the date of the grant. These options are
being replaced with Carbon options on the same terms.

(2) These columns present hypothetical future realizable values of the
options, obtainable upon exercise of the options net of the option's
exercise price, assuming CEC's common stock appreciates at a 5% and 10%
compound annual rate over the term of the options. The 5% and 10% rates of
market price appreciation are presented as examples pursuant to rules of
the SEC and do not reflect management's prediction of the future market
price of our common stock. No gain to the optionees is possible without an
increase in the market price of the common stock above the option price.
There can be no assurance that the potential realizable values shown in
this table will be achieved. The potential realizable values presented are
not intended to indicate the value of the options.

No options were exercised by CEC's President and Chief Executive Officer
during fiscal 1998. The following table summarizes information with respect to
the value of that officer's unexercised stock options at November 30, 1998:

76
<PAGE>

Fiscal Year End Option Values

<TABLE>
<CAPTION>
Number of Securities In-the-Money
Underlying Unexercised Value of Unexercised
Options at Year End Options at Year End (2)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Patrick R. McDonald......... 0 78,000(1) 0 0
</TABLE>
- --------
(1) Options were granted by CEC to acquire its common stock. These options are
replaced with options to acquire our stock.
(2) The in-the-money value of unexercised options is equal to the excess of
the per share market price of CEC's stock at November 30, 1998 over the
per share exercise price multiplied by the number of unexercised options.
However, the per share exercise price was higher than the market price of
CEC's stock at fiscal year end.

1999 Stock Option and Restricted Stock Plans

Our 1999 Stock Option Plan was adopted by the directors as of October 14,
1999. Under the 1999 plan, we may grant options to purchase up to 700,000
shares of our common stock. Grants under the Stock Option Plan may consist of
(1) options intended to qualify as incentive stock options under the Internal
Revenue Code and (2) non-qualified stock options that are not intended to so
qualify. Persons eligible to receive incentive stock options under the plans
are only our employees; non-qualified stock options may be granted to
employees, directors and consultants. The Stock Option Plan terminates on
September 1, 2009.

We also have a 1999 Restricted Stock Plan which was adopted by our Board of
Directors on October 14, 1999. The Restricted Stock Plan has 300,000 shares of
our common stock available for grants. Under the Restricted Stock Plan, the
administrator may issue shares of our common stock to the grantee, and those
shares are subject to restrictions and forfeiture in accordance with the terms
of a stock restriction agreement. Under the current form of agreement, the
restricted stock may be subject to vesting requirements and forfeiture of
unvested shares if the grantee ceases to be an employee or a member of the
Board of Directors, except as may be provided in an employment agreement.
Grants under the Restricted Stock Plan may be made to an employee, director or
consultant of our company or any subsidiary. The Restricted Stock Plan
terminates on September 1, 2009.

Each plan is administered by the Board of Directors or a committee
appointed by the Board consisting of two or more non-employee directors and
our President. The Board or administrating committee determines the persons to
be granted options, the exercise price per share for each option, the
expiration date of each option and other terms which may be set forth in an
option agreement. Likewise, the Board or administrating committee determines
the persons to be granted restricted stock and nature of any forfeitures and
related restrictions regarding that stock. The Board of Directors currently
administers both plans.

The exercise price of an incentive stock option granted under to the plans
cannot be less than 100% of the fair market value of the common stock on the
date of the grant. The Board determines the exercise price of a non-qualified
stock option; in the case of the 1999 plan, the exercise price of a non-
qualified stock option cannot be less than 85% of the fair market value of the
common stock on the date of grant. The term of any stock option cannot exceed
ten years. However, the exercise price of an incentive stock option granted to
any person who at the time of grant owns stock representing more than 10% of
the total combined voting power of all classes of our capital stock or any of
our affiliates must be at least 110% of the fair market value of our common
stock on the date of grant and the term of such an incentive stock option
cannot exceed five years. Options granted under the plans vest at the rate
specified in any option agreement. The exercise price may be paid in cash or
other shares of our common stock, as determined by the Board of Directors or
the administering committee.

In the event of a proposed sale of all or substantially all our assets, or
the merger of Carbon with another corporation, or any other capital
reorganization in which persons who were stockholders of our company
immediately before the capital reorganization owned less than two-thirds of
the outstanding voting securities of the surviving company following the
capital reorganization, the plan administrator is to make appropriate

77
<PAGE>

provisions for the protection of outstanding options by the substitution of
appropriate stock of our company or any surviving corporation or,
alternatively, our Board of Directors may terminate an outstanding option by
permitting the option to be exercisable as to all shares subject to the
option, whether or not previously vested, for a period of thirty days (or not
less than 10 days in the case of the 1999 plan) after a notice to the option
holder.

All outstanding options under the 1999 plan become immediately exercisable
and full, whether or not there were vesting requirements, upon the occurrence
of a change in control. All restricted stock outstanding under the 1999
Restricted Stock Plan also become fully vested upon a change of control. For
this purpose, a change in control occurs (1) at the time a third person or
group becomes the beneficial owner of shares with 50% or more of the total
number of votes cast for the election of our directors; (2) on the date our
shareholders approve a merger or consolidation (unless our shareholders
continue to own after the merger or consolidation more than two-thirds of the
voting securities of the resulting corporation in substantially the same
proportion as their ownership of our voting securities before the merger or
consolidation) or any sale or other disposition of all or substantially all of
our assets, or (3) a sale or other disposition of more than 50% in fair market
value of our assets outside the ordinary course of business, or (4) if at the
time there is a change in more than a majority of our Board of Directors as a
result of a proxy contest (unless any option holder or the holder of
restricted stock, as the case may be, or the person's affiliate has waged the
proxy contest or endorsed the change in our Board). In determining whether
clause (1) of this definition has been satisfied, Yorktown and entities
controlled by Yorktown Partners LLC (the managing general partner of Yorktown)
are excluded.

Directors' Compensation

Each of our directors who is neither an officer nor an employee will be
paid a director's fee of $1,500 per quarter.

Also, in consideration of their joining our Board of Directors, David
Kennedy and Cortlandt Dietler, who are considered to be independent directors,
each were granted on October 14, 1999 and January , 2000, respectively, a
nonqualified stock option to purchase 20,000 shares of our common stock at
$5.50 per share. Shares subject to these options vest one-half on the first
anniversary and one-half on the second anniversary of the date of grant, and
these options have a ten-year term.

Indemnification and Limitation of Liability

Our Bylaws provide that we will indemnify our directors and executive
officers and may indemnify our other officers, employees and other agents to
the fullest extent permitted by Colorado law. We have also entered into
indemnification agreements with each of our directors and executive officers.
All indemnification agreements are identical. These agreements provide, among
other things, for indemnification and advancement of expenses to the fullest
extent permitted by law in connection with any legal proceeding in which the
person was made a party because the person was a director or executive officer
of Carbon, place the burden of proof on us in regard to whether an individual
has met the required standard of conduct for indemnification, cover procedural
matters such as the hiring of counsel and require us to pay the expenses of
the director or executive officer in enforcing any required indemnification or
advancement of expenses.

In addition, our Articles of Incorporation provide that to the fullest
extent permitted by Colorado law, our directors will not have personal
liability to us or our stockholders for monetary damages for any breach of
fiduciary duties as a director. This does not eliminate the duties themselves,
and in appropriate circumstances, equitable remedies such as injunction or
other forms of nonmonetary relief remain available under Colorado law. This
provision does not eliminate the liability of a director for (1) any breach of
the director's duty of loyalty to us or our stockholders; (2) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (3) unlawful dividends, stock repurchases or
redemptions; or (4) any transaction from which the director derived an
improper personal benefit. This does not affect a director's responsibilities
under other laws such as the federal or state securities laws.

78
<PAGE>

There is no pending litigation or proceeding involving a director or
officer as to which indemnification is being sought. We are not aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers or
persons controlling us pursuant to the foregoing provisions or otherwise, we
have been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable.

Employment Agreement

On October 31, 1999, we entered into a three-year employment contract with
Mr. McDonald. The employment agreement with Mr. McDonald is described under
"The Exchange Offer--Interests of Certain Persons in the Exchange Offer."

79
<PAGE>

PRINCIPAL SHAREHOLDERS OF OUR COMPANY

The following table contains information regarding ownership of our common
stock (the only class of stock outstanding) as of November 1, 1999 by (1) each
director, (2) our President, (3) all of our directors and executive officers
as a group, and (4) each shareholder who, to our knowledge, was the beneficial
owner of five percent or more of the outstanding shares. The table also shows
the ownership of our common stock by these persons as adjusted to reflect the
exchange offer, assuming that CEC shareholders accept the exchange offer for
all outstanding CEC shares. All information is based on information provided
by such persons to us. Unless otherwise indicated, their addresses are the
same as our address and each person identified in the table holds sole voting
and investment power with respect to the shares shown opposite such person's
name.

<TABLE>
<CAPTION>
Amount and
Amount and Nature of
Nature of Beneficial
Beneficial Percent Ownership
Name and Address Ownership Prior After Percent
of Beneficial Owner Prior to Offer to Offer Offer After Offer
- ------------------- -------------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Yorktown Energy Partners
III, L.P................. 4,500,000 98.7% 4,500,000 74.0%
410 Park Avenue, Suite
1900
New York, NY 10025

Patrick R. McDonald and
McDonald Energy, LLC..... 30,000(4) (1) 315,100(4)(5) 5.1%
1700 Broadway, Suite 1150
Denver, CO 80290

Harry A. Trueblood, Jr.... -- -- 308,696(5) 5.1%
1660 Lincoln Street
Suite 2400
Denver, CO 80264

Cortlandt S. Dietler...... 0 (1) 0 (1)
2750 Republic Plaza
370 17th Street
Denver, CO 80202

David H. Kennedy.......... 10,000 (1) 10,000 (1)
18 Pasture Lane
Darien, CT 06820

Bryan H. Lawrence......... 4,500,000(2) 98.7% 4,500,000(2) 74.0%
410 Park Avenue, Suite
1900
New York, NY 10025

Peter A. Leidel........... 4,500,000(3) 98.7% 4,500,000(3) 74.0%
410 Park Avenue, Suite
1900
New York, NY 10025

All directors and execu-
tive officers as a group
(7 persons including the
above)................... 4,560,000 100% 5,173,796(6) 83.4%
</TABLE>
- --------
(1) Less than 1%.
(2) These shares owned by Yorktown Energy Partners III, L.P. As a member of
Yorktown Partners LLC, the manager of Yorktown Energy Partners III, L.P.,
Mr. Lawrence may be deemed to be a beneficial owner of these shares. Mr.
Lawrence disclaims beneficial ownership of these shares.
(3) These shares owned by Yorktown Energy Partners III, L.P. As a member of
Yorktown Partners LLC, the manager of Yorktown Energy Partners III, L.P.,
Mr. Leidel may be deemed to be a beneficial owner of these shares. Mr.
Leidel disclaims beneficial ownership of these shares.
(4) Includes 30,000 shares of restricted stock, one-half of which vests in
October, 2000 and one-half of which vests in October, 2001.
(5) See "Principal Shareholders of CEC" for information on ownership of CEC
shares which may be exchanged for Carbon shares in the exchange offer. We
will substitute Carbon stock options for outstanding CEC stock options.
(6) Includes 121,000 shares underlying exercisable options to be issued by us
in substitution of CEC stock options.

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<PAGE>

PRINCIPAL SHAREHOLDERS OF CEC

The table below provides information regarding ownership of CEC common
stock (which is CEC's only class of outstanding stock) as of November 1, 1999
by (1) each director of CEC, (2) CEC's President and Chief Executive Officer,
(3) all CEC's directors and executive officers as a group, and (4) each
shareholder who, to our knowledge, was the beneficial owner of five percent or
more of the common stock of CEC. All information is taken from or based on
filings made by such persons with the SEC or provided by such persons to CEC.
Except as indicated in the footnotes, each person identified in the table
holds sole voting and investment power with respect to the shares shown
opposite such person's name.

<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership of Class
- ------------------- ---------- --------
<S> <C> <C>
Patrick R. McDonald and McDonald Energy, LLC............. 285,100(1) 17.6%

Harry A. Trueblood, Jr................................... 308,696(2) 20.1%

Carl Seaman.............................................. 217,209(3) 14.3%
63 Hunting Ridge Road
Greenwich, CT 06831

James C. Crawford........................................ 21,500(4) 1.4%

Loyola G. Keough......................................... 15,000(5) (6)

Craig W. Sandahl......................................... 115,050(4) 7.5%
13875 Virginia Foothills Drive
Reno, NV 89511

Peter N. T. Widdrington.................................. 22,000(4) 1.4%

All directors and executive officers as a group (8
persons including the above)............................ 812,346(7) 46.3%
</TABLE>
- --------
(1) Patrick R. McDonald is the sole member of McDonald Energy, LLC. Includes
117,100 shares owned by CEC Resources Holdings, LLC of which McDonald
Energy, LLC has 58.3% interest.
(2) Does not include 33,911 shares which are owned by Lucile B. Trueblood, Mr.
Trueblood's wife, which she acquired as her separate property and as to
which Mr. Trueblood disclaims any beneficial ownership. Includes 140,000
shares owned by the Harry A. Trueblood Charitable Remainder Unitrust dated
June 1, 1998 to which shares Mr. Trueblood disclaims ownership; but as the
only trustee, does hold sole voting rights to such shares. Also includes
11,000 shares underlying exercisable stock options.
(3) Includes 79,957 shares owned by Carl and Associates, a partnership in
which Mr. Seaman owns an 80% partnership interest and as to which Mr.
Seaman shares voting and investment power. Does not include 2,032 shares
which are owned by Linda Seaman, Mr. Seaman's wife, which she acquired as
her separate property and as to which Mr. Seaman disclaims any beneficial
ownership.
(4) Includes 21,000 shares underlying exercisable stock options.
(5) Includes 15,000 shares underlying exercisable stock options.
(6) Less than 1%.
(7) Includes 232,000 shares underlying exercisable stock options.

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<PAGE>

CERTAIN RELATIONSHIPS AND TRANSACTIONS

In October 1999, Yorktown purchased an aggregate of 4,500,000 shares of our
common stock for $24,750,000 in cash. Also, each of our two independent
directors has purchased shares from us. In October, 1999, Mr. Kennedy
purchased 10,000 shares from us at a cash price of $5.50 per share, and in
January, 2000, Mr. Dietler purchased 10,000 shares from us at a cash price of
$5.50 per share.

On June 30, 1998, CEC entered into a three-year employment contract with
Mr. McDonald, effective as of July 1, 1998, which provides for a base salary
of U.S. $120,000 per year along with other usual benefits such as medical and
dental coverage and industry-related dues and subscriptions. The employment
contract with Mr. McDonald provides for the ability of either CEC or Mr.
McDonald to terminate the contract if there is a change in control of CEC.
Change in control includes (1) the acquisition by a party of 50% or more of
the combined voting power of CEC's outstanding shares within a 12-month
period, or (2) the acquisition of CEC by merger, sale or purchase of assets,
liquidation or other means as a result of which existing stockholders of CEC
own less than 50.1% of the surviving entity, or (3) there is a change in more
than a majority of the Company's Board of Directors as a result of a
transaction or proxy contest with a third party unaffiliated with Mr. McDonald
and not endorsed by Mr. McDonald. In the event of a change in control not
supported by a majority of CEC's then existing Board of Directors, Mr.
McDonald is to be paid 400% of his "Compensation" upon termination of the
employment agreement. In the event of a change in control supported by the
then existing Board of CEC, Mr. McDonald is to be paid 200% of his
"Compensation" upon termination of the employment agreement. For this purpose,
the term "Compensation" means the average of Mr. McDonald's annual base pay
salary and bonus for two years prior to the termination date (or such lesser
period of employment), prorated to be a monthly amount, multiplied by the
remaining months during the term of employment contract (or multiplied by 12
if the initial term has expired). In addition, any incentive awards become
100% vested upon the occurrence of a change in control. Mr. McDonald's
employment agreement also provides for a severance payment upon termination by
CEC of his employment for any reason other than for cause or if Mr. McDonald
voluntarily terminates employment following a change in position that is not
comparable to his current position. In that event, the severance payment is an
amount equal to his Compensation (prorated to a monthly basis) multiplied by
the remaining months of the agreement but in any event no less than 12 months.
As part of the compensation stated in his employment contract, Mr. McDonald
was granted options to acquire 78,000 shares of CEC's common stock.

Kevin Struzeski is an executive officer of Carbon and has been also the
Chief Financial Officer of CEC. When Mr. Struzeski joined CEC in November,
1998, he entered into a two-year employment contract with CEC. His agreement
provides for an annual base salary of $75,000 per year along with medical,
dental and other benefits available to other employees. His employment
agreement provides for the ability of either CEC or Mr. Struzeski to terminate
the agreement if there is a change in control of CEC. A change in control is
defined in the same manner as in the employment agreement of Mr. McDonald as
described above, except there is no reference to Mr. McDonald. In the event of
a change in control not supported by a majority of CEC's then existing Board
of Directors, Mr. Struzeski is to be paid 300% of his "Compensation" upon
termination of the employment agreement. In the event of a change in control
supported by the then existing Board of CEC, Mr. Struzeski is to be paid 200%
of his "Compensation" upon termination of the employment agreement.
Compensation is also defined in the same manner as in Mr. McDonald's
employment agreement. In addition, any incentive awards become 100% vested
upon occurrence of a change in control. The employment agreement requires a
severance payment upon termination of Mr. Struzeski's employment by CEC for
any reason other than for cause or if Mr. Struzeski voluntarily terminates
following a change in position in CEC. The severance payment is an amount
equal to the Compensation multiplied by the remaining months of the agreement
but in no event less than six months. As part of the compensation stated in
the employment agreement, Mr. Struzeski was also granted options to acquire
20,000 shares of CEC common stock.

Harry A. Trueblood is a proposed director of Carbon, is a director and more
than 10% shareholder of CEC, previously served as President of CEC, and is a
director, executive officer and more than 10% shareholder of Columbus Energy
Corp. ("Columbus"). CEC entered into a written agreement in 1995 with Columbus
to provide

82
<PAGE>

management services until new management was retained, either by merger,
acquisition or direct employment. CEC paid no direct cash compensation to the
officers of Columbus for the period that they served as officers of CEC. CEC
was charged by Columbus on a monthly basis for the specific time each Columbus
officer or employee devoted to the Company. As a result of Mr. McDonald's
investment in CEC in July, 1998, and the election of new executive officers in
fiscal 1998, the management agreement with Columbus was terminated in March,
1999. CEC paid to Columbus the following amounts for providing management
services pursuant to the management agreement: $296,000 in 1996, $255,000 in
1997, and $218,000 in 1998.

DESCRIPTION OF OUR CAPITAL STOCK

Our authorized capital stock consists of 20,000,000 shares of common stock,
no par value, and 10,000,000 shares of preferred stock, no par value.

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 the shareholders. Subject to
preferences that may be applicable to any then outstanding preferred stock,
holders of common stock are entitled to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of Carbon, holders of
the common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any then outstanding
preferred stock. Holders of common stock have no preemptive rights and no right
to convert their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and all shares of common stock to be
outstanding upon completion of the exchange offer will be, fully paid and
nonassessable.

A quorum for purposes of a meeting of shareholders consists of a majority of
the shares entitled to vote at the meeting. After a quorum has been
established, a matter is approved by the shareholders if votes cast favoring
the matter exceed the votes cast against the matter. Directors are elected by a
plurality vote, with the nominees having the highest number of votes cast in
favor of their election being elected to the Board of Directors. As a result, a
majority of the outstanding shares has the ability to elect all of our
directors.

Under Colorado law, the affirmative vote of a majority of the shares
entitled to vote is required to approve:

. A sale, lease, exchange or other disposition of all or substantially all
of our property and assets, with or without our good will, other than in
the usual and regular course of our business.

. A plan of merger of Carbon with or into another entity, or a share
exchange for which shareholder approval is required.

. Dissolution of Carbon.

At December 1, 1999, there were 4,550,000 shares of our common stock
outstanding.

Preferred Stock

The Board of Directors has the authority, without further vote or action by
the shareholders, to issue up to 10,000,000 shares of preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series. The issuance
of preferred stock could adversely affect the voting power of holders of common
stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying, deferring or
preventing a change in control of Carbon. There are no shares of preferred
stock issued, and we have no present plans to issue any shares of preferred
stock.

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<PAGE>

Certain Effects Of Authorized But Unissued Stock

Under our Articles of Incorporation and, upon completion of the exchange
offer and assuming 100% acceptance of the exchange offer, there will be
approximately 13,988,600 shares of common stock and approximately 10,000,000
shares of preferred stock available for future issuance without stockholder
approval (except that as part of the criteria for maintaining a listing on the
Amex, we are required to obtain stockholder approval of certain issuances of
stock). These additional shares may be utilized for a variety of corporate
purposes including future public offerings to raise additional capital or to
facilitate corporate acquisitions.

One of the effects of the existence of unissued and unreserved common stock
and preferred stock may be to enable the Board of Directors to issue shares to
persons friendly to current management which could render more difficult or
discourage an attempt to obtain control of Carbon by means of a merger, tender
offer, proxy contest or otherwise, and thereby protect the continuity of our
management. Such additional shares also could be used to dilute the stock
ownership of persons seeking to obtain control of Carbon.

The Board of Directors is authorized without any further action by the
shareholders to determine the rights, preferences, privileges and restrictions
of the unissued Preferred Stock. The purpose of authorizing the Board of
Directors to determine such rights and preferences is to eliminate delays
associated with a stockholder vote on specific issuances. The Board of
Directors may issue preferred stock with voting and conversion rights which
could adversely affect the voting power of the holders of common stock, and
which could, among other things, have the effect of delaying, deferring or
preventing a change in control of Carbon.

We do not currently have any plans to issue additional shares of common
stock or preferred stock other than shares of common stock which may be issued
upon the exercise of options which have been granted or which may be granted
in the future to our employees.

American Stock Exchange Listing

Our common stock has been approved for quotation on the AMEX under the
symbol .

Transfer Agent

We have appointed Harris Trust and Savings Bank, Chicago, Illinois, as the
transfer agent and registrar for our common stock.

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<PAGE>

COMPARISON OF SHAREHOLDERS' RIGHTS

Shareholders of CEC who tender their shares in the exchange offer will
become shareholders of Carbon. CEC is a corporation organized under and
governed by Alberta, Canada law. Carbon is a corporation organized under and
governed by Colorado law. The principal attributes of Carbon common stock and
CEC common stock are comparable, but there are material differences in
shareholder rights. The following is a summary of these material differences
which arise from the differences between the Colorado Business Corporation
Act, the "CBCA," and the Alberta Business Corporations Act, the "ABCA," and
between the Articles of Incorporation and Bylaws of Carbon and the Articles of
Association and Bylaws of CEC.

This summary is qualified in its entirety by the terms of the Articles of
Association and Bylaws of CEC and the Articles of Incorporation and Bylaws of
Carbon.
CEC CARBON

Capitalization

Authorized Capital Stock. The Authorized Capital Stock. The
authorized capital stock of CEC authorized capital stock of Carbon
consists of an unlimited number of consists of 20,000,000 shares of
Common Shares and an unlimited common stock and 10,000,000 shares
number of Class A Preferred Shares. of preferred stock.

Restrictions On Ownership

There are no restrictions on There are no restrictions on
ownership of CEC shares. ownership of Carbon shares.

Shareholder Voting Rights Generally

Rights of Common Shareholders. CEC's Rights of Common
Articles of Amendment provide that Shareholders. Carbon's Articles of
the holders of Common Shares: Incorporation provide that the
common stock has exclusive voting
rights on all matters requiring the
vote of shareholders, except as
otherwise specifically provided by
the CBCA or by the terms of any
outstanding preferred stock. The
CBCA provides that preferred stock
as a class or a series of preferred
stock, if outstanding, is entitled
to vote as a separate voting group
on certain amendments to the
Articles of Incorporation, share
exchanges or mergers of Carbon with
other corporations which affect the
class or series of preferred stock.
Holders of common stock are also
entitled to receive dividends and
distribution of assets upon any
dissolution of Carbon, subject to
the preferential rights of any
preferred stock.

. are entitled to receive notice of
and to attend and to vote at any
meeting (one vote per share);

. are entitled to receive dividends
subject to dividends attached to
other classes of shares which rank
ahead in priority;

. are entitled to distribution of
assets on any dissolution or
winding up of the Corporation
subject to the preferential right
of other classes of shares which
rank ahead in priority.
Rights of Preferred
Shareholders. The Carbon Board of
Directors has the exclusive
authority to issue the preferred
stock in one or more series and to
determine the preferences,
limitations and relative rights,
including voting rights, of any
preferred stock.

Rights of Preferred
Shareholders. CEC's Board of
Directors have the authority with
regard to the Class A Preferred
Shares:

. to issue in one or more series
from time to time;

. to change the rights restriction
and privileges and conditions from
time to time.

The Class A Preferred Shares rank on
parity with all other series of
preferred shares and ahead of the
Common Shares with respect to
dividends and dissolution or winding
up. The Class A Preferred
shareholders are not entitled to
receive notice of, attend or vote at
any meetings of shareholders.

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CEC CARBON

No Preemptive Rights. No shareholder No Preemptive Rights. No shareholder
is entitled as of right to subscribe is entitled to acquire unissued
for, purchase or receive any part of shares of the corporation or
any new or additional issue of securities convertible into shares
shares of any class, or any bonds, or carrying a right to subscribe for
debentures or other securities or to acquire such shares.
convertible into shares of any
class.

Quorum. A majority of the votes to Quorum. A majority of the votes
be cast at any meeting of entitled to be cast on a matter by a
shareholders of a quorum which is voting group constitute a quorum of
constituted by two persons person that voting group for action on that
present(or their proxies) entitled matter at any meeting of the
to vote at the meeting and together shareholders.
holding not less than ten percent of
the outstanding shares entitled to
vote at a meeting.

Voting. At any meeting of
shareholders every question shall, Voting. Except as otherwise provided
unless required by the ABCA, be in the CBCA, or unless the Articles
determined by the majority of the of Incorporation or provisions of
votes cast on the question. the Bylaws adopted by shareholders
require a greater vote, action by a
voting group on a matter other than
the election of directors is
approved if a quorum exists and if
the votes cast within the voting
group favoring the action exceed the
votes cast within the voting group
opposing the action. The CBCA
requires approval by the majority of
the votes entitled to be cast by the
voting group for the issuance of
shares of one class or series as a
share dividend in respect of shares
of another class or series, the sale
of substantially all assets of
Carbon requiring shareholder
approval, mergers of Carbon with
other corporations requiring
shareholder approval, and the
voluntary dissolution of Carbon.
While only common stock is
outstanding, the common stock as a
class is the sole voting group of
Carbon.

Proxy. A shareholder may appoint a Proxy. A shareholder may appoint a
proxy by signing and transmitting an proxy by signing and transmitting an
appointment form. A proxy is only appointment form, which is effective
valid at the meeting in respect of when received by the corporation.
which it is given or any adjournment Proxy appointments are effective for
of that meeting. 11 months unless otherwise specified
and are revocable except as may be
permitted or provided by law.

No Cumulative Voting No Cumulative Voting
Rights. Cumulative voting rights are Rights. Cumulative voting rights are
not permitted in the election of not permitted in the election of
directors. directors.

Shareholder Voting by Written Consent

Written Consent. CEC shareholders Written Consent. Carbon shareholders
may act by unanimous written consent may act by unanimous written consent
in lieu of a meeting of the in lieu of a meeting of the
shareholders. shareholders.

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CEC CARBON

Annual Shareholder Meeting

Annual Meeting. A meeting of the Annual Meeting. A meeting of the
shareholders is held annually to shareholders is held annually to
consider the financial statements elect directors to succeed those
and reports, electing directors, directors whose terms expire and for
appointing auditors and for the the transaction of other business.
transacting of business properly
brought before the meeting.

Special Shareholders Meetings

Initiation of Special Meetings. The Initiation of Special Meetings. The
CEC bylaws provide that special Carbon bylaws provide that special
shareholders' meetings may be called shareholders meetings may be called
by the Board of Directors, the by the President or by the Board of
Chairman of the Board, the Managing Directors and shall be called by the
Director or the President at any President or Secretary upon written,
time. signed and dated demand of holders
of shares representing not less than
10% of all votes entitled to be cast
on any issue proposed to be
considered at the meeting.

Scope of Special Meeting. Business Scope of Special Meetings. Business
transacted at any special transacted at any special
shareholders' meeting is limited to shareholders meeting is limited to
the purposes stated in the notice of the purposes stated in the notice of
the meeting. the meeting.

Notice. Notice of any annual or Notice. Pursuant to the Carbon
special meeting shall be sent not bylaws, notice of any annual or
less than 21 days and not more than special meeting of the shareholders
50 days before the meeting. will be given to each shareholder
entitled to vote at the meeting not
less than 10 nor more than 60 days
prior to the meeting.

Inspection Rights

General Inspection Rights. Any
General Inspection Rights. The Carbon shareholder who has been a
directors and shareholders of CEC, shareholder for at least three
their agents and legal months, or who holds at least 5% of
representatives may examine the the outstanding shares of any class,
following records during the usual may inspect and copy the following
business hours of CEC free of records of Carbon upon delivery of a
charge: written demand made in good faith
and for a proper purpose and given
to Carbon at least five business
days prior to the inspection:

. the articles and by-laws and all
amendments;

. any USA and any amendments; . excerpts from Board minutes or
records of actions taken by the
Board;

. any USA and any amendments;

. minutes of meetings and . accounting records; and
resolutions of shareholders;

. the names and addresses of
. copies of all notices shareholders.

. the securities register The requesting shareholder must
describe with reasonable
particularity the purpose and the
records which the shareholder
desires to inspect. The records must
be directly connected with the
described purpose.

. copies of the financial
statements,

. reports and information

. a register of disclosures in
relation to material contracts

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CEC CARBON

In addition, any shareholder may
inspect or copy the following
records of Carbon upon written
demand at least five business days
before the inspection:

. its Articles of Incorporation;

. its Bylaws;

. the minutes of all shareholder
meetings and records of all
actions taken by shareholders
without a meeting, for the past
three years;

. all written communications to all
or any class of shareholders as a
group within the past three years;

. a list of names and business
addresses of Carbon's directors
and officers;

. a copy of the most recent
corporate report delivered to the
Secretary of State; and

. the financial statements described
below.

Financial Statements: See above. Financial Statements. The CBCA
requires Carbon, upon written
request of any shareholder, to mail
to that shareholder its most recent
annual financial statements, if any,
and its most recent published
financial statements, if any,
reasonably detailing its assets and
liabilities and results of
operations.

Liability of Shareholders

Limited Liability. Shareholders are Limited Liability. Shareholders are
generally not personally liable for generally not personally liable for
the acts or debts of CEC. the acts or debts of Carbon.

No Capital Assessment: A shareholder No Capital Assessment. A shareholder
is required to pay the consideration is required to pay the consideration
stated by the Board of Directors for stated by the Board of Directors for
shares issued to that person. A shares issued to that person. (In
shareholder of CEC is not liable to the case of the exchange offer, the
CEC or its creditors for capital consideration for each Carbon share
assessments or calls. is one CEC share.) A shareholder of
Carbon is not liable to Carbon or
its creditors for capital
assessments or calls.

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CEC CARBON

Number and Election of Directors

Number: The CEC Articles of Number. The Carbon Articles of
Incorporation require a minimum of Incorporation name five initial
three and a maximum of nine directors. However, the number of
directors. However, the number of directors can be changed by a Board
directors can be changed by the of Directors resolution, so long as
shareholders amending the Articles, such a resolution does not have the
but no decrease shall shorten the effect of shortening the term of any
term of the incumbent director. incumbent director.

Election. Shareholders shall, by Election. The Board of Directors is
ordinary resolution at each annual elected at the annual shareholders'
meeting, elect the Board of meeting. At each annual meeting, the
Directors. number of candidates equaling the
number of directors to be elected
receiving the highest number of
votes are elected to the Board of
Directors.

Residence of Directors

Residence. At least half of the Residence. There are no requirements
directors must be resident as to the place of residence of
Canadians. directors of Carbon.

Removal of Directors

Removal. The shareholders may by Removal. Any director can be removed
ordinary resolution passed at a from office, either with or without
special meeting remove any director cause, at a meeting of shareholders
from office. If a director is when the votes cast in favor of
elected by any class of removal exceeds the votes against
shareholders, only that class of removal. If a director is elected by
shareholders may participate in a a voting group of shareholders, only
vote for removal. that voting group may participate in
a vote for removal.

Vacancies on the Board of Directors

Expiration of Terms. The ABCA Expiration of Terms. The Carbon
provides that if directors are not bylaws and CBCA provide that even
elected at a meeting of after the expiration of a director's
shareholders, the incumbent term, he or she continues to serve
directors continue in office until until his or her successor is
their successors are elected. elected and qualifies.

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CEC CARBON

Vacancies in General. Any vacancies
on the Board of Directors are filled
by: Vacancies in General. Any vacancies
on the Board of Directors are filled
by:

. the Board of Directors, if a
quorum is present, by a simple
majority.

. the shareholders; or

. a vote of the shareholders. . the Board of Directors, or a
simple majority vote of the
remaining directors if their
number is insufficient to
constitute quorum.

Any vacant directorship held by a
director elected by a particular
class of shareholders may be filled
by either:

Any vacant directorship held by a
director elected by a particular
shareholder voting group may be
filled by either:

. the shareholders of that
particular class if there are no
remaining directors of that class;
or

. shareholders of that voting group
. the directors elected by that entitled to vote; or
class.

. a simple majority of any one or
more remaining directors elected
by that same voting group.

Standard of Conduct

General Standard of General Standards of Conduct for
Conduct. Directors and officers are Directors and Officers. Directors
required to discharge their and officers are required to
respective duties: discharge their respective duties:

. in good faith with a view to the . in good faith;
best interests of the Corporation;
and

. with the care an ordinary person
in a like position would exercise
under similar circumstances; and

. exercise the care, diligence and
skill that a reasonably prudent
person would exercise in
comparable circumstances.

. in a manner that he or she
reasonably believes is in the best
interests of the corporation.

Conflicting Interest Conflicting Interest
Transactions. Under the ABCA, if a Transactions. Under the CBCA, no
material contract is made between loan, guaranty, contract or
the Corporation and one or more of transaction between Carbon and a
its directors or officers, or director or between Carbon and any
between a corporation and another entity in which a Carbon director is
person of which a director of a director or officer or has a
officer of the corporation is a financial interest is void or
director or officer or in which he voidable, can be enjoined or gives
has a material interest, the rise to an award of damages solely
contract is neither void or voidable because of the conflicting interest
by reason only of that relationship of the director if:
and a director is not liable to
account to the corporation for that
profit if:

. after disclosure of material facts
of the relationship or interest in
the transaction, the transaction
is approved by the affirmative
vote of disinterested directors;
or

. the director or officer disclosed
his interest;

. the contract was approved by the
directors or shareholders; and

. after disclosure of material facts
of the relationship or interest in
the transaction, the transaction
is approved a vote of
shareholders; or

. it was reasonable and fair to the
Corporation at the time it was
approved.

. the conflicting interest
transaction is fair to Carbon.

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CEC CARBON

Limitation of Liability of Directors and Officers

Limitation on Personal Liability of Limitation on Personal Liability of
Directors. Pursuant to the CEC Arti- Directors. The CBCA permits Colorado
cles of Incorporation, CEC directors corporations to limit or eliminate
are not liable to the Corporation or personal liability of the a director
its shareholders for anything except to the corporation or to its share-
as set out in the ABCA. Those in- holders for monetary damages for a
stances where directors in any event breach of fiduciary duty as a direc-
remain liable to the Corporation or tor, except for certain specified
its shareholders for monetary dam- instances. Those instances where di-
ages are: rectors in any event remain liable
to the corporation or its sharehold-
. any breach of a directors' duty to ers for monetary damages are:
act honestly and in good faith
with a view to the best interests . any breach of the director's duty
of the Corporation; of loyalty to the corporation or
its shareholders,
. any breach where a director did
not exercise the care, diligence . acts or omissions not in good
and skill that a reasonably pru- faith or which involve intentional
dent person would exercise in com- misconduct or a knowing violation
parable circumstances; of the law
. unlawful dividends or other dis-
. the unlawful purchase, redemption tributions; or
or other acquisitions of shares; . any transaction from which the di-
rector directly or indirectly de-
. the unlawful commission on the rived an improper personal bene-
sale of shares; fit.

. the unlawful payment of any divi- Pursuant to the Carbon Articles of
dends; Incorporation, Carbon directors are
not personally liable to the corpo-
. any unlawful financial assistance; ration or its shareholders, either
directly or indirectly, for monetary
. any unlawful payment of an indem- damages for the breach or breaches
nity to a director or officer of of fiduciary duty as a director to
the Corporation; the full extent permitted by law.
. any unlawful payment to a share-
holder; and
. up to six months wages for non-
payment of wages to employees.

Indemnification of Directors and Officers

ABCA Provisions. Pursuant to the CBCA Provisions. Pursuant to the
ABCA, CEC must indemnify a director CBCA, Carbon must indemnify a person
or officer in respect of all costs, who was wholly successful, on the
charges and expenses reasonably in- merits or otherwise, in the defense
curred in his defense of any civil, of any proceeding to which the per-
criminal or administrative action or son was a party because the person
proceeding if: is or was a director or officer,
against reasonable expenses incurred
. he was substantially successful on by him or her in connection with the
the merits; proceeding. The CBCA also permits
Carbon to indemnify and advance ex-
. he acted honestly and in good penses to a director or officer, who
faith and had reasonable grounds was made a party to a proceeding be-
for believing his conduct was law- cause that person is a director or
ful; and officer, against liability incurred
in the proceeding if:
. he is fairly and reasonably enti-
tled to indemnity.

The Court may grant approval to . the person conducted himself or
grant indemnity for a derivative ac- herself in good faith;
tion if he acted honestly and in
good faith and had reasonable . the person reasonably believed
grounds for believing his conduct that his or her conduct was in
was lawful. Carbon's best interest or not op-
posed to Carbon's best interest;
and
. in the case of any criminal pro-
ceeding, the person had no reason-
able cause to believe his or her
conduct was unlawful.

The CBCA will not allow Carbon to
indemnify a director or officer for
liability to the corporation in an
action brought by a shareholder on
behalf of Carbon or for liability to
the corporation for deriving an im-
proper personal benefit.

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CEC CARBON

Carbon Bylaws and Indemnification A court may nevertheless order
Agreement. CEC's bylaws permit indemnification as the court deems
indemnification subject to the above proper, except that indemnification
as set out in the ABCA. is limited to reasonable expenses of
a proceeding where the director or
officer has been held liable in an
action brought by a shareholder or
for deriving an improper personal
benefit.

Carbon Bylaws and Indemnification
Agreements. Carbon's bylaws and
indemnification agreements with each
director and officer mandate that
Carbon indemnify and advance
expenses to the director or officer
to the full extent permitted by law.

Exclusiveness. See above Exclusiveness. Carbon may provide,
by shareholder or Board of Directors
resolution or by way of contract,
for indemnification or advancement
of expenses not expressly provided
for in the CBCA, if not inconsistent
with public policy.

Appraisal Rights

Right to Dissent. Under the ABCA, a Right to Dissent. Under the CBCA, a
CEC shareholder, whether or not Carbon shareholder, whether or not
entitled to vote, is entitled to entitled to vote, is entitled to
dissent and obtain payment of the dissent and obtain payment of the
fair value of their shares if the fair value of their shares in the
Corporation resolves to: event of the consummation of a:

. amend its articles changing the . plan of merger requiring approval
share structure; by the shareholders, or a short-
form merger of a corporation with
its parent corporation; or

. amend its articles to remove or
change any business restrictions;

. share exchange, by operation of
. amalgamate with another law, with an acquiring
corporation; corporation; or

. be continued into another . sale, lease, exchange or other
jurisdiction; or disposition of substantially all
of the corporation's property
requiring shareholder approval; or

. sell, lease or exchange all or
substantially all its property.

. reverse stock-split that reduces
the number of shares owned by the
shareholder to a fraction of a
share for which the corporation
pays cash.

No Right to Dissent. There is no No Right to Dissent. Under the CBCA,
comparable section under the ABCA. except in the case of a reverse
stock split described above, a
Carbon shareholder may not dissent
and obtain payment for their shares
if the securities are: (1) listed on
a national securities exchange, such
as the American Stock Exchange, or a
national market system of the
National Association of Securities
Dealers automated quotation system
or (2) held of record by more than
2,000 shareholders.

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CEC CARBON

Vote Required in Extraordinary Transactions

Merger or Share Exchange. The Board Merger or Share Exchange. The Board
of Directors submits a plan of of Directors submits a plan of
merger or share exchange to the merger or share exchange to the
shareholders for approval. The plan shareholders for approval. The plan
must be approved by special must be approved by a majority of
resolution ( 2/3) of the outstanding the outstanding votes entitled to be
votes entitled to be cast within cast within each voting group
each voting group entitled to vote entitled to vote separately on the
separately on the plan. plan. Separate voting by a class or
series of shares as a voting group
is required:

. on a plan of merger, if the plan
contains a provision that would
require approval by the class or
series as a separate voting group
if the provision was contained in
an amendment to the corporation's
Articles of Incorporation (see
below for information on the vote
to amend the Articles of
Incorporation); or

. on a plan of share exchange, by
each class or series of shares
included in the share exchange.

There is no comparable section with However, approval of the
regard to any "surviving shareholders of any surviving
corporation" in the ABCA. corporation in a merger is not
required if:

. the Articles of Incorporation of
the surviving corporation prior to
the merger will not be changed
after the merger;

. shareholders with shares prior to
the merger will hold the same
number of shares after the merger,
with the same designations,
preferences, limitations and
relative rights;

. the number of voting shares
outstanding immediately after the
merger plus the number issuable as
a result of the merger does not
exceed by more than 20% the total
number of voting shares of the
surviving corporation prior to the
merger; and

. the number of participating shares
outstanding immediately after the
merger plus the number issuable as
a result of the merger, does not
exceed by more than 20% the total
number of participating shares
outstanding prior to the merger.

Merger of Parent and Wholly-Owned Merger of Parent and 90% Held
Subsidiary. The directors of a Subsidiary. No shareholder approval
holding corporation and one or more of the parent company is required if
of its wholly-owned subsidiaries may a parent corporation owning at least
approve an amalgamation of the 90% of a subsidiary corporation
resolutions provided that: merges the subsidiary into itself.

. shares of each subsidiary will be
cancelled;

. the articles of amalgamation will
be the same as the holding
company; and

. no securities shall be issued by
the amalgamated corporation in
connection with the amalgamation

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CEC CARBON

Sale of Assets. Under the ABCA, the Sale of Assets. Under the CBCA, the
sale, lease or exchange of all or sale, lease, exchange or other
substantially all the property of a disposition of all, or substantially
corporation other than in the all, of Carbon's property (which may
ordinary course of business requires include goodwill) other than in the
approval by special resolution ( ordinary course of business requires
2/3) of the outstanding votes approval of a majority of the
entitled to be cast within each outstanding votes entitled to be
voting group entitled to vote cast within each voting group
separately on the plan. entitled to vote separately on the
plan.

Dissolution. The Board of Directors Dissolution. The Board of Directors
recommends to the CEC shareholders recommends to the Carbon
approval of any proposal for shareholders approval of any
voluntary dissolution of the proposal for voluntary dissolution
Corporation, and by special of the corporation, and the plan
resolutions of each shareholder must be approved by a majority of
class, the plan must be approved by the outstanding votes entitled to be
2/3 of the outstanding votes cast within each voting group
entitled to be cast within each entitled to vote separately on the
voting group entitled to vote plan.
separately on the plan.

Change in Control Under Colorado/Alberta Law

The ABCA contains no special voting The CBCA contains no special voting
or other requirements that result or other requirements that result
from a change in control. from a change in control.

Oppression Remedy

Under the ABCA, a complainant may The CBCA does not provide for any
apply to the Court for an order in statutory oppression remedy.
respect of a corporation or any of However, shareholders have legal and
its affiliates: equitable remedies for improper acts
or omissions by directors or
officers.

. any act or omission of the
Corporation or any of its
affiliates effects a result;

. the business or affairs of the
Corporation or its affiliates have
been conducted in a manner; or

. the powers of the directors of the
Corporation of any of its
affiliates have been exercised in
a manner that is oppressive or
unfairly prejudicial to or
unfairly disregards the interests
of any securityholder, creditor,
director or officer, the Court may
make an order to rectify the
matter complained of.

Amendment to Governing Documents

Amendment to Articles. CEC Amendment to Articles. Carbon
shareholders can approve amendments shareholders can approve amendments
to the Articles of Incorporation at to the Articles of Incorporation at
a meeting by 2/3 of the votes cast a meeting by a majority of the votes
with respect to the amendment. Such cast on the amendment. A class or
items would include: series of shares are entitled to
vote as a separate voting group on
an amendment if the amendment would,
among other things:

. a name change;

. changing or removing the business
restrictions; . increase or decrease the aggregate
number of authorized shares of the
class or series;

. increase or decrease the aggregate
number of shares that CEC is
authorized to issue;

. exchange or reclassify all or part
of the shares of the class or
series;

. changing share structure or
creating a new class of shares;

. change the preferences,
. increasing or decreasing the limitations or relative rights of
number of directors. the shares of the class or series;

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CEC CARBON

. change the shares into a different
number of shares of the same class
or series; or

. create a new class of shares
having rights or preferences with
respect to distributions or
dissolution that are superior or
equal to the shares of the class
or series.

Amendment to Bylaws. Either the Amendment to Bylaws. Either the
Board of Directors or the Board of Directors or the
shareholders may make a proposal to shareholders may adopt amendments to
adopt amendments to the by-laws. The the Bylaws of Carbon. Shareholder
directors shall submit a by-law, or approval of such an amendment at a
an amendment or a repeal of a by-law meeting requires a majority of the
to the shareholders at the next votes cast on the subject.
meeting of shareholders, and the
shareholders, may by ordinary
resolution, confirm, reject or amend
the by-law, amendment or repeal.

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LEGAL MATTERS

The validity of the issuance of the shares of common stock being offered
hereby will be passed upon for us by Holland & Hart LLP, Denver, Colorado.
Holland and & Hart LLP has rendered an opinion as to the material United
States federal income tax considerations relating to the exchange offer and
Bennett Jones has rendered an opinion as to the material Canadian federal
income tax consequences of the exchange offer. These opinions have been filed
as exhibits to the registration statement of which this prospectus is a part.

EXPERTS

The financial statements of Carbon Energy Corporation as of October 20,
1999 and for the period from inception (September 14, 1999) through October
20, 1999, included in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said report. BFC's audited financial statements included in this
prospectus and elsewhere in the registration statement have been audited by
Hein + Associates LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firms as experts in giving said reports. The financial
statements of CEC Resources Ltd. as of November 30, 1998 and 1997 and for each
of the three years in the period ended November 30, 1998 included in this
Prospectus have been so included in the reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission, a registration
statement on Form S-4 under the Securities Act of 1933 with respect to the
common stock offered by this prospectus. This prospectus does not contain all
of the information in the registration statement and the exhibits and
schedules. For further information about us and our common stock, please refer
to the registration statement and the exhibits and schedules filed. Statements
contained in this prospectus as to the contents of any contract or document
filed as an exhibit to the registration statement are qualified by reference
to such exhibit as filed.

A copy of the registration statement, and the exhibits and schedules
thereto, may be inspected without charge at the public reference facilities
maintained by the SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and copies of all or any part of the registration statement may be
obtained from such offices upon the payment of the fees prescribed by the SEC.
Information regarding the operation of the public reference room may be
obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a Website
that contains registration statements, reports, proxy and other information
regarding registrants that file electronically with the SEC. The address of
this Website is sec.gov.

96
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Carbon Energy Corporation

Report of Independent Public Accountants.................................. F-2

Balance Sheet as of October 20, 1999...................................... F-3

Statement of Stockholder's Equity......................................... F-4

Statement of Cash Flow for period from inception (September 14, 1999)
through October 20, 1999................................................. F-5

Notes to the Financial Statements......................................... F-6

Bonneville Fuels Corporation (predecessor to Carbon Energy Corporation)

Independent Auditor's Report.............................................. F-7

Consolidated Balance Sheets at December 31, 1998 and 1997................. F-8

Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996...................................................... F-9

Consolidated Statement of Stockholders' Equity for the period from January
1, 1996 through December 31, 1998........................................ F-10

Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996...................................................... F-11

Notes to Consolidated Financial Statements................................ F-12

Consolidated Balance Sheets at September 30, 1999 and 1998 (unaudited).... F-17

Consolidated Statement of Operations for the nine months ended September
30, 1998 and 1998 (unaudited)............................................ F-19

Consolidated Statements of Cash Flows for the nine months ended September
30, 1999 (unaudited)..................................................... F-20

Consolidated Statement of Stockholders' Equity and Retained Earnings for
the nine months ended September 30, 1999 (unaudited)..................... F-21

Notes to Consolidated Financial Statements................................ F-22

CEC Resources Ltd.

Auditors' Report.......................................................... F-27

Balance Sheets at November 30, 1998 and 1997.............................. F-28

Statements of Income for the years ended November 30, 1998, 1997 and 1996. F-30

Statements of Stockholders' Equity for the years ended November 30, 1998,
1997 and 1996............................................................ F-31

Statements of Cash Flows for the years ended November 30, 1998, 1997 and
1996..................................................................... F-32

Notes to the Financial Statements......................................... F-33

Balance Sheets at August 31, 1999 (unaudited) and November 30, 1998....... F-44

Statements of Income for nine months ended August 31, 1999 and 1998
(unaudited).............................................................. F-45

Statement of Stockholders' Equity for the nine months ended August 31,
1999 (unaudited)......................................................... F-46

Statements of Cash Flow for the nine months ended August 31, 1999 and
August 31, 1998 (unaudited).............................................. F-47

Notes to Financial Statements............................................. F-48
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Carbon Energy Corporation:

We have audited the accompanying balance sheet of CARBON ENERGY
CORPORATION (a Colorado corporation) as of October 20, 1999, and the related
statements of stockholder's equity and cash flow for the period from inception
(September 14, 1999) to October 20, 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 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 audit provides 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 Carbon Energy
Corporation as of October 20, 1999, and its cash flow for the period from
inception (September 14, 1999) to October 20, 1999, in conformity with
generally accepted accounting principles.

Arthur Andersen LLP

Denver, Colorado
October 21, 1999

F-2
<PAGE>

CARBON ENERGY CORPORATION

BALANCE SHEET
As of October 20, 1999

ASSETS

<TABLE>
<S> <C>
Cash....................................................................... $550
----
Total assets............................................................... $550
====

STOCKHOLDER'S EQUITY

Preferred stock, no par value:
10,000,000 shares authorized, none outstanding........................... $--
Common stock, no par value:
20,000,000 shares authorized, 100 outstanding............................ 550
----
Total stockholder's equity................................................. $550
====
</TABLE>

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

F-3
<PAGE>

CARBON ENERGY CORPORATION

STATEMENT OF STOCKHOLDER'S EQUITY
For the Period From Inception (September 14, 1999) Through October 20, 1999

<TABLE>
<CAPTION>
Common Stock
-------------
Shares Value Total
------ ------ -----
<S> <C> <C> <C>
Balances, September 14, 1999................................ -- $-- $--
Shares issued (note 2)...................................... 100 550 550
--- ---- ----
Balances, October 20, 1999.................................. 100 $550 $550
=== ==== ====
</TABLE>

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

F-4
<PAGE>

CARBON ENERGY CORPORATION

STATEMENT OF CASH FLOW
For the Period From Inception (September 14, 1999) Through October 20, 1999

<TABLE>
<S> <C>
Cash flow from financing activities:
Issuance of common stock................................................ $550
----
550
----
Net increase in cash...................................................... 550
Cash at the beginning of the period....................................... --
----
Cash at the end of the period............................................. $550
====
</TABLE>

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

F-5
<PAGE>

CARBON ENERGY CORPORATION

NOTES TO THE FINANCIAL STATEMENTS

(1) Nature of Business

Carbon Energy Corporation ("Carbon") was incorporated under the laws of the
State of Colorado on September 14, 1999. Carbon is an independent oil and gas
company engaged in the exploration, development and production of natural gas
and crude oil. Carbon has been formed for the purpose of acquiring Bonneville
Fuels Corporation ("BFC"), a wholly owned subsidiary of Bonneville Pacific
Corporation ("BPC"). BFC is an oil and gas company incorporated in Colorado.
Carbon was also formed for the purpose of exchanging Carbon shares for shares
of CEC Resources Ltd. ("CEC"), an independent oil and gas company,
incorporated in Alberta, Canada.

(2) Capital Stock

During October 1999, Carbon issued 100 shares of common stock at U.S. $5.50
to Yorktown Energy Partners III, L.P. ("Yorktown"). This has been the only
activity to date since the inception of Carbon.

(3) Acquisitions

On August 11, 1999, CEC and BPC signed a stock purchase agreement, whereby
CEC agreed to purchase all of the outstanding BFC stock from BPC at a price of
$23,857,951 in cash, subject to certain adjustments, with debt less working
capital of approximately $6,500,000 remaining at BFC. On October 14, 1999,
Carbon, CEC and Yorktown signed an exchange and financing agreement providing
for an assignment of the BFC stock purchase agreement to Carbon, the purchase
of Carbon common stock by Yorktown for $24,750,000 and an exchange offer
whereby Carbon will exchange one share of Carbon common stock for one share of
CEC common stock.

(4) Accounting for Derivative Investments and Hedging Activities

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument including
certain derivative instruments embedded in other contracts be recorded on the
balance sheet as either an asset or liability measured at its fair value and
that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Carbon is required
to adopt SFAS No. 133 as of January 1, 2001, but may implement SFAS No. 133 as
of the beginning of any fiscal quarter prior to that date. SFAS No. 133 cannot
be applied retroactively. Carbon has not yet quantified the impacts of
adopting SFAS No. 133 or determined the timing or method of adoption. However,
SFAS No. 133 could increase the volatility of Carbon's earnings and
comprehensive income.

F-6
<PAGE>

INDEPENDENT AUDITOR'S REPORT

Board of Directors
Bonneville Fuels Corporation
Denver, Colorado

We have audited the accompanying consolidated balance sheets of Bonneville
Fuels Corporation (a wholly-owned subsidiary of Bonneville Pacific
Corporation) and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bonneville
Fuels Corporation and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.

Hein + Associates LLP

Denver, Colorado
February 26, 1999

F-7
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Bonneville Pacific Corporation)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
------------ ------------
ASSETS
------
<S> <C> <C>
Current Assets:
Cash............................................... $ 2,742,000 $ 544,000
Accounts receivable, trade......................... 4,972,000 2,818,000
Amounts due from broker............................ 534,000 63,000
Prepaid expenses and other......................... 241,000 241,000
------------ ------------
Total current assets........................... 8,489,000 3,666,000
------------ ------------
Property and Equipment, at cost:
Oil and gas properties, using the successful
efforts method:
Unproved properties.............................. 2,745,000 1,953,000
Proved properties................................ 29,679,000 26,624,000
Furniture and equipment............................ 497,000 293,000
------------ ------------
32,921,000 28,870,000
Less accumulated depreciation, depletion and
amortization.................................... (18,891,000) (16,863,000)
------------ ------------
Property and equipment, net.................... 14,030,000 12,007,000
------------ ------------
Other Assets:
Deposits and other................................. 276,000 317,000
Deferred loan costs, net........................... 45,000 64,000
------------ ------------
Total other assets............................. 321,000 381,000
------------ ------------
Total Assets......................................... $ 22,840,000 $ 16,054,000
============ ============

<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------

<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses.............. $ 6,866,000 $ 1,470,000
Accrued production taxes payable................... 335,000 257,000
Undistributed revenue.............................. 476,000 448,000
------------ ------------
Total current liabilities...................... 7,677,000 2,175,000
------------ ------------
Long-term Debt....................................... 5,850,000 2,400,000
Taxes Payable to BPC................................. -- 1,888,000
Commitments and Contingencies (Notes 2, 4, and 6)
Stockholder's Equity:
Common stock, $.01 par value; 1,000 shares
authorized, issued and outstanding................ -- --
Additional paid in capital......................... 3,475,000 1,812,000
Retained earnings.................................. 5,838,000 7,779,000
------------ ------------
Total stockholder's equity..................... 9,313,000 9,591,000
------------ ------------
Total Liabilities and Stockholder's Equity........... $ 22,840,000 $ 16,054,000
============ ============
</TABLE>

See accompanying notes to these consolidated financial statements.

F-8
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Bonneville Pacific Corporation)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Oil and gas sales....................... $ 6,758,000 $ 6,429,000 $ 5,262,000
Gas marketing and transportation........ 12,610,000 9,135,000 9,550,000
Electricity sales....................... 1,331,000 506,000 --
Other................................... 393,000 469,000 255,000
----------- ----------- -----------
21,092,000 16,539,000 15,067,000
----------- ----------- -----------
Expenses:
Oil and gas production costs............ 3,004,000 2,779,000 2,095,000
Gas marketing and transportation........ 12,674,000 8,553,000 6,910,000
Cost of electricity..................... 1,137,000 497,000 --
Depreciation, depletion and amortization
expense................................ 2,086,000 1,942,000 1,205,000
Exploration expense..................... 556,000 772,000 419,000
Impairment expense...................... 1,858,000 312,000 --
General and administrative expense...... 1,655,000 590,000 472,000
Interest expense........................ 238,000 83,000 272,000
----------- ----------- -----------
23,208,000 15,528,000 11,373,000
----------- ----------- -----------
Income (Loss) Before Extraordinary Items
and Taxes.............................. (2,116,000) 1,011,000 3,694,000
Extraordinary Gain on Extinguishment of
Debt Owed to Parent Company, net of taxes
of zero.................................. -- -- 1,788,000
----------- ----------- -----------
Income (Loss) Before Taxes................ (2,116,000) 1,011,000 5,482,000
Tax Expense (Benefit):
Current................................. (225,000) 279,000 1,422,000
Deferred................................ 50,000 -- --
----------- ----------- -----------
Net Income (Loss)......................... $(1,941,000) $ 732,000 $ 4,060,000
=========== =========== ===========
</TABLE>

See accompanying notes to these consolidated financial statements.

F-9
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Bonneville Pacific Corporation)

CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
For the Period from January 1, 1996 Through December 31, 1998

<TABLE>
<CAPTION>
Common Stock Additional
---------------- Paid-in Retained
Shares Par Value Capital Earnings Total
------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, January 1,
1996.................... 1,000 $-- $ -- $ 2,987,000 $ 2,987,000
Intercompany payables
converted to equity by
Parent................ -- -- 1,812,000 -- 1,812,000
Net income............. -- -- -- 4,060,000 4,060,000
----- ---- ---------- ----------- -----------
Balances, December 31,
1996.................... 1,000 -- 1,812,000 7,047,000 8,859,000
Net income............. -- -- -- 732,000 732,000
----- ---- ---------- ----------- -----------
Balances, December 31,
1997.................... 1,000 -- 1,812,000 7,779,000 9,591,000
Intercompany payables
converted to equity by
Parent................ -- -- 1,663,000 -- 1,663,000
Net loss............... -- -- -- (1,941,000) (1,941,000)
----- ---- ---------- ----------- -----------
Balances, December 31,
1998.................... 1,000 $-- $3,475,000 $ 5,838,000 $ 9,313,000
===== ==== ========== =========== ===========
</TABLE>

See accompanying notes to these consolidated financial statements.

F-10
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Bonneville Pacific Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss).................... $(1,941,000) $ 732,000 $ 4,060,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Deferred taxes..................... 50,000 -- --
Gain on debt extinguishment........ -- -- (1,788,000)
Depreciation, depletion and
amortization expense.............. 2,067,000 1,942,000 1,205,000
Impairment of property and
equipment......................... 1,858,000 312,000 --
Amortization of loan costs......... 19,000 19,000 20,000
Changes in operating assets and
liabilities:
Decrease (increase) in:
Accounts receivable, trade..... (2,154,000) (21,000) (1,440,000)
Amount due from broker......... (471,000) 152,000 (61,000)
Prepaid expenses and other..... (50,000) (36,000) (32,000)
Other assets................... 41,000 (26,000) 37,000
Increase (decrease in):
Accounts payable and accrued
expenses...................... 5,396,000 59,000 609,000
Accrued production taxes
payable....................... 78,000 (77,000) (30,000)
Undistributed revenues......... 28,000 (194,000) 204,000
Deferred gain and other
liabilities................... -- 52,000 (74,000)
Taxes payable to Parent........ (225,000) 279,000 1,426,000
----------- ----------- ------------
Net cash provided by operating
activities........................ 4,696,000 3,193,000 4,136,000
----------- ----------- ------------
Cash Flows from Investing Activities:
Capital expenditures for oil and gas
properties.......................... (5,948,000) (4,442,000) (1,025,000)
----------- ----------- ------------
Net cash used in investing
activities........................ (5,948,000) (4,442,000) (1,025,000)
Cash Flows from Financing Activities:
Proceeds from note payable........... 4,650,000 3,600,000 400,000
Payments on note payable............. (1,200,000) (2,900,000) (3,460,000)
Production payment received.......... -- 319,000 300,000
----------- ----------- ------------
Net cash provided by (used in)
financing activities.............. 3,450,000 1,019,000 (2,760,000)
----------- ----------- ------------
Net Increase (Decrease) in Cash and
Equivalents........................... 2,198,000 (230,000) 351,000
Cash, beginning of year................ 544,000 774,000 423,000
----------- ----------- ------------
Cash, end of year...................... $ 2,742,000 $ 544,000 $ 774,000
=========== =========== ============
Supplemental Disclosures of Cash Flow
Information:
Cash paid for interest............... $ 236,000 $ 83,000 $ 303,000
=========== =========== ============
Noncash investing and financing
activities--Intercompany payable
contributed to capital by Parent.... $ 1,663,000 $ -- $ 1,812,000
=========== =========== ============
</TABLE>

See accompanying notes to these consolidated financial statements.

F-11
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Bonneville Pacific Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nature of Operations and Significant Accounting Policies:

Nature of Operation--Bonneville Fuels Corporation (BFC), a wholly-owned
subsidiary of Bonneville Pacific Corporation (BPC), was incorporated in the
State of Colorado in April 1987 and began doing business in June 1987. The
Company owns four subsidiaries, Bonneville Fuels Marketing Corporation (BFMC),
Bonneville Fuels Management Corporation (BFM Corp.), Bonneville Fuels
Operating Corporation (BFO), and Colorado Gathering Corporation (CGC).
Collectively, these entities are referred to as the Company. The Company's
principal operations include exploration for and production of oil and gas
reserves, marketing of natural gas, and gathering of natural gas. The Company
from time to time also purchases and resells electricity.

Principles of Consolidation--The consolidated financial statements include
the accounts of BFC and its four wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in the
accompanying consolidated financial statements.

Cash Equivalents--The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.

Gas Marketing--The Company's marketing contracts are generally month-to-
month or up to eighteen months, and provide that the Company will sell gas to
end users which is produced from the Company's properties and acquired from
third parties.

Amounts due from Broker--This account generally represents net cash margin
deposits held by a brokerage firm for the Company's trading accounts.

Oil and Gas Producing Activities--The Company follows the "successful
efforts" method of accounting for its oil and gas properties, all of which are
located in the continental United States. Under this method of accounting, all
property acquisition costs and costs of exploratory and development wells are
capitalized when incurred, pending determination of whether the well has found
proved reserves. If an exploratory well has not found proved reserves, the
costs of drilling the well are charged to expense. The costs of development
wells are capitalized whether productive or nonproductive.

Geological and geophysical costs and the costs of carrying and retaining
undeveloped properties are expensed as incurred. Depreciation and depletion of
capitalized costs for producing oil and gas properties is computed using the
units-of-production method based upon proved reserves for each field.

In 1997, the Company began to accrue for future plugging, abandonment, and
remediation using the negative salvage value method whereby costs are expensed
through additional depletion expense over the remaining economic lives of the
wells. Management's estimate of the total future costs to plug, abandon, and
remediate the Company's share of all existing wells, including those currently
shut in is approximately $3,500,000, net of salvage values. The total amount
expensed for this liability was $206,000 and $200,000, for the years ended
December 31, 1998 and 1997, respectively.

The Company follows Statement of Financial Accounting Standards (SFAS) No.
121, Accounting for Impairment of Long-Lived Assets. This statement limits net
capitalized costs of proved oil and gas properties to the aggregate
undiscounted future net revenues related to each field. If the net capitalized
costs exceed the limitation, impairment is provided to reduce the carrying
value of the properties in the field to estimated actual value. The Company
also periodically assesses impairment on unproved oil and gas properties by
analyzing factors that may affect the fair market value of the property. The
impairment is included as a reduction of gross oil and gas properties in the
accompanying balance sheets. In 1998, 1997, and 1996, the Company recorded

F-12
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Bonneville Pacific Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

impairments of $1,858,000, $312,000, and $-0-, respectively. Factors causing
the impairment of oil and gas properties in 1998 were the decline in oil
prices worldwide and the re-estimation of reserve values on certain producing
properties. The primary factor causing the impairments in 1997 was the
reevaluation of certain undeveloped leases.

Gains and losses are generally recognized upon the sale of interests in
proved oil and gas properties based on the portion of the property sold. For
sales of partial interests in unproved properties, the Company treats the
proceeds as a recovery of costs with no gain recognized until all costs have
been recovered.

Revenue Recognition--The Company recognizes revenue upon delivery of the
Company's products to its customers.

Energy Marketing Arrangements--In 1998, BFC entered into an agreement to
manage certain natural gas contracts of an unrelated entity. For some
contracts, BFC takes title to the gas purchased to service these contracts
prior to the sale under the contracts. For these contracts, BFC consolidates
all revenue, expenses, receivables and payables associated with the contracts.
In contracts where title is not taken, BFC only records the margin associated
with the transaction.

Other Property and Equipment--Depreciation of other property and equipment
is calculated using the straight-line method over the estimated useful lives
(ranging from 3 to 25 years) of the respective assets. The cost of normal
maintenance and repairs is charged to operating expenses as incurred. Material
expenditures which increase the life of an asset are capitalized and
depreciated over the estimated remaining useful life of the asset. The cost of
properties sold, or otherwise disposed of, and the related accumulated
depreciation or amortization are removed from the accounts, and any gains or
losses are reflected in current operations.

Deferred Loan Costs--Costs associated with the Company's note payable have
been deferred and are being amortized using the effective interest method over
the original term of the note.

Gas Balancing--The Company uses the sales method of accounting for amounts
received from natural gas sales resulting from production credited to the
Company in excess of its revenue interest share. Under this method, all
proceeds from production credited to the Company are recorded as revenue until
such time as the Company has produced its share of related estimated remaining
reserves. Thereafter, additional amounts received are recorded as a liability.

Income Taxes--The Company accounts for income taxes under the liability
method which requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. BPC
includes the Company's operations in its consolidated tax return. Income taxes
are allocated by BPC as if the Company were a separate taxpayer.

Accounting for Hedged Transactions--The Company periodically enters into
futures, forwards, and swap contracts as hedges of commodity prices associated
with the production of oil and gas and with the purchase and sale of natural
gas in order to mitigate the risk of market price fluctuations. Changes in the
market value of futures, forwards, and swap contracts are not recognized until
the related production occurs or until the related gas purchase or sale takes
place. Realized losses from any positions which were closed early are deferred
and recorded as an asset or liability in the accompanying balance sheet, until
the related production, purchase or sale takes place. Gains and losses
incurred on these contracts are included in oil and gas revenue or in gas
marketing costs in the accompanying statements of operations.

F-13
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Bonneville Pacific Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Impact of Recently Issued Accounting Pronouncements--In June 1998, the
Financial Accounting Standards Board issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement is effective for
fiscal years beginning after June 15, 1999. Earlier application is encouraged;
however, the Company does not anticipate adopting SFAS No. 133 until the
fiscal year beginning January 1, 2000. SFAS No. 133 requires that an entity
recognize all derivatives as assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company
does not believe the adoption of SFAS No. 133 will have a material impact on
assets, liabilities or equity. The Company has not yet determined the impact
of SFAS No. 133 on its statement of operations or the impact on comprehensive
income.

In November 1998, the Emerging Issues Task Force reached a consensus on
issue #98-10, Accounting for Contracts Involved in Energy Trading and Risk
Management Activities. This consensus will not have a material impact on the
Company.

Reclassifications--Certain reclassifications have been made to conform the
1997 and 1996 financial statements to the presentation in 1998. These
reclassifications had no effect on net income.

Accounting 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 these financial
statements and the accompanying notes. The actual results could differ from
those estimates.

Parent Company Bankruptcy and Related Transactions:

In 1991, BPC filed a petition for re-organization under Chapter 11 of the
U.S. Bankruptcy Code and in June 1992, a Trustee was appointed for the case.
As a result of BPC's bankruptcy, the Company established, prior to 1994, an
allowance for doubtful accounts from BPC equal to the receivable. In 1995,
claims filed against the estate of BPC were amended to total $1,788,000 to
reflect additional amounts due related to pre-petition transactions.

As a condition of granting a loan in 1991, the lender required that BPC
convert intercompany debt of $3,600,000 to equity. In Board meetings at both
the Company and BPC, the officers of each company were authorized and directed
to complete this financing. In their respective internal financial statements,
both the Company and BPC treated the intercompany debt as converted to equity.
In 1993, it was discovered that the BPC Board resolution to ratify the
conversion had not been duly executed. The Company, therefore, continued to
disclose the intercompany debt as a liability.

On December 20, 1996, the Bankruptcy Court authorized the Trustee to offset
the mutual debts of the Company and BPC. After the offset, the Company was to
convert any remaining intercompany debt to equity. The Company had
established, prior to 1994, an allowance for doubtful accounts from BPC equal
to the receivable. The amount of the offset equal to the allowance was
recorded as an extraordinary gain on extinguishment of debt, with the
remainder being recorded as a contribution of capital.

In 1998, BPC approved the conversion of $1,663,000 in taxes payable to
equity. Also in 1998, BPC emerged from bankruptcy.

F-14
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Bonneville Pacific Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Long-Term Debt:

The Company has an asset-based line-of-credit with a bank which provides
for borrowing up to the borrowing base (as defined). The borrowing base was
$13,200,000 at December 31, 1998. At December 31, 1998, outstanding borrowings
amounted to $5,150,000, with interest at a variable rate that approximated 7%
at December 31, 1998. The Company has issued letters of credit totaling
$3,100,000 which further reduces the amount available for borrowing under the
base. This facility is collateralized by certain oil and gas properties of the
Company and is scheduled to convert to a term note on July 1, 2001. This term
loan is scheduled to have a maturity of either the economic half life of the
Company's remaining reserves on the date of conversion, or July 1, 2006,
whichever is earlier. The borrowing base is based upon the lender's evaluation
of BFC's proved oil and gas reserves, generally determined semi-annually. The
future minimum principal payments under the term note will be dependent upon
the bank's evaluation of the Company's reserves at that time.

The Company also has an accounts receivable-based credit facility which
includes a revolving line-of-credit with the bank which provides for
borrowings up to $1,500,000. Outstanding borrowings under this facility at
December 31, 1998 amounted to $700,000. This facility bears interest at prime
(7.75% at December 31, 1998). This facility is collateralized by certain trade
receivables of BFC and has a maturity date of July 1, 1999.

The credit agreement contains various covenants which prohibit or limit the
subsidiary's ability to pay dividends, purchase treasury shares, incur
indebtedness, repay debt to the Parent, sell properties or merge with another
entity. Additionally, the Company is required to maintain certain financial
ratios.

Commitments:

Office Lease--The Company leases office space under a noncancellable
operating lease. Total rental expense was approximately $139,000, $58,000, and
$58,000 for the years ended December 31, 1998, 1997, and 1996, respectively.
Beginning in 1998, the Company has a new lease agreement which provides for
total minimum rental commitments of:

Income Taxes:

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

<TABLE>
<CAPTION>
As of December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Excess of tax basis over book basis of oil and
gas properties............................... $ 1,873,000 $ 1,439,000
----------- -----------
Deferred tax assets........................... 1,873,000 1,439,000
Less valuation allowance...................... (1,873,000) (1,389,000)
----------- -----------
Net deferred tax assets....................... $ -- $ 50,000
=========== ===========
</TABLE>

The effective tax rate of the Company differed from the Federal statutory
rate primarily due to changes in the valuation allowance on the deferred tax
assets.

F-15
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Bonneville Pacific Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Concentrations of Credit Risk and Price Risk Management:

Concentrations of Credit Risk--Substantially all of the Company's accounts
receivable at December 31, 1998 result from crude oil and natural gas sales
and/or joint interest billings to companies in the oil and gas industry. This
concentration of customers and joint interest owners may impact the Company's
overall credit risk, either positively or negatively, since these entities may
be similarly affected by changes in economic or other conditions. In
determining whether or not to require collateral from a customer or joint
interest owner, the Company analyzes the entity's net worth, cash flows,
earnings, and credit ratings. Receivables are generally not collateralized.
Historical credit losses incurred on trade receivables by the Company have
been insignificant.

The Company's revenues are predominantly derived from the sale of natural
gas and management estimates that over 85% of the value of the Company's
properties is derived from natural gas reserves.

Energy Financial Instruments--BFC uses energy financial instruments and
long-term user contracts to minimize its risk of price changes in the spot and
fixed price natural gas and crude oil markets. Energy risk management products
used include commodity futures and options contracts, fixed-price swaps, and
basis swaps. Pursuant to company guidelines BFC is to engage in these
activities only as a hedging mechanism against price volatility associated
with pre-existing or anticipated gas or crude oil sales in order to protect
profit margins. As of December 31, 1998, BFC has financial and physical
contracts which hedge 6 bcf (billion cubic feet) of production through
December 2001.

The difference between the current market value of the hedging contracts
and the original market value of the hedging contracts was a favorable
$701,000 and an unfavorable $60,000 as of December 31, 1998 and 1997,
respectively. These amounts are not reflected in the accompanying financial
statements. In the event energy financial instruments do not qualify for hedge
accounting, the difference between the current market value and the original
contract value would be currently recognized in the statement of operations.
In the event that the energy financial instruments are terminated prior to the
delivery of the item being hedged, the gains and losses at the time of the
termination are deferred until the period of physical delivery. Such deferrals
were immaterial in all periods presented.

Financial Instruments:

SFAS Nos. 107 and 127 requires certain entities to disclose the fair value
of certain financial instruments in their financial statements. Accordingly,
management's best estimate is that the carrying amount of cash, receivables,
notes payable, accounts payable, undistributed revenue, and accrued expenses
approximates fair value of these instruments. See Note 6 for a discussion
regarding the fair value of energy financial instruments.

Management Retention Bonuses and Employment Contracts:

The Company has accrued bonuses as of December 31, 1998 of $164,000 in
accordance with a management retention program approved by the bankruptcy
court. The Company has also entered into certain employment contracts with key
employees that provide for certain benefits to the employees upon termination
without cause.

Tax Credit Sale:

In December 1995, the Company entered into a transaction to sell its
interest in certain wells that qualified for certain tax credits. Gain on the
sale was recognized on the installment method generally as cash was received.
The assets were separately recorded at net book value in the property section
of the balance sheet. In 1997 and 1996, the Company recognized gains of
$146,000 and $147,000, respectively, on the sale and reduced the assets

F-16
<PAGE>

held for sale to $-0-. The estimated proceeds from the sale of the tax credits
were reflected as a production payment received.

Subsequent Event:

Subsequent to year-end, BPC engaged a financial advisor to pursue various
strategic opportunities. BPC is considering all options including the
continued operation of all its subsidiaries or the sale of the entire company
or any part thereof. No adjustment to the financial statements has been made
to reflect this uncertainty.

F-17
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A wholly owned subsidiary of Bonneville Pacific Corporation)

CONSOLIDATED BALANCE SHEET
(Unaudited)

<TABLE>
<CAPTION>
September 30
--------------------------
ASSETS 1999 1998
------ ------------ ------------
<S> <C> <C>
Current Assets:
Cash
Unrestricted................................... $ 304,000 $ 604,000
Amounts due from broker........................ 1,761,000 448,000
------------ ------------
Total cash................................... 2,065,000 1,052,000
Accounts receivable
Gas marketing.................................. 634,000 1,752,000
Oil and gas sales.............................. 1,169,000 475,000
Joint interest, net of allowance for doubtful
accounts...................................... 403,000 632,000
Other.......................................... 7,000 7,000
------------ ------------
Total accounts receivable.................... 2,213,000 2,866,000
Prepaid expenses, inventories and other.......... 155,000 199,000
------------ ------------
Total current assets......................... 4,433,000 4,117,000
------------ ------------
Property and Equipment, at cost
Oil and gas properties........................... 37,115,000 32,264,000
Furniture and equipment.......................... 499,000 473,000
Less depreciation, depletion and amortization.... (20,721,000) (18,448,000)
------------ ------------
Total property and equipment................. 16,893,000 14,289,000
------------ ------------
Other Assets:
Deposits and other............................... 270,000 270,000
Deferred loan cost, net.......................... 31,000 50,000
------------ ------------
Total other assets........................... 301,000 320,000
------------ ------------
Total Assets....................................... $ 21,627,000 $ 18,726,000
============ ============
</TABLE>

See accompanying notes to these financial statements.

F-18
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A wholly owned subsidiary of Bonneville Pacific Corporation)

CONSOLIDATED BALANCE SHEET
(Unaudited)

<TABLE>
<CAPTION>
September 30
-----------------------
LIABILITIES AND STOCKHOLDER EQUITY 1999 1998
---------------------------------- ----------- -----------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses................... $ 1,838,000 $ 2,730,000
Accrued production taxes payable........................ 415,000 321,000
Undistributed revenue, taxes and other.................. 577,000 378,000
----------- -----------
Total current liabilities........................... 2,830,000 3,429,000
----------- -----------

Long Term Liabilities:
Long term debt.......................................... 8,800,000 3,700,000
Accrued income taxes due parent......................... 0 1,888,000
----------- -----------
Total long term liabilities......................... 8,800,000 5,588,000
----------- -----------

Stockholder's Equity:
Common stock............................................
Additional paid in capital.............................. 3,475,000 1,812,000
Retained earnings....................................... 6,522,000 7,897,000
----------- -----------
Total stockholder's equity.......................... 9,997,000 9,709,000
----------- -----------

Total Liabilities and Stockholder's Equity.......... $21,627,000 $18,726,000
=========== ===========
</TABLE>

See accompanying notes to these financial statements.

F-19
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A wholly owned subsidiary of Bonneville Pacific Corporation)

CONSOLIDATED STATEMENT OF OPERATIONS

For the nine months ended September 30
(Unaudited)

<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Operating Revenue
Sales:
Oil and gas.......................................... $ 6,730,000 $5,185,000
Marketing services................................... 11,059,000 7,157,000
Other................................................ 465,000 253,000
----------- ----------
Total operating income............................. 18,254,000 12,595,000
----------- ----------
Operating Expenses
Lease operations..................................... 2,207,000 1,803,000
Severance taxes...................................... 494,000 413,000
Marketing service cost............................... 11,009,000 7,133,000
DD & A............................................... 1,789,000 1,606,000
Impairment of proved and unproved properties......... 60,000 0
General and administrative........................... 984,000 1,143,000
Provision for uncollectibles......................... 1,000 2,000
Exploration expense.................................. 681,000 276,000
----------- ----------
Total operating expenses........................... 17,225,000 12,376,000
----------- ----------
Net Income Before Interest and Other................... 1,029,000 219,000
Interest:
Income............................................... 72,000 38,000
(Expense)............................................ (418,000) (143,000)
----------- ----------
Net Income Before Income Taxes......................... 683,000 114,000
Provision for income taxes............................. 0 0
----------- ----------
Net Income............................................. $ 683,000 $ 114,000
=========== ==========
</TABLE>

See accompanying notes to these financial statements.

F-20
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A wholly-owned subsidiary of Bonneville Pacific Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30

<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income......................................... $ 683,000 $ 114,000
Adjustment to reconcile net income to cash provided
by operating activities:
Depreciation, depletion and amortization......... 1,775,000 1,592,000
Gain on debt extinguishment......................
Amortization of loan cost........................ 14,000 14,000
Other............................................
Changes in operating assets and liabilities:
(Increase) decrease in:
Amount due from broker........................... (1,226,000) (385,000)
Accounts receivable.............................. 2,759,000 (45,000)
Prepaid expenses, inventories and other.......... 42,000 39,000
Increase (decrease) in:
Accounts payable and undistributed revenue....... (4,781,000) 1,258,000
----------- -----------
Net cash provided by operations.................. (734,000) 2,587,000
Cash Flows from Investing Activities:
Additions to oil and gas properties................ (4,691,000) (3,688,000)
Other net property and equipment (additions)
disposals......................................... (1,000) (180,000)
(Increases) decreases in other assets.............. 38,000 40,000
----------- -----------
Net cash used in investing activities.............. (4,654,000) (3,828,000)
Cash Flows from Financing Activities:
Net bank borrowings (payments)..................... 2,950,000 1,300,000
----------- -----------
Net cash used in financing activities.............. 2,950,000 1,300,000
----------- -----------
Net Increase (decrease) in Unrestricted Cash......... (2,438,000) 59,000
Unrestricted Cash Balance at Beginning of Period..... 2,742,000 545,000
----------- -----------
Cash Balance at End of Period........................ $ 304,000 $ 604,000
=========== ===========
</TABLE>

See accompanying notes to these consolidated financial statements.

F-21
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A wholly owned subsidiary of Bonneville Pacific Corporation)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND RETAINED EARNINGS

For the nine months ended September 30, 1999, and the year ended December 31,
1998
(Unaudited)

<TABLE>
<CAPTION>
Common Stock Additional
------------- Paid In Retained
Shares Amount Capital Earnings Total
------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1997... 1,000 $ -- $1,812,000 $ 7,779,000 $ 9,591,000
Intercompany payables
converted to Equity by
Parent..................... 1,663,000 1,663,000
Net income (loss)........... (1,940,000) (1,940,000)
----- ----- ---------- ----------- -----------
Balance December 31, 1998... 1,000 -- 3,475,000 5,839,000 9,314,000
Net income.................. 683,000 683,000
----- ----- ---------- ----------- -----------
Balance September 30, 1999.. 1,000 $ -- $3,475,000 $ 6,522,000 $ 9,997,000
===== ===== ========== =========== ===========
</TABLE>

See accompanying notes to these consolidated financial statements.

F-22
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Bonneville Pacific Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Operations and Significant Accounting Policies:

Nature of Operation--Bonneville Fuels Corporation (BFC), a wholly-owned
subsidiary of Bonneville Pacific Corporation (BPC), was incorporated in the
State of Colorado in April 1987 and began doing business in June 1987. BFC
owns four subsidiaries, Bonneville Fuels Marketing Corporation (BFMC),
Bonneville Fuels Management Corporation (BFM Corp.), Bonneville Fuels
Operating Corporation (BFO), and Colorado Gathering Corporation (CGC).
Collectively, these entities are referred to as the Company. The Company's
principal operations include exploration for and production of oil and gas
reserves, marketing of natural gas, and gathering of natural gas. From time to
time the Company also purchases and resells electricity.

These financial statements are prepared in accordance with generally
accepted accounting principles and require the use of management's estimates.
These statements contain all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary to present fairly
the financial positions of BFC as of September 30, 1999 and 1998 and the
results of its operations and of its cash flows for the periods presented. The
results of operations for interim periods are not necessarily indicative of
the results to be expected for the full year.

Cash Equivalents--The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.

Amounts Due from Broker--This account generally represents net cash margin
deposits held by a brokerage firm for the Company's trading accounts.

In 1997, the Company began to accrue for future plugging, abandonment, and
remediation using the negative salvage value method whereby costs are expensed
through additional depletion expense over the remaining economic lives of the
wells. Management's estimate of the total future costs to plug, abandon, and
remediate the Company's share of all existing wells, including those currently
shut in, is approximately $3,500,000, net of salvage values. The total amount
expensed for this liability was $150,000 and $-0-, for the periods ended
September 30, 1999 and 1998, respectively.

F-23
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Bonneville Pacific Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company follows Statement of Financial Accounting Standards (SFAS) No.
121, Accounting for Impairment of Long-Lived Assets. This statement limits net
capitalized costs of proved and unproved oil and gas properties to the
aggregate undiscounted future net revenues related to each field. If the net
capitalized costs exceed the limitation, impairment is provided to reduce the
carrying value of the properties in the field to estimated actual value. The
impairment is included as a reduction of gross oil and gas properties in the
accompanying balance sheets. In the first nine months of 1999, the Company
incurred impairment cost of $60,000. In 1998, the Company recorded impairment
cost of $1,858,000. Factors causing the impairment of oil and gas properties
were the decline in oil prices worldwide and the re-assessment of reserve
values on certain producing properties in 1998, and re-assessment of reserve
values on a drilling venture in 1999.

Revenue Recognition--The Company recognized revenue upon delivery of the
Company's products to its customers.

Energy Marketing Arrangements--In 1998, BFC entered into an agreement to
manage certain natural gas contracts of an unrelated entity. For contracts
under which BFC takes title to the gas which services these contracts, BFC
consolidates by item, all revenue, expense, receivables and payables
associated with the contracts. In contracts where title is not taken, BFC
records only the margin associated with the transaction. This agreement was
terminated at the end of April 1999.

Other Property and Equipment--Depreciation of other property and equipment
is calculated using the straight-line method over the estimated useful lives
(ranging from 3 to 25 years) of the respective assets. The cost of normal
maintenance and repairs is charged to operating expenses as incurred. Material
expenditures which increase the life of an asset are capitalized and
depreciated over the estimated remaining useful life of the asset. The cost of
properties sold, or otherwise disposed of, and the related accumulated
depreciation or amortization is removed from the accounts, and any gains or
losses are reflected in current operations.

Deferred Loan Costs--Costs associated with the Company's note payable have
been deferred and are being amortized using the effective interest method over
the original term of the note.

F-24
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Bonneville Pacific Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

gas purchase or sale takes place. Realized losses from any positions which
were closed early are deferred and recorded as an asset or liability in the
accompanying balance sheet, until the related production, purchase or sale
takes place. Gains and losses incurred on these contracts are included in oil
and gas revenue or in gas marketing costs in the accompanying statements of
operations.

Contingent Liabilities--The Company accrued a liability in the amount of
$250,000 for well connect fees in the nine months ended September 30, 1999.
The estimated liability arose as a result of a 1997 well connect agreement as
it was determined in the current year that a liability under this agreement
was reasonably possible.

Reclassifications--Certain reclassifications have been made to conform the
1999 financial statements to the presentation in 1998. These reclassifications
had no effect on net income.

2. Parent Company Bankruptcy and Related Transactions:

In 1998, BPC approved the conversion of $1,663,000 in taxes payable to
equity. Also in 1998, BPC emerged from bankruptcy.

3. Long-Term Debt:

The Company has an asset-based line-of-credit with a bank which provides
for borrowing up to the borrowing base (as defined). The borrowing base is
$16,556,667 on September 30, 1999. Outstanding borrowings amounted to
$8,800,000, with interest at a variable rate that approximated 7.15% at
September 30, 1999. The Company has issued letters of credit totaling
$2,300,000 which reduce the amount available for borrowing under the base.
This facility is collateralized by certain oil and gas properties of the
Company and is scheduled to convert to a term note on July 1, 2001. This term
loan is scheduled to have a maturity of either the economic half life of the
Company's remaining reserves on the date of conversion, or July 1, 2006,
whichever is earlier. The borrowing base is based upon the lender's evaluation
of BFC's proved oil and gas reserves, generally determined semi-annually. The
future minimum principal payments under the term note will be dependent upon
the bank's evaluation of the Company's reserves at that time.

F-25
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Bonneville Pacific Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company also has an accounts receivable-based credit facility which
includes a revolving line-of-credit with the bank which provides for
borrowings up to $1,500,000. Outstanding borrowings under this facility at
September 30, 1999 amounted to $0. This facility bears interest at prime
(8.25% at September 30, 1999). This facility is collateralized by certain
trade receivables of BFC and has a maturity date of July 1, 2001.

The credit agreement contains various covenants which prohibit or limit the
Company's ability to pay dividends, purchase treasury shares, incur
indebtedness, repay debt to the Parent, sell properties or merge with another
entity. Additionally, the Company is required to maintain certain financial
ratios.

4. Commitments:

Office Lease--The Company leases office space under a noncancellable
operating lease. Total rental expense was approximately $110,000 and $100,000
for the periods ended September 30, 1999 and 1998, respectively. Beginning in
1998, the Company has a new lease agreement which provides for total minimum
rental commitments of:

<TABLE>
<S> <C>
1999 (balance of year).......................................... $ 37,000
2000............................................................ 153,000
2001............................................................ 159,000
2002............................................................ 166,000
--------
$515,000
========
</TABLE>

5. Income Taxes:

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

<TABLE>
<CAPTION>
December
31, 1998
-----------
<S> <C>
Excess of tax basis over book basis of oil and gas
properties................................................ $ 1,873,000
-----------
Deferred tax asset......................................... 1,873,000
Less valuation allowance................................... (1,873,000)
-----------
Net deferred tax asset..................................... $ -0-
===========
</TABLE>

The Company has not accrued an income tax liability for the nine months
ending September 30, 1999 due to the availability of intangible drilling costs
which will essentially eliminate taxable net income.

The effective tax rate of the Company differed from the Federal statutory
rate primarily due to changes in the valuation allowance on the deferred tax
asset.

6. Concentrations of Credit Risk and Price Risk Management:

Concentrations of Credit Risk--Substantially all of the Company's accounts
receivable at September 30, 1999 result from crude oil and natural gas sales
and/or joint interest billings to companies in the oil and gas industry. This
concentration of customers and joint interest owners may impact the Company's
overall credit risk, either positively or negatively, since these entities may
be similarly affected by changes in economic or other conditions. In
determining whether or not to require collateral from a customer or joint
interest owner, the Company analyzes the entity's net worth, cash flows,
earnings, and credit ratings. Receivables are generally not collateralized.
Historical credit losses incurred on trade receivables by the Company have
been insignificant.

F-26
<PAGE>

BONNEVILLE FUELS CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Bonneville Pacific Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company's revenues are predominantly derived from the sale of natural
gas. Management estimates that over 85% of the value of the Company's
properties is derived from natural gas reserves.

Energy Financial Instruments--BFC uses energy financial instruments and
long-term user contracts to minimize its risk of price changes in the spot and
fixed price natural gas and crude oil markets. Energy risk management products
used include commodity futures and option contracts, fixed-price swaps, and
basis swaps. Pursuant to company guidelines, BFC is to engage in these
activities only as a hedging mechanism against price volatility associated
with pre-existing or anticipated gas or crude oil sales in order to protect
profit margins. As of September 30, 1999 and 1998, BFC has financial and
physical contracts which hedge 4.4 bcf (billion cubic feet) and 5.5 bcf of
production, respectively, through December 2001.

The difference between the current market value of the hedging contracts
and the original market value of the hedging contracts was an unfavorable
$1,755,000 and a favorable $48,000 as of September 30, 1999 and 1998,
respectively. These amounts are not reflected in the accompanying financial
statements. In the event energy financial instruments do not qualify for hedge
accounting, the difference between the current market value and the original
contract value would be currently recognized in the statement of operations.
In the event that the energy financial instruments are terminated prior to the
delivery of the item being hedged, the gains and losses at the time of the
termination are deferred until the period of physical delivery. Such deferrals
were immaterial in all periods presented.

7. Financial Instruments:

8. Subsequent Event:

On October 29, 1999, Carbon Energy Corporation acquired BFC in its
entirety. The purchase price for all of the stock of BFC was $23,581,000 plus
debt, net of working capital, of approximately $6,500,000 that remains at BFC.

F-27
<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

F-28
<PAGE>

AUDITORS' REPORT

To the Stockholders of CEC Resources Ltd.

We have audited the balance sheets of CEC Resources Ltd. as at November 30,
1998 and 1997, and the statements of income, stockholders' equity and cash
flows for each of the three years in the period ended November 30, 1998. 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, these financial statements present fairly, in all material
respects, the financial position of CEC Resources Ltd. as at November 30, 1998
and 1997 and the results of its operations and the statements of cash flows
for each of the three years in the period ended November 30, 1998, in
accordance with accounting principles generally accepted in Canada.

PricewaterhouseCoopers LLP
Chartered Accountants

Calgary, Canada
February 16, 1999

F-29
<PAGE>

CEC RESOURCES LTD.

BALANCE SHEETS

<TABLE>
<CAPTION>
November 30,
-----------------------
1998 1997
------- --------------
ASSETS (Reclassified,
------ Note 3)
(in Canadian dollars)
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 1,666 $ 1,073
Accounts receivable:
Oil and gas sales.................................. 466 404
Crown royalty refund and other..................... 333 266
Joint interest partners............................ 8 3
Income tax receivable (Note 6)....................... -- 53
------- -------
Total current assets............................. 2,473 1,799
------- -------

Property and equipment:
Oil and gas assets, full cost method (Note 5)........ 16,192 16,047
Liquid extraction plant.............................. 1,477 1,473
Other property and equipment......................... 108 49
------- -------
17,777 17,569
Less: Accumulated depreciation, depletion and
amortization (Notes 2 and 5)........................ (9,015) (7,990)
------- -------
Net property and equipment....................... 8,762 9,579
------- -------
$11,235 $11,378
======= =======
</TABLE>
(continued)

F-30
<PAGE>

CEC RESOURCES LTD.

BALANCE SHEETS--(continued)

<TABLE>
<CAPTION>
November 30,
----------------------
1998 1997
------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Reclassified,
------------------------------------ Note 3)
(in Canadian dollars)
(in thousands)
<S> <C> <C>
Current liabilities:
Accounts payable...................................... $ 220 $ 483
Due to former Parent (Note 7)......................... 17 35
Income tax payable (Note 6)........................... 3 --
Undistributed oil and gas production receipts......... 113 132
------- -------
Total current liabilities........................... 353 650
------- -------
Future site restoration costs........................... 165 103
Deferred income taxes (Note 6).......................... 1,995 1,934
Commitments and contingent liabilities (Note 10)
Stockholders' equity (Note 3):
Preferred stock, authorized unlimited number of
shares, no par value; none issued
Share capital, common stock, authorized unlimited
number of shares, without nominal or par value;
1,544,400 shares issued in 1998 and 1,589,000 in 1997
(Note 8)............................................. 1,534 1,106
Retained earnings..................................... 7,188 7,683
------- -------
8,722 8,789
------- -------
Less: 15,000 shares held for cancellation............. -- (98)
------- -------
Total stockholders' equity.......................... 8,722 8,691
------- -------
$11,235 $11,378
======= =======
</TABLE>

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

F-31
<PAGE>

CEC RESOURCES LTD.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Year ended November
30,
----------------------
1998 1997 1996
------ ------ ------
(in Canadian
dollars)
(in thousands,
except per share
data)
<S> <C> <C> <C>
Revenues:
Oil and gas sales..................................... $3,235 $3,451 $3,093
Royalties............................................. (586) (722) (462)
Alberta royalty tax credit............................ 309 335 239
Field services........................................ 246 217 324
Other................................................. 49 28 18
------ ------ ------
Total revenues...................................... 3,253 3,309 3,212
------ ------ ------
Costs and expenses:
Lease operating expenses.............................. 710 582 620
Field services........................................ 148 185 244
General and administrative............................ 984 751 747
Depreciation, depletion and amortization.............. 1,087 882 746
------ ------ ------
Total costs and expenses............................ 2,929 2,400 2,357
------ ------ ------
Operating income...................................... 324 909 855
------ ------ ------
Other expense........................................... 4 1 5
------ ------ ------
Earnings before income taxes.......................... 320 908 850
Provision for income taxes (Note 6)..................... 80 303 324
------ ------ ------
Net earnings.......................................... $ 240 $ 605 $ 526
====== ====== ======
Earnings per share:
Basic................................................. $ .16 $ .38 $ .35
====== ====== ======
Fully diluted......................................... $ .16 $ .38 $ .35
====== ====== ======
Average number of common shares outstanding:
Basic................................................. 1,545 1,580 1,505
====== ====== ======
Fully diluted......................................... 1,549 1,584 1,511
====== ====== ======
</TABLE>

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

F-32
<PAGE>

CEC RESOURCES LTD.

STATEMENTS OF STOCKHOLDERS' EQUITY
For The Three Years Ended November 30, 1998
(in Canadian dollars)
(in thousands, except shares)

<TABLE>
<CAPTION>
Shares Held
for
Share Capital Cancellation
----------------- Retained ---------------
Shares Amount Earnings Shares Amount
--------- ------ -------- ------- ------
(Reclassified,
Note 3)
<S> <C> <C> <C> <C> <C>
Balances, December 1, 1995......... 1,500,000 $ 502 $6,552 -- $--
Exercise of employee stock options
(Note 8).......................... 10,000 32 -- -- --
--------- ------ ------ -------
Issuance of common stock (Note 8).. 79,000 572 -- -- --
Net earnings....................... -- -- 526 -- --
--------- ------ ------ ------- ----
Balances, November 30, 1996........ 1,589,000 1,106 7,078 -- --
Purchase of shares................. -- -- -- 15,000 (98)
Net earnings....................... -- -- 605 -- --
--------- ------ ------ ------- ----
Balances, November 30, 1997........ 1,589,000 1,106 7,683 15,000 (98)
Cancellation of 15,000 shares...... (15,000) (11) (87) (15,000) 98
Purchase and cancellation of
shares............................ (99,600) (74) (648) -- --
Shares issued (Note 8)............. 70,000 513 -- -- --
Net earnings....................... -- -- 240 -- --
--------- ------ ------ ------- ----
Balances, November 30, 1998........ 1,544,400 $1,534 $7,188 -- $--
========= ====== ====== ======= ====
</TABLE>

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

F-33
<PAGE>

CEC RESOURCES LTD.

STATEMENTS OF CASH FLOWS (Note 4)

<TABLE>
<CAPTION>
Year Ended November
30,
------------------------
1998 1997 1996
------ ------- -------
(in Canadian dollars)
(in thousands)
<S> <C> <C> <C>
Net earnings........................................ $ 240 $ 605 $ 526
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, depletion and amortization.......... 1,087 882 746
Future income taxes............................... 61 299 299
Other............................................. -- -- 9
Changes in operating assets and liabilities:
Accounts receivable and other..................... (134) (221) (17)
Due to (receivable from) former Parent............ (18) (6) 10
Accounts payable.................................. 93 12 159
Income taxes payable (receivable)................. 56 39 (78)
Other current liabilities......................... (19) 114 2
------ ------- -------
Net cash provided by operating activities......... 1,366 1,724 1,656
------ ------- -------
Cash flows from investing activities:
Proceeds from sale of oil and gas properties...... 53 -- 20
Additions to oil and gas properties............... (566) (1,190) (2,324)
Additions to liquid extraction plant and other.... (51) (75) (29)
------ ------- -------
Net cash used in investing activities............. (564) (1,265) (2,333)
------ ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock............ 513 -- 572
Proceeds from exercise of stock options........... -- -- 32
Purchase of common stock.......................... (722) (98) --
------ ------- -------
Net cash provided by (used in) financing
activities....................................... (209) (98) 604
------ ------- -------
Net increase (decrease) in cash and cash
equivalents........................................ 593 361 (73)
Cash and cash equivalents at beginning of year...... 1,073 712 785
------ ------- -------
Cash and cash equivalents at end of year............ $1,666 $ 1,073 $ 712
====== ======= =======
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Income taxes, net of refunds.................... $ (36) $ 3 $ 103
====== ======= =======
</TABLE>

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

F-34
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS

(1) Formation and Operations of the Company

CEC Resources Ltd. ("Resources" or "the Company") was incorporated as an
Alberta, Canada corporation on May 31, 1955 and, since its acquisition in 1969
as a wholly-owned Canadian subsidiary by its former parent, Consolidated Oil &
Gas, Inc., has been engaged in exploration, development and production of oil
and gas reserves in Canada and oil and gas field services. Resources was a
wholly-owned subsidiary of Columbus Energy Corp. ("Parent" or "Columbus") from
1984 until February 24, 1995 when 100% of the Resources shares were sold by
its Parent to its shareholders or the public in a rights offering.

(2) Accounting Policies

The financial statements of the Company are prepared in accordance with
Canadian generally accepted accounting principles ("GAAP") and require the use
of management's estimates. The following is a summary of the significant
accounting policies followed by the Company.

Currency

The amounts in these financial statements and notes thereto are in Canadian
dollars, unless otherwise stated. The functional currency of the Company is
Canadian dollars.

Cash Equivalents

For purposes of the statements of cash flows, the Company considers all
short-term investments that are low risk, highly liquid and readily
convertible to known amounts of cash, to be cash equivalents. Results of
hedging activities, when employed, are included in cash flow from operations
in the statements of cash flows.

Oil and Gas Properties

CEC records natural gas revenues on the entitlement method based on its
percentage ownership of current production. Each working interest owner in a
well generally has the right to a specific percentage of production, although
actual production sold may differ from an owner's ownership percentage. Under
entitlement accounting, a receivable is recorded when underproduction occurs
and a payable when overproduction occurs. At November 30, 1998, Resources was
neither underproduced or overproduced relative to its percentage ownership in
its properties.

The Company follows the full cost method of accounting whereby all costs
associated with the acquisition of, exploration for and the development of oil
and gas reserves are capitalized. Such costs include land acquisition costs,
geological and geophysical expenditures, drilling productive and non-
productive wells and tangible production equipment. General and administrative
expenses are capitalized to the extent such costs are directly associated with
acquisition, exploration and development of oil and gas properties. Proceeds
from the sale of petroleum and natural gas properties reduce capitalized costs
without recognition of a gain or loss unless such a sale would significantly
alter the rate of depletion and depreciation.

Capitalized costs, including tangible production equipment, are depleted
using the unit of production method based on proved reserves of oil and gas,
before royalties, as estimated by independent engineers. For purposes of the
calculation, oil and gas reserves are converted to a common unit of measure on
the basis of six thousand cubic feet of gas to one barrel of oil. Depreciation
of the liquid extraction plant and other assets are calculated using the
straight line method over their estimated useful lives.

In applying the full cost method, the Company performs a ceiling test which
restricts the net capitalized costs from exceeding an amount equal to the
estimated undiscounted value of future net revenues from proven oil and gas
reserves, based on current prices and costs, after deducting estimated future
operating costs, development costs, general and administrative expense and
income tax expense.

F-35
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Estimated future site abandonment and restoration costs are provided using
the unit of production method over the life of proven reserves with the
current year provision included in depreciation, depletion and amortization
expense. Site abandonment and restoration expenditures incurred are recorded
as a reduction of the accumulated accrual.

Income Taxes

The liability method is used in measuring income taxes based on temporary
differences including both timing differences and other differences between
the tax basis of an asset or liability and its carrying amount in the
financial statements. This method uses the tax rate and tax law expected to
apply to taxable income in the periods in which the future income tax asset or
liability is expected to be realized. The Company is subject to tax under
applicable Canadian tax law.

Field Services

The Company recognizes revenue for field services provided to third parties
from its one-third ownership in the Carbon area liquids extraction plant as
well as from facilities in other fields at the time the services are rendered.

The Company's share of the cost of providing such third party services is
expensed and shown as "field services" cost.

Earnings Per Share

Basic earnings per share is calculated using the weighted average number of
shares of common stock outstanding during the year. Fully diluted earnings per
share is calculated assuming the exercise of outstanding options.

(3) Reclassification

Effective for the 1998 fiscal year, Resources has classified its
stockholders' equity to conform to Canadian laws in Alberta to combine stated
capital and additional paid-in capital as share capital as well as to net the
purchase of shares against those accounts when they are cancelled.
Accordingly, year end stockholder equity balances for 1995 through 1997 have
been reclassified as follows:

<TABLE>
<CAPTION>
November 30,
--------------------------
Additional
Share Common Paid-in
Capital Stock Capital
------- ------ ----------
<S> <C> <C> <C>
1995As previously reported..................... $ -- $ 300 $ 202
Reclassification............................ 502 (300) (202)
------ ----- -----
As reclassified............................. $ 502 $ -- $ --
====== ===== =====
1996As previously reported..................... $ -- $ 318 $ 788
Reclassification............................ 1,106 (318) (788)
------ ----- -----
As reclassified............................. $1,106 $ -- $ --
====== ===== =====
1997As previously reported..................... $ -- $ 318 $ 788
Reclassification............................ 1,106 (318) (788)
------ ----- -----
As reclassified............................. $1,106 $ -- $ --
====== ===== =====
</TABLE>

F-36
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

(4) Statements of Cash Flows

The Company elected to adopt Canadian Institute of Chartered Accountants
(CICA) 1540, Cash Flow Statements for fiscal 1998. This statement requires a
business enterprise to provide a statement of cash flows in place of a
statement of changes in financial position. Application of this statement is
required for fiscal years beginning on or after August 1, 1998, and earlier
application is encouraged. Cash flow information for earlier years that is
presented with corresponding information for the initial year of application
is restated to conform to the requirements of CICA 1540 as follows:

<TABLE>
<CAPTION>
Year Ended November 30, Net Cash Provided by Net Cash Provided by
1997 Operating Activities (Used In) Investing Activities
----------------------- -------------------- ------------------------------
<S> <C> <C>
As previously reported.. $2,108 $(1,649)
Restatement............. (384) 384
------ -------
As Restated............. $1,724 $(1,265)
====== =======
</TABLE>

There are no restatements for the year ended November 30, 1996. The
adjustments for 1997 were due to capital expense accruals that are excluded in
calculating cash flows from investing activities.

(5) Oil and Gas Producing Activities

The following tables set forth the capitalized costs related to oil and gas
producing activities, costs incurred in oil and gas property acquisition,
exploration and development activities, and results of operations for
producing activities:

CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
(in thousands)

<TABLE>
<CAPTION>
November 30,
----------------
1998 1997
------- -------
<S> <C> <C>
Costs being amortized (a) (b).......................... $15,527 $15,383
Less accumulated depreciation, depletion, amortization
and valuation allowance............................... (8,003) (7,117)
------- -------
Total net properties................................. $ 7,524 $ 8,266
======= =======
</TABLE>
- --------
(a) Excludes well facilities cost of $664,000 in 1998 and 1997 that are
amortized on a straight-line basis.
(b) In 1998 and 1997 no costs are excluded from amortization.

COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION,
EXPLORATION AND DEVELOPMENT ACTIVITIES
(in thousands)

<TABLE>
<CAPTION>
Year Ended
November 30,
------------------
1998 1997 1996
---- ------ ------
<S> <C> <C> <C>
Property acquisition costs:
Proved.............................................. $ 10 $ -- $ --
Unproved............................................ -- 54 65
Exploration costs..................................... 54 230 181
Development costs..................................... 134 1,159 1,889
---- ------ ------
Total costs incurred.............................. $198 $1,443 $2,135
==== ====== ======
</TABLE>

During the three years ended November 30, 1998, no general and administrative
expenses have been capitalized.

F-37
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
(in thousands)

<TABLE>
<CAPTION>
Year Ended November
30,
--------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Sales............................................... $3,235 $3,451 $3,093
Royalties, net of credits........................... 277 387 223
Production (lifting) costs (a)...................... 710 582 620
Depletion and amortization (b)...................... 949 746 614
------ ------ ------
1,299 1,736 1,636
Imputed income tax.................................. 325 579 624
------ ------ ------
Results of operations from producing activities
(excluding overhead and interest costs)............ $ 974 $1,157 $1,012
====== ====== ======
</TABLE>
- --------
(a) Production costs only include lease operating expenses.
(b) Depletion and amortization expense per equivalent barrel of production:
1998--$4.02, 1997--$3.01, 1996 --$2.15

MAJOR CUSTOMERS

<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Customer 1
Amount sold......................... $2,315,000 $2,190,000 $1,997,000
Percent of revenue.................. 72% 64% 65%
Customer 2
Amount sold......................... $ 425,000 $ 651,000 $ 636,000
Percent of revenue.................. 13% 16% 21%
</TABLE>

The Company sells its own natural gas production in the Carbon and East
Carbon areas directly to gas marketing companies. The operator of the gas
processing plant pays Resources for liquids sold at the plant tailgate and
those amounts are included in Customer 2.

During the fourth quarter of 1998, the Company made a change in accounting
estimate in proved reserves due to a significant decrease in proved developed
non-producing and proved undeveloped reserves. The majority of this decrease
is attributable to the unsuccessful completion of a well in the East Carbon
area and additional offset well information. The effect of this change on
current year operations was an increase in depletion expense of $190,000.

F-38
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

(6) Income Taxes

The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
Year Ended
November 30,
--------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................................. $19 $-- $ 23
Alberta................................................. -- 4 2
--- ---- ----
19 4 25
--- ---- ----
Future:
Federal................................................. 58 209 215
Alberta................................................. 3 90 84
--- ---- ----
61 299 299
--- ---- ----
Total income tax expense.............................. $80 $303 $324
=== ==== ====
</TABLE>

The total tax provision has resulted in effective tax rates which differ
from the statutory Federal income tax rates. The reasons for these differences
are illustrated by the following table:

<TABLE>
<CAPTION>
Year Ended
November 30,
----------------
1998 1997 1996
---- ---- ----
Percent of
Pretax
Earnings
<S> <C> <C> <C>
Federal Canadian and provincial statutory rates......... 45% 45% 45%
Resource allowance...................................... (46) (19) (13)
Crown royalties, net of credits......................... 26 14 6
Statutory rate change................................... -- -- 1
Adjustments of prior year amounts and other............. -- (7) (1)
--- --- ---
Effective rate.......................................... 25% 33% 38%
=== === ===
</TABLE>

The tax effect of significant temporary differences representing Canadian
deferred tax assets and liabilities and charges were as follows (in
thousands):

<TABLE>
<CAPTION>
Dec. 1, Current Nov. 30,
1997 Activity 1998
------- -------- --------
<S> <C> <C> <C>
Deferred income tax liabilities:
Temporary differences, principally oil and
gas properties.............................. $1,934 $61 $1,995
====== === ======
</TABLE>

For Canadian income tax purposes, Resources has the following tax
attributes available at November 30, 1998 to reduce future taxable income
which have been included in calculating the temporary differences above:

Accumulated property exploration and development costs of $1,696,000,
earned depletion base of $1,167,000 and undepreciated capital cost of
$1,152,000. The tax attributes of carryforward pools are included to
determine the temporary differences shown as deferred tax liabilities.
These attributes generally do not expire.

F-39
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

The earnings before income taxes for financial statements differed from
taxable income as follows (in thousands):

<TABLE>
<CAPTION>
Year Ended November
30,
------------------------
1998 1997 1996
------ ------- -------
<S> <C> <C> <C>
Earnings before income taxes per financial
statements................................... $ 320 $ 908 $ 850
Differences between income before taxes for
financial statement purposes and taxable
income:
Book depletion, depreciation and
amortization............................... 1,087 882 746
Non-deductible crown royalties, net......... 190 286 126
Capital cost allowance...................... (354) (409) (429)
Resource allowance.......................... (329) (379) (241)
Tax pools utilized.......................... (818) (1,283) (1,082)
Earned depletion allowance.................. (22) -- --
Other....................................... (7) (5) 30
------ ------- -------
Canadian taxable income....................... $ 67 $ -- $ --
====== ======= =======
</TABLE>

(7) Related Party Transactions

The Company incurs certain direct and indirect general and administrative
costs for management services provided by its former Parent in lieu of
expanding the number of its own full-time employees. These costs are primarily
for labor, related benefits and other overhead costs. The following table sets
forth these costs, in thousands, for each period:

<TABLE>
<S> <C>
Year Ended November 30, 1998........................................ $334
Year Ended November 30, 1997........................................ 394
Year Ended November 30, 1996........................................ 445
</TABLE>

(8) Capital Stock

During November 1996, the Company issued 79,000 shares of common stock at
U.S. $5.25 per share by private placement using an investment letter under a
Regulation D exemption of which 38,000 shares were purchased by Resources'
then President and Chairman of the Board.

During June 1998, McDonald Energy, LLC ("McDonald"), a Colorado limited
liability company solely owned by Patrick R. McDonald, currently a director,
President and Chief Executive Officer of Resources acquired 70,000 shares of
common stock by direct purchase from Resources for U.S. $5.50 per share.

On October 27, 1994 the Company's Board of Directors authorized an
unlimited number of shares of preferred stock, no par value, none of which is
currently issued.

On October 27, 1994 the Company adopted an Employee Incentive Share Option
Plan (the "Plan"). The Plan is administered by a committee appointed by the
Board of Directors of the Company. The Plan authorizes the committee to grant
options for up to 300,000 shares of the Company's common stock. The shares are
to be issued out of the Company's authorized and unissued shares and will be
issued as fully paid and non-assessable. Also, the number of Resources shares
so reserved for issuance or subject to an option under the Plan to any one
person may not exceed 5% of the number of Resources shares which are
outstanding at the time of the granting of the option.

F-40
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Options may be granted to officers, directors and regular full and part-
time employees of the Company and majority-owned subsidiaries. Options may be
exercised starting one year after grant. The option term cannot be less than
one year or more than five years from the date the option is granted. The
option price may not be less than 100% of the fair market value of the last
trading price on the date the option is granted.

During 1996, the Board of Directors granted stock options for 30,000 shares
at the exercise price of U.S. $5.50 per share and an option for 10,000 shares
was exercised at the price of U.S. $3.25 per share. At November 30, 1996,
there were 80,000 shares under option at prices ranging from U.S. $3.25 to
U.S. $6.00 per share, of which 50,000 shares were exercisable.

No options were granted in fiscal year 1997. At November 30, 1997, there
were 80,000 shares under option at prices ranging from U.S. $3.25 to U.S.
$6.00 per share, all of which were exercisable.

During 1998, the Board of Directors granted stock options for 152,000
shares at exercise prices ranging from U.S. $4.625 to U.S. $5.50 per share and
a stock option grant of 10,000 shares at U.S. $6.00 per share expired. At
November 30, 1998 there were 222,000 shares under option at prices ranging
from U.S. $3.25 to U.S. $6.00 per share, of which 70,000 shares are
exercisable.

On June 30, 1998, Resources entered into a Stock Purchase Agreement (the
"Agreement") with McDonald. In connection with the Agreement, McDonald was
granted a one-year option to purchase 250,000 shares of common stock at U.S.
$6.00 per share, all of which are exercisable and were granted in addition to
options granted to Mr. McDonald as a director and officer.

(9) Financial Instruments

The nature of the Company's operations exposes the Company to fluctuations
in commodity prices. The Company attempts to manage these risks by minimizing
its commodity price exposure through the use of derivative contracts. Gain and
losses on these contracts are deferred and recognized in income as an
adjustment to oil and gas sales revenues during the period in which the
physical product to which the contracts relate is actually sold.

During the fourth quarter of 1998, the Company entered into three AECO
C/N.I.T. based forward price hedge transactions. The terms of these
transactions are as follows:

<TABLE>
<CAPTION>
Daily Quantity Contract Quantity
Period GigaJoules GigaJoule Price/GigaJoule
------ -------------- ----------------- ---------------
<S> <C> <C> <C>
Nov 98-Mar 99........... 1,055 159,000 $2.82
Apr 99-Oct 99........... 1,055 226,000 $2.39
Dec 98-Oct 01........... 1,055 1,125,000 $2.57
</TABLE>

The unrecognized gain on these contracts totaled $148,000 based on November
30, 1998 market values.

(10) Commitments and Contingent Liabilities

The Company leases office space in Calgary, Alberta and Denver, Colorado.
These leases are month-to-month with no related future minimum lease payments.
Total rent expense for 1998, 1997 and 1996 was $64,000, $34,000 and $33,000,
respectively.

The Company adopted a separation pay policy effective February 24, 1995
which covers all regular terminations and, in addition, certain "special"
terminations of officers in the case of certain contractions and restrictions
of the Company, or in the event of a change of control of the Company. At the
discretion of the

F-41
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Board of Directors, officers and non-officer employees may receive upon their
retirement the same benefits they would have received upon a friendly change
of control of the Company. As of November 30, 1998 no benefits are payable.

Resources sells its natural gas production in the Carbon and East Carbon
areas directly to certain gas marketing companies. At November 30, 1998 the
Company had entered into three forward price hedge transactions, as described
in Note 9. The majority of the Company's remaining gas is contracted to a gas
marketing company on a deliverability basis and sold at published index prices
less applicable transportation and marketing charges. The Company has assigned
its firm transportation agreements through October 1999 but has reserved the
right to obtain firm transportation service in its own name.

The Company estimates that future costs of site abandonment and restoration
of well sites, gas processing plant and other facilities will be $310,000 as
of November 30, 1998 in addition to $165,000 already accrued as a liability.
The estimated costs are being recognized on the unit of production basis over
the life of the properties.

(11) Industry Segments

The Company's business is primarily participating in (1) oil and gas
exploration and development, and (2) field services.

Summarized financial information concerning the business segments is as
follows:

<TABLE>
<CAPTION>
Year Ended November 30,
-------------------------
1998 1997 1996
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Operating revenues from unaffiliated
services (a):
Oil and gas............................... $ 3,007 $ 3,092 $ 2,888
Services.................................. 640 633 809
------- ------- -------
Total................................... $ 3,647 $ 3,725 $ 3,697
======= ======= =======
Depreciation, depletion and amortization:
Oil and gas............................... $ 952 $ 749 $ 617
Services.................................. 135 133 129
------- ------- -------
Total................................... $ 1,087 $ 882 $ 746
======= ======= =======
Operating income:
Oil and gas............................... $ 951 $ 1,344 $ 1,166
Services.................................. 357 316 436
General corporate expenses................ (984) (751) (747)
------- ------- -------
Total operating income.................. $ 324 $ 909 $ 855
Other expense............................... 4 1 5
------- ------- -------
Earnings before income taxes................ $ 320 $ 908 $ 850
======= ======= =======
Identifiable assets:
Oil and gas............................... $10,063 $10,076 $ 8,804
Services.................................. 1,172 1,302 1,362
------- ------- -------
Total................................... $11,235 $11,378 $10,166
======= ======= =======
Additions to property and equipment:
Oil and gas............................... $ 258 $ 1,444 $ 2,135
Services.................................. 4 73 26
------- ------- -------
Total................................... $ 262 $ 1,517 $ 2,161
======= ======= =======
</TABLE>
- --------
(a) Inter-segment revenues of $394,000, $416,000 and $485,000 for 1998, 1997
and 1996, respectively, are included in services revenues and are offset
by the same amounts in oil and gas operating expenses.

F-42
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

(12) Concentrations of Credit Risk and Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value because of the short maturity of these
instruments. Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash
equivalents and accounts receivable.

The Company maintains demand deposit accounts with separate banks in
Calgary, Alberta and Denver, Colorado. The Company also invests cash in the
highest rated commercial paper of large Canadian companies, with maturities
not over 30 days, which have minimal risk of loss. At November 30, 1998 the
Company had $1,598,000 invested in such commercial paper.

Most jointly owned oil and gas properties are operated by other companies
who sell oil and liquids production to relatively large Canadian oil and gas
purchasers (see Note 5) and who pay vendors of oil and gas services on the
wells. The Company sells its own natural gas production in the Carbon and East
Carbon Areas directly to certain gas marketing companies. The risk of non-
payment by the purchasers or by those operators is monitored and is considered
minimal. The Company does not obtain collateral from these purchasers to
assure payment for sales to them. Joint interest receivables are subject to
collection under the terms of operating agreements which provide lien rights
to the operator.

In management's judgment, termination by any purchaser under which its
present sales are made would not have a material impact upon its ability to
sell its production to another purchaser at similar prices. Also, because the
Company has a high percentage of natural gas reserves, results of operations
are particularly sensitive to current pricing. The sensitivity to current
prices has been partially mitigated by the Company's use of financial
instruments that provide a fixed sales price for a percentage of the Company's
production.

(13) Generally Accepted Accounting Principles in Canada and the United States

The financial statements have been prepared in accordance with Canadian
GAAP which differ in certain respects from those principles that the Company
would have followed had its financial statements been prepared in accordance
with U.S. GAAP. Differences in disclosures which affect these financial
statements are:

(a) Under U.S. GAAP, cash (and cash equivalents) includes bank deposits,
money market instruments, and commercial paper with original maturities of
three months or less. Canadian GAAP permits the inclusion of temporary
investments with maturities greater than 90 days in cash. The differences
in measurement had no impact on classification in the balance sheets.

(b) Basic earnings per share using U.S. GAAP is the same as basic
earnings per share using Canadian GAAP. Diluted earnings per share using
U.S. GAAP uses the "treasury stock method". Fully diluted earnings per
share using Canadian GAAP assumes cash proceeds from the deemed exercise of
stock options are invested in such a way as to earn a reasonable return but
the number of shares remains the same.

(c) Using the full cost accounting method under U.S. GAAP, the ceiling
test is applied to capitalized costs using a 10% discount factor. There
would be no impairment of the U.S. full cost pool under this method.

Stock Based Compensation Plans

Using U.S. GAAP, the Company would have adopted in 1996, Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The Company would have elected to continue to
measure compensation costs for these plans using the current method of
accounting under

F-43
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Accounting Principles Board ("APB") Opinion No. 25 and related interpretations
in accounting for its stock option plan. Accordingly, no compensation expense
is recognized for stock options granted with an exercise price equal to the
market value of Resources stock on the date of grant. Had compensation cost
for the Company's stock option plan been determined using the fair-value
method in SFAS No. 123, the Company's net income and earnings per share would
have been as follows:

<TABLE>
<CAPTION>
Year Ended
November 30,
-----------------
1998 1997 1996
----- ----- -----
(Thousand except
per share
amounts)
<S> <C> <C> <C>
Net income
As reported.......................................... $ 240 $ 605 $ 526
Pro forma............................................ $ 90 $ 581 $ 526
Earnings per share (basic)
As reported.......................................... $0.16 $0.38 $0.35
Pro forma............................................ $0.06 $0.37 $0.35
</TABLE>

Options are granted at 100% of fair market value on the date of grant. The
following table is a summary of stock option transactions (reported in U.S.
dollars) for the three years ended November 30, 1998:

<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ----------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
Shares Shares Shares
---------- --------- ----------
(options in thousands)
<S> <C> <C> <C> <C> <C> <C>
Shares under option at beginning of year....... 80 $5.44 80 $5.44 60 $5.04
Granted........................................ 152 5.26 -- -- 30 5.50
Exercised...................................... -- -- -- -- (10) 3.25
Expired........................................ (10) 6.00 -- -- -- --
--- --- ---
Shares under option at end of year............. 222 5.29 80 5.44 80 5.44
=== === ===
Options exercisable at Nov. 30................. 70 5.36 80 5.44 50 5.39
Shares available for future grant at end of
year.......................................... 68 210 210
Weighted-average fair value of options granted
during the year............................... $0.83 N/A $1.28
</TABLE>

The following table summarizes information about the Company's stock
options (reported in U.S. dollars) outstanding at November 30, 1998:

<TABLE>
<CAPTION>
Options Outstanding (in Options Exercisable
thousands) (in thousands)
-------------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Options Contractual Average Options Average
Outstanding Life Exercise Exercisable Exercise
Range of Exercise Prices At Year End (Years) Price at Year End Price
- ------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$3.25--$4.75............. 50 4.2 $4.40 10 $3.25
$5.375--$5.50............ 142 3.4 5.47 30 5.50
$5.75-- $6.00............ 30 1.5 5.92 30 5.92
--- --- ----- --- -----
$3.25--$6.00............. 222 3.3 $5.29 70 $5.36
=== === ===== === =====
</TABLE>

F-44
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:

<TABLE>
<CAPTION>
1998 1996
----- -----
<S> <C> <C>
Expected option life--years................................ 1.70 3.00
Risk-free interest rate.................................... 5.31% 6.29%
Dividend yield............................................. 0% 0%
Volatility................................................. 28.35% 20.70%
</TABLE>

No options were granted during 1997.

(14) SUBSEQUENT EVENTS

In December 1998, the Company acquired working interests in 16 producing
natural gas wells and associated leaseholds in the Wayne-Rosedale Field,
located in Alberta, Canada, effective September 1, 1998 for $2.3 million. The
assets, liabilities, revenues and expenses for the period September through
November 1998 have not been recorded as of November 30, 1998 because the
closing did not take place until after year end.

In December 1998, the Company secured a financing commitment. The initial
commitment is a $2.5 million revolving production loan. The revolving phase of
the loan will expire on April 30, 1999 and may be renewed by the bank. The
interest rate on outstanding borrowings is the CIBC Prime Rate plus 3/4 of 1%.

F-45
<PAGE>

CEC RESOURCES LTD.

BALANCE SHEETS

<TABLE>
<CAPTION>
August 31, November
ASSETS 1999 30, 1998
------ ----------- --------
(unaudited)
(in Canadian
dollars)
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ -- $ 1,666
Accounts receivable:
Oil and gas sales..................................... 421 466
Crown royalty refund and other........................ 470 333
Joint interest partners............................... 24 8
Income tax receivable................................... 58 0
-------- -------
Total current assets................................ 973 2,473
-------- -------
Property and equipment:
Oil and gas assets, full cost method.................... 22,023 16,192
Liquid extraction plant................................. 1,477 1,477
Other property and equipment............................ 200 108
-------- -------
23,700 17,777
Less: Accumulated depreciation, depletion and
amortization........................................... (10,556) (9,015)
-------- -------
Net property and equipment.............................. 13,144 8,762
-------- -------
Other assets............................................ 1,864 --
-------- -------
$ 15,981 $11,235
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable........................................ $ 282 $ 237
Income tax payable...................................... 2 3
Undistributed oil and gas production receipts........... 507 113
-------- -------
Total current liabilities............................. 791 353
-------- -------
Future site restoration costs (Note 5).................... 221 165
Deferred income taxes (Note 3)............................ 1,739 1,995
Long-term debt (Note 7)................................... 4,850 --
Stockholders' equity
Preferred stock, authorized unlimited number of shares,
no par value; none issued..............................
Share capital, common stock, authorized unlimited number
of shares, without nominal or par value; 1,521,400
shares issued in 1999 and 1,544,400 in 1998............ 1,512 1,534
Retained earnings....................................... 6,868 7,188
-------- -------
Total stockholders' equity............................ 8,380 8,722
-------- -------
$ 15,981 $11,235
======== =======
</TABLE>

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

F-46
<PAGE>

CEC RESOURCES LTD.

STATEMENTS OF INCOME
(Unaudited)

<TABLE>
<CAPTION>
Nine Months
Ended August
31,
--------------
1999 1998
------ ------
(in Canadian
dollars)
(in
thousands,
except per
share data)
<S> <C> <C>
Oil and gas sales............................................... $3,684 $2,380
Royalties....................................................... (732) (460)
Alberta royalty tax credit...................................... 434 242
Field services.................................................. 75 175
Other........................................................... 2 27
------ ------
Total revenues................................................ 3,463 2,364
------ ------
Lease operating expenses........................................ 585 563
Field services.................................................. 65 111
General and administrative...................................... 1,522 615
Depreciation, depletion and amortization........................ 1,597 686
------ ------
Total costs and expenses...................................... 3,769 1,975
------ ------
Operating income................................................ (306) 389
------ ------
Interest expense and other...................................... 136 (23)
------ ------
Earnings before income taxes.................................... (442) 412
Provisions for income taxes (Note 3)............................ (254) 144
------ ------
Net earnings.................................................... $ (188) $ 268
====== ======
Earnings per share.............................................. $(0.12) $ 0.17
====== ======
Basic........................................................... $(0.12) $ 0.17
====== ======
Average number of common shares outstanding
Basic........................................................... 1,529 1,542
====== ======
Fully diluted................................................... 1,529 1,546
====== ======
</TABLE>

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

F-47
<PAGE>

CEC RESOURCES LTD.

STATEMENT OF STOCKHOLDERS' EQUITY
For the Nine Months Ended August 31, 1999
(Unaudited)

<TABLE>
<CAPTION>
Earnings
Shares Amount Retained
--------- ------ --------
(in Canadian dollars)
(in thousands, except
share data)
<S> <C> <C> <C>
Balances, November 30, 1998......................... 1,544,400 $1,534 $7,188
Purchase and cancellation of shares................. (23,000) (22) (132)
Net earnings........................................ -- -- (224)
--------- ------ ------
Balances August 31, 1999............................ 1,521,400 $1,512 $6,832
========= ====== ======
</TABLE>

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

F-48
<PAGE>

CEC RESOURCES LTD.

STATEMENTS OF CASH FLOW (Note 2)
(Unaudited)

<TABLE>
<CAPTION>
Nine Months
Ended August
31,
---------------
1999 1998
------- ------
(in Canadian
dollars)
(in thousands)
<S> <C> <C>
Net earnings.................................................. $ (188) $ 268
Adjustments to reconcile net earnings to net cash provided by
operating activities:........................................ -- --
Depreciation, depletion and amortization.................... 1,597 686
Future income taxes......................................... (256) 120
Other....................................................... (55) --
Net change in operating assets and liabilities................ 291 144
------- ------
Net cash provided by operating activities................... 1,389 1,218
------- ------
Cash flows from investing activities:
Additions to oil and gas properties......................... (5,851) (489)
Additions to other assets................................... (1,900) --
------- ------
Net cash used in investing activities....................... (7,751) (489)
Cash flows from financing activities:
Proceeds from long-term debt................................ 4,850 0
Proceeds from issuance of common stock...................... 513
Purchase of common stock.................................... (154) (592)
------- ------
Net cash provided by (used in) financing activities......... 4,696 (79)
Net increase (decrease) in cash and cash equivalents.......... (1,666) 650
Cash and cash equivalents at beginning of period.............. 1,666 1,073
------- ------
Cash and cash equivalents at end of period.................... $ 0 $1,723
======= ======
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Income taxes, net of refunds.............................. $ 40 $ (50)
------- ------
</TABLE>

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

F-49
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

(1) Basis of Presentation

The accompanying financial statements are for CEC Resources Ltd.
("Resources" or "Company"). Resources is an independent oil and gas company
and was incorporated on May 31, 1955 under the Business Corporations Act
(Alberta ) in Canada and was acquired by the former parent of Columbus Energy
Corporation ("Columbus") in 1969 and by Columbus on July 31, 1984. It remained
a wholly owned subsidiary of Columbus until spun-off from Columbus by a rights
offering in February 1995.

These financial statements are prepared in accordance with Canadian
generally accepted accounting principles ("GAAP") and require the use of
management's estimates. These statements contain all adjustments (consisting
only of normal recurring accruals) which, in the opinion of management, are
necessary to present fairly the financial position of the Company as of August
31, 1999 and November 30, 1998, and the results of its operations and of its
cash flows for the periods presented. The results of operations for interim
periods are not necessarily indicative of results to be expected for the full
year.

Currency

The amounts in these financial statements and notes thereto are in Canadian
dollars, unless otherwise stated. The functional currency of the Company is
Canadian dollars.

Cash Equivalents

For purposes of the statements of cash flow, the Company considers all
short-term investments that are low risk, highly liquid and readily
convertible to known amounts of cash to be cash equivalents. Results of
hedging activities, when employed, are included in cash flow from operations
in the statements of cash flow.

Oil and Gas Properties

CEC records natural gas revenues on the entitlement method based on its
percentage ownership of current production. Each working interest owner in a
well generally has the right to a specific percentage of production, although
actual production sold may differ from an owner's ownership percentage. Under
entitlement accounting, a receivable is recorded when the underproduction
occurs and a payable when overproduction occurs. At August 31, 1999, CEC was
neither underproduced or overproduced relative to its percentage ownership in
its properties.

The Company follows the full cost method of accounting whereby all costs
associated with the acquisition of, exploration for, and the development of
oil and gas reserves are capitalized. Such costs include land acquisition
costs, geological and geophysical expenditures, drilling costs of productive
and non-productive wells and tangible production equipment. General and
administrative expenses are capitalized to the extent such costs are directly
associated with acquisition, exploration and development of oil and gas
properties. Proceeds from the sale of petroleum and natural gas properties
reduce capitalized costs without recognition of a gain or loss unless such a
sale would significantly alter the rate of depletion and depreciation.

Capitalized costs, including tangible production equipment, are depleted
using the unit of production method based on proved reserves of oil and gas,
before royalties, as estimated by independent engineers. For purposes of the
calculation, oil and gas reserves are converted to a common unit of measure on
the basis of six thousand cubic feet of gas to one barrel of oil. Depreciation
of the natural gas liquids processing plant and other property and equipment
are calculated using the straight line method over their estimated useful
lives.

F-50
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Unaudited)

Field Services Business Segment

The Company receives field service revenue generated by its share of
natural gas processing fees at the Carbon gas plant. The portion of the plant
processing fee revenue attributable to Resources own gas volumes processed by
the plant is not reported as field service revenue, but instead offsets an
identical amount otherwise chargeable to lease operating expenses. The Carbon
plant also processes natural gas belonging to unrelated plant non-owners which
represents the majority of Resources field services revenues. Field services
revenues are recognized at the time the services are rendered.

Resources also derives less significant revenues and net cash flow from
other gathering and compression facilities in which it has ownership. Amounts
applicable to Resources' own gas production volumes have likewise been
eliminated from both revenues and expenses from these operations.

Income Taxes

The liability method is used in measuring income taxes based on temporary
differences including timing differences and other differences between the tax
basis of an asset or liability and its carrying amount in the financial
statements. The method uses the tax rate and the tax law expected to apply to
taxable income in the periods in which the future income tax asset or
liability is expected to be realized. The Company is subject to tax under
applicable Canadian tax law.

Earnings Per Share

Basic earnings per share are calculated using the weighted average number
of shares of common stock outstanding during the period. Fully diluted
earnings per share are calculated assuming the exercise of outstanding
dilutive options.

F-51
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Unaudited)

(2) Statements of Cash Flow

The Company elected for 1998 to adopt Canadian Institute of Chartered
Accountants (CICA) 1540, Cash Flow Statements, which require a business
enterprise to provide a statement of cash flow in place of a statement of
changes in financial position. Application of CICA 1540 is required for fiscal
years beginning on or after August 1, 1998. Cash flow information for prior
years is restated to conform to the requirements of CICA 1540 as follows:

<TABLE>
<CAPTION>
Net Cash
Provided by Net Cash Provided by
Operating (Used In) Investing
Activities Activities
----------- --------------------
(In Canadian Dollars)
(in thousands)
<S> <C> <C>
Nine Months Ended August 31, 1998
As previously reported................... $ 835 $(106)
Restatement.............................. 383 (383)
------ -----
As Restated.............................. $1,218 $(489)
====== =====
</TABLE>

(3) Income Taxes

The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
Nine
Months
Ended
August 31,
-----------
1999 1998
----- ----
<S> <C> <C>
Current:
Federal..................................................... $ 2 $ 24
Alberta..................................................... -- --
----- ----
2 24
----- ----
Future:
Federal..................................................... (160) 68
Alberta..................................................... (96) 52
----- ----
(256) 120
----- ----
Total income tax expense...................................... $(254) $144
===== ====
</TABLE>

Total tax provision has resulted in effective tax rates which differ from
statutory Federal income tax rates. The reasons for these differences are
illustrated by the following table:

<TABLE>
<CAPTION>
Percent
of Pretax
Earnings
Nine
Months
Ended
August
31,
----------
1999 1998
---- ----
<S> <C> <C>
Federal Canadian and provincial statutory rates............... 45% 45%
Resource allowance............................................ 28 (27)
Crown royalties, net of credits............................... (19) 16
Adjustments of prior year amounts and other................... 3 1
--- ---
Effective Rate................................................ 57% 35%
=== ===
</TABLE>

F-52
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Unaudited)

The tax effect of significant temporary differences representing deferred
tax assets and liabilities and charges were as follows (in thousands):
<TABLE>
<CAPTION>
Current
Dec. 1, Year August 31,
1998 Activity 1999
------- -------- ----------
<S> <C> <C> <C>
Deferred tax liabilities:
Temporary differences, principally oil and
gas properties............................ $1,995 $(256) $1,739
====== ===== ======
</TABLE>

For Canadian income tax purposes Resources has tax pools available at
August 31, 1999 to reduce future taxable income. These pools include oil and
gas property expenses of $4,235,000, development and exploration expenses of
$1,042,000, earned depletion base of $1,170,000 and undepreciated capital
costs of $2,465,000. The tax attributes of carryforward pools are included to
determine the temporary differences shown as deferred tax liabilities. These
attributes generally do not expire.

(4) Related Party Transactions

Resources incurred certain direct and indirect general and administrative
costs for services provided by its former Parent in lieu of expanding the
number of its own full-time employees. These costs were primarily for labor,
related benefits and other overhead costs as provided by an agreement between
the parties. These costs were $54,000 and $271,000 for the nine months of 1999
and 1998, respectively. Effective March 31, 1999, this management agreement
was terminated.

(5) Commitments

The majority of the Company's natural gas is contracted to gas marketing
companies on a deliverability basis and sold at published index prices less
applicable transportation and marketing charges. The Company has temporarily
assigned its firm transportation agreements through October, 1999 and has
retained the option to obtain additional firm transportation service. At
August 31, 1999, the Company had seven forward priced hedge contracts. These
contracts allow the Company to receive fixed prices for a percentage of its
production. The terms of these transactions are as follows:

<TABLE>
<CAPTION>
Daily Contract
Quantity Quantity Fixed
Period GigaJoules GigaJoules Price/GigaJoule
------ ---------- ---------- ---------------
<S> <C> <C> <C>
Apr 99-Oct 99....................... 1,055 226,000 $2.390
Dec 98-Oct 01....................... 1,055 1,125,000 $2.570
Apr 99-Oct 99....................... 1,000 214,000 $2.310
Apr 99-Oct 99....................... 500 107,000 $2.220
Nov 99-Oct 00....................... 1,000 366,000 $2.730
Nov 99-Mar 00....................... 750 113,250 $3.620
Apr 00-Oct 00....................... 750 160,500 $2.925
</TABLE>

The unrecognized loss on these contracts totaled $806,000 based on August
31, 1999 market values.

The Company estimates that future costs of site abandonment and restoration
of well sites, gas processing plants and other facilities will be $434,362 as
of August 31, 1999 in addition to $221,000 already accrued as a liability. The
estimated costs are being recognized on a unit-of-production basis over the
life of the properties.

F-53
<PAGE>

CEC RESOURCES LTD.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Unaudited)

(6) Acquisition of Oil and Gas Properties

Between December 1998 and April 1999, Resources purchased producing oil and
gas properties and natural gas gathering and compression facilities in
Alberta, Canada. These acquisitions were accounted for as a purchase and
considered "material" by management for purposes of pro forma disclosure. The
following pro forma statement presents incremental results of operations for
the current year and for the corresponding period of the preceding year as
though the acquisitions had occurred at the beginning of the periods being
reported on. Revenues and expenses subsequent to the purchase dates have been
included in 1999 operating results and are not included in the incremental
results.

The incremental pro forma results below are not indicative of the results
that would have occurred if the acquisitions had been in effect for the entire
periods presented. The pro forma results are not intended to be a projection
of future results. Financial information showing the incremental pro forma
results of the acquisition is presented below:

<TABLE>
<CAPTION>
Nine Months
Ended
August 31,
-------------
1999 1998
----- ------
(in Canadian
dollars)
(in
thousands,
except per
share data)
<S> <C> <C>
Revenues................................................... $ 168 $1,080
Direct Operating Expenses.................................. 64 510
Depreciation & Depletion................................... 109 682
Interest Expense........................................... 40 237
Income Tax Expense (a)..................................... (15) (122)
Net Income................................................. (30) (227)
Earnings per share......................................... (0.02) (0.15)
</TABLE>
- --------
(a) Income taxes at Company's effective rate for the applicable period.

(7) Long-Term Debt

The Company has a revolving loan from a bank used to finance acquisitions
of oil and gas reserves and for normal operating requirements. The loan is
secured by the Company's oil and gas assets and had a borrowing base of $5.0
million at August 31, 1999. In October 1999, the commitment was increased to
$6.5 million. The commitment will be reduced to $5.75 million upon closing of
the BFC Acquisition. The interest rate on the outstanding borrowings is the
bank's prime rate, plus 3/4% which has averaged 7.25% for the nine months
ended August 31, 1999. The revolving phase of the loan will expire on April
30, 2000 and may be renewed by the bank. If the revolving commitment is not
renewed by the bank the loan will be converted into a term loan and will be
permanently reduced by way of consecutive monthly principal payments over a
period not to exceed 36 months. Outstanding borrowings amounted to $4.5
million at August 31, 1999. The repayment schedule would be based on the
technical review of the assets and the bank's determination of a reasonable
cash flow to be available for principal reductions. The repayment mechanism
requires the borrowing base to be reduced by a calculated amount and if
current draws are not in excess of the reduced borrowing base there are no
requirements for principal repayments. Based upon the most recent technical
review by the bank, the estimated required repayments (or borrowing base
reduction) required over the next twelve months would not exceed current
draws, consequently there are no borrowings classified as current liabilities.

F-54
<PAGE>

(8) Generally Accepted Accounting Principles in Canada and the United States

The financial statements have been prepared in accordance with Canadian
GAAP and differ in certain respects from financial statements which the
Company would have made had its financial statements been prepared in
accordance with United States GAAP. Differences between the two methods which
affect these financial statements are:

(a) Under U.S. GAAP, cash (and cash equivalents) includes bank deposits,
money market instruments, and commercial paper with original maturities of
three months or less. Canadian GAAP permits the inclusion in cash of
temporary investments with maturities greater than 90 days. The differences
in measurement had no impact on classification in the balance sheets.

(b) Basic earnings per share using U.S. GAAP is the same as basic
earnings per share using Canadian GAAP. Under U.S. GAAP, fully diluted
earnings per share are reported using the "treasury stock method". Under
Canadian GAAP, fully diluted earnings per share assumes that cash proceeds
from the deemed exercise of stock options are invested by the Company in
such a way as to earn a reasonable return. The number of shares used in the
calculation is the same for both methods.

(c) Under U.S. GAAP, the full cost accounting method requires that
capitalized costs less related accumulated depletion and deferred income
taxes may not exceed the sum of (1) the present value (discounted at 10%)
of future net revenues from estimated production of proved oil and gas
reserves; plus (2) the cost of properties not being amortized, if any, plus
(3) the lower of cost or estimated fair value of unproved properties
included in the costs being amortized if any, less (4) income tax effects
related to differences in the book and tax basis of oil and gas properties.
Using U.S. GAAP, there would not have been an impairment to the full cost
pool.

F-55
<PAGE>

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 20. Indemnification Of Directors And Officers

Under the Colorado Business Corporation Act, we have broad powers to
indemnify our directors and officers against liabilities they may incur in
such capacities, including liabilities under the Securities Act. Colorado law
provides that a director, officer or any other employee, fiduciary or agent,
may be entitled to indemnification if: (1) the person conducted himself or
herself in good faith; (2) the person reasonably believed, (a) in the case of
conduct in an official capacity with the corporation, that his or her conduct
was in the corporation's best interests, and (b) in all other cases, that his
or her conduct was at least not opposed to the corporation's best interests;
and (3) in the case of any criminal proceeding, the person had no reasonable
cause to believe his or her conduct was unlawful. A corporation may not
indemnify a director in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation or in
connection with any other proceeding charging that the director derived an
improper personal benefit, whether or not involving action in an official
capacity, in which the director was adjudged liable on the basis that he or
she derived an improper personal benefit.

Our Bylaws provide that we will indemnify our directors and executive
officers and may indemnify our other officers, employees and other agents to
the full extent permitted under Colorado law. We have also entered into
indemnification agreements with each of our executive officers and directors.
The terms of these indemnification agreements are described in "Management--
Indemnification and Limitation of Liability."

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Carbon
pursuant to the foregoing provisions, we have been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.

II-1
<PAGE>

Item 21. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S> <C>
2 Articles of Incorporation of Carbon Energy Corporation.*
3 Bylaws of Carbon Energy Corporation.*
4 Specimen stock certificate representing shares of common stock
of Carbon Energy Corporation.
5 Opinion of Holland & Hart LLP regarding the legality of the
securities being registered.
8.1 Tax Opinion of Holland & Hart LLP, dated October 20, 1999.*
8.2 Tax Opinion of Bennett Jones, dated October 20, 1999.*
10.1 1999 Stock Option Plan.*
10.2 1999 Restricted Stock Plan.*
10.3 Exchange and Financing Agreement dated October 14, 1999 among
Carbon Energy Corporation, CEC Resources Ltd and Yorktown
Energy Partners III, L.P.*
10.4 Stock Purchase Agreement dated August 11, 1999 between
Bonneville Pacific Corporation and CEC Resources Ltd.*
10.5 Form of Indemnification Agreement between Carbon Energy
Corporation and its officers and directors.*
10.6 Form of Employment Agreement, dated as of October 29, 1999,
between Carbon Energy Corporation and Patrick R. McDonald.*
10.7 Form of Employment Agreement, dated as of October 29, 1999,
between Carbon Energy Corporation and Kevin D. Struzeski.*
10.8 Amended and Restated Credit Agreement dated as of May 31, 1994
among Bonneville Fuels Corporation, Bonneville Fuels Marketing
Corporation, Colorado Gathering Corporation, Bonneville Fuels
Operating Corporation and Bonneville Fuels Management
Corporation ("Borrowers") and First Interstate Bank of Denver,
N.A. ("Lender"); Revolving Note for $20,000,000 dated May 31,
1994 from Borrowers to Lender; Promissory Note for $1,000,000
from Borrowers to Lender dated May 31, 1994; Term Note for
$20,000,000 from Borrowers to Lender dated May 31, 1994; as
amended by Note Modification Agreement dated April 1, 1995,
among Borrowers and Lender; Amendment to Credit Agreement
dated as of April 1, 1995 among Borrowers and Lender; Note
Modification Agreement dated May 1, 1996 among Borrowers and
Lender; Second Amendment to Credit Agreement dated as of April
1, 1996 among Borrowers and Lender; Loan Transfer Agreement
dated as of September 18, 1996 among Borrowers, Wells Fargo
Bank (Colorado), N.A. formerly known as First Interstate Bank
of Denver, N.A. and Colorado National Bank ("CNB"); Third
Amendment of Amended and Restated Credit Agreement dated as of
September 18, 1996 among Borrowers and CNB; Fourth Amendment
of Amended and Restated Credit Agreement dated as of May 15,
1998 among Borrowers and CNB and Fifth Amendment of Amended
and Restated Credit Agreement dated as of June 1, 1999 among
Borrowers and CNB.
23.1 Consent of Holland & Hart LLP (included in Exhibits 5 and
8.1).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Hein + Associates LLP.
23.4 Consent of PricewaterhouseCoopers LLP.
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S> <C>
23.5 Consent to Being Director of Harry A. Trueblood, Jr.*
23.6 Consent of Reed W. Ferrill & Associates, Inc.*
23.7 Consent of Sproule Associates Limited*
23.8 Consent of Ryder Scott Company, L.P.*
24 Power of Attorney.**
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
</TABLE>

- --------

*Previously filed

**Power of attorney for Cortlandt S. Dietler is being filed with this
Amendment No. 1. All other powers of attorney were previously filed.

Item 22. Undertakings

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

II-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this registration statement to be
signed on its behalf by the undersigned in the City of Denver, State of
Colorado, on December 20, 1999.

Carbon Energy Corporation

/s/ Patrick R. McDonald
By: _________________________________
Patrick R. McDonald
President

In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed below by the following persons in the
capacities and on the dates stated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Patrick R. McDonald President (Principal December 20, 1999
____________________________________ Executive Officer)
Patrick R. McDonald

/s/ Cortlandt S. Dietler Director December 20, 1999
____________________________________
Cortlandt S. Dietler

/s/ David H. Kennedy* Director December 20, 1999
____________________________________
David H. Kennedy

</TABLE>

<TABLE>
<S> <C> <C>
/s/ Bryan H. Lawrence* Director December 20, 1999
____________________________________
Bryan H. Lawrence

/s/ Peter A. Leidel* Director December 20, 1999
____________________________________
Peter A. Leidel

/s/ Kevin D. Struzeski* Treasurer (Principal December 20, 1999
____________________________________ Financial Officer and
Kevin D. Struzeski Principal Accounting
Officer)

</TABLE>

/s/ Patrick R. McDonald

*By: __________________________
Attorney-in-Fact

II-4
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
2 Articles of Incorporation of Carbon Energy Corporation.*

3 Bylaws of Carbon Energy Corporation.*

4 Specimen stock certificate representing shares of common stock of
Carbon Energy Corporation.

5 Opinion of Holland & Hart LLP regarding the legality of the securities
being registered.

8.1 Tax Opinion of Holland & Hart LLP, dated October 20, 1999.*

8.2 Tax Opinion of Bennett Jones, dated October 20, 1999.*

10.1 1999 Stock Option Plan.*

10.2 1999 Restricted Stock Plan.*

10.3 Exchange and Financing Agreement dated October 14, 1999 among Carbon
Energy Corporation, CEC Resources Ltd and Yorktown Energy Partners
III, L.P.*

10.4 Stock Purchase Agreement dated August 11, 1999 between Bonneville
Pacific Corporation and CEC Resources Ltd.*

10.5 Form of Indemnification Agreement between Carbon Energy Corporation
and its officers and directors.*

10.6 Form of Employment Agreement, dated as of October 29, 1999, between
Carbon Energy Corporation and Patrick R. McDonald.*

10.7 Form of Employment Agreement, dated as of October 29, 1999, between
Carbon Energy Corporation and Kevin D. Struzeski.*

10.8 Amended and Restated Credit Agreement dated as of May 31, 1994 among
Bonneville Fuels Corporation, Bonneville Fuels Marketing Corporation,
Colorado Gathering Corporation, Bonneville Fuels Operating Corporation
and Bonneville Fuels Management Corporation ("Borrowers") and First
Interstate Bank of Denver, N.A. ("Lender"); Revolving Note for
$20,000,000 dated May 31, 1994 from Borrowers to Lender; Promissory
Note for $1,000,000 from Borrowers to Lender dated May 31, 1994; Term
Note for $20,000,000 from Borrowers to Lender dated May 31, 1994; as
amended by Note Modification Agreement dated April 1, 1995, among
Borrowers and Lender; Amendment to Credit Agreement dated as of April
1, 1995 among Borrowers and Lender; Note Modification Agreement dated
May 1, 1996 among Borrowers and Lender; Second Amendment to Credit
Agreement dated as of April 1, 1996 among Borrowers and Lender; Loan
Transfer Agreement dated as of September 18, 1996 among Borrowers,
Wells Fargo Bank (Colorado), N.A. formerly known as First Interstate
Bank of Denver, N.A. and Colorado National Bank ("CNB"); Third
Amendment of Amended and Restated Credit Agreement dated as of
September 18, 1996 among Borrowers and CNB; Fourth Amendment of
Amended and Restated Credit Agreement dated as of May 15, 1998 among
Borrowers and CNB and Fifth Amendment of Amended and Restated Credit
Agreement dated as of June 1, 1999 among Borrowers and CNB.
23.1 Consent of Holland & Hart LLP (included in Exhibits 5 and 8.1).

23.2 Consent of Arthur Andersen LLP.

23.3 Consent of Hein + Associates LLP.

23.4 Consent of PricewaterhouseCoopers LLP.

23.5 Consent to Being Director of Harry A. Trueblood, Jr.*

23.6 Consent of Reed W. Ferrill & Associates, Inc.*

23.7 Consent of Sproule Associates Limited*
</TABLE>

<PAGE>

INDEX TO EXHIBITS (cont.)

<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
23.8 Consent of Ryder Scott Company, L.P.*

24 Power of Attorney.**

27.1 Financial Data Schedule

27.2 Financial Data Schedule

27.3 Financial Data Schedule
</TABLE>
- --------

*Previously filed

**Power of attorney for Cortlandt S. Dietler is being filed with this
Amendment No. 1. All other powers of attorney were previously filed.

<PAGE>

Number Common Stock
SHARES

CEC ____ CARBON ENERGY CORPORATION
SEE REVERSE FOR CERTAIN
DEFINITIONS
CUSIP

INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
INCORPORATED UNDER THE COLORADO BUSINESS CORPORATION ACT

THIS CERTIFICATE IS TRANSFERABLE EITHER IN CHICAGO, IL OR IN NEW YORK, NY

This Certifies that

is the record holder of

FULL PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, WITH NO PAR VALUE,
OF ___________________ CARBON ENERGY CORPORATION ______________________________
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.

WITNESS the seal of the Corporation and the signatures of its duly
authorized officers.

Dated:
CARBON ENERGY CORPORATION
CORPORATE
SEAL
COLORADO

Countersigned and Registered:
HARRIS TRUST AND SAVINGS BANK
Transfer Agent and Registrar

By:
-------------------------
AUTHORIZED SIGNATURE

SECRETARY PRESIDENT
<PAGE>

The Corporation will furnish to a shareholder, on demand and without
charge, a full copy of the text of (1) the designations, preferences,
limitations and relative rights attached to each class of shares authorized to
be issued, (2) the variations in preferences, limitation, and rights determined
for each series of shares, and (3) the authority of the directors to fix the
designations, preferences, limitations and relative rights for future classes or
series.

KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN OR DESTROYED
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE
OF A REPLACEMENT CERTIFICATE.

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

<TABLE>

<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _________Custodian_________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with under Uniform Gifts to Minors
right of survivorship Act ______________________
and not as tenants in (State)
common UNIF TRF MIN ACT - _______Custodian (until age __)
(Cust)
_______ under Uniform Transfers
(Minor)
to Minors Act _______________
(State)
</TABLE>

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

For Value Received, __________________________ hereby sell, assign and
transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
------------------------------

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

- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

________________________________________________________________________________

_____________________________________Shares of the common stock represented by
the within Certificate, and do hereby irrevocably constitute and appoint
_____________________________________ Attorney to transfer the said stock on the
books of the within named Corporation with full power of substitution in the
premises.

Dated __________________
X______________________________________

X______________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE

Signature(s) Guaranteed

By_____________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM, PURSUANT TO S.E.C. RULE 17d-15.

<PAGE>

EXHIBIT 5

December 17, 1999

Board of Directors
Carbon Energy Corporation
c/o Bonneville Fuels Corporation
1660 Lincoln Street, Suite 2200
Denver, Colorado 80264

To the Board of Directors:

As counsel for Carbon Energy Corporation (the "Company"), a Colorado
corporation, we have examined and are familiar with its Articles of
Incorporation, its Bylaws and its various corporate records and proceedings
relating to its incorporation. We are also familiar with the proceedings taken
by the Board of Directors of the Company to authorize the exchange offer (the
"exchange offer") pursuant to which one share of the Company's common stock,
no par value, will be offered in exchange for each outstanding share of common
stock of CEC Resources Ltd. ("CEC"). The exchange offer is described in the
Registration Statement on Form S-4 of the Company, No. 333-89783. Pursuant to
the terms of the exchange offer, the Company may issue up to 1,765,900 shares
of its common stock to holders of CEC common stock who properly tender their
CEC shares for exchange. We also have examined such other matters and have
made such other inquiries as we deem relevant to our opinion expressed below.

We are of the opinion that the up to 1,765,900 shares of common stock of
the Company described above have been duly authorized by all necessary
corporate action of the Company and, when issued in accordance with the
exchange offer, will be validly issued and outstanding shares of the common
stock of the Company, fully paid and non-assessable.

We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an Exhibit to the Company's Registration Statement on
Form S-4 in connection with the exchange offer and any amendments thereto and
to the reference to our firm contained under the heading "Legal Matters".

Very truly yours,

Holland & Hart LLP

<PAGE>

Exhibit 10.8
------------

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

AMENDED AND RESTATED
CREDIT AGREEMENT

AMONG

BONNEVILLE FUELS CORPORATION,
BONNEVILLE FUELS MARKETING CORPORATION,
COLORADO GATHERING CORPORATION,
BONNEVILLE FUELS OPERATING CORPORATION,
AND
BONNEVILLE FUELS MANAGEMENT CORPORATION,
as Borrowers

AND

FIRST INTERSTATE BANK OF DENVER, N.A.,
as Lender

Dated as of

May 31, 1994

================================================================================
<PAGE>

TABLE OF CONTENTS
-----------------

Page
----

ARTICLE I DEFINITIONS AND ACCOUNTING TERMS................................ 2

ARTICLE II THE CREDIT..................................................... 10

(a) Loans and Letters of Credit................................. 11
(b) Conversion of Facility A Prime Rate Loans................... 11

ARTICLE III FEES, PROCEDURES AND PAYMENT.................................. 12

(a) Facility Fee................................................ 12
(b) Borrowing Base Commitment Fees.............................. 12
(c) Letter of Credit Fees....................................... 12
(d) Facility A Prepayment Fee................................... 13
(e) General..................................................... 13
(f) Interest Periods............................................ 13
(g) Facility A.................................................. 15
(h) Facility B.................................................. 15

ARTICLE IV BORROWING BASE................................................. 16

(a) Facility A.................................................. 16
(b) Facility B.................................................. 16

ARTICLE V CONDITIONS OF LENDING........................................... 20

ARTICLE VI SECURITY....................................................... 22

ARTICLE VII REPRESENTATIONS AND WARRANTIES................................ 23

(a) Existence; Standing......................................... 23
(b) Qualification to Do Business................................ 23
(c) Due Authorization........................................... 23
(d) Approvals................................................... 24
(e) Binding Obligations......................................... 24
(f) Financial Statements........................................ 24
(g) Use of Proceeds............................................. 24

i
<PAGE>

(h) Regulation U.............................................. 24
(i) Investment Company Act.................................... 24
(j) Other Obligations......................................... 24
(k) Full Disclosure........................................... 25
(l) No Litigation............................................. 25
(m) No ERISA Liability........................................ 25
(n) Title to Mortgaged Properties............................. 25
(o) Existing Subsidiaries..................................... 25
(p) Drilling and Operations................................... 25
(q) Qualification to Hold Federal Oil and Gas Leases.......... 26
(r) Environmental............................................. 26

ARTICLE VIII COVENANTS OF THE BORROWERS................................. 27

(a) Payment and Performance................................... 27
(b) Books, Financial Statements and Reports................... 27
(c) Other Information and Inspections......................... 29
(d) Notice of Material Events................................. 29
(e) Financial Covenants....................................... 30
(f) Maintenance of Existence and Qualifications............... 30
(g) Maintenance of Properties................................. 30
(h) Payment of Taxes, Etc..................................... 31
(i) Insurance................................................. 31
(j) Books and Records......................................... 31
(k) Payment of Expenses....................................... 31
(l) Performance on the Borrowers' Behalf...................... 31
(m) Compliance with Agreements and Law........................ 32
(n) Evidence of Compliance.................................... 32
(o) Further Assurances........................................ 32
(p) Production Purchasers..................................... 32
(q) Environmental Laws........................................ 32
(r) Limitation on Dividends and Distributions................. 33
(s) Limitation on Stock Repurchase............................ 33

ii
<PAGE>

(t) Limitation on Indebtedness................................. 33
(u) Limitation on Liens........................................ 34
(v) Limitation on Mergers...................................... 34
(w) Limitation on Sales of Property............................ 34
(x) Fiscal Year................................................ 34
(y) Amendment of Contracts..................................... 34
(z) Limitation on Investments and New Businesses............... 35
(aa) Limitation on Credit Extensions........................... 35
(bb) ERISA Compliance.......................................... 35
(cc) Limitation on Certain Repayments.......................... 35
(dd) Limitation on Payments to BPC............................. 35

ARTICLE IX EVENTS OF DEFAULT AND THEIR EFFECT............................ 36

(a) Nonpayment of Notes........................................ 36
(b) Collateral Documents....................................... 36
(c) Representations And Warranties............................. 36
(d) Noncompliance With Specific Provisions Of This Agreement... 36
(e) Noncompliance With This Agreement.......................... 36
(f) Nonpayment Of Other Indebtedness For Borrowed Money........ 36
(g) Bankruptcy, Insolvency, Etc................................ 36
(h) Material Adverse Change.................................... 37
(i) Judgment................................................... 37
(j) American Atlas Contract.................................... 37
Section 9.1 Effect of the Occurrence of an Event of Default............. 37

ARTICLE X MISCELLANEOUS.................................................. 38

iii
<PAGE>

EXHIBITS
--------

EXHIBIT A-1 FORM OF FACILITY A NOTE

EXHIBIT A-2 FORM OF FACILITY B NOTE

EXHIBIT A-3 FORM OF TERM NOTE

EXHIBIT B FORM OF REQUEST FOR CREDIT

EXHIBIT C FORM OF A/R BORROWING BASE CERTIFICATE

EXHIBIT D FORM OF INTEREST PERIOD/CONVERSION NOTICE

EXHIBIT E FORM OF OPINION OF BORROWERS' COUNSEL

EXHIBIT F FORM OF SECURITY OPINION

EXHIBIT G FORM OF OMNIBUS CERTIFICATE

SCHEDULES
---------

SCHEDULE 6.3 SECURITY OPINION PROPERTIES

SCHEDULE 7.1(d) APPROVALS

SCHEDULE 7.1(j) OTHER OBLIGATIONS

SCHEDULE 7.1(1) PENDING LITIGATION

SCHEDULE 7.1(n) LIENS AND ENCUMBRANCES

SCHEDULE 7.1(r) ENVIRONMENTAL DISCLOSURE

SCHEDULE 8.2(c) EXISTING DEBT

iv
<PAGE>

AMENDED AND RESTATED
CREDIT AGREEMENT

This Amended and Restated Credit Agreement is made and entered into as of
the 31st day of May, 1994, by and among BONNEVILLE FUELS CORPORATION, a Colorado
corporation ("BFC"), BONNEVILLE FUELS MARKETING CORPORATION, a Utah corporation
("BFMC"), COLORADO GATHERING CORPORATION, a Utah Corporation ("CGC"), BONNEVILLE
FUELS OPERATING CORPORATION, a Utah corporation ("BFOC"), and BONNEVILLE FUELS
MANAGEMENT CORPORATION, a Utah corporation ("BFM Corp.," with BFC, BFMC, CGC,
BFOC, and BFM Corp., referred to collectively as "Borrowers" and individually as
a "Borrower"), and FIRST INTERSTATE BANK OF DENVER, N.A., a national banking
association (the "Bank").

RECITALS
--------

A. The Borrowers are collectively engaged in the business of exploring
for, producing, gathering and marketing of natural gas and oil, and require
funds for working capital needs and for other general corporate purposes.

B. Pursuant to a Credit Agreement dated as of August 30, 1991 (the "Chase
Credit Agreement") BFC has heretofore borrowed certain funds from Chase
Manhattan Bank (National Association) ("Chase"). The funds so borrowed by BFC
are evidenced by a Note dated as of August 30, 1991 (the "Chase Note"), the
outstanding principal balance of which is $7,368,725 as of the date hereof (the
"Chase Loan"). The obligations of BFC under the Chase Credit Agreement, Chase
Note and certain other agreements executed in connection therewith are secured
by various collateral security documents creating liens and encumbrances on and
security interests in certain real and personal property of BFC (collectively,
the "Chase Collateral Documents," with the Chase Credit Agreement, the Chase
Note and the Chase Collateral Documents sometimes referred to collectively as
the "Chase Documents").

C. Contemporaneously with the execution of this Agreement, the Bank is
acquiring the Chase Loan and is receiving from Chase a conveyance of the Chase
Documents.

D. The Bank has agreed to extend credit to all of the Borrowers, and the
Bank and the Borrowers desire hereby to amend and restate the Chase Credit
Agreement in its entirety to reflect the continuation of the principal balance
of the Chase Loan currently outstanding, to add the Borrowers in addition to BFC
as parties liable for repayment of the Chase Loan, and to provide for certain
other credit facilities, all on the terms and conditions set forth herein.
<PAGE>

AGREEMENT
---------

NOW, THEREFORE, IN CONSIDERATION of the following mutual covenants and
other good and valuable consideration, the Borrowers and the Bank agree that the
outstanding principal balance of the Chase Loan constitutes a Loan hereunder for
all purposes, and the Chase Credit Agreement is hereby amended and restated in
its entirety to read as follows:

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

Section 1.1 Certain Defined Terms. As used in this Agreement, the following
terms shall have the indicated meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):

"Accounts Receivable Report" means a monthly report of its outstanding
accounts receivable, including aging, in form acceptable to the Bank, submitted
by BFMC and BFM Corp. to the Bank pursuant to Section 8.1(b)(vii).

"Advance" means, as a verb, the advance of the Loans by the Bank to the
Borrowers pursuant to Article II, and as a noun, the funds so Advanced.

"Advance Date" means any day on which an Advance is made hereunder.

"Agreement" means this Credit Agreement as the same may be amended from
time to time.

"AAA" means the American Arbitration Association.

"American Atlas Contract" means the Amended and Restated Gas Sales
Agreement dated January 1, 1993 between BFC, as seller, and American Atlas #1,
Ltd., as buyer.

"Amortizing Period" means, with regard to Facility A, the period following
the Conversion Date during which the Facility A Loan will be repaid by the
Borrowers, as established by the Bank pursuant to Section 3.3.

"A/R Borrowing Base" has the meaning specified in Sections 4.1(b) and 4.4.

"A/R Borrowing Base Redetermination" has the meaning specified in Section
4.4.

"Bank" means First Interstate Bank of Denver, N.A., and its successors and
assigns.

"Borrowers" mean Bonneville Fuels Corporation, a Colorado corporation,
Bonneville Fuels Marketing Corporation, a Utah corporation, Colorado Gathering

2
<PAGE>

Corporation, a Utah Corporation, Bonneville Fuels Operating Corporation, a Utah
corporation, and Bonneville Fuels Management Corporation, a Utah corporation.

"BPC" means Bonneville Pacific Corporation, a Delaware corporation.

"Borrowing Base Commitment Fees" mean the fees payable by the Borrowers to
the Bank pursuant to Section 3.1(b).

"Breakage Costs" mean the aggregate net amount of all costs and losses
which the Bank actually incurs as a result of payment of the Principal Amount of
any LIBOR Loan other than at the end of an Interest Period, the Bank's good
faith computation of such costs and losses to be conclusive and binding in the
absence of error, and the amount thereof to be paid in same day funds upon
demand by the Bank.

"Business Day" means any day of the year not a Saturday or Sunday on which
banks in Denver, Colorado are open for business.

"Chase" means Chase Manhattan Bank (National Association).

"Chase Collateral Documents" mean the various collateral security documents
creating liens and encumbrances on and security interests in certain real and
personal property of BFC that secure the Chase Loan.

"Chase Credit Agreement" means the credit agreement dated as of August 30,
1991 between BFC and Chase.

"Chase Documents" mean the Chase Credit Agreement, the Chase Note and the
Chase Collateral Documents.

"Chase Loan" means the outstanding principal balance of the funds advanced
by Chase to BFC, as evidenced by the Chase Note.

"Chase Note" means the note dated as of August 30, 1991 between BFC and
Chase evidencing the Chase Loan.

"Chase Transfer Documents" mean assignments and other instruments of
transfer in form reasonably satisfactory to the Bank, transferring the Chase
Loan and Chase Documents to the Bank.

"Closing Date" means June 27, 1994.

"Collateral" means at any time, properties, assets, rights and interests of
the Borrowers in which the Bank has an encumbrance, lien or security interest
pursuant to the Collateral Documents.

"Collateral Documents" mean the deeds of trust, mortgages, chattel
mortgages, assignments of proceeds, security agreements, financing statements,
pledge agreements

3
<PAGE>

and other instruments in form and substance satisfactory to the Bank executed by
the Borrowers as provided in Section 6.1, together with the Chase Collateral
Documents and the Chase Transfer Documents, granting to and perfecting in favor
of the Bank first and prior liens on or security interests in the properties,
assets, rights and interests of the Borrowers described in such documents.

"Commitment" means the aggregate undertaking of the Bank pursuant to the
Facility A Commitment and the Facility B Commitment.

"Conversion Date" means the date on which the Borrowers' right to borrow,
repay and reborrow amounts under Facility A shall terminate as provided in
Section 3.3 and on which the outstanding Principal Amount of the Facility A
Loans shall become a Term Loan, subject to the Term Note, payable in
installments as provided in Section 3.3. The Conversion Date will be April 1,
1996, unless the parties elect to extend the Conversion Date by mutual written
agreement or, if earlier, the date on which the Revolving Loans terminate
pursuant to Section 3.3.

"Draw" means funds paid by the Bank to beneficiaries of and pursuant to
Letters of Credit, which funds shall constitute Facility A Loans or Facility B
Loans depending upon the facility pursuant to which the Letter of Credit was
issued under which the Draw occurs.

"Debt" means (i) indebtedness for borrowed money or for the deferred
purchase price of property or services; (ii) obligations as lessee under leases
which shall have been or should be, in accordance with generally accepted
accounting principles, regarded as capital leases; (iii) obligations under
direct or indirect guarantees in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, indebtedness or obligation of others of the kinds
referred to in clause (i) or (ii) above; and (iv) liabilities in respect of
unfunded vested benefits under plans covered by Title IV of ERISA.

"Default Interest Rate" means a rate of interest per annum equal to (i) the
Prime Rate in effect from time to time, plus (ii) four percent (4%).

"Eligible Accounts Receivable" has the meaning specified in Section 4.4.

"Environmental Laws" mean any federal, state or local law, statute, rule,
regulation, ordinance, order or determination pertaining to health or the
environment in effect in any and all jurisdictions in which the Borrowers are
conducting or at any time have conducted business, or where any property of the
Borrowers is located, or where any Hazardous Materials generated by or disposed
of by the Borrowers are located, including, without limitation, the Clean Air
Act, as amended; the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA"), as amended; the Federal Water Pollution
Control Act, as amended; the Resource Conservation and Recovery Act ("RCRA") as
amended, the Safe Drinking Water Act, as amended; the Toxic Substances Control
Act, as amended; the Oil Pollution Act of 1990,

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as amended; the Hazardous Materials Transportation Act, as amended; and any
other environmental conservation or protection laws.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.

"Event of Default" means any one of the events described in Section 9.1.

"Face Amount" means the maximum amount the Bank is contingently obligated
to pay to the beneficiary of a Letter of Credit.

"Facility A Commitment" means (A) prior to the Conversion Date, the
undertakings of the Bank to Advance Facility A Loans to the Borrowers on a joint
and several liability basis from time to time on a revolving basis and to issue
Letters of Credit for the account of the Borrowers on a joint and several
liability basis from time to time; and (B) effective on the Conversion Date, the
undertaking of the Bank to extend the Principal Amount of Loans outstanding on
the Conversion Date on a nonrevolving, amortizing basis as a Term Loan maturing
on the Facility A Maturity Date, with the aggregate Principal Amount of such
Loans and Face Amount of such Letters of Credit at no time to exceed the lesser
of (i) the Maximum Credit Amount for Facility A or (ii) the Production Borrowing
Base from time to time.

"Facility A Loans" mean Loans Advanced to the Borrowers prior to the
Conversion Date pursuant to the Facility A Commitment and Draws under Letters of
Credit issued pursuant to the Facility A Commitment.

"Facility A Note" means the Revolving Note in the form of Exhibit A-1
hereto, which evidences the Facility A Loans.

"Facility A Maturity Date" means the earlier of (i) the Facility A
Scheduled Maturity Date and (ii) the date on which the Facility A Loans are
payable by reason of Event of Default and an acceleration of the due date of
such Loans by the Bank pursuant to Section 9.2.

"Facility A Prepayment Fee" means the fee payable by the Borrowers to the
Bank pursuant to Section 3.1(d).

"Facility A Scheduled Maturity Date" means April 1, 2001.

"Facility B Commitment" means the undertakings of the Bank to Advance
Facility B Loans on a revolving basis solely to BFMC and BFM Corp. (but as the
joint and several liability of all the Borrowers) as demand Loans and to issue
Letters of Credit solely for the account of BFMC and BFM Corp. (but as the joint
and several liability of all the Borrowers) from time to time prior to the
Facility B Maturity Date, with the aggregate Principal Amount of such Loans and
Face Amount of such Letters of Credit at no time to exceed the lesser of (i) the
Maximum Credit Amount for Facility B or the (ii) A/R Borrowing Base from time to
time.

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"Facility B Loans" mean Loans Advanced to BFMC and BFM Corp. (but as the
joint and several liability of all the Borrowers) pursuant to the Facility B
Commitment and Draws under Letters of Credit issued pursuant to the Facility B
Commitment.

"Facility B Note" means the promissory note in the form of Exhibit A-2
hereto, which evidences the Facility B Loans.

"Facility B Maturity Date" means the earlier of (i) the date on which
demand for payment of the Facility B Loans is made by the Bank and (ii) April 1,
1995 or such later date as may be established by mutual agreement of the Parties
pursuant to Section 2.3.

"Facility Fee" means the fee payable by the Borrowers to the Bank pursuant
to Section 3.1(a).

"Governmental Acts" has the meaning specified in Section 3.10.

"Governmental Authority" means any nation or government, any state, county,
municipality or other political subdivision thereof, or any governmental body,
agency, authority, department or commission, or any instrumentality or officer
thereof exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.

"Gross Revenue" means an amount determined by multiplying (y) the amount of
each unit of hydrocarbons sold from and attributable to the Borrowers' net
revenue interests in the Mortgaged Properties by (z) the respective gross sales
prices paid to the Borrowers by the first purchasers of production at the well
head for the corresponding period, which prices may be net of gathering,
processing, transportation and marketing charges in accordance with the terms of
applicable sales agreements.

"Hazardous Materials" means hazardous substance as that term is defined in
CERCLA at 42 U.S.C. Section 9601(14) and hazardous waste as that term is defined
in RCRA at 42 U.S.C. Section 6903(5).

"Initial Advance" means the Advance to be made on the Closing Date under
this Agreement.

"Interest Period" means, with respect to any LIBOR Loan, a period from the
Advance Date or date of renewal with respect to such LIBOR Loan to a date which
is one (1), two (2) or three (3) months thereafter; provided that:

(i) the Interest Period for any LIBOR Loan shall commence on the
Advance Date or date of renewal with respect to such LIBOR Loan;

(ii) if any Interest Period in respect of a LIBOR Loan would
otherwise expire on a day which is not a Business Day, such Interest Period
shall expire on the next succeeding Business Day;

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<PAGE>

(iii) any Interest Period in respect of a LIBOR Loan which begins
on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall, subject to clauses (ii) above and (iv) below,
end on the last Business Day of a calendar month;

(iv) no Interest Period for any LIBOR Loan shall extend beyond
the Conversion Date;

(v) there shall be no more than five (5) different Interest
Periods outstanding at any one time; and

(vi) if fail to request an Interest Period with respect to a
LIBOR Loan pursuant to Section 3.2(b), the Borrowers shall be deemed to
have selected an Interest Period of one (1) month for such LIBOR Loan.

"Initial Production Borrowing Base" has the meaning specified in Section
4.1(a).

"Interest Period/Conversion Notice" means a notice from the Borrowers to
the Bank regarding the Borrowers, election concerning an Interest Period for a
LIBOR Loan to take effect on the completion of a current Interest Period, or
regarding the conversion of a Prime Rate Loan to a LIBOR Loan, or vice versa, in
the form of Exhibit D hereto.

"Interest Rate" means the rates of interest payable by the Borrowers on the
Principal Amount of Loans from time to time, which shall be the LIBOR Loan
Interest Rate or the Prime Rate Loan Interest Rate, as applicable to various
portions of the Loans, or the Default Interest Rate.

"Letter of Credit" means a standby letter of credit issued by the Bank
hereunder at the request of the Borrowers and for the account of the Borrowers
in accordance with Section 2.3.

"Letter of Credit Fee" means the fee payable by the Borrowers to the Bank
pursuant to Section 3.1(c).

"LIBOR Loan" means a Facility A Loan for which interest is calculated at
the LIBOR Loan Interest Rate.

"LIBOR Loan Interest Rate" means, with respect to an Interest Period
pertaining to a LIBOR Loan prior to the Conversion Date, an interest rate per
annum equal to the sum of (y) the LIBOR Rate in effect on the first day of the
Interest Period, plus (z) two percent (2%).

"LIBOR Rate" means, relative to an Interest Period pertaining to a LIBOR
Loan, the London Interbank Offered Rate (rounded upwards if necessary to the
nearest whole one-sixteenth of one percent (1/16 of 1%)) as quoted in the Wall
Street Journal two (2) Business Days prior to the beginning of such Interest
Period, for a loan amount

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<PAGE>

approximately equal to the Principal Amount of such LIBOR Loan, for a period
approximately equal to such Interest Period and as adjusted for reserve
requirements and other charges that may be imposed on the Bank.

"Loan" means (i) the funds Advanced to the Borrowers by the Bank hereunder
as Facility A Loans and Facility B Loans; (ii) the Term Loan; and (iii) Draws,
as evidenced by the Notes.

"Loan Documents" mean this Agreement, the Notes, the Request for Credit,
the Interest Period/Conversion Notice, the Collateral Documents and any other
documents executed by the Borrowers and delivered to the Bank pursuant hereto.

"Materially Adverse Effect" means, with respect to the Borrowers, an
effect, resulting from any occurrence or state of affairs of whatever nature
(including any adverse determination in any litigation, arbitration or
governmental investigation or proceeding), which the Bank, in its sole
discretion, reasonably exercised, determines is materially adverse to the
ability of the Borrowers to repay the Loans or perform any other material
obligation required under this Agreement or any of the Loan Documents.

"Maximum Credit Amount" means (i) for Facility A Twenty Million Dollars
($20,000,000) and (ii) for Facility B one Million Dollars ($1,000,000), or, in
either case, such lesser amounts elected by the Borrowers pursuant to Section
2.6.

"Mortgaged Properties" mean the interests of the Borrowers in the wells and
production units therefor identified in the Collateral Documents.

"Net Revenue" means an amount determined by subtracting from Gross Revenue
for a given period the sum of (x) all Operating Expenses for such period, plus
(y) all production, severance, real property, ad valorem and other production-
related taxes (but not taxes based upon the income of the Borrowers) for such
period, plus (z) any Operating Expenses and production, severance real property,
ad valorem and other production-related taxes relating to previous periods which
have not already been included in the calculation of Net Revenue for a previous
period.

"Notes" mean the Facility A Note, the Facility B Note and the Term Note,
which Notes evidence the Loans.

"Omnibus Certificate" means the certificate from each of the Borrowers, in
substantially the form of Exhibit G hereto.

"Operating Expenses" means all reasonable and necessary expenses incurred
by the Borrowers in connection with the operation and maintenance of the
Mortgaged Properties (excluding expenses which are capitalized by the Borrowers
for federal income tax purposes unless approved in writing by the Bank for
inclusion as Operating Expenses), together with all gathering, processing,
transportation and marketing charges not already deducted from the gross sales
prices used to determine Gross Revenue.

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"Opinion of Borrowers' Counsel" means the form of opinion of Welborn
Sullivan Meck & Tooley, P.C., counsel for the Borrowers, in the form of Exhibit
E hereto.

"Party" means one or more of the Borrowers and the Bank, and their
permitted successors and assigns.

"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a foreign state or political subdivision thereof or
any agency of such state or subdivision.

"Plan" means an employee benefit or other plan, including a multi-employer
plan, which is covered by Title IV of ERISA.

"Prime Rate" means an index rate which the Bank establishes and quotes from
time to time for pricing certain of its loans. Information on the index rate
currently in effect is announced publicly and can be obtained by contacting the
Bank. The Bank's Prime Rate is not necessarily the best rate charged to Bank
customers and the Bank may make loans at, above, or below this stated index
rate. Changes in the index are effective without notice to the Borrowers.

"Prime Rate Loan" means Loans for which the Prime Rate Loan Interest Rate
is applicable.

"Prime Rate Loan Interest Rate" means an interest rate per annum pertaining
to a Prime Rate Loan. With respect to Facility A Loans, the Prime Rate Loan
Interest Rate is the Prime Rate in effect from time to time. With respect to
Facility B Loans, the Prime Rate Loan Interest Rate is equal to (i) the Prime
Rate in effect from time to time plus (ii) one percent.

"Principal Amount" means the principal amount of Loans outstanding
hereunder from time to time.

"Production Borrowing Base" has the meaning specified in Sections 4.1 and
4.2.

"Quarter" means each three-month period ending each March 31, June 30,
September 30 and December 31 during the term hereof.

"Request for Credit" means a request by the Borrowers for an Advance of a
Facility A Loan, or for an Advance of a Facility B Loan, or for the issuance of
a Letter of Credit under Facility A or Facility B, in the form of Exhibit B
hereto.

"Revolving Loans" mean the funds Advanced to the Borrowers by the Bank
hereunder (i) as Facility A Loans and Draws prior to the Conversion Date and
(ii) as Facility B Loans and Draws during the Revolving Period. The Borrowers
may borrow, repay and reborrow funds which are Advanced as Revolving Loans.

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<PAGE>

"Revolving Notes" mean the Facility A Note and the Facility B Note.

"Revolving Period" means the periods during which the Bank will Advance
Revolving Loans hereunder being (i) for Facility A the period commencing on the
Closing Date and ending on the Conversion Date and (ii) for Facility B the
period commencing on the Closing Date and ending on the Facility B Maturity
Date.

"Security Opinion" means the legal opinion or legal opinions substantially
in the form of Exhibit F hereto, which will be delivered by the Borrowers
pursuant to Section 6.3.

"Term Loan" means the Principal Amount of the Facility A Loans on the
Conversion Date, which are evidenced by the Term Note.

"Term Note" means the promissory note in the form of Exhibit A-3 hereto,
which evidences the Term Loan.

"Unmatured Event of Default" means any facts, condition or state of affairs
which, with the passage of time, shall constitute an Event of Default.

"Year" means the fiscal year of the Borrowers.

Section 1.2 Computation of Time Periods. In this Agreement, in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding."

Section 1.3 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 7.1(f).

ARTICLE II
THE CREDIT

Section 2.1 The Advances. The Bank agrees, subject to the terms and
conditions of this Agreement, during the Revolving Period to Advance Loans to
the Borrowers in multiple Advances as Revolving Loans and to issue Letters of
Credit for the account of the Borrowers; provided, however, (a) that the
aggregate Principal Amount of all Facility A Loans and Face Amount of all
Letters of Credit issued under Facility A at no time exceeds the lesser of the
Maximum Credit Amount for Facility A and the Production Borrowing Base and (b)
that the aggregate Principal Amount of all Facility B Loans and Face Amount of
all Letters of Credit issued under Facility B at no time exceeds the lesser of
the Maximum Credit Amount for Facility B and the A/R Borrowing Base.

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<PAGE>

Section 2.2 Loans. Each Advance of a Loan under Facility A shall be in
the minimum Principal Amount of $100,000. Each Advance of a Loan under Facility
B shall be in the minimum Principal Amount of $10,000. Subject to all terms and
conditions of this Agreement, the Borrowers may borrow, repay and, during the
Revolving Period, reborrow funds which are Advanced as Revolving Loans;
provided, however, that the Borrowers shall be liable for any Breakage Costs
incurred by the Bank in connection with the Borrowers' repayment of a LIBOR Loan
on any date other than the end of an Interest Period.

Section 2.3 Letters of Credit. Each Letter of Credit issued by the Bank
shall be a standby Letter of Credit, in form reasonably satisfactory to the Bank
and shall be in the minimum amount of $1,000. Each Letter of Credit issued under
Facility A shall have an expiry date no later than the Conversion Date. Each
Letter of Credit issued under Facility B shall have an expiry date no later than
the Facility B Maturity Date; provided, however, that at the Borrowers' written
request the expiry date of any such Letters of Credit may be extended for up to
six (6) months beyond the Facility B Maturity Date but to no later than October
1, 1995. All Draws under Letters of Credit shall constitute Loans hereunder for
all purposes.

Section 2.4 Credit Utilization Procedures.

(a) Loans and Letters of Credit. Not later than 10:00 a.m. Denver,
Colorado time two (2) Business Days prior to the desired date of an Advance of a
Loan or six (6) Business Days prior to the desired date of the issuance of a
Letter of Credit, the Borrowers shall submit a Request for Credit to the Bank,
in the form of Exhibit B hereto, specifying the manner in which the Borrowers
desire to utilize the credit facilities provided under this Agreement and, in
the case of the issuance of a Letter of Credit, an executed application and
agreement for a standby letter of credit in a form acceptable to the Bank. If
the Request for Credit pertains to an Advance of a Loan, the Bank shall Advance
the Loan at the Borrowers direction either by crediting the applicable
Borrowers' account with the Bank on the desired date of the Advance or by wire
transfer thereof on the desired date of the Advance to the account designated in
the Request for Credit. If the Request for Credit pertains to the issuance of a
Letter of Credit, the Bank will issue the Letter of Credit and will deliver the
Letter of Credit to the beneficiary thereof on the desired date of issuance.

(b) Conversion of Facility A Prime Rate Loans. Subject to the terms
and conditions hereof, at any time no Unmatured Event of Default or Event of
Default is outstanding under Facility A, the Borrowers may elect to convert
outstanding Prime Rate Loans to LIBOR Loans. Any such election shall be effected
by the Borrowers' delivery to the Bank of an Interest Period/Conversion Notice
in the form of Exhibit D hereto, not less than two (2) Business Days prior to
the desired date of the conversion. Unless the Bank notifies the Borrowers that
there is an impediment to any such conversion of which notice is so given by the
Borrowers, the conversion of the Prime Rate Loan referenced in such notice shall
be effective on the date specified in the Interest Period/Conversion Notice.

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<PAGE>

Section 2.5 Conditions to Advances/Letters of Credit. Notwithstanding
any other provision of this Agreement, the Bank shall not be required to make
any Advance or to issue any Letter of Credit if the conditions precedent thereto
specified in Article V hereof have not been satisfied.

Section 2.6 Voluntary Termination of the Commitment or Reduction of
Maximum Credit Amounts. At any time, and from time to time, the Borrowers may
elect (a) to terminate entirely either or both of the Facility A Commitment or
the Facility B Commitment, or (b) to reduce the Maximum Credit Amount for either
or both of Facility A and Facility B by notice of any such election to the Bank;
provided, however, that in no event may the Commitment be terminated while any
Loans are outstanding or Letters of Credit are in effect, nor may the Maximum
Credit Amount be reduced to an amount less than the aggregate Principal Amount
of outstanding Loans and Face Amount of outstanding Letters of Credit. Any such
election shall be effective two (2) Business Days after receipt by the Bank of
the Borrowers' election to such effect. Any election to terminate the Commitment
or reduce the Maximum Credit Amount shall be irrevocable.

ARTICLE III
FEES, PROCEDURES AND PAYMENT

Section 3.1 Fees.

(a) Facility Fee . The Borrowers agree to pay the Bank a one-
time, nonrefundable fee (the "Facility Fee") in connection with the
establishment of the Commitment in the amount of one-half of one percent (1/2
of 1%) of the Initial Production Borrowing Base. The Facility Fee is payable by
the Borrowers to the Bank on the Closing Date.

(b) Borrowing Base Commitment Fees. The Borrowers agree to pay
to the Bank a fee (the "Borrowing Base Commitment Fees") under each Facility As
follows. The Borrowing Base Commitment Fees with respect to Facility A shall be
determined and paid quarterly in arrears until the Conversion Date at the rate
of one-quarter of one percent (1/4 of 1%) per annum of the amount by which the
average daily aggregate Principal Amount of Facility A Loans and Face Amount of
Letters of Credit issued under Facility A during the Quarter is less than the
Production Borrowing Base applicable for such Quarter. The Borrowing Base
Commitment Fees with respect to Facility B shall be determined and paid
quarterly in arrears at the rate of one-quarter of one percent (1/4 of 1%) per
annum of the amount by which the average daily aggregate Principal Amount of
Facility B Loans and Face Amount of Letters of Credit issued under Facility B
during the Quarter is less than the Maximum Credit Amount for Facility B. The
Commitment Fees will be payable by the Borrowers promptly after receipt of
quarterly invoices therefor from the Bank.

(c) Letter of Credit Fees. The Borrowers agree to pay a fee (the
"Letter of Credit Fee") with respect to each Letter of Credit issued pursuant
hereto in the amount of one and one-quarter percent (1 1/4%) per annum of the
Face Amount of the

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<PAGE>

Letter of Credit or $225, whichever is greater. The Letter of Credit Fee will be
payable concurrently with the issuance of each Letter of Credit and is not
refundable if the Letter of Credit is terminated or released prior to its expiry
date. In addition, the Borrowers agree to pay the usual and customary processing
and issuance fees for Letters of Credit charged by the Bank for issuance of
letters of credit and any amendments thereto.

(d) Facility A Prepayment Fee. If pursuant to Section 2.6, the
Borrowers prepay and terminate Facility A during the first twelve (12) months of
the Revolving Period, the Borrowers agree to pay to the Bank a fee (the
"Facility A Prepayment Fee") equal to one-half of one percent (1/2 of 1%) of
the most recent Production Borrowing Base as determined by the Bank pursuant to
Sections 4.1 and 4.2.

Section 3.2 Interest.

(a) General. The Borrowers shall pay interest on the outstanding
Principal Amount of the Loans at the applicable Interest Rate. Subject to
Section 9.2 pursuant to which the Default Interest Rate may become applicable,
(i) interest on Facility A Loans may be calculated at the Prime Rate Loan
Interest Rate or the LIBOR Loan Interest Rate, as elected by Borrowers or as
otherwise provided herein; and (ii) interest on Facility B Loans and the Term
Loan will be calculated at the Prime Rate Loan Interest Rate. Interest payable
shall be calculated daily. Interest on LIBOR Loans shall be payable on the last
day of each Interest Period. Interest on Prime Rate Loans shall be payable
monthly, in arrears, on the first Business Day of each month with respect to the
preceding month. Interest accruing at the Default Interest Rate shall be payable
on demand.

(b) Interest Periods. The Borrowers will select an Interest Period for
each LIBOR Loan by giving notice to the Bank in the Request for Credit and
thereafter (with respect to outstanding LIBOR Loans to be continued as LIBOR
Loans) by giving notice in an Interest Period/Conversion Notice at least two (2)
Business Days prior to the expiry date of the Interest Period then in effect.
With respect to existing LIBOR Loans, if the Borrowers fail to give timely
notice of an Interest Period selection, then the Borrowers shall be deemed to
have elected to convert the LIBOR Loan to a Prime Rate Loan effective as of the
end of the then current Interest Period for such LIBOR Loan.

Section 3.3 Conversion of Facility A Loans; Amortization of Term Loan.
Upon the occurrence of the Conversion Date, the Borrowers shall have no further
right hereunder to receive Advances under Facility A. The Principal Amount of
the Facility A Loans on the Conversion Date shall automatically become a Term
Loan and will be evidenced by the Term Note in the form of Exhibit A-3 hereto.
Subject to Sections 4.3 and 9.2, the Term Loan will be repaid beginning on May
1, 1996 according to a minimum monthly principal payment schedule to be
determined by the Bank as of the Conversion Date. The minimum monthly principal
payment schedule will provide for repayment of the Term Loan over a period equal
to the lesser of (a) the economic half-life of the Mortgaged Properties as
determined by the Bank as of the Conversion Date in accordance with its normal
parameters for oil and gas production-based loans in effect at

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<PAGE>

the time or (b) five (5) years; provided, however, that the Term Loan shall be
paid in full no later than the Facility A Scheduled Maturity Date.

Section 3.4 Payments of Principal During the Revolving Period. During
the Revolving Period, and in addition to any payments of principal required
pursuant to Section 4.3, payments of the Principal Amount of the Revolving Loans
may be made by the Borrowers in whole or in part on any Business Day (a) for
Facility A through and including the Conversion Date and (b) for Facility B
through and including the Facility B Maturity Date; provided, however, in the
event the Bank makes demand for payment under Facility B prior to the Facility B
Maturity Date, the Borrowers shall have the lesser of sixty (60) days or until
the Facility B Maturity Date (i) to repay cash Advances and (ii) to secure
outstanding Letters of Credit with cash collateral. Payments made hereunder
shall be in the minimum amount of $50,000 and shall be without premium or
penalty except as provided otherwise in Section 3.1(d). Payments shall be
accompanied by interest accrued on the amount prepaid through the date of the
payment, plus, in the case of LIBOR Loans, Breakage Costs, if any, for any
prepayment which is not at the end of an Interest Period.

Section 3.5 Prepayment of the Term Loan. During the Amortizing Period,
the Borrowers shall have the right to prepay the Principal Amount of the Term
Loan on any Business Day as provided herein, upon at least two (2) Business
Days' notice to the Bank. Prepayments shall be in the minimum amount of $50,000.
Prepayments shall be without premium or penalty. Prepayments will be applied, at
Borrowers' option, to installment payments of principal due hereunder in inverse
order of or in order of approaching maturity and shall be accompanied by a
payment of accrued interest on the Principal Amount prepaid through the date of
the prepayment.

Section 3.6 Payments and Computations.

(a) The Borrowers shall make each payment hereunder and under the
Notes not later than 12:00 noon (Denver, Colorado time) on the day when due in
lawful money of the United States of America to the Bank at its office at 633
Seventeenth Street, Denver, Colorado, or at any other location designated by the
Bank.

(b) All computations of interest under the Prime Rate Loans and the
Borrowing Base Commitment Fees set forth in Section 3.1(b) shall be made by the
Bank on the basis of a year of 365 days for the actual number of days (including
the first day but excluding the last day) occurring in the period for which such
interest or Borrowing Base Commitment Fees is payable. All computations of
interest under the LIBOR Loans shall be made by the Bank on the basis of a year
of 360 days for the actual number of days (including the first day but excluding
the last day) occurring in the Interest Period.

Whenever any payment to be made hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of interest or the Borrowing Base Commitment
Fees, as the case may be.

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Section 3.7 Evidence of Debt.

(a) Prior to the Conversion Date the indebtedness of the Borrowers
resulting from all Advances made from time to time under Facility A or Draws
under Letters of Credit issued under Facility A shall be evidenced by the
Facility A Note of the Borrowers delivered to the Bank pursuant to Article V. On
and after the Conversion Date, the total indebtedness of the Borrowers under
Facility A which has not been repaid as of the Conversion Date shall be
evidenced by the Term Note of the Borrowers delivered to the Bank pursuant to
Article V.

(b) Prior to the Facility B Maturity Date the indebtedness of the
Borrowers resulting from all Advances made from time to time under Facility B or
Draws under Letters of Credit issued under Facility B shall be evidenced by the
Facility B Note of the Borrowers delivered to the Bank pursuant to Article V.

Section 3.8 Use of Proceeds. All Advances shall be used by the Borrowers
exclusively in the following manner:

(a) Facility A. Proceeds drawn under the Facility A Commitment shall
be used by the Borrowers:

(i) For cash advances to repay all amounts owing by BFC to
Chase pursuant to the Chase Loan.

(ii) For cash advances to be used by the Borrowers in
operations in the ordinary course of business, including without limitation
(A) for working capital, (B) for capital expenditures relating to
acquisition, exploration and development of oil and gas properties and (C)
to cure an A/R Borrowing Base deficiency or payment default under Facility
B as provided under Section 4.4.

(iii) For cash advances or for the issuance of Letters of Credit
(with expiry dates no later than the Conversion Date) used to meet the
margin requirements of commodity brokers or financial intermediaries in
connection with the Borrowers' commodity price hedging activities.

(b) Facility B. Proceeds drawn under the Facility B Commitment shall
be used solely by BFMC and BFM Corp.:

(i) For the issuance of standby Letters of Credit to support
BFMC's and BFM Corp.'s natural gas marketing activities, including
guaranteeing payment for the purchase and transportation of natural gas.

(ii) For cash advances used by BFMC and BFM Corp. to meet
working capital requirements relating to their natural gas marketing
activities, including the payment of amounts due for natural gas purchases
and transportation services.

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<PAGE>

(iii) For cash advances or for the issuance of standby Letters of
Credit used to meet the margin requirements of commodity brokers or
financial intermediaries in connection with BFMC's and BFM Corp.'s
commodity price hedging activities.

Section 3.9 Inability to Honor Commitment. The Bank shall not be liable
for any failure to comply with its obligations under or pursuant to the
Commitment if and to the extent such failure is caused directly or indirectly,
wholly or partly, by act or omission of any government or other competent
authority beyond the reasonable control of the Bank.

Section 3.10 Increased Costs and Reduction in Return. If due to (a) the
introduction of, or any change (including, without limitation, any change by way
of imposition or increase of reserve requirements) in, or in the interpretation
of, any law or regulation or (b) the compliance by the Bank with any guideline
or request from any central bank or other governmental authority having
jurisdiction over the Bank (whether or not having the force of law) collectively
referred to as "Governmental Acts," there shall be an increase in the cost or
reduction in return to the Bank of agreeing to make or making, funding or
maintaining the Loans, then the Borrowers shall from time to time, upon notice
and demand by the Bank, pay to the Bank additional amounts sufficient to
indemnify it against such increased costs or reduction in return accruing to or
otherwise realized by the Bank commencing on the day which is ninety (90) days
after such notice and demand by the Bank. Such increased costs or reduction in
return shall be determined by the Bank's reasonable allocation of the aggregate
of such increased costs or reduction in return resulting from such Governmental
Acts. A certificate as to the amount of such increased cost or reduced return,
submitted to the Borrowers by the Bank, identifying the increased cost or
reduced return in reasonable detail, shall be conclusive absent manifest error.

ARTICLE IV
BORROWING BASE

Section 4.1 Initial Borrowing Base.

(a) Facility A. During the period from the Closing Date to the date
of the first determination of the Production Borrowing Base pursuant to Section
4.2, the amount of the Production Borrowing Base for Facility A shall be Eight
Million Five Hundred Thousand Dollars ($8,500,000), which is the Initial
Production Borrowing Base.

(b) Facility B. During the period from the Closing Date to the date
of the first determination of the A/R Borrowing Base pursuant to Section 4.4,
the amount of the A/R Borrowing Base for Facility B shall be Dollars
($570,287.00).

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Section 4.2 Production Borrowing Base Determinations. The Production
Borrowing Base under Facility A shall be redetermined (a) during the Revolving
Period by the Bank as of (i) each April 1, commencing April 1, 1995 (based upon
the Bank's evaluation of annual independent engineering reports to be provided
to the Bank by the Borrowers as more fully described in Section 4.5(a)) and (ii)
each October 1, commencing October 1, 1994 (based upon the Bank's evaluation of
the Borrowers' actual production, revenue and expense data to be provided to the
Bank by the Borrowers as more fully described in Section 4.5(b)) and (b) during
the Amortizing Period by the Bank as of each April 1 (based upon the
aforementioned independent engineering reports) and (c) otherwise may be
redetermined by the Bank from time to time during the term of this Agreement at
the Bank's option and in the sole discretion of the Bank in accordance with the
Bank's standard parameters for making oil and gas production based loans in
effect at the time of such redetermination, together with such adjustments as
the Bank determines to be appropriate, in its sole discretion reasonably
exercised, to reflect the impact on the value of such properties of breaches of
Environmental Laws, if any, by the Borrowers or their predecessors in ownership
of any of the Mortgaged Properties. Any increase in the Production Borrowing
Base from the Initial Production Borrowing Base as contemplated in Section 4.1
shall require prior written approval of the Bank's credit committees which may
be given or withheld in the Bank's sole discretion and, as long as Bonneville
Pacific Corporation is involved as a debtor in a United States Bankruptcy Court
proceeding, any increase in the Production Borrowing Base above Ten Million
Dollars ($10,000,000) shall require prior written approval by the Bankruptcy
Court. The Bank shall notify the Borrowers of each change in the Production
Borrowing Base under Facility A and the amount set forth in such notice shall be
the amount of the Production Borrowing Base for all purposes of this Agreement
until notice of a new Production Borrowing Base is given by the Bank to the
Borrowers; provided, however, that the Borrowers may, by written notice to the
Bank within ten (10) Business Days after the Borrowers receive notice of a
change in the Production Borrowing Base from the Bank, reduce the amount of the
Production Borrowing Base from the amount set forth in the Bank's notice to the
Borrowers to any lesser amount which is equal to or in excess of the aggregate
Principal Amount of Facility A Loans and Face Amount of Letters of Credit issued
under Facility A. Any notice given by the Borrowers to reduce the Production
Borrowing Base, shall be effective ten (10) Business Days following the receipt
of such notice by the Bank, and the amount set forth in such notice shall be the
amount of the Production Borrowing Base for all purposes of this Agreement until
notice of a new Production Borrowing Base is given by the Bank to the Borrowers.
However, if the Production Borrowing Base is reduced by the Borrowers pursuant
to this Section 4.2, the Borrowers may, upon ten (10) Business Days' prior
written notice given to the Bank, increase the Production Borrowing Base up to
the amount originally specified in the Bank's notice to the Borrowers on which
such reduction was based. Such notice of increase must be accompanied by payment
to the Bank of an amount equal to the Borrowing Base Commitment Fees specified
in Section 3.1(b) which would have accrued and been invoiced by the Bank on the
amount of the increase to the date of reinstatement if the amount of such
increase had been included within the Production Borrowing Base at all

17
<PAGE>

times from the date of the Bank's notice to the Borrowers. Any such amounts
which are payable by the Borrowers but which would not have been invoiced by the
Bank shall be payable at the next scheduled invoice for Borrowing Base
Commitment Fees.

Section 4.3 Mandatory Action When Facility A Loans And Letters Of Credit
Issued Under Facility A Exceed The Production Borrowing Base. In the event the
aggregate unpaid Principal Amount of the Facility A Loans and Face Amount of the
Letters of Credit issued under Facility A shall, at the time of any
determination of the Production Borrowing Base pursuant to Section 4.2, be in
excess of the Production Borrowing Base, the Bank shall so notify the Borrowers,
and the Borrowers shall within ten (10) Business Days thereof notify the Bank of
the Borrowers' election to implement one or a combination of the following
alternatives to eliminate such excess.

(a) The Borrowers may elect to pay, within thirty (30) days of such
notice, as much of the Facility A Loans and/or replace Letters of Credit as
necessary in order that the aggregate Principal Amount and Face Amount thereof
outstanding shall not exceed the Production Borrowing Base.

(b) The Borrowers may elect to amortize such excess in six (6) equal
monthly installments of principal beginning on the first day of the month
following the date of such notice.

(c) The Borrowers may increase the Production Borrowing Base to an
amount equal to the aggregate unpaid Principal Amount of the Facility A Loans
and Face Amount of the Letters of Credit issued pursuant to Facility A by
presenting, within thirty (30) days after date of such notice, at the Borrowers'
option, (i) an independent engineer's report to the Bank, in form and substance
reasonably satisfactory to the Bank, or (ii) actual production, revenue and
expense data reasonably satisfactory to the Bank, regarding additional producing
oil and gas properties to be subjected to the first lien of the Collateral
Documents, which report or data indicate that the value of such properties will
eliminate the excess of the Facility A Loans and Letters of Credit over the
Production Borrowing Base. The Bank shall determine, in accordance with Section
4.2, whether any such additional properties will increase the Production
Borrowing Base, and the extent of any such increase. The increase in the
Borrowing Base based upon such additional properties shall be effective only
when such properties have been added to the Collateral and the Bank has been
satisfied with respect to the Borrowers' title thereto.

If the Borrowers fail to eliminate such excess of the Facility A Loans and
Letters of Credit over the Production Borrowing Base within such thirty (30) day
period pursuant to subsections (a) or (c) above, or fail to begin amortizing
such excess pursuant to subsection (b) above, the Bank may, at its option,
declare that an Unmatured Event of Default shall have occurred hereunder and the
Bank shall be entitled to exercise its rights under Article IX.

Section 4.4 A/R Borrowing Base Determinations. The A/R Borrowing Base
under Facility B shall be an amount equal to 60% of the Eligible Accounts
Receivable as

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<PAGE>

redetermined by the Bank in the exercise of its sole discretion on the fifteenth
day of each month (an "A/R Borrowing Base Redetermination") based upon BFMC's
and BFM Corp.'s most recent Accounts Receivable Report. The A/R Borrowing Base
will be effective from the date of an A/R Borrowing Base Redetermination until
the date of the next A/R Borrowing Base Redetermination.

"Eligible Accounts Receivable" means those accounts receivable of BFMC and
BFM Corp., for sales made according to usual contract sales terms, which are
less than thirty (30) days old from the date of invoice, together with (i)
accounts from related or affiliated entities to the extent the respective
Borrower has in its possession cash pre-payments or deposits from such entities
and for which such Borrower has the right to offset such prepayments or deposits
for payment of such accounts, and (ii) accounts anticipated to be billed during
the next month for sales made during the current month, and for which the
respective Borrower has made prepayments (or has guaranteed payment through the
Bank's issuance of letters of credit on behalf of such Borrower) for purchases
anticipated to be made and/or transportation services anticipated to be utilized
during the current month. Specifically not included in Eligible Accounts
Receivable are (a) disputed accounts, (b) finance charges, (c) accounts subject
to offset or counterclaim by account debtors, (d) U.S. Government accounts, (e)
foreign accounts, (f) cash-on-delivery (COD) accounts, (g) employee receivables,
(h) receivables from related or affiliated entities for which the respective
Borrower does not have in its possession offsetting pre-payments or deposits, or
(i) any other accounts the Bank, exercising reasonable discretion, deems
ineligible. In addition, account concentrations in excess of fifteen percent
(15%) from an account debtor (excluding accounts due under the American Atlas
Contract) would be limited to an amount equal to fifteen percent (15%) of the
total accounts used to calculate the A/R Borrowing Base, unless specifically
approved for inclusion in the A/R Borrowing Base calculation by the Bank.

Section 4.5 Engineering Reports; Production and Income Projections.

(a) Promptly after each December 31 hereafter, commencing December
31, 1994, occurring prior to the Facility A Maturity Date, and in all events
within sixty (60) days after each such date, the Borrowers shall furnish to the
Bank a report in form and substance reasonably satisfactory to the Bank by an
independent petroleum engineer reasonably acceptable to the Bank concerning the
Mortgaged Properties. Such report shall set forth the estimated proven and
producing and proven and nonproducing oil and gas reserves attributable to all
of the Borrowers, properties, including, but not limited to, the Mortgaged
Properties, and to any additional properties which the Borrowers propose to add
to the Collateral, and shall include a projection of the rate of production
therefrom for the life of such properties. In the event the Borrowers are unable
to provide production data to the Bank in magnetic form compatible with the
Bank's hardware and engineering software (Garrett's Aries), the Borrowers agree
to reimburse the Bank for any out-of-pocket expenses relating to obtaining
production data from Dwight's Energy Data Service or a comparable service as
chosen by the Bank in its sole discretion.

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<PAGE>

(b) Promptly after each June 30 hereafter, commencing June 30, 1994,
occurring prior to the Conversion Date, and in all events within sixty (60) days
after each such date, the Borrowers shall furnish to the Bank the Borrowers'
actual monthly production, revenue and expense data in accordance with Section
8.1(b).

ARTICLE V
CONDITIONS OF LENDING

Section 5.1 Conditions Precedent to the Initial Advance. The obligation
of the Bank to make its Initial Advance is subject to the satisfaction of the
following conditions precedent:

(a) The Bank shall have received, on or before the day of the
Advance, the following in form, substance and date satisfactory to the Bank:

(i) this Agreement, executed by the Borrowers;

(ii) the Notes, executed by the Borrowers, dated as of the date
of this Agreement;

(iii) an "Omnibus Certificate" of the Secretary and the
President of each of the Borrowers substantially in the form of Exhibit G
hereto, which shall contain the names and signatures of the officers of the
Borrowers entitled to execute the Loan Documents and to request Advances
and which shall certify the truthfulness, correctness and completeness of
the following attachments thereto: (1) a copy of the articles of
incorporation of each of the Borrowers and all amendments thereto, (2) a
copy of the bylaws of each of the Borrowers, and (3) a copy of the
resolutions duly adopted by the Board of Directors of each of the Borrowers
authorizing the Borrowers to enter into this Agreement, to execute all
documents related hereto and to carry out the transactions contemplated
herein;

(iv) the Collateral Documents, executed by the Borrowers;

(v) a certificate of the due incorporation, valid existence
and good standing of each of the Borrowers in their respective states of
incorporation, issued by the appropriate authorities in such jurisdiction;

(vi) a certificate evidencing each of the Borrowers' good
standing and due qualification as a foreign corporation to do business in
each jurisdiction in which such qualification is necessary, including in
the case of BFC, but not limited to, New Mexico, Texas and Utah, issued by
appropriate authorities in such jurisdictions;

(vii) the Opinion of Borrowers' Counsel in the form of Exhibit
E hereto;

20
<PAGE>

(viii) evidence of written approval by the United States
Bankruptcy Court having jurisdiction over the bankruptcy proceedings of
Bonneville Pacific Corporation that Borrowers are authorized to enter into
this Agreement and otherwise in form reasonably satisfactory to the Bank;

(ix) the Chase Transfer Documents, duly executed by Chase;

(x) evidence satisfactory to the Bank of the Borrowers' title
to the Mortgaged Properties subject to the Collateral Documents and to the
other Collateral, which title shall be free and clear of liens,
encumbrances and defects except those in favor of Chase in connection with
the Chase Loan which have been transferred to the Bank and those acceptable
to the Bank in its sole discretion as listed in Schedule 7.1(n); and

(xi) any other documents and instruments that the Bank shall
have reasonably requested, which the Parties anticipate may include (A) an
opinion of legal counsel for Borrowers that the Chase Transfer Documents
when properly executed will vest in the Bank those rights currently owned
by Chase in the Chase Documents and the Mortgaged Property; (B) corporate
documents and records; and (C) certificates of officers and representatives
of Borrowers as to the accuracy and validity of or compliance with all
representations, warranties and covenants made by Borrowers in this
Agreement.

(b) The Bank shall have conducted an examination of and have been
satisfied (in its sole discretion, reasonably exercised) with BFMC's and BFM
Corp.'s gas marketing, accounting and billing systems.

Section 5.2 Conditions Precedent to all Advances. The obligation of the
Bank to make each Advance (including the Initial Advance) shall be subject to
the further conditions precedent that:

(a) the Borrowers shall have performed and complied with all
agreements and conditions herein required to be performed or complied with on or
prior to the date of such Advance;

(b) the Bank shall have received a Request for Credit, duly executed
by the Borrowers;

(c) on the date of such Advance the Bank shall have received such
other approvals, opinions or documents as required under the terms of this
Agreement;

(d) on the date of such Advance the Bank shall have satisfied itself
of the absence of a Materially Adverse Effect;

(e) such Advance shall not cause the aggregate Principal Amount of
the Facility A Loans and the Facility B Loans and Face Amount of issued Letters
of Credit to exceed the Commitment;

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<PAGE>

(f) there shall exist no Unmatured Event of Default or Event of
Default;

(g) all representations and warranties made by the Borrowers shall be
true and correct on the date of such Advance, except for (i) such changes
therein as shall be acceptable to the Bank and (ii) such changes therein as do
not have a Materially Adverse Effect on the Borrowers; and

(h) all governmental requirements and all material approvals and
consents (including, without limitation, all material approvals and consents
required in connection with any Environmental Laws) of Governmental Authorities
or other Persons, if any, required in connection with the operation of the
Collateral, shall have been complied with or obtained and remain in effect.

ARTICLE VI
SECURITY

Section 6.1 Security. Payment of the Notes and all other obligations of
the Borrowers hereunder shall be secured by liens on and security interests in
the Collateral pursuant to the Collateral Documents. The Bank will record or
file the Collateral Documents at the Borrowers' expense promptly after execution
and delivery thereof.

Section 6.2 Perfection and Protection of Security Interests and Liens.
The Borrowers will cause to be delivered to the Bank from time to time as
determined to be necessary or desirable by the Bank any mortgages, deeds of
trust, financing statements, continuation statements, extension agreements and
other documents, properly completed and executed (and acknowledged when
required) by the Borrowers, in form and substance satisfactory to the Bank for
the purpose of perfecting or protecting the Bank's liens, pledges, security
interests and assignments in and of the Collateral.

Section 6.3 Security-Opinions. Not more than one hundred twenty (120)
days after the Closing Date, the Borrowers shall furnish to the Bank an opinion
or opinions (the "Security opinion") from Borrowers' counsel, in form of Exhibit
F hereto, confirming that the nature and extent of the Borrowers' title to the
portion of the Mortgaged Properties identified in Schedule 6.3 hereto (with such
opinions expressly to include the Borrowers, working and net revenue interests
therein) conform to the assumptions used by the Bank in determining the
Production Borrowing Base and confirming that the Collateral Documents have duly
created and perfected a first enforceable lien thereon in favor of the Bank. In
addition, from time to time during the term hereof, the Borrowers will deliver
such additional opinions regarding the Mortgaged Properties, from Borrowers'
counsel and in form and content reasonably satisfactory to the Bank, as the Bank
may reasonably request with respect to (i) actual or potential material defects
in the Borrowers' title to a particular Mortgaged Property or, (ii) additional
producing oil and gas properties included in the Production Borrowing Base.

22
<PAGE>

Section 6.4 Banker's Lien; Offset. The Borrowers hereby confirm the
Bank's banker's lien and grant to the Bank a right of offset to secure the
payment of the Borrowers' obligations hereunder to the Bank, which right of
offset shall be upon any and all monies, securities or other property (and the
proceeds therefrom) of the Borrowers, now or hereafter held or received by or in
transit to the Bank from or for the account of the Borrowers, whether for
safekeeping, custody, pledge, transmission, collection or otherwise, and also
upon any and all deposits (general or special), credits and claims of the
Borrowers, at any time existing against the Bank. Upon the occurrence of any
Event of Default, the Bank is authorized at any time and from time to time,
without notice to the Borrowers, to offset, appropriate, and apply any and all
items hereinabove referred to against the Borrowers' obligations to the Bank
under the Loan Documents.

Section 6.5 Deposit Accounts. The Bank reserves the right to require, at
the Bank's sole discretion, the Borrowers to maintain deposit account(s) with
the Bank for the deposit of (a) production proceeds from the Mortgaged
Properties and (b) proceeds from BFMC's and BFM Corp.'s accounts and contracts.
The Bank agrees that such accounts will be interest-bearing to the extent the
Bank is reasonably able to do so.

ARTICLE VII
REPRESENTATIONS AND WARRANTIES

Section 7.1 Representations and Warranties of the Borrowers. The
Borrowers represent and warrant as follows:

(a) Existence; Standing. BFC is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Colorado.
BFM Corp., BFOC, BFMC and CGC are each corporations duly incorporated, validly
existing, and in good standing under the laws of the State of Utah.

(b) Qualification to Do Business. Each Borrower is in good standing
and duly qualified as a foreign corporation to do business in each jurisdiction
in which such qualification is necessary and in which a failure to so qualify
would have a Materially Adverse Effect on its business.

(c) Due Authorization. The execution, delivery and performance by
the Borrowers of this Agreement, the Notes and the Collateral Documents are
within each of the Borrowers, corporate powers, have been duly authorized by all
necessary corporate action by each of the Borrowers, and do not contravene.

(i) the Borrowers' organizational documents, charter or bylaws
or

(ii) any law or any contractual restriction binding on or
affecting the Borrowers.

23
<PAGE>

(d) Approvals. Except as provided in Schedule 7.1(d), no
authorization, approval or other action by, and no notice to or filing with, any
Governmental Authority or regulatory body is required for the due execution,
delivery and performance by the Borrowers of the Loan Documents.

(e) Binding Obligations. This Agreement is, and the Notes and the
Collateral Documents and all other Loan Documents when executed and delivered
hereunder will be, legal, valid and binding obligations of the Borrowers,
enforceable against the Borrowers in accordance with their respective terms,
except (i) that such enforcement may be subject to bankruptcy, insolvency,
moratorium or similar laws affecting creditors, rights and (ii) that the remedy
of specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceedings therefor may be brought.

(f) Financial Statements. The balance sheets of the Borrowers, dated
as of December 31, 1993, and the related statements of income and retained
earnings of the Borrowers for the Year then ended, copies of which have been
furnished to the Bank, fairly present the financial condition of the Borrowers
as at such date and the results of the operations of the Borrowers for the
period ended on such date, all in accordance with generally accepted accounting
principles consistently applied, and since such date there has been no material
adverse change in such condition or operations which has not been disclosed to
the Bank in writing.

(g) Use of Proceeds. (i) No proceeds of any Advance will be used to
acquire any security in any transaction which is subject to Sections 13 and 14
of the Securities Exchange Act of 1934 and (ii) no proceeds will be used to make
loans or advances to, dividends to, stock purchase from, or payments against
advances from BPC.

(h) Regulation U. The Borrowers are not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U issued by the Board of Governors of the Federal
Reserve System), and no proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.

(i) Investment Company Act. The Borrowers are not, and the Borrowers
are not directly or indirectly controlled by, or acting on behalf of any Person
which is, an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.

(j) Other Obligations. Except as shown in Schedule 7.1(j), the
Borrowers have no outstanding indebtedness, obligations, liabilities (including
contingent, indirect and secondary liabilities and obligations), tax assessments
or unusual forward or long-term commitments, with respect to the Mortgaged
Properties which are, in the aggregate, material (defined as being in excess of
$100,000.00) with respect to the financial condition of the Borrowers, and in
either case, not shown in the financial

24
<PAGE>

statements referred to in Section 7.1(f) or in any other writings heretofore
delivered by the Borrowers to the Bank.

(k) Full Disclosure. No certificate, statement or other information
delivered herewith or heretofore by the Borrowers to the Bank in connection with
the negotiation of this Agreement or in connection with any transaction
contemplated hereby contains any untrue statement of a material fact or omits to
state any material fact known to the Borrowers necessary to make the statements
contained herein or therein not misleading as of the date presented. There is no
fact known to the Borrowers that the Borrowers have not disclosed to the Bank in
writing which could materially and adversely affect the properties, business,
prospects or condition (financial or otherwise) of the Borrowers.

(l) No Litigation. Except as identified in Schedule 7.1(l) hereto,
there are no actions, suits or legal, equitable, arbitrative or administrative
proceedings pending or, to the knowledge of the Borrowers, threatened against
the Borrowers at law or in equity or before any federal, state, municipal or
other governmental department, commission, body, board, bureau, agency, or
instrumentality, domestic or foreign, and there are no outstanding judgments,
injunctions, writs, rulings or orders by any court or governmental body against
the Borrowers, any of the Borrowers' stockholders, directors or officers, which
relate to the Collateral, or, with respect to their Borrowers generally, which
do or may materially and adversely (defined as being in excess of $500,000 in
the aggregate) affect the Borrowers, their ownership or use of any of their
assets or properties, their businesses or financial conditions or prospects, or
the right or ability of the Borrowers to enter into this Agreement or to
consummate the transactions contemplated hereby or to perform their obligations
hereunder.

(m) No ERISA Liability. The Borrowers have no knowledge of the
occurrence of any event with respect to any ERISA Plan which could result in a
liability of the Borrowers to the Pension Benefit Guaranty Corporation, other
than the payment of premiums (but no late payment charge) pursuant to Section
4007 of ERISA.

(n) Title to Mortgaged Properties. BFC and BFOC have good and
defensible title to the interests in oil and gas wells and other interests which
comprise the Mortgaged Properties, and BFMC and BFM Corp. have good title to
their accounts receivable, in each case free and clear of all liens,
encumbrances, options, charges and assessments other than those identified in
Schedule 7.1(n) and in Section 8.1(q) hereto, or as otherwise disclosed to the
Bank in writing prior to the execution hereof by the Borrowers.

(o) Existing Subsidiaries. The Borrowers have no existing
subsidiaries, except that BFMC, CGC, BFOC and BFM Corp. are subsidiaries of BFC.

(p) Drilling and Operations. To the best of the Borrowers'
knowledge, the oil and gas wells identified in the Collateral Documents have
been drilled and operated in all material respects in accordance with the terms
of relevant leases and

25
<PAGE>

agreements and applicable federal, state and local laws and regulations and are
bottomed on and producing from the drilling and spacing units or blocks
therefor.

(q) Qualification to Hold Federal Oil and Gas Leases. The Borrowers
are duly qualified to hold interests in oil and gas leases issued by the United
States pursuant to the 1920 Mineral Leasing Act.

(r) Environmental. Except as indicated in Schedule 7.1(r), the
Mortgaged Properties are, and at all times have been, operated by the Borrowers,
and to the knowledge of Borrowers, by the Borrowers' predecessors in interest,
in material compliance with all Environmental Laws then applicable; and no
conditions exist which are due to ownership and operation by the Borrowers, or
to the knowledge of Borrowers, which are due to ownership and operation by
Borrowers, predecessors in interest that would subject the Borrowers or the Bank
to any damages (including without limitation actual, consequential, exemplary
and punitive damages), penalties, injunctive relief or cleanup costs under any
Environmental Law, or that require or are likely to require cleanup, removal,
remedial action or other response by the Borrowers or the Bank pursuant to
Environmental Laws. The Borrowers are not a party to any pending or threatened
litigation or administrative proceeding that asserts or alleges that the
Borrowers or their predecessors violated or are violating Environmental Laws or
that the Borrowers or their predecessors are required to clean up, remove or
take remedial or other responsive action due to the use, storage, treatment,
disposal, discharge, leaking or release of any Hazardous Materials. Neither the
Borrowers, nor to the Borrowers' knowledge their predecessors, nor any part of
the Mortgaged Properties is subject to any judgment, decree, order or citation
related to or arising out of Environmental Laws, and the Borrowers have not been
named or listed as a potentially responsible party by any governmental or other
entity in a matter arising under or relating to any Environmental Law. The
Borrowers and, to the Borrowers' knowledge their predecessors, have obtained all
permits, licenses and approvals required under Environmental Laws. There are not
now, nor have there ever been materials discharged, leaked, spilled or released,
under or at the surface, or stored, treated or recycled at or in tanks or other
facilities thereon or related thereto which require cleanup, removal or some
other remedial action under Environmental Laws which arise from the Borrowers'
ownership and operations, or to the Borrowers' knowledge which arise from
ownership or operations of the Borrowers' predecessors in interest. The
Borrowers undertook, at the time of acquisition of the Mortgaged Properties, all
appropriate inquiry into the previous ownership and uses of the Mortgaged
Properties consistent with good commercial and industry practice. The Borrowers
have taken all reasonable steps necessary to determine that (i) no Hazardous
Materials have been used or stored on, in or in connection with the Mortgaged
Properties, or disposed from the Mortgaged Properties, except in full compliance
with all Environmental Laws then applicable, and (ii) no Hazardous Materials
have been treated, processed, discharged or released on, in, to or from the
Mortgaged Properties except in full

26
<PAGE>

compliance with all Environmental Laws then applicable. The use which the
Borrowers make and intend to make of the Mortgaged Properties will not
result in (x) the use or storage of any Hazardous Materials on, in or in
connection with the Mortgaged Properties, or disposal from the Mortgaged
Properties, except in full compliance with all Environmental Laws then
applicable, or (y) the treatment, processing, discharge or release of any
Hazardous Materials on, in, to or from the Mortgaged Properties. Operation
and closure of underground storage tanks on the Mortgaged Properties shall
be in compliance with Environmental Laws. To the Borrowers' knowledge
there are no underground storage tanks located on or in the Mortgaged
Properties.

As used in this Section 7.1(r) and in the definition of Environmental Laws,
the term "release" shall have the meaning specified in CERCLA, and the term
"disposal" or "disposed" shall have the meaning specified in RCRA. In the event
CERCLA, RCRA or any other applicable Environmental Law is amended so as to
broaden the meaning of any terms defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment; and to the extent that
the laws of any state in which the Mortgaged Properties are located establish a
meaning for "hazardous substance," "release," "solid waste," "hazardous waste,"
"disposal" or "disposed" that is broader than that specified in either CERCLA or
RCRA, such broader meaning shall apply.

ARTICLE VIII
COVENANTS OF THE BORROWERS

Section 8.1 Affirmative Covenants. So long as the Notes or any other
amounts due the Bank hereunder shall remain unpaid or any Letter of Credit
remains outstanding or the Bank shall have any Commitment hereunder, the
Borrowers will, unless the Bank shall otherwise consent in writing:

(a) Payment and Performance. Pay all amounts due under the Loan
Documents in accordance with the terms thereof and observe, perform and comply
with every covenant, term and condition therein expressed or implied.

(b) Books, Financial Statements and Reports. Maintain a standard
system of accounting in accordance with generally accepted accounting
principles, consistently applied, and furnish to the Bank the following
statements and reports at the Borrowers' expense:

(i) As soon as available, and in any event within ninety (90)
days after the end of each Year, complete financial reports for the
Borrowers, together with all notes thereto, prepared in reasonable detail,
together with an opinion by an independent certified public accountant
selected by the Borrowers and reasonably acceptable to the Bank, that such
reports have been so prepared. These reports shall contain balance sheets
as of the end of such Year and statements of earnings, of cash flows, of
changes in financial position, and of changes in stockholders, equity for
such Year, setting forth in comparative form the corresponding figures for
the preceding Year. Such reports shall be accompanied by a certificate
signed by the President or Controller of the Borrowers which confirms (A)
that there existed no condition or event at the end of such Year or at the
time of the auditor's report which constituted an

27
<PAGE>

Unmatured Event of Default, or, if any such condition or event existed,
specifying the nature and period of existence of any such condition or
event, (B) the authenticity of the financial statements and (c) the
calculations of and compliance with the financial covenants as described in
Section 8.1(e).

(ii) Within sixty (60) days after the end of each Quarter
except the last Quarter of each Year, a copy of an unaudited consolidated
and consolidating financial statement of the Borrowers prepared in
accordance with generally accepted accounting principles (with such
variations as the Bank may approve in writing), signed by a proper
accounting officer of the Borrowers and consisting of at least a balance
sheet as at the close of such Quarter, and statements of earnings, of cash
flows, changes in financial position and changes in stockholders, equity
for such Quarter and for the period from the beginning of the Year to the
close of such Quarter. Such reports shall be accompanied by a certificate
signed by the President or Controller of the Borrowers which confirms (A)
that there existed no condition or event at the end of such Quarter or at
the time of the auditor's report which constituted an Unmatured Event of
Default, or, if any such condition or event existed, specifying the nature
and period of existence of any such condition or event, (B) the
authenticity of the financial statements and (C) the calculations of and
compliance with the financial covenants as described in Section 8.1(e).

(iii) Within seventy-five (75) days after the end of each
Quarter, commencing June 30, 1994, a production revenue and expense data
report for such Quarter on a month-by-month and property-by-property basis
for all oil and gas properties and interests owned by the Borrowers,
indicating amounts and types of production sold, the unit sales price, and
the gross and net proceeds of such sales and operating expenses, in a form
consistent with Borrowers' lease operating statements previously provided
to the Bank.

(iv) Within thirty (30) days after the filing thereof, copies
of the annual federal income tax returns of the Borrowers other than BFC to
the extent not consolidated in the returns of BFC.

(v) Within sixty (60) days after the end of each Year,
commencing December 31, 1994, a copy of the independent engineering report
described in Section 4.5(a) and, within sixty (60) days after each June 30,
commencing June 30, 1994, the production, revenue and expense data
described in Section 4.5(b).

(vi) Promptly upon their becoming available and at the request
of the Bank, copies of all financial statements, reports, notices and proxy
statements sent by the Borrowers to their stockholders and all registration
statements, periodic reports and other statements and schedules filed by
the Borrowers with any securities exchange, the Securities and Exchange
Commission or any similar Governmental Authority.

28
<PAGE>

(vii) Within fifteen (15) days after the end of each month,
commencing on July 15, 1994, an Accounts Receivable Report.

(viii) Promptly upon receipt, notice of material violations by
the Borrowers of any Environmental Laws.

(c) Other Information and Inspections. Furnish to the Bank any
information which the Bank may from time to time reasonably request concerning
the Mortgaged Properties or other Collateral, or any covenant, provision or
condition of the Loan Documents or any matter in connection with the business,
operations or financial condition of the Borrowers. In addition, the Borrowers
will permit representatives appointed by the Bank, including independent
accountants, agents, attorneys, appraisers and any other Persons, upon prior
notice, to visit and inspect during normal business hours any of the Borrowers'
properties, including books of account, other books and records, and any
facilities or other business assets, and to make copies therefrom, photocopies
and photographs thereof, and to write down and record any information such
representatives obtain. The Borrowers shall permit the Bank or its
representatives to investigate and verify the accuracy of the information
furnished to the Bank under or in connection with the Loan Documents and to
discuss all such matters with the Borrowers, officers, employees and
representatives.

(d) Notice of Material Events. Promptly notify the Bank (i) of any
material adverse change in the financial condition of the Borrowers, or any
subsidiary of the Borrowers; (ii) of the occurrence of an Unmatured Event of
Default hereunder; (iii) of the occurrence of any acceleration of the maturity
of any indebtedness owed by the Borrowers, or of any default under any
indenture, mortgage, agreement, contract or other instrument to which the
Borrowers are a party or by which they are bound, if such acceleration or
default might have a material adverse claim (which shall include, without
limitation, any claim of $500,000 or more) asserted against the Borrowers or
with respect to any of their respective properties; (iv) of the occurrence of a
Reportable Event (as such term is defined in Title IV of ERISA) with respect to
any ERISA Plan; and (v) of the filing of any suit or proceeding against the
Borrowers in which an adverse decision could have a material adverse effect upon
their respective financial condition, business or operations. Without
limitation, any suit involving a claim of $500,000 or more against the Borrowers
(which is not covered by effective insurance) shall be considered a suit or
proceeding in which an adverse decision could have a material adverse effect
upon the financial condition of the Borrowers. The Borrowers will also notify
the Bank in writing at least thirty (30) Business Days prior to the date that
any of the Borrowers changes its name or the location of its chief executive
office or principal place of business or the place where it keeps its books and
records concerning the Collateral. The Borrowers hereby advise the Bank that the
address of their chief executive office and principal place of business is 1660
Lincoln Street, Suite 1800, Denver, Colorado 80264.

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<PAGE>

(e) Financial Covenants. Comply, on a consolidated basis, as of the
end of each Quarter, beginning June 30, 1994 with the following financial tests,
all determined in accordance with generally accepted accounting principles:

<TABLE>
<CAPTION>
During The During The
Revolving Amortizing
Period Period
---------- ------------
<S> <C> <C>
Minimum working Capital (1): $ 500,000 $ 500,000
Minimum Current Ratio (1): 1.25x 1.25x

Minimum Net Worth (2): $5,600,000 $ 7,000,000
Minimum Net Worth (3): $9,200,000 $10,600,000
Maximum Debt/Worth (2) 2.5x 2.0x
Maximum Debt/Worth (3) 1.25x 1.0x

Min. Fixed Charge Cover. (4): 1.00x 1.00x
</TABLE>

(1) With the current portion of Facility A treated as a non-current
liability.

(2) With advances from BPC ($3.6 million currently) treated as
liability.

(3) With advances from BPC ($3.6 million currently) treated as equity.

(4) (i) Net income after tax plus interest expense plus depreciation,
depletion and amortization, plus other non-cash charges, divided
by
(ii) interest expenses plus required principal payments,
calculated on a fiscal year-to-date basis.

(f) Maintenance of Existence and Qualifications. Maintain and
preserve each of the Borrowers' corporate existence and the Borrowers' rights
and franchises which pertain to the Collateral in full force and effect and
cause the Borrowers to qualify to do business as a foreign corporation in all
states or jurisdictions in which their properties, including the Mortgaged
Properties, are located as required by the laws of each such jurisdiction.

(g) Maintenance of Properties. Preserve, operate and maintain, or
cause to be preserved, operated and maintained, their respective properties,
including the Mortgaged Properties, in a good and workmanlike manner as a
prudent operator in accordance with good oil and gas industry practices. The
Borrowers will maintain, preserve, protect and keep all property used or useful
in the conduct of the Borrowers' business in good condition and in compliance
with all applicable laws, rules and regulations, and will from time to time make
all repairs, renewals and replacements needed to enable the business and
operations carried on in connection therewith to be promptly and advantageously
conducted at all times. The Borrowers will cause the Mortgaged Properties and
the other properties and interests included in the Collateral to be kept free
and clear of liens, charges, security interests, encumbrances, adverse claims
and title defects of every character other than (i) the lien and security
interest created by

30
<PAGE>

the Collateral Documents; (ii) taxes constituting a lien but not due and
payable; (iii) defects or irregularities in title which are not such as to
interfere materially with the development, operation or value of the Mortgaged
Properties and not such as to materially affect title thereto; (iv) obligations
under the leases that comprise the Mortgaged Properties; (v) those set forth or
referred to in the Collateral Documents; (vi) those being contested in good
faith by the Borrowers and which do not, in the judgment of the Bank, jeopardize
the Bank's rights in and to the Mortgaged Properties; and (vii) those consented
to in writing by the Bank.

(h) Payment of Taxes, Etc. File or cause to be filed all required tax
returns and pay or cause to be paid all taxes and other governmental charges or
levies imposed upon the Borrowers or upon the Borrowers' income, profits or
property before the same shall become in default, and will pay or cause to be
paid all lawful claims for labor, materials and supplies which, if unpaid, might
become a lien or charge upon the Borrowers' property or any part thereof, and
pay and discharge when due all material debts, accounts, liabilities and charges
now or hereafter owed by them, and maintain appropriate accruals and reserves
for all such liabilities in a timely fashion in accordance with generally
accepted accounting principles; provided, however, that the Borrowers may delay
paying or discharging any such taxes, charges, claims or liabilities so long as
the validity thereof is contested in good faith by appropriate proceedings and
they have set aside on their books adequate reserves therefor.

(i) Insurance. Keep or cause to be kept, with financially sound and
reputable insurers, insurance reasonably acceptable to the Bank against the
Borrowers, liability on account of damages to persons or property.

(j) Books and Records. Maintain at all times complete and accurate
books of account and records.

(k) Payment of Expenses. Regardless of whether or not the
transactions contemplated by this Agreement are consummated, pay all reasonable
costs and expenses of the Bank (including, without limitation as to type of
expense, reasonable attorneys, fees) in connection with (i) the preparation,
execution and delivery of the Loan Documents and any and all amendments,
modifications, supplements, consents, waivers or other documents or instruments
relating thereto; (ii) the filing, recording, refiling and rerecording of any
Collateral Documents and all amendments, supplements or modifications thereto,
and any and all other documents or instruments or further assurances required to
be filed or recorded or refiled or rerecorded by the terms hereof or of any
Collateral Document; (iii) the evaluation and confirmation of the Borrowers'
title to the Mortgaged Properties as requested by the Bank; (iv) the borrowings
hereunder and other action reasonably required in the administration hereof; and
(v) the enforcement, after the occurrence of an Unmatured Event of Default, of
the Loan Documents.

(l) Performance on the Borrowers' Behalf. If the Borrowers fail to
pay any taxes, insurance or other amounts required to be paid under any Loan

31
<PAGE>

Documents, the Bank may pay the same and shall be entitled to immediate
reimbursement by the Borrowers therefor and each amount paid shall
constitute a part of the Borrowers, indebtedness to the Bank, shall be
secured by the Collateral Documents and shall bear interest from the date
such amount is paid by the Bank until the date such amount is repaid to the
Bank at the Prime Rate plus four percent (4%).

(m) Compliance with Agreements and Law. Perform all material
obligations required to be performed by the Borrowers under the terms of each
indenture, mortgage, deed of trust, security agreement, lease, franchise,
agreement, contract or other instrument or obligation relating to the Mortgaged
Properties to which the Borrowers are a party or by which the Borrowers or any
of the Mortgaged Properties are bound, and conduct the Borrowers, business and
affairs in compliance with the laws and regulations applicable thereto.

(n) Evidence of Compliance. Furnish to the Bank at the Borrowers,
expense all evidence which the Bank may from time to time reasonably request, as
to the accuracy and validity of or compliance with all representations,
warranties and covenants made by the Borrowers in the Loan Documents, the
satisfaction of all conditions contained therein, and all other matters
pertaining thereto.

(o) Further Assurances. Do such further acts and execute such
further instruments as the Bank may reasonably determine to be necessary or
desirable to carry out the purposes of this Agreement, and maintain and perfect
the liens and security interests created by the Collateral Documents.

(p) Production Purchasers. Upon written request by the Bank, advise
the Bank of the names and addresses of all purchasers of production from the
Mortgaged Properties.

(q) Environmental Laws.

(i) Comply with all applicable Environmental Laws and obtain and
comply with and maintain any and all licenses, approvals, registrations or
permits required by the Environmental Laws.

(ii) Defend, indemnify and hold harmless the Bank and its
employees, agents, officers and directors, from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature known or unknown, contingent or
otherwise, arising out of, or in any way relating to the violation of or
noncompliance with any Environmental Law applicable to the Mortgaged
Properties owned or operated by the Borrowers, or any orders, requirements
or demands of Governmental Authorities related thereto, including, without
limitation, attorneys, and consultant's fees, investigation and laboratory
fees, environmental response and cleanup costs, court costs and litigation
expenses, except to the extent that any of the foregoing arise

32
<PAGE>

out of the gross negligence or willful misconduct of the party seeking
indemnification therefor.

(iii) Complete and return to the Bank, at the request of the
Bank in its sole discretion, an environmental questionnaire for each of the
Mortgaged Properties, the form of which shall be specified by the Bank. In
no event will such questionnaire require information beyond that required
in connection with ASTM Standard E 1527 for Phase I Environmental Site
Assessments.

Section 8.2 Negative Covenants. So long as the Notes or any other
amounts due the Bank hereunder shall remain unpaid, any Letter of Credit
remaining outstanding or the Bank shall have any Commitment hereunder, the
Borrowers will not, without the prior written consent of the Bank:

(a) Limitation on Dividends and Distributions. Declare or pay any
dividends on, or make any other distributions in respect of shares of Borrowers'
capital stock to the holders of any class of such capital stock (including BPC),
except (i) dividends to other Borrowers and (ii) with the Bank's prior written
consent, dividends from BFC to its shareholders not exceeding the greater of (A)
ten percent (10%) of its after-tax net income or (B) five percent (5%) of its
net cash flow (defined as after-tax net income plus depreciation, depletion and
amortization, and other non-cash charges).

(b) Limitation on Stock Repurchase. Directly or indirectly make any
capital contributions to or purchase, redeem, acquire or retire any shares of
the capital stock of the Borrowers (whether such interests are now or hereafter
issued, outstanding or created), or cause or permit any reduction or retirement
of the capital stock of the Borrowers.

(c) Limitation on Indebtedness. Create, incur, assume, guarantee,
endorse, become or be liable in any manner with respect to or suffer to exist
any Debt, liability or obligation (including, without limitation, all Debt and
all contingent or secondary, or direct or indirect, debts, liabilities or
obligations whatsoever), including additional advances from BPC, except:

(i) the Borrowers, indebtedness to the Bank hereunder;

(ii) existing Debt identified in Schedule 8.2(c) hereto;

(iii) current debts, obligations and liabilities to pay vendors,
suppliers, and Persons (including shareholders and other affiliates)
providing goods and services normally required in the ordinary course of
business (including forward sales) and on ordinary trade terms which are
not delinquent or which are being contested in good faith;

(iv) taxes, assessments and governmental charges or levies
which are not delinquent or which are being contested in good faith;

33
<PAGE>

(v) contingent liabilities arising out of the endorsement in
the ordinary course of business of negotiable instruments in the course of
collection;

(vi) Debt to shareholders of the Borrowers which is
subordinated to the Borrowers' Debt to the Bank upon prior written approval
by the Bank; and

(vii) obligations to reimburse BPC for statutory, federal or
state income taxes which are based upon taxable income of BFC, even though
BPC may not be required to pay such taxes as a result of net operating
losses or net operating loss carryforwards or other tax credits available
to BPC and its subsidiaries on a consolidated basis.

(d) Limitation on Liens. Create, assume or permit to exist any
mortgage, deed of trust, pledge, encumbrance, lien or charge of any kind
(including any security interest in or vendor's lien on property purchased under
conditional sales or other title retention agreements and including any lease in
the nature of a title retention agreement) upon the Mortgaged Properties,
equipment thereon, or production therefrom, except:

(i) liens and security interests at any time existing in favor
of the Bank;

(ii) statutory liens for taxes and other sums, and liens for
materials and services under standard operating agreements for sums, which
are not delinquent or which are being contested in good faith; and

(iii) mechanics' and materialmen's liens with respect to
obligations which are not delinquent or which are being contested in good
faith.

(e) Limitation on Mergers. Merge or consolidate the Borrowers with
or into any other entity (including, but not limited to, Portland General
Corporation) without the prior written consent of the Bank, which consent may be
conditioned upon satisfaction of such reasonable conditions as the Bank may
specify to insure continuing liability and obligation for payment of the Loans
and for the continued perfection and priority of the liens and security
interests securing the Loans, except with each other Borrower.

(f) Limitation on Sales of Property. Sell, transfer, lease,
exchange, alienate or dispose of any portion of the Mortgaged Properties or any
material interest therein, except sale of oil and gas production in the ordinary
course of business.

(g) Fiscal Year. Change the fiscal year currently in effect for the
Borrowers, which is a calendar year.

(h) Amendment of Contracts. Amend or permit any amendment to any
contract (expressly including the American Atlas Contract) which releases,
qualifies,

34
<PAGE>

limits, makes contingent or otherwise detrimentally affects the
rights and benefits pledged and assigned to and acquired by the Bank
pursuant to any Collateral Document.

(i) Limitation on Investments and New Businesses.

(i) Make any expenditure or commitment or incur any obligation
or enter into or engage in any transaction except in the ordinary course of
business;

(ii) engage directly or indirectly in any business or conduct
any operations except in connection with or incidental to the present
business and operations conducted by them;

(iii) make any acquisitions of or capital contributions to or
other investments in any business entities; or

(iv) make any significant acquisitions or investments in any
properties other than actual or prospective oil and gas properties and
related gathering, transportation, processing and marketing assets.

(j) Limitation on Credit Extensions. Extend credit, make advances or
make loans to any Person or entity other than normal and prudent extensions of
credit to customers buying goods and services in the ordinary course of
business, which extensions shall not be for longer periods than those extended
by similar businesses operated in a normal and prudent manner.

(k) ERISA Compliance. Permit any Plan maintained by it to (i) engage
in any "prohibited transaction" as such term is defined in Section 4975 of the
Internal Revenue Code of 1954, as amended; (ii) incur any "accumulated funding
deficiency" as such term is defined in Section 302 of ERISA; or (iii) terminate
in a manner which could result in the imposition of a lien on the property of
the Borrowers pursuant to Section 4068 of ERISA.

(l) Limitation on Certain Repayments. Repay any advances, or
interest thereon, owing to related or affiliated entities (including the
$3,600,000 advance from BPC shown on BFC's balance sheets dated September 30,
1993 and December 31, 1993 in the event such advance is not converted to
equity), except (i) to each other Borrower, and (ii) security deposits and
advances received by the Borrowers for the purchase and transportation of
natural gas in the ordinary course of business.

(m) Limitation on Payments to BPC. Make payments to BPC for the
payment of BFC's statutory income taxes for a given year, except to the extent
of the lesser of (i) BFC's statutory income taxes for that year, or (ii) BPC,s
actual income tax liability for that year.

35
<PAGE>

ARTICLE IX
EVENTS OF DEFAULT AND THEIR EFFECT

Section 9.1 Events of Default. Each of the following events shall
constitute an Event of Default under this Agreement:

(a) Nonpayment of Notes. The Borrowers shall fail to pay any
Principal Amount of, or interest on, the Notes within ten (10) days of the date
when due.

(b) Collateral Documents. A default shall occur under the terms of
any of the Collateral Documents, or the Borrowers shall dispute the existence,
first priority or binding or enforceable nature of any lien established pursuant
to the Collateral Documents.

(c) Representations And Warranties. Any written representation or
warranty made by the Borrowers herein or by the Borrowers (or any of the
Borrowers' officers) in connection with this Agreement shall prove to have been
incorrect in any material respect when made and remains so at the time the Bank
elects to act with respect to such Event of Default pursuant to Section 9.2.

(d) Noncompliance With Specific Provisions Of This Agreement. The
Borrowers shall fail to perform or observe any term, covenant or obligation set
forth in Section 4.3 and Section 8.2(a), (b), (c), (d), (e), (f), (h), (i), (j),
(l), and (m) of this Agreement.

(e) Noncompliance With This Agreement. The Borrowers shall fail to
perform or observe any other term, covenant or agreement contained in this
Agreement on their part to be performed or observed, and any such failure shall
remain unremedied for thirty (30) days after written notice thereof shall have
been given to the Borrowers by the Bank.

(f) Nonpayment Of Other Indebtedness For Borrowed Money. Any of the
Borrowers shall fail to pay any Debt or any interest or premium thereon when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such Debt; or any
other default under any agreement or instrument relating to any such Debt, or
any other event, shall occur and shall continue after the acceleration of the
maturity of such Debt; or any such Debt shall be declared to be due and payable,
or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; provided, however, that no
such failure shall constitute an Event of Default so long as the validity of the
Debt or payment obligation is being contested in good faith by appropriate
proceedings and the Borrowers have set aside on their books adequate reserves
therefor.

(g) Bankruptcy, Insolvency, Etc. Any of the Borrowers shall (i)
generally not pay its debts as such debts became due; or (ii) admit in writing
its

36
<PAGE>

inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors; or (iii) institute any proceeding seeking to
adjudicate itself bankrupt or insolvent, or seeking liquidation, winding
up, reorganization, arrangement, adjustment, protection, relief, or
composition of its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, or other similar official
for itself or for any substantial part of its property; or (iv) suffer any
proceeding to be instituted against it for the purposes specified in the
foregoing clause (iii) which shall continue for more than sixty (60) days
without discharge or dismissal thereof; or (v) take any corporate or
individual action to authorize any of the actions set forth above in this
Section 9.1(q).

(h) Material Adverse Change. A material adverse change in any
Borrowers, condition (financial or otherwise), including changes due to
violations, or applications, of Environmental Laws to the Borrowers or their
properties, or a change in the key management personnel of BFC, which the Bank
determines, in its sole discretion, would have a Materially Adverse Effect on
the operations of the Borrowers. "Key management" includes Steven H. Stepanek,
current President of BFC.

(i) Judgment. Any judgment or order for the payment of money in
excess of $500,000 shall be rendered against any of the Borrowers and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order or (ii) there shall be any period of ten (10) consecutive days
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; provided, in either case,
that the Borrower in question has not made bonding, surety or other arrangements
acceptable to the Bank.

(j) American Atlas Contract. A material adverse change in the
American Atlas Contract. A "material adverse change," as used in this Section
9.1(j) means a change in the status of the American Atlas Contract which the
Bank determines in its sole discretion would have a Materially Adverse Effect on
the financial condition and operations of the Borrowers.

Section 9.2 Effect of the Occurrence of an Event of Default. If any Event
of Default described in Section 9.1 shall occur, the Bank may, by notice to the
Borrowers, (i) declare its obligation to make the Advances and to issue Letters
of Credit to be terminated, whereupon the same shall forthwith terminate, and/or
(ii) elect to have the Default Interest Rate apply to the Loans, and/or (iii)
declare the Loans and the Notes, all interest thereon and all other amounts
owing under this Agreement to be forthwith due and payable, whereupon the Loans
and the Notes, all such interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest, or further
notice of any kind, all of which are hereby expressly waived by the Borrowers.
In addition to the foregoing, following an Event of Default, so long as any
Letter of Credit has not been fully drawn and has not been cancelled or expired,
upon written demand by the Bank, the Borrowers shall deposit and maintain with
the Bank an account with cash in an amount and currency equal to the aggregate
undrawn Face Amount of all outstanding Letters of Credit, together with all fees
and other amounts due or which may

37
<PAGE>

become due with respect thereto. The Borrowers shall have no control over funds
in such cash deposit account. The Bank agrees that any such cash deposit account
will be interest-bearing to the extent the Bank is reasonably able to do so.
Such funds shall be promptly applied by the Bank to reimburse itself for drafts
drawn under the Letters of Credit. Such funds, if any, remaining in such cash
deposit account following the payment in full of all Draws due hereunder or
under the Notes shall be promptly paid over to the Borrowers.

If the Bank does not accelerate the due date of the Loans, the Bank may
elect in its sole discretion to require the Borrowers to make each monthly
payment of principal and interest with respect to the Term Loan payments equal
to the greatest of the following, which right the Bank may exercise at any time
during the Amortizing Period after the occurrence of an Event of Default by
notice to the Borrowers:

A. accrued interest plus the principal payments set forth in the
minimum monthly principal payment schedule in Section 3.3; or

B. up to seventy percent (70%) of the Borrowers' Gross Revenue from
the Mortgaged Properties applied first to accrued interest, then to principal;
or

C. up to one hundred (100%) of the Borrowers' Net Revenue from the
Mortgaged Properties applied first to accrued interest, then to principal.

In the event the Bank elects to exercise the right to receive the maximum
payment allowed above, the Borrowers shall provide to the Bank all information
the Bank reasonably determines to be necessary to calculate the payments which
are due under alternative clauses B. and C. above.

ARTICLE X
MISCELLANEOUS

Section 10.1 Amendments, Etc. No amendment of any provision of the Loan
Documents, nor consent to any departure by the Borrowers therefrom, shall in any
event be effective unless the same shall be in writing and signed by all of the
parties hereto. No waiver by the Bank of any provision of the Loan Documents,
or the Bank's consent to any departure by the Borrowers therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Bank,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.

Section 10.2 Notices, Etc. Any notice and other communications provided
for hereunder shall be in writing and shall be deemed to have been given when
personally delivered, when received if sent by facsimile, when delivered if sent
by Federal Express or Express Mail, or three (3) Business Days after having been
mailed by United States registered or certified mail, return receipt requested,
postage prepaid, addressed to the party for whom it is intended at the following
addresses:

38
<PAGE>

Borrowers: Bonneville Fuels Corporation
1660 Lincoln Street
Suite 1800
Denver, Colorado 80264
Attn: Mr. Steven H. Stepanek, President
Facsimile: (303) 863-1558

with a copy to:

Mr. Roger Segal
Cohen, Rappaport & Segal
515 E. 100 South, Suite 500
Salt Lake City, UT 84102
Facsimile: (801) 355-1813

Bank: First Interstate Bank of Denver, N.A.
633 Seventeenth Street
Denver, Colorado 80270
Attn: Mr. Mark E. Thompson,
Vice President Energy Banking
Facsimile: (303) 293-5467

Any party may change its address for purposes of receipt of any such
communication by giving ten (10) Business Days' prior written notice of such
change to the other party in the manner above prescribed.

Section 10.3 Damage Limitation. Neither Party shall be liable to the
other for consequential damages, whatever the nature of a breach by the other
party in its obligations relating to the transactions governed or contemplated
by this Agreement.

Section 10.4 Release. Upon full payment and satisfaction of the Loans and
the interest thereon, as provided herein, the parties shall thereupon
automatically each be fully, finally, and forever released and discharged from
any further claim, liability or obligation in connection with the Loans.

Section 10.5 Lost Note. Upon receipt by the Borrowers of evidence of the
loss, theft, destruction or mutilation of the Notes and, in the case of loss,
theft or destruction, of indemnity reasonably satisfactory to the Borrowers
(with the Bank's indemnity in case of loss, theft or destruction of the Notes
owned by the Bank to be reasonably satisfactory to Borrowers), and upon
surrender and cancellation of the Notes if mutilated, the Borrowers will pay any
unpaid principal and interest (and any prepayment charge) then or theretofore
due and payable on the Notes and will at the request of the Bank promptly
execute and deliver in lieu of the Notes a replacement Notes of like tenor for
any remaining balance due.

Section 10.6 No Waiver; Remedies. No failure on the part of the Bank to
exercise, and no delay in exercising, any right under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right under the Loan

39
<PAGE>

Documents preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.

Section 10.7 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Borrowers and the Bank and their respective
successors and assigns, except that the Borrowers shall not assign their rights
hereunder or any interest herein without the prior written consent of the Bank.
The Bank may assign to one or more banks or other entities all or any part of,
or may grant participations to one or more banks or other entities in or to all
or any part of, the Advance or Advances and the Notes. To the extent of any such
assignment (unless otherwise stated therein), the assignee shall have the same
rights and benefits hereunder and under the Notes as it would have if it were
the Bank hereunder.

Section 10.8 GOVERNING LAW AND SUBMISSION TO JURISDICTION. THE SUBSTANTIVE
LAW OF COLORADO SHALL GOVERN ALL THE TERMS, CONDITIONS AND INTERPRETATIONS OF
THIS AGREEMENT, THE NOTES, THE LOANS AND ALL OTHER INSTRUMENTS, DOCUMENTS OR
AGREEMENTS EXECUTED PURSUANT HERETO, EXCEPT FOR THE REAL AND PERSONAL PROPERTY
LAW, INCLUDING SECURED TRANSACTION LAW, THAT MAY BE CONTROLLING IN SITUATIONS
WHERE THE REAL AND/OR PERSONAL PROPERTY IS LOCATED IN STATES OTHER THAN
COLORADO. IN THE EVENT OF LITIGATION CONCERNING THIS AGREEMENT, THE NOTES, THE
LOANS OR ANY OTHER INSTRUMENTS, DOCUMENTS OR AGREEMENTS EXECUTED OR DELIVERED
PURSUANT HERETO, EXCEPT LITIGATION FOR THE EXERCISE OF REMEDIES BY THE BANK WITH
RESPECT TO PROPERTY LOCATED IN STATES OTHER THAN COLORADO, AND SUBJECT TO THE
PROVISIONS OF SECTION 10.11, THE PARTIES HERETO AGREE THAT THE EXCLUSIVE PLACE
OF JURISDICTION SHALL BE THE STATE OF COLORADO, CITY AND COUNTY OF DENVER, AND
THE VENUE SHALL BE ANY STATE OR FEDERAL COURT LOCATED THEREIN. FURTHER, THE
BORROWERS CONSENT TO AND AGREE TO FILE A GENERAL APPEARANCE IN THE EVENT THEY
RECEIVE A SERVICE OF PROCESS.

Section 10.9 Relationship to Other Documents. In the event any provision
hereof is in conflict with any provision of the Collateral Documents, the
provisions hereof shall be controlling.

Section 10.10 Severability. In the event any provision of this Agreement,
the Notes or any of the other instruments, documents or agreements executed
pursuant hereto shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof or thereof or affect the validity or enforceability of
such provision in any other jurisdiction.

Section 10.11 Arbitration. Subject to the provisions of the next
paragraph below, the Bank and the Borrowers agree to submit to binding
arbitration any and all

40
<PAGE>

claims, disputes and controversies between them or among them (and their
respective employees, officers, directors, attorneys, and other agents) relating
to the Loans and its negotiation, execution, collateralization, administration,
repayment, modification, extension or collection. Such arbitration shall proceed
in Denver, Colorado, shall be governed by Colorado law (including without
limitation the provisions of C.R.S. (S) 13-21-102(5)) and shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). Any award entered in an arbitration, whether on motions or
at a hearing with or without testimony from witnesses, shall be made by a
written opinion stating the reasons for the award made. The decisions of any
arbitration pursuant to this Agreement shall be made based on Colorado law
without reference to any choice of law rules. Judgment on any award hereunder
may be entered in any court having jurisdiction.

Nothing in the preceding paragraph, nor the exercise of any right to
arbitrate thereunder, shall limit the right of any party hereto (a) to foreclose
against any real or personal property Collateral by the exercise of the power of
sale under a deed of trust, mortgage, or other security agreement, or
instrument, or applicable law; (b) to exercise self-help remedies such as setoff
or repossession; or (c) to obtain provisional or ancillary remedies such as
replevin, injunctive relief, attachment, or appointment of a receiver from a
court having jurisdiction, before, during or after the pendency of any
arbitration proceeding. The institution and maintenance of any action for such
judicial relief, or pursuit of provisional or ancillary remedies, or exercise of
self-help remedies shall not constitute a waiver of the right or obligation of
any party to submit any claim or dispute to arbitration, including those claims
or disputes arising from exercise of any judicial relief, or pursuit of
provisional or ancillary remedies, or exercise of self-help remedies.

Arbitration hereunder shall be before a three-person panel of neutral
arbitrators, consisting of one person from each of the following categories: (1)
an attorney who has practiced in the area of commercial law for at least ten
(10) years or a retired judge at the Colorado or United States District Court or
an appellate court level; (2) a person with at least ten (10) years' experience
in commercial lending; and (3) a person with at least five (5) years, experience
in the petroleum industry. The AAA shall submit a list of persons meeting the
criteria outlined above for each category of arbitrator, and the parties shall
select one person from each category in the manner established by the AAA.

Section 10.12 Table of Contents, Headings. The Table of Contents and the
headings for the Articles and Sections hereof are for convenience of reference
only and shall not affect the meaning or construction hereof.

Section 10.13 Counterparts. This Agreement may be executed in any number
of counterpart copies. Each fully executed counterpart shall be considered an
original, but together such copies shall constitute one and the same instrument.

Section 10.14 Joint and Several Liability. All obligations of the
Borrowers hereunder or under the Notes shall be joint and several.

41
<PAGE>

Section 10.15 Confidentiality. The Bank shall use reasonable efforts to
maintain the confidentiality of information provided by the Borrowers to the
Bank which (a) the Borrowers request be treated as confidential, and (b) which
is not otherwise available to the public.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

BORROWERS:

<TABLE>
<CAPTION>
BONNEVILLE FUELS CORPORATION BONNEVILLE FUELS OPERATING CORPORATION
<S> <C>

By:_____________________________ By:______________________________
Name: Steven H. Stepanek Name: Steven H. Stepanek
Title: President Title: President

BONNEVILLE FUELS MARKETING CORPORATION BONNEVILLE FUELS MANAGEMENT CORPORATION

By:_____________________________ By:______________________________
Name: Steven H. Stepanek Name: Steven H. Stepanek
Title: President Title: President

COLORADO GATHERING CORPORATION

By:_____________________________
Name: Steven H. Stepanek
Title: President

BANK:

FIRST INTERSTATE BANK OF
DENVER, N.A.

By:_____________________________
Mark E. Thompson
Vice President
</TABLE>

42
<PAGE>

FORM OF FACILITY A NOTE

REVOLVING NOTE

$20,000,000 May 31, 1994

FOR VALUE RECEIVED, the undersigned, BONNEVILLE FUELS CORPORATION, as
Colorado corporation, BONNEVILLE FUELS MARKETING CORPORATION, a Utah
corporation, COLORADO GATHERING CORPORATION, a Utah corporation, BONNEVILLE
FUELS OPERATING CORPORATION, a Utah corporation and BONNEVILLE FUELS MANAGEMENT
CORPORATION, a Utah corporation (collectively the "Borrowers"), HEREBY JOINTLY
AND SEVERALLY PROMISE TO PAY to the order of FIRST INTERSTATE BANK OF DENVER,
N.A. (the "Bank") on or before the Facility A Maturity Date (as defined in the
Credit Agreement identified below) the Principal Amount of Twenty Million
Dollars ($20,000,000), or such lesser amount as has been Advanced by the Bank to
the Borrowers as Facility A Loans pursuant to the Credit Agreement (as defined
below). Subject to the Credit Agreement, the Borrowers may borrow, repay and
reborrow amounts hereunder until the Conversion Date (as defined in the Credit
Agreement)

The Borrowers promise to pay interest on the Principal Amount of each
Advance from the date of such Advance until such Principal Amount is paid in
full, at such Interest Rates, and payable at such times, as are specified in the
Credit Agreement.

Both principal and interest are payable in lawful money of the United
States of America to the Bank at 633 Seventeenth Street, Denver, Colorado (or at
such other location as the Bank may designate), in same day funds. Each Advance
made by the Bank to the Borrowers and the maturity thereof, and all payments
made on account of principal hereof, shall be recorded by the Bank and, prior to
any transfer hereof, endorsed on the grid attached hereto which is part of this
Note.

This Note is the Facility A Note referred to in and is entitled to the
benefits of the Amended and Restated credit Agreement dated as of May 31, 1994
(the "Credit Agreement"), between the Borrowers and the Bank, which Credit
Agreement, among other things, (i) provides for the making of Advances by the
Bank to the Borrowers from time to time in an aggregate amount not to exceed at
any time outstanding the amount first above mentioned or such reduced amount as
set forth in the Credit Agreement, and (ii) contains provisions for acceleration
of the maturities hereof upon the happening of certain stated events. Terms
used herein which are defined in the Credit Agreement shall have the meanings
specified in the Credit Agreement.

This Note represents an extension and renewal of the outstanding principal
amount of, and a replacement and substitution for, a certain Promissory Note of
Bonneville Fuels Corporation, dated August 30, 1991 (the "Prior Note"), payable
to the order of Chase Manhattan Bank (National Association). The Prior Note has
been transferred to the Bank. The Indebtedness evidenced by the Prior Note is a
continuing indebtedness and nothing contained herein shall be construed to deem
paid the Prior Note or to replace or terminate any lien or security interest
given to secure payment of the Prior Note.
<PAGE>

Demand, presentment for payment, notice of dishonor and protest are hereby
expressly waived by the Borrowers.

BONNEVILLE FUELS CORPORATION

By:
------------------------------------
Name: Steven H. Stepanek
Title: President

BONNEVILLE FUELS MARKETING CORPORATION

By:
------------------------------------
Name: Steven H. Stepanek
Title: President

COLORADO GATHERING CORPORATION

By:
------------------------------------
Name: Steven H. Stepanek
Title: President

BONNEVILLE FUELS OPERATING CORPORATION

By:
------------------------------------
Name: Steven H. Stepanek
Title: President

BONNEVILLE FUELS MANAGEMENT CORPORATION

By:
------------------------------------
Name: Steven H. Stepanek
Title: President

<PAGE>

PROMISSORY NOTE

$1,000,000.00 Denver, Colorado
May 31, 1994

FOR VALUE RECEIVED, the undersigned (referred to, collectively if more
than one, as "Borrower") jointly and severally hereby promises to pay to the
order of FIRST INTERSTATE BANK OF DENVER, N.A., (referred to, together with any
subsequent holder of this note, as "Holder"), at 633 Seventeenth Street, Denver,
Colorado 80270, or at such other address as may be specified by any Holder, upon
demand the principal sum of ONE MILLION DOLLARS ($1,000,000.00), or so much
thereof as may be advanced to or for the benefit of Borrower, together with
interest on the balance of principal outstanding from time to time at a floating
rate which is one percent (1%) per annum higher than the "Bank's Prime Rate" (as
that term is defined below), in lawful money of the United States of America.
Interest shall be calculated based on a three hundred sixty-five (365) day year
and charged for the actual number of days elapsed.

The principal balance of this note represents a revolving credit, all
or any part of which may be advanced to Borrower, repaid by Borrower, and re-
advanced to Borrower from time to time, subject to the other terms hereof and
the conditions contained in the Credit Agreement (defined below), and provided
that Borrower shall not be entitled to any advances that would cause the
principal balance outstanding at any one time to exceed the Facility B
Commitment (defined in the Credit Agreement). The revolving credit evidenced by
this note is to be used for cash advances and for the issuance of standby
letters of credit as set forth in the Credit Agreement. This note also
evidences any other sums payable under the Credit Agreement with respect to
Facility B Loans or any document securing this note.

As used in this note, the term "Bank's Prime Rate" means the prime
commercial lending rate established and announced from time to time by First
Interstate Bank of Denver, N.A., its successors and assigns ("Bank"). Bank's
Prime Rate is an index rate that Bank establishes and quotes from time to time
for pricing certain of its loans. Information on the index rate currently in
effect is announced publicly or can be obtained by contacting Bank. Bank's
Prime Rate is not necessarily the lowest rate charged to Bank's customers and
Bank may make loans at, above or below this state index rate. The rate of
interest borne by the outstanding principal balance of this note shall change
from time to time on the effective date of, and in conformity with, changes in
the Bank's Prime Rate. Changes in the interest rate on this note shall be
effective without notice to Borrower.

Interest and principal shall be payable in accordance with the
provisions of the Credit Agreement. If not sooner paid, the entire unpaid
balance of principal and interest shall be due and payable in full on April 1,
1995. The inclusion of specific
<PAGE>

default provisions or rights of Holder in the Credit Agreement shall not
preclude Holder's right to declare payment of this note on Holder's demand in
accordance with the terms of the Credit Agreement.

All payments on this note shall be applied first to the payment of any
costs, fees, late charges or other charges incurred in connection with the
indebtedness evidenced hereby, next to the payment of accrued interest and then
to the reduction of the principal balance.

This note may be prepaid in whole or in part, at any time, without fee
or premium.

This note is the Facility B Note referred to in and is entitled to the
benefits of the Amended and Restated Credit Agreement date as of May 31, 1994
(the "Credit Agreement"), between the Borrower and Holder, which Credit
Agreement, among other things, (i) provides for the making of Advances by the
Holder to the Borrower from time to time in an aggregate amount not to exceed at
any time outstanding the amount first above mentioned or such reduced amount as
set forth in the Credit Agreement, and (ii) contains provisions for acceleration
of the maturities hereof upon the happening of certain stated events.
Capitalized terms used herein which are not specifically defined herein shall
the meanings specified in the Credit Agreement. In the event any provision of
this note is inconsistent with any provision of the Credit Agreement, the Credit
Agreement provision shall apply.

Time is of the essence of each and every provision of this note.

Borrower and all parties now or hereafter liable for payment of this
note, primarily or secondarily, directly or indirectly, and whether as endorser,
guarantor, surety or otherwise, hereby severally (a) waive presentment, demand,
protest, notice of protest, notice of dishonor and all other notices and demands
whatever, other than any notice which may be required pursuant to any provision
of the Credit Agreement, (b) consent to impairment or release of collateral,
extensions of time for payment, and acceptance of late or partial payments
before, at or after maturity, (c) agree that Holder's acceptance of one or more
partial payments after acceleration of the maturity of this note will not
constitute a waiver of such acceleration, regardless of any contrary notice or
statement of condition which may accompany any such partial payment, (d) waive
any right to require Holder to proceed against any security for this note before
proceeding hereunder, and (e) agree to pay all costs and expenses, including,
without limitation, attorneys' fees, which may be incurred by Holder in
collecting this note or in enforcing and realizing upon any security for this
note.

The provisions of this note and of all agreements now or hereafter
existing between Borrower and Holder are hereby expressly limited so that in no
contingency or event whatsoever, whether by acceleration of the maturity of this
note or otherwise, shall the amount paid or agreed to be paid to Holder for the
use, forbearance or detention of the sums evidenced by this note exceed the
maximum amount permissible under Colorado

2
<PAGE>

law. If, from any circumstances whatsoever, the performance or fulfillment of
any obligation of this note, or of any other agreement between Borrower and
Holder, at the time performance of such obligation shall be due, shall exceed
the limitation prescribed by law, then, ipso facto, the obligation to be
performed or fulfilled shall be reduced to the limitation, and, if from any such
circumstance, Holder shall ever receive anything of value which is deemed to be
interest by Colorado law which would exceed the highest lawful rate, an amount
equal to any excessive interest shall be applied to the reduction of principal
amount of this note or on account of any other principal indebtedness of
Borrower to Holder and to the payment of interest thereon or, if such excessive
interest exceeds the unpaid balance of principal of this note and such other
indebtedness, such excess shall be refunded to Borrower.

This note shall be binding upon Borrower and its successors and
assigns and shall inure to the benefit of Holder and its successors and assigns.

All notices required or permitted in connection with this note shall
be given at the place and in the manner provided in the Credit Agreement for the
giving of notices.

Wherever possible, each provision of this note shall be interpreted so
as to be effective and valid under applicable law. If any provision of this
note is, for any reason and to any extent, invalid or unenforceable, then
neither the remainder of this note, nor any other document referred to in this
note, nor the application of the provision to other persons or in other
circumstances, shall be affected by such invalidity or unenforceability.

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAW OF THE STATE OF COLORADO. BORROWER HEREBY CONSENTS TO THE EXERCISE OF
JURISDICTION OVER IT BY ANY FEDERAL COURT SITTING IN COLORADO OR ANY COLORADO
DISTRICT COURT SELECTED BY LENDER, FOR THE PURPOSES OF ANY AND ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THE NOTE, THE CREDIT AGREEMENT AND ALL
OTHER LOAN DOCUMENTS (DEFINED IN THE CREDIT AGREEMENT). BORROWER IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH PROCEEDING BROUGHT IN ANY
SUCH COURT, ANY CLAIM BASED ON THE CONSOLIDATION OF PROCEEDINGS IN SUCH COURTS
IN WHICH PROPER VENUE MAY LIE IN DIVERGENT JURISDICTIONS, AND ANY CLAIM THAT ANY
SUCH PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.

3
<PAGE>

BONNEVILLE FUELS CORPORATION

By:_____________________________
Steven H. Stepanek, President

BONNEVILLE FUELS MARKETING CORPORATION

By:_____________________________
Steven H. Stepanek, President

COLORADO GATHERING CORPORATION

By:_____________________________
Steven H. Stepanek, President

BONNEVILLE FUELS OPERATING CORPORATION

By:_____________________________
Steven H. Stepanek, President

BONNEVILLE FUELS MANAGEMENT CORPORATION

By:_____________________________
Steven H. Stepanek, President

4
<PAGE>

FORM OF TERM NOTE
-----------------

TERM NOTE
---------

$20,000,000 May 31, 1994

FOR VALUE RECEIVED, the undersigned, BONNEVILLE FUELS CORPORATION, as
Colorado corporation, BONNEVILLE FUELS MARKETING CORPORATION, a Utah
corporation, COLORADO GATHERING CORPORATION, a Utah corporation, BONNEVILLE
FUELS OPERATING CORPORATION, a Utah corporation and BONNEVILLE FUELS MANAGEMENT
CORPORATION, a Utah corporation (collectively the "Borrowers"), HEREBY JOINTLY
AND SEVERALLY PROMISE TO PAY to the order of FIRST INTERSTATE BANK OF DENVER,
N.A. (the "Bank") on or before the Facility A Maturity Date (as defined in the
Credit Agreement identified below) the Principal Amount of Twenty Million
Dollars ($20,000,000), or such lesser amount of unrepaid Facility A Loans under
the Credit Agreement in effect on the Conversion Date (as defined in the Credit
Agreement). The Principal Amount hereof shall be repaid by the Borrowers in
monthly installment payments on a schedule which is established as provided in
the Credit Agreement.

The Borrowers promise to pay interest on the unpaid Principal Amount hereof
in full monthly installment payments from the Conversion Date until such
Principal Amount is paid in full, at such Interest Rates and as otherwise
provided in the Credit Agreement.

Both principal and interest are payable in lawful money of the United
States of America to the Bank at 633 Seventeenth Street, Denver, Colorado (or at
such other location as the Bank may designate), in same day funds. Each
principal payment or prepayment and the resulting principal balance hereof shall
be recorded by the Bank and, prior to any transfer hereof, endorsed on the grid
attached hereto which is part of this Note.

This Note is the Term Note referred to in and is entitled to the benefits
of the Amended and Restated credit Agreement dated as of May 31, 1994 (the
"Credit Agreement"), between the Borrowers and the Bank, which Credit Agreement,
among other things, contains provisions for acceleration of the maturities
hereof upon the happening of certain stated events. Terms used herein which are
defined in the Credit Agreement shall have the meanings specified in the Credit
Agreement.

This Note represents an extension and renewal of the outstanding principal
amount of, and a replacement and substitution for, a certain Promissory Note of
Bonneville Fuels Corporation, dated August 30, 1991 (the "Prior Note"), payable
to the order of Chase Manhattan Bank (National Association) and the Revolving
Note. The Prior Note has been transferred to the Bank. The Indebtedness
evidenced by the Prior Note and by the Revolving Note is a continuing
indebtedness and nothing contained herein shall be construed to deem paid the
Prior Note or the Revolving Note or to replace or terminate any lien or security
interest given to secure payment of the Prior Note or the Revolving Note.
<PAGE>

Demand, presentment for payment, notice of dishonor and protest are hereby
expressly waived by the Borrowers.

BONNEVILLE FUELS CORPORATION

By: ___________________________
Name: Steven H. Stepanek
Title: President

BONNEVILLE FUELS MARKETING
CORPORATION

By: ___________________________
Name: Steven H. Stepanek
Title: President

COLORADO GATHERING CORPORATION

By: ___________________________
Name: Steven H. Stepanek
Title: President

BONNEVILLE FUELS OPERATING
CORPORATION

By: ___________________________
Name: Steven H. Stepanek
Title: President

BONNEVILLE FUELS MANAGEMENT
CORPORATION

By: ___________________________
Name: Steven H. Stepanek
Title: President
<PAGE>

NOTE MODIFICATION AGREEMENT
================================================================================

Borrowers: Bonneville Fuels Corporation,
Bonneville Fuels Marketing Corporation,
Colorado Gathering Corporation,
Bonneville Fuels Operating Corporation, and
Bonneville Fuels Management Corporation
(referred to herein, collectively if more than one, as "Borrower")
1660 Lincoln Street, Suite 1800, Denver, Colorado 80264

Lender: First Interstate Bank of Denver, N.A.
(referred to herein, together with any subsequent holder of this
Note Modification Agreement, as "Holder")
633 17th Street, Denver, CO 80270

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

Denver, Colorado April 1, 1995

DESCRIPTION OF THE PROMISSORY NOTED MODIFIED BY THIS NOTE MODIFICATION
AGREEMENT: That certain Promissory Note in the original principal amount of
$1,000,000.00 dated May 31, 1994, from Borrower in favor of Holder (the
"Facility B Note"). Capitalized terms used herein, which are not specifically
defined herein, shall have the meanings given them in the Promissory Note.

DESCRIPTION OF TERMS MODIFIED BY THIS NOTE MODIFICATION AGREEMENT: The final
payment date of "April 1, 1995" contained in the fourth paragraph of the
Facility B Note, is hereby replaced by a new final payment date of "May 1,
1996."

CONTINUING VALIDITY: Except as expressly modified by this Note Modification
Agreement, the terms of the original obligation(s), including the Facility B
Note, the Credit Agreement, and all other agreements evidenced or securing the
obligation(s), remain unchanged and in full force and effect. Consent by the
Holder to this Note Modification Agreement does not waive Holder's right to
strict performance of the obligation(s) as modified, nor obligate the Holder to
make any future modification of the terms of the obligation(s). Nothing in this
Note Modification Agreement will constitute a satisfaction of the obligation(s).

BORROWERS:
- ---------

BONNEVILLE FUELS CORPORATION BONNEVILLE FUELS OPERATING CORPORATION

By: ____________________________ By: _______________________________
Steven H. Stepanek, President Steven H. Stepanek, President

BONNEVILLE FUELS MARKETING CORPORATION

By: ____________________________
Steven H. Stepanek, President

COLORADO GATHERING CORPORATION BONNEVILLE FUELS MANAGEMENT CORPORATION

By: ____________________________ By: _______________________________
Steven H. Stepanek, President Steven H. Stepanek, President

LENDER:
- ------

FIRST INTERSTATE BANK OF DENVER, N.A.

By: ____________________________
Mark E. Thompson, Vice President
<PAGE>

AMENDMENT TO CREDIT AGREEMENT
-----------------------------

This AMENDMENT TO CREDIT AGREEMENT, dated as of April 1, 1995, is made and
entered into in Denver, Colorado, by and between BONNEVILLE FUELS CORPORATION, a
Colorado corporation, BONNEVILLE FUELS MARKETING CORPORATION, a Utah
corporation, COLORADO GATHERING CORPORATION, a Utah corporation, BONNEVILLE
FUELS OPERATING CORPORATION, a Utah corporation, and BONNEVILLE FUELS MANAGEMENT
CORPORATION, a Utah corporation (collectively, the "Borrowers"), whose address
and principal location of their business is 1660 Lincoln, Suite 1800, Denver,
Colorado, 80264, and FIRST INTERSTATE BANK OF DENVER, N.A., a national banking
association (the "Bank"), whose address is 633 Seventeenth Street, Denver,
Colorado 80270.

RECITALS:
--------

WHEREAS, the Borrowers and the Bank entered into that certain Amended and
Restated Credit Agreement dated as of May 31, 1994 (referred to herein as the
"Credit Agreement") wherein the Bank agreed to provide to the Borrowers two
credit facilities referred to as "Facility A" and "Facility B" (collectively,
the "Loans") subject to the terms and conditions set forth in the Credit
Agreement (capitalized terms not specifically defined herein shall have the
meanings given them in the Credit Agreement);

WHEREAS, the Borrowers have requested that (i) modifications be made to
certain financial covenants set forth in Section 8.1(e) of the Credit Agreement,
and that (ii) the final payment date of Facility B be extended to May 1, 1996,
subject to the terms of the Credit Agreement, as amended by this Amendment to
Credit Agreement;

WHEREAS, the Bank, as an accommodation to the Borrowers, is willing to make
modifications to certain financial covenants, and to extend the final payment
date of Facility B, subject to the terms of the Credit Agreement as amended by
this Amendment to Credit Agreement; and

WHEREAS, the parties desire to amend and reaffirm the Credit Agreement and
to enter into this Amendment to Credit Agreement to reflect the terms and
conditions of, and to describe their respective rights and obligations with
respect to, the Loans.

NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth in the Credit Agreement and in this Amendment to Credit Agreement, the
parties hereto agree as follows effective as of April 1, 1995:

1. The definition of "Facility B Maturity Date" in Section 1.1 (page 6) of the
Credit Agreement is hereby modified by replacing the date "April 1, 1995"
with the date "May 1, 1996", effective as of April 1, 1995.

2. The table and related footnotes in Section 8.1(e) (page 33) of the Credit
Agreement is hereby replaced in its entirety by the following table and
footnotes, effective as of January 1, 1995:
<PAGE>

<TABLE>
<CAPTION>
During The During The
Revolving Amortizing
Period Period
---------- ----------
<S> <C> <C>
Minimum Working Capital (1): $250,000 $500,000
Minimum Current Ratio (1): 1.05x 1.25x

Minimum Net Worth (2): $2,300,000 $3,000,000
Minimum Net Worth (3): $5,900,000 $6,600,000
Maximum Debt/Worth (2): 6.00x 5.00x
Maximum Debt/Worth (3): 2.00x 1.75x

Minimum Fixed Charge Coverage (4): 1.00x 1.00x
</TABLE>

1) With the current portion of Facility A treated as a non-current
liability, and the undrawn and available portion of Facility A treated
as a current asset.
2) With advances from BPC ($3.6 million currently) treated as a liability.
3) With advances from BPC ($3.6 million currently) treated as equity.
4) (i) Net income after tax plus interest expense plus depreciation,
depletion and amortization, plus other non-cash charges, divided by
(ii) interest expenses plus required principal payments, calculated
quarterly on a fiscal year-to-date basis.

3. Miscellaneous:

a. Except as specifically amended, all of the terms, conditions and
provisions of the Credit Agreement and any and all documents executed
in connection therewith shall remain in full force and effect.

b. THIS AMENDMENT TO CREDIT AGREEMENT IS ACCEPTED AND ENTERED INTO IN THE
STATE OF COLORADO AND SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE
WITH THE SUBSTANTIVE LAWS OF THE STATE OF COLORADO.

c. The Borrowers represent and warrant to the Bank that the execution and
delivery of this Amendment to Credit Agreement and the performance by
the Borrowers of their obligations hereunder are within the Borrowers'
powers, have been duly authorized by all necessary corporate action,
and will not contravene or conflict with any provision of law or of the
articles or bylaws of the Borrowers, or of any agreement binding upon
the Borrowers.

d. The Borrowers represent and warrant to the Bank that all of the
representations and warranties of the Borrowers contained in the Credit
Agreement, as amended by this Amendment to Credit Agreement, are true
and correct in all material respects on the date hereof as though made
as of the date hereof, provided, however, that any reference to the
Credit Agreement shall be deemed to refer to the Credit Agreement as
amended by this Amendment to Credit Agreement.

e. All references to the Credit Agreement in any other document,
instrument, agreement or writing shall hereafter be deemed to refer to
the Credit Agreement as amended by this Amendment to Credit Agreement.

f. This Amendment to Credit Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of
which are identical, and all such counterparts shall together
constitute but one and the same Amendment to Credit Agreement.

2
<PAGE>

IN WITNESS WHEREOF, the Borrowers and the Bank have executed this Agreement
to Credit Agreement effective as of April 1, 1995.

BORROWERS:
- ---------

BONNEVILLE FUELS CORPORATION BONNEVILLE FUELS OPERATING CORPORATION

By: __________________________ By: _____________________________
Steven H. Stepanek, President Steven H. Stepanek, President

BONNEVILLE FUELS MARKETING CORPORATION

By: _________________________
Steven H. Stepanek, President

COLORADO GATHERING CORPORATION BONNEVILLE FUELS MANAGEMENT CORPORATION

By: __________________________ By: _____________________________
Steven H. Stepanek, President Steven H. Stepanek, President

BANK:
- ----

FIRST INTERSTATE BANK OF DENVER, N.A.

By: __________________________
Mark E. Thompson, Vice President

3
<PAGE>

NOTE MODIFICATION AGREEMENT

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

Lender: First Interstate Bank of Denver, N.A.
(referred to herein, together with any subsequent holder of this
Note Modification Agreement, as "Holder")
633 17th Street, Denver, CO 80270

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

Denver, Colorado May 1, 1996

DESCRIPTION OF THE PROMISSORY NOTED MODIFIED BY THIS NOTE MODIFICATION
AGREEMENT: That certain Promissory Note in the original principal amount of
$1,000,000.00 dated May 31, 1994, as previously amended by that certain Note
Modification Agreement dated April 1, 1995, from Borrower in favor of Holder
(the aforementioned Promissory Note as previously amended by the aforementioned
Note Modification Agreement is herein referred to as the "Facility B Note").
Capitalized terms used herein, which are not specifically defined herein, shall
have the meanings given them in the Facility B Note.

DESCRIPTION OF TERMS MODIFIED BY THIS NOTE MODIFICATION AGREEMENT: The final
payment date of "May 1, 1996" contained in the fourth paragraph of the Facility
B Note, is hereby replaced by a new final payment date of "May 1, 1998."

CONTINUING VALIDITY: Except as expressly modified by this Note Modification
Agreement, the terms of the original obligation(s), including the Facility B
Note, the Credit Agreement, and all other agreements evidenced or securing the
obligation(s), remain unchanged and in full force and effect. Consent by the
Holder to this Note Modification Agreement does not waive Holder's right to
strict performance of the obligation(s) as modified, nor obligate the Holder to
make any future modification of the terms of the obligation(s). All references
to the Facility B Note in any other document, instrument, agreement or writing
shall hereafter be deemed to refer to the Facility B Note as previously amended
and as amended by this Note Modification Agreement.

BORROWERS:
- ---------

BONNEVILLE FUELS CORPORATION BONNEVILLE FUELS OPERATING CORPORATION

By: _________________________ By: ___________________________
Steven H. Stepanek, President Steven H. Stepanek, President

BONNEVILLE FUELS MARKETING CORPORATION

By: __________________________
Steven H. Stepanek, President

COLORADO GATHERING CORPORATION BONNEVILLE FUELS MANAGEMENT CORPORATION

By: __________________________ By: ___________________________
Steven H. Stepanek, President Steven H. Stepanek, President

LENDER:
- ------

FIRST INTERSTATE BANK OF DENVER, N.A.

By: __________________________
Mark E. Thompson, Vice President
<PAGE>

SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------

This SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of April 1, 1996, is
made and entered into in Denver, Colorado, by and between BONNEVILLE FUELS
CORPORATION, a Colorado corporation, BONNEVILLE FUELS MARKETING CORPORATION, a
Utah corporation, COLORADO GATHERING CORPORATION, a Utah corporation, BONNEVILLE
FUELS MANAGEMENT CORPORATION, a Utah corporation (collectively, the
"Borrowers"), whose address and principal location of their business is 1660
Lincoln, Suite 1800, Denver, Colorado, 80264, and FIRST INTERSTATE BANK OF
DENVER, N.A., a national banking association (the "Bank"), whose address is 633
Seventeenth Street, Denver, Colorado 80270.

RECITALS:
--------

WHEREAS, the Borrowers and the Bank entered into that certain Amended and
Restated Credit Agreement dated as of May 31, 1994, wherein the Bank agreed to
provide to the Borrowers two credit facilities referred to as "Facility A" and
"Facility B" (collectively, the "Loans") subject to the terms and conditions set
forth in the Credit Agreement;

WHEREAS, the Amended and Restated Credit Agreement was amended by the
Borrowers and the Bank pursuant to the certain Amendment to Credit Agreement
dated as of April 1, 1995 (the Amended and Restated Credit Agreement as
previously amended is referred to herein as the "Credit Agreement," and
capitalized terms not specifically defined herein shall have the meanings given
them in the Credit Agreement);

WHEREAS, the Borrowers have requested the extension of the Conversion Date
of Facility A and the Facility B Maturity Date, as well as the modification of
certain other Credit Agreement terms, conditions, covenants, requirements, and
events of default;

WHEREAS, the Bank, as an accommodation to the Borrowers, is willing to
agree to the extension of the Conversion Date of Facility A and the Facility B
Maturity Date, as well as the modification of certain other Credit Agreement
terms, conditions, covenants, requirements and events of default, subject to the
terms of the Credit Agreement as amended by this Second amendment to Credit
Agreement; and

WHEREAS, the parties desire to amend and reaffirm the Credit Agreement and
to enter into this Second Amendment to Credit Agreement to reflect the terms and
conditions of, and to describe their respective rights and obligations with
respect to, the Loans.

NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth in the Credit Agreement and in this Second Amendment to Credit Agreement,
the parties hereto agree as follows effective as of April 1, 1996:

1. The definition of "Conversion Date" in Section 1.1 Certain Defined Terms
(page 4) of the Credit Agreement is hereby modified by replacing the date
"April 1, 1996" in the last sentence of this definition with the date "April
1, 1998".
<PAGE>

2. The definition of "Facility B Maturity Date" in Section 1.1 Certain Defined
Terms (page 6) of the Credit Agreement is hereby modified by replacing the
date "April 1, 1996" with the date "May 1, 1998".

3. The first sentence of Section 4.4 A/R Borrowing Base Determinations (page
20) of the Credit Agreement is hereby modified by replacing "60%" with
"75%".

4. The first sentence of section 8.1(b) Books, Financial Statements and
Reports, (i) (page 30) of the Credit Agreement is hereby modified by
replacing "ninety (90) days" with "one hundred twenty (120) days".

5. Section 9.1(h) Material Adverse Change (page 40) of the Credit Agreement is
hereby modified by eliminating the phrase "or a change in the key management
personnel of BFC,".

6. Miscellaneous:

a. Except as specifically amended, all of the terms, conditions and
provisions of the Credit Agreement and any and all documents executed in
connection therewith shall remain in full force and effect.

b. THIS SECOND AMENDMENT TO CREDIT AGREEMENT IS ACCEPTED AND ENTERED INTO
IN THE STATE OF COLORADO AND SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF COLORADO.

c. The Borrowers represent and warrant to the Bank that the execution and
delivery of this Second Amendment to Credit Agreement and the
performance by the Borrowers of their obligations hereunder are within
the Borrowers' powers, have been duly authorized by all necessary
corporate action, and will not contravene or conflict with any provision
of law or of the articles or bylaws of the Borrowers, or of any
agreement binding upon the Borrowers.

d. The Borrowers represent and warrant to the Bank that all of the
representations and warranties of the Borrowers contained in the Credit
Agreement, as amended by this Second Amendment to Credit Agreement, are
true and correct in all material respects on the date hereof as though
made as of the date hereof; provided, however, that any reference to the
Credit Agreement shall be deemed to refer to the Credit Agreement as
previously amended and as amended by this Second Amendment to Credit
Agreement.

e. All references to the Credit Agreement in any other document,
instrument, agreement or writing shall hereafter be deemed to refer to
the Credit Agreement as previously amended and as amended by this Second
Amendment to Credit Agreement.

f. This Second Amendment to Credit Agreement may be executed in any number
of counterparts, each of which shall be deemed an original and all of
which are

2
<PAGE>

identical, and all such counterparts shall together constitute but one
and the same Second Amendment to Credit Agreement.

IN WITNESS WHEREOF, the Borrowers and the Bank have executed this Second
Amendment to Credit Agreement effective as of April 1, 1996.

BORROWERS:
- ---------

BONNEVILLE FUELS CORPORATION BONNEVILLE FUELS OPERATING
CORPORATION

By: _________________________ By: ___________________________
Steven H. Stepanek, President Steven H. Stepanek, President

BONNEVILLE FUELS MARKETING CORPORATION

By: _________________________
Steven H. Stepanek, President

COLORADO GATHERING CORPORATION BONNEVILLE FUELS OPERATING
CORPORATION

By: _________________________ By: ___________________________
Steven H. Stepanek, President Steven H. Stepanek, President

BANK:
- ----

FIRST INTERSTATE BANK OF DENVER, N.A.

By: _________________________
Mark E. Thompson, Vice President

3
<PAGE>

LOAN TRANSFER AGREEMENT
-----------------------

THIS LOAN TRANSFER AGREEMENT (this "Agreement"), dated as of September 18,
1996, is by and among BONNEVILLE FUELS CORPORATION, BONNEVILLE FUELS MARKETING
CORPORATION, COLORADO GATHERING CORPORATION, BONNEVILLE FUELS OPERATING
CORPORATION, and BONNEVILLE FUELS MANAGEMENT CORPORATION (collectively,
"Borrower"), WELLS FARGO BANK (COLORADO), N.A., a national banking association,
f/k/a FIRST INTERSTATE BANK OF DENVER, N.A. ("Wells Fargo"), and COLORADO
NATIONAL BANK ("CNB").

RECITALS

A. Pursuant to the provisions of an Amended and Restated Credit Agreement
dated as of May 31, 1994, as amended by amendments dated as of April 1, 1995 and
April, 1996 (such Credit Agreement, as amended, together with all prior credit
agreements and amendments thereto which were amended and restated thereby, being
herein collectively called the "Wells Fargo Credit Agreement"), Wells Fargo made
two loans (the "Loans") to Borrower.

B. Borrower, Wells Fargo and CNB wish to enter into this Agreement in
order to provide for the terms upon which the Loans, the Wells Fargo Credit
Agreement, any and all related notes and all other related loan documents,
including without limitation any and all related security documents, are being
transferred from Wells Fargo to CNB.

AGREEMENT

NOW THEREFORE, in consideration of $10.00 and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:

1. Purchase Price. If the purchase of the Loans is to occur on September
18, 1996, CNB will wire-transfer to Wells Fargo on that date, as consideration
for the purchase by CNB of the Loans, $2,509,606.16 (the "9/18 Purchase Price"),
representing $2,500,000.00 of principal and $9,606.16 of interest outstanding on
the Loans as of that date (wiring instructions: Wells Fargo Bank, N.A., ABA
#121-000-248, Credit GL Account #2712-507201, Ref: Bonneville Fuels, Obligor
#0944220986, Obligation: 42, 18, 83). The consideration to be paid by CNB to
Wells Fargo for the purchase of the Loans (the "Final Purchase Price") shall be
the 9/18/ Purchase Price plus, if the purchase of the Loans is delayed beyond
September 18, 1996, $565.06849 for each day after September 18, 1996 until the
day that the appropriate amount is wire-transferred to Wells Fargo; provided
that if the purchase is not made on or before September 30, 1996, this Agreement
shall terminate and be of no further force or effect.

2. Loan Documents. Effective as of the date of the receipt by Wells Fargo
of the Final Purchase Price from CNB ( the "Assignment Date") and conditional
upon its receipt of such amount on or before September 30, 1996, Wells Fargo
agrees to transfer, and does hereby transfer (conditional upon the receipt by
Wells Fargo of such amount), to CNB, WITHOUT RECOURSE, REPRESENTATION OR
WARRANTY (except that Wells Fargo represents and warrants that it has not
heretofore transferred any interest in the Loans or in any related documents to
any third party), the Loans, the Wells Fargo Credit Agreement, the related notes
and all other related loan documents, including without limitation the security
documents listed on Exhibit A attached hereto and made a part hereof and any and
all other security documents securing the Loans (collectively, the "Loan
Documents").
<PAGE>

3. Delivery of Loan Documents. Upon its receipt of the Final Purchase
Price, Wells Fargo will deliver to CNB (or as CNB may direct) all loan documents
relating to the Loans, including without limitation: (a) any and all original
promissory notes, endorsed to the order of CNB, without recourse, by Wells
Fargo, (b) appropriate assignments, in recordable form, of any and all security
documents securing the Loans, and (c) the original recorded counterparts of
mortgages, acknowledgment copies of financing statements and any and all other
security documents, to the extent possessed by or on behalf of Wells Fargo.

4. Further Assurances. Upon and after the receipt by Wells Fargo of the
final Purchase Price, Wells Fargo agrees to promptly do or cause to be done such
further acts and to execute such further instruments as CNB may reasonably
request in order to carry out the purposes of this Agreement.

5. Expenses. Borrower shall pay any and all reasonable out-of-pocket
expenses incurred by Wells Fargo and/or CNB in connection with the transactions
contemplated by this Agreement, including without limitation any and all filing
and recording fees, charges and expenses.

6. Assumption. CNB will, from and after the Assignment Date, perform all
of the obligations of Wells Fargo under or in connection with the Loan
Documents. From and after the Assignment Date: (a) Wells Fargo shall be released
from the obligations of Wells Fargo in respect of the Loan documents, and (b)
CNB shall be entitled to all of the rights, powers and privileges of Wells Fargo
under the Loan Documents.

7. Disclaimer. Wells Fargo does not make any representation or warranty,
nor shall it have any responsibility to CNB, with respect to the accuracy of any
recitals, statements, representations or warranties contained in the Loan
Documents or in any certificate or other document referred to or provided for
in, or received by Wells Fargo under, the Loan Documents, or for legality,
enforceability, collectibility or sufficiency of the Loan Documents or any other
document referred to or provided for therein or for any failure by Borrower or
any other person or entity to perform any of its obligations there under or for
the existence, value, perfection or priority of any collateral security or the
financial or other condition of Borrower, or any other matter relating to the
Loan Documents or any extension of credit thereunder.

8. Release. Borrower forever releases Wells Fargo and each of its
directors, officers, employees, agents, affiliates, successors and assigns
(except CNB) from and against any and all claims, covenants, promises,
agreements, obligations, controversies, losses, damages, costs, expenses,
demands, causes of action, judgments or liabilities of any kind or character
whatsoever, whether matured or contingent or known or unknown, that such party
may have arising out of, or with respect to, directly or indirectly, the Loan
documents and the transactions covered thereunder (including, but not limited
to, Wells Fargo's commitments and obligations under the Loan Documents).

9. Letters of Credit. As to any and all letters of credit issued by Wells
Fargo and currently outstanding under the Loan Documents (the "Wells Fargo
LC's"), CNB will promptly issue substitute letters of credit and Borrower will
promptly thereafter obtain cancellations of the Wells Fargo LC's from the
beneficiaries thereof. Until such cancellations are obtained, Borrower and CNB
will indemnify, save and hold harmless Wells Fargo from any and all obligations
to make payments under the Wells Fargo LC's and Borrower will at all times
maintain: (a) a certificate of deposit issued by Wells Fargo and pledged to
Wells Fargo in an amount at least equal to the aggregate of the face amounts of
any and all Wells Fargo LC's, or (b) alternative security arrangements
acceptable to Wells Fargo as to Borrower's obligations with respect to the Wells
Fargo LC's. CNB agrees that the interests of Wells Fargo in and to

2
<PAGE>

such certificate of deposit or alternative security under any such documents
shall be superior to any claim or right that CNB may have to such certificate of
deposit or alternative security under any of the security documents being
assigned to CNB.

10. Miscellaneous. This Agreement shall be governed by and construed
under the laws of the State of Colorado and shall be binding upon and inure to
the benefit of the parties hereto and their successors and assigns. This
Agreement may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument. Delivery
of this Agreement by any party may be effected, without limitation, by faxing a
signed counterpart of this Agreement to Borrower, Wells Fargo and CNB (any party
that effects delivery in such manner hereby agreeing to transmit promptly to
each of the other parties an actual signed counterpart):

Borrower: 801-363-9557 (Attn: Steven H. Stepanek)

Wells Fargo: 303-293-5467 (Attn: Mr. H. Allen Rheem, Jr.)

CNB: 303-585-4362 (Attn: Mr. Mark Thompson)

Executed as of the date first above written.

WELLS FARGO BANK (COLORADO), N.A.
f/k/a FIRST INTERSTATE BANK OF
DENVER, N.A.

By:____________________________________
Vice President

BONNEVILLE FUELS CORPORATION

By:____________________________________
President

BONNEVILLE FUELS MARKETING CORPORATION

By:____________________________________
President

3
<PAGE>

COLORADO GATHERING CORPORATION

By:______________________________
President

BONNEVILLE FUELS OPERATING CORPORATION

By:______________________________
President

BONNEVILLE FUELS MANAGEMENT CORPORATION

By:______________________________
President

COLORADO NATIONAL BANK

By:______________________________

4
<PAGE>

Exhibit A
---------

Security Documents
------------------

1. Amended and Restated Mortgage, Deed of Trust, Assignment of Proceeds,
Security Agreement and Financing Statement dated as of May 31, 1994, from
Bonneville Fuels Corporation to Scott E. Isaacson, as trustee, and First
Interstate Bank of Denver, N.A.

2. Amended and Restated Mortgage, Deed of Trust, Assignment of Proceeds,
Security Agreement and Financing Statement dated as of May 31, 1994, from
Bonneville Fuels Corporation to Michael H. Fiuzat, as trustee, and First
Interstate Bank of Denver, N.A.

3. Amended and Restated Mortgage, Assignment of Proceeds, Security
Agreement and Financing Statement dated as of May 31, 1994, from Bonneville
Fuels Corporation to First Interstate Bank of Denver, N.A.

4. Amended and Restated Mortgage, Assignment of Proceeds, Security
Agreement and Financing Statement dated as of May 31, 1994, from Colorado
Gathering Corporation to First Interstate Bank of Denver, N.A.

5. Second Amended and Restated Assignment and Security Agreement dated as
of May 31, 1994, from Bonneville Fuels Corporation to First Interstate Bank of
Denver, N.A.

6. Financing Statements relating to Items 1 through 5 above.
<PAGE>

THIRD AMENDMENT OF
AMENDED AND RESTATED CREDIT AGREEMENT

THIS THIRD AMENDMENT OF AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), dated as of September 18, 1996, is by and among BONNEVILLE FUELS
CORPORATION, a Colorado corporation, BONNEVILLE FUELS MARKETING CORPORATION, a
Utah corporation, COLORADO GATHERING CORPORATION, a Utah corporation, BONNEVILLE
FUELS OPERATING CORPORATION, a Utah corporation, BONNEVILLE FUELS MANAGEMENT
CORPORATION, a Utah corporation (collectively, "Borrower"), and COLORADO
NATIONAL BANK ("CNB")

Recitals

A. Borrower and First Interstate Bank of Denver, N.A. ("FIDN") entered
into an Amended and Restated Credit Agreement dated as of May 31, 1994, as
amended by amendments dated as of April 1, 1995 and April 1, 1996 (the "Credit
Agreement"). Capitalized terms used herein but not defined herein shall have the
same meanings as set forth in the Credit Agreement.

B. Pursuant to a Loan Transfer Agreement dated as of September 18, 1996,
the Credit Agreement has been transferred by FIDN to CNB.

C. Borrower and CNB wish to enter into this Amendment in order to amend
certain terms and provisions of the Credit Agreement.

Amendment

NOW, THEREFORE, in consideration of $10.00 and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:

1. Credit Agreement. The Credit Agreement shall be, and hereby is,
amended as follows as of the date hereof:

(a) All references in the Credit Agreement to "First Interstate Bank
of Denver, N.A." or the "Bank" shall be deemed to refer to Colorado National
Bank.

(b) In line 7 of the definition of "Conversion Date" in Section 1.1
on page 4 of the Credit Agreement, "April 1, 1998" shall be changed to "July 1,
1998."

(c) In line 2 of the definition of "Facility A Scheduled Maturity
Date" in Section 1.1 on page 6 of the Credit Agreement, "April 1, 2001" shall be
changed to "July 1, 2003."
<PAGE>

(d) In line 3 of the definition of "Facility B Maturity Date" in
Section 1.1 on page 6 of the Credit Agreement, "May 1, 1998" shall be changed to
"July 1, 1998."

(e) In lines 2 and 3 of the definition of "LIBOR Loan Interest Rate"
in Section 1.1 on page 8 of the Credit Agreement, "prior to the Conversion Date"
shall be deleted. In line 4 of the definition of "LIBOR Loan Interest Rate" in
Section 1.1 on page 8 of the Credit Agreement, clause (a) shall be revised to
read as follows: "(z)(1) during the Revolving Period, 1.75 percentage points,
and (2) during the Amortizing Period, 2.00 percentage points."

(f) All references in the Credit Agreement to "Prime Rate," "Prime
Rate Loan" and "Prime Rate Loan Interest Rate" (including without limitation the
definitions of the foregoing terms) shall be changed to refer to "Reference
Rate," "Reference Rate Loan" and "Reference Rate Loan interest Rate,"
respectively.

(g) The following shall be substituted for the definition of "Prime
Rate Loan Interest Rate" in Section 1.1 on page 10 of the Credit Agreement:

"Reference Rate Loan Interest Rate" means the interest rate per
annum pertaining to a Reference Rate Loan, which interest rate shall
be, for Reference Rate Loans under Facility A and for Reference Rate
Loans under Facility B, the Reference Rate in effect from time to
time.

(h) In line 11 of Section 2.3 on page 12 of the Credit Agreement,
"October 1, 1995" shall be changed to "January 1, 1999."

(i) In line 8 of Section 3.3 on page 15 of the Credit Agreement,
"May 1, 1996" shall be changed to "August 1, 1998." In lines 12 and 13 of
Section 3.3 on page 15 of the Credit Agreement, "economic half-life" shall be
changed to "revenue half-life."

(j) In lines 4 and 5 of Section 3.6(a) on page 16 of the Credit
Agreement, "633 Seventeenth Street" shall be changed to "950 Seventeenth
Street."

(k) In line 4 of Section 3.6(b) on page 16 of the Credit Agreement,
"365" shall be changed to "360."

(l) The following shall be inserted at the end of Section 4.1(a) on
page 18 of the Credit Agreement: "During each of the time periods set forth
below, the amount of the Production Borrowing Base for Facility A shall be as
set forth below:

2
<PAGE>

<TABLE>
<CAPTION>
Production
Time Period Borrowing Base
----------- --------------
<S> <C>
09/18/96-09/30/96 $5,100,000
10/01/96-10/31/96 $4,900,000
11/01/96-11/30/96 $4,700,000
12/01/96-12/31/96 $4,500,000"
</TABLE>

(m) In line 4 of Section 4.2 on page 18 of the Credit Agreement,
"April 1, commencing April 1, 1995" shall be changed to "July 1, commencing July
1, 1997."

(n) In lines 7 and 8 of Section 4.2 on page 18 of the Credit
Agreement, "October 1" shall be changed to "January 1, commencing January 1,
1997."

(o) In line 11 of Section 4.2 on page 18 of the Credit Agreement,
"April 1" shall be changed to "July 1."

(p) The following shall be substituted for Section 8.1 (e) on page 33
of the Credit Agreement:

(e) Financial Covenants. Comply, on a consolidated basis, as of
the end of each Quarter, beginning June 30, 1996, with the following
financial tests, all determined in accordance with generally accepted
accounting principles:

<TABLE>
<S> <C>
Minimum Working Capital (1): $250,000
Minimum Current Ratio (1): 1.05x
Minimum Net Worth (2): $2,300,000
Minimum Net Worth (3): $5,900,000
Maximum Debt/Worth (2): 6.00x
Maximum Debt/Worth (3): 2.00x
Minimum Fixed Charge Coverage (2): l.00x
</TABLE>

(1) With the current portion of Facility A treated as a non-current
liability, and with the unused portion of Facility A treated as a
current asset.

(2) With advances from BPC ($3,600,000 currently) treated as a
liability.

(3) With advances from BPC ($3,600,000 currently) treated as an
equity.

3
<PAGE>

(4) (i) Net income after tax plus interest expense plus depreciation,
depletion and amortization plus other non-cash charges, divided
by (ii) interest expenses plus required principal payments,
calculated on a fiscal year-to-date basis.

(q) The following shall be substituted for Section 9.1(h) on page 40
of the Credit Agreement:

(h) Material Adverse Change. A material adverse change in any of
Borrowers' condition (financial or otherwise), including changes due
to violations of Environmental Laws or applications of Environmental
Laws to the Borrowers or their properties, which the Bank determines,
in its sole discretion, would have a Materially Adverse Effect on the
operations of the Borrowers.

(r) The following shall be substituted for the address of the Bank in
Section 10.2 on page 43 of the Credit Agreement:

Bank: Colorado National Bank
950 Seventeenth Street
Denver, Colorado 80202
Attention: Mr. Mark E. Thompson,
Energy Group
Facsimile: (303) 585-4362

2. The Notes. The Facility A Note, the Facility B Note and the Term Note
shall be amended, such amendments to be effected by Allonges (the "Allonges"),
between Borrower and CNB, to be attached to the Facility A Note, the Facility B
Note and the Term Note, respectively, and to be substantially in the form of
Exhibits A-1, A-2 and A-3 attached hereto and made a part hereof.

3. Loan Documents. All references in any document to the Credit
Agreement, the Facility A Note, the Facility B Note or the Term Note shall refer
to the Credit Agreement, the Facility A Note, the Facility B Note or the Term
Note, as amended pursuant to this Amendment and the Allonges.

4. Conditions Precedent. The obligations of the parties under this
Amendment are subject, at the option of CNB, to the prior satisfaction of the
condition that Borrower shall have delivered to CNB the following (all documents
to be satisfactory in form and substance to CNB and, if appropriate, duly
executed and/or acknowledged on behalf of the parties other than CNB):

(a) This Amendment.

4
<PAGE>

(b) The Allonges.

(c) Any and all other loan documents required by CNB, including
without limitation such amendments and supplements to the Collateral Documents
as may be required by CNB.

(d) Such title opinions, supplemental title opinions, UCC searches
and other title information concerning Borrower's title to the Collateral or any
portions thereof as may be satisfactory to CNB.

5. Representations and Warranties. Borrower hereby certifies to CNB
that, as of the date of this Amendment, all of Borrower's representations and
warranties contained in the Credit Agreement are true, accurate and complete in
all material respects, no Event of Default has occurred and no event has
occurred which, with the giving of notice, the lapse of time, or both, would
constitute an Event of Default.

6. Continuation of the Credit Agreement. Except as specified in this
Amendment and the Allonges, the provisions of the Credit Agreement, the Facility
A Note, the Facility B Note and the Term Note shall remain in full force and
effect, and if there is a conflict between the terms of this Amendment or the
Allonges and those of the Credit Agreement, the Facility A Note, the Facility B
Note or the Term Note or any other document executed and delivered in connection
therewith, the terms of this Amendment and the Allonges shall control.

7. Miscellaneous. This Amendment shall be governed by and construed
under the laws of the State of Colorado and shall be binding upon and inure to
the benefit of the parties hereto and their successors and assigns. This
Amendment may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.

Executed as of the date first above written.

BONNEVILLE FUELS CORPORATION

By: _______________________________________
President

BONNEVILLE FUELS MARKETING CORPORATION

By: _______________________________________
President

5
<PAGE>

COLORADO GATHERING CORPORATION

By: ___________________________________
President

BONNEVILLE FUELS OPERATING CORPORATION

By: ___________________________________
President

BONNEVILLE FUELS MANAGEMENT CORPORATION

By: ___________________________________
President

COLORADO NATIONAL BANK

By: ___________________________________
Vice President

6
<PAGE>

Exhibit A-1

Allonge

Reference is made to the Third Amendment of Amended and Restated Credit
Agreement dated as of September 18, 1996 (the "Amendment"), by and among
BONNEVILLE FUELS CORPORATION, a Colorado corporation, BONNEVILLE FUELS MARKETING
CORPORATION, a Utah corporation, COLORADO GATHERING CORPORATION, a Utah
corporation, BONNEVILLE FUELS OPERATING CORPORATION, a Utah corporation,
BONNEVILLE FUELS MANAGEMENT CORPORATION, a Utah corporation (collectively,
"Borrower"), and COLORADO NATIONAL BANK ("CNB").

The Revolving Note dated May 31, 1994, made by Borrower payable to the
order of First Interstate Bank of Denver, N.A., in the face amount of
$20,000,000 (the "Revolving Note") is hereby modified as follows:

1. All references in the Revolving Note to "First Interstate Bank of
Denver, N.A." or the "Bank" shall be deemed to refer to Colorado National Bank.

2. In lines 2 and 3 of the third paragraph on page 1 of the Revolving
Note, "633 Seventeenth Street" shall be changed to "950 Seventeenth Street."

3. All references in the Revolving Note to the "Credit Agreement" shall
be deemed to refer to the Amended and Restated Credit Agreement dated as of May
31, 1994, between Borrower and First Interstate Bank of Denver, N.A., as
assigned by Wells Fargo Bank (Colorado), N.A. f/k/a First Interstate Bank of
Denver, N.A. to Colorado National Bank, as heretofore or hereafter amended,
extended, modified, or amended and restated.

Executed as of the date first above written.

BONNEVILLE FUELS CORPORATION

By:
-----------------------------
President

BONNEVILLE FUELS MARKETING CORPORATION

By:
------------------------------
President

A-1-1
<PAGE>

COLORADO GATHERING CORPORATION

By:
---------------------------------
President

BONNEVILLE FUELS OPERATING
CORPORATION

By:
---------------------------------
President

BONNEVILLE FUELS MANAGEMENT
CORPORATION

By:
---------------------------------
President

COLORADO NATIONAL BANK

By:
---------------------------------
Vice President

A-1-2
<PAGE>

Exhibit A-2

Allonge

The Promissory Note dated May 31, 1994, made by Borrower, payable to the
order of First Interstate Bank of Denver, N.A., in the face amount of $1,000,000
(the "Facility B Note") is hereby modified as follows:

1. All references in the Facility B Note to "First Interstate Bank of
Denver, N.A.," the "Bank" or "Holder" shall be deemed to refer to Colorado
National Bank.

2. In line 4 of the first paragraph on page 1 of the Facility B Note,
"633 Seventeenth Street, Denver, Colorado 80270" shall be changed to "950
Seventeenth Street, Denver, Colorado 80202."

3. In line 8 of the first paragraph on page 1 of the Facility B Note,
"which is one percent (1%) per annum higher than the `Bank's Prime Rate'" shall
be changed to "equal to the `Bank's Reference Rate.'"

4. In line 10 of the first paragraph on page 1 of the Facility B Note,
"three Hundred sixty-five (365)" shall be changed to "three hundred sixty
(360)."

5. All references in the Facility B Note to "Bank's Prime Rate" shall be
changed to be references to "Bank's Reference Rate."

6. In line 3 of the first paragraph on page 2 of the Facility B Note, the
maturity date of the Facility B Note shall be changed to July 1, 1998.

7. All references in the Facility B Note to the "Credit Agreement" shall
be deemed to refer to the Amended and Restated Credit Agreement dated as of May
31, 1994, between Borrower and First Interstate Bank of Denver, N.A., as
assigned by Wells Fargo Bank (Colorado), N.A. f/k/a First Interstate Bank of
Denver, N.A. to Colorado National Bank, as heretofore or hereafter amended,
extended, modified, or amended and restated.

Executed as of the date first above written.

A-2-1
<PAGE>

BONNEVILLE FUELS CORPORATION

By:
--------------------------------
President

BONNEVILLE FUELS MARKETING CORPORATION

By:
--------------------------------
President

COLORADO GATHERING CORPORATION

By:
--------------------------------
President

BONNEVILLE FUELS OPERATING
CORPORATION

By:
--------------------------------
President

BONNEVILLE FUELS MANAGEMENT
CORPORATION

By:
--------------------------------
President

COLORADO NATIONAL BANK

By:
--------------------------------
Vice President

A-2-2
<PAGE>

Exhibit a-3

Allonge

The Term Note dated May 31, 1994, made by Borrower, payable to the order of
First Interstate Bank of Denver, N.A., in the face amount of $20,000,000 (the
"Term Note") is hereby modified as follows:

1. All references in the Term Note to "First Interstate Bank of Denver,
N.A." or the "Bank" shall be deemed to refer to Colorado National Bank.

2. In lines 2 and 3 of the third paragraph on page 1 of the Term Note,
"633 Seventeenth Street" shall be changed to "950 Seventeenth Street."

3. All references in the Term Note to the "Credit Agreement" shall be
deemed to refer to the Amended and Restated Credit Agreement dated as of May 31,
1994, between Borrower and First Interstate Bank of Denver, N.A., as assigned by
Wells Fargo Bank (Colorado), N.A. f/k/a First Interstate Bank of Denver, N.A. to
Colorado National Bank, as heretofore or hereafter amended, extended, modified,
or amended and restated.

Executed as of the date first above written.

BONNEVILLE FUELS CORPORATION

By:
--------------------------------
President

BONNEVILLE FUELS MARKETING
CORPORATION

By:
--------------------------------
President

A-3-1
<PAGE>

COLORADO GATHERING CORPORATION

By: -------------------------------------
President

BONNEVILLE FUELS OPERATING CORPORATION

By: -------------------------------------
President

BONNEVILLE FUELS MANAGEMENT CORPORATION

By: -------------------------------------
President

COLORADO NATIONAL BANK

By: -------------------------------------
Vice President

26002202_1.DOC

A-3-2
<PAGE>

FOURTH AMENDMENT OF
AMENDED AND RESTATED CREDIT AGREEMENT

THIS FOURTH AMENDMENT OF AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), dated as of May 15, 1998, is by and among BONNEVILLE FUELS
CORPORATION, a Colorado corporation, BONNEVILLE FUELS MARKETING CORPORATION, a
Utah corporation, COLORADO GATHERING CORPORATION, a Utah corporation, BONNEVILLE
FUELS OPERATING CORPORATION, a Utah corporation, BONNEVILLE FUELS MANAGEMENT
CORPORATION, a Utah corporation (collectively, "Borrower"), and u.s. sang
NATIONAL ASSOCIATION, a national banking association ("USA"), f/k/a COLORADO
NATIONAL BANK, a national banking association ("CNB").

RECITALS

B. Pursuant to a Loan Transfer Agreement dated as of September 18, 1996,
the FIDN Credit Agreement was transferred by FIDN's successor to CNB. Pursuant
to a Third Amendment of Amended and Restated Credit Agreement dated as of
September 18, 1996, the FIDN Credit Agreement was further amended. The FIDN
Credit Agreement, as so assigned and amended, is herein called the "Credit
Agreement."

C. USB is the successor to CNB.

D. Borrower and USB wish to enter into this Amendment in order to amend
certain terms and provisions of the Credit Agreement.

AMENDMENT

NOW, THEREFORE, in consideration of $10.00 and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:

1. Credit Agreement. The Credit Agreement shall be, and hereby is,
amended as follows, effective as of the date of this Amendment:

(a) All references in the Credit Agreement to "Colorado National
Bank" shall be changed to be references to "U.S. Bank National Association."

(b) In line 3 of the definition of "Accounts Receivable Report" in
Section 1.1 on page 2 of the Credit Agreement and in lines 3 and 5 of the
definition of "Facility B Commitment" in Section 1.1 on page 6 of the Credit
Agreement, "BFMC and BFM Corp." shall be changed to "any of the Borrowers."
<PAGE>

(c) In line 7 of the definition of "Conversion Date" in Section 1.1
on page 4 of the Credit Agreement, "July 1, 1998" shall be changed to "July 1,
2001."

(d) In line 2 of the definition of "Facility A Scheduled Maturity
Date" in Section 1.1 on page 6 of the Credit Agreement, "July 1, 2003" shall be
changed to "July 1, 2006."

(e) In line 3 of the definition of "Facility B Maturity Date" in
Section 1.1 on page 6 of the Credit Agreement, "July 1, 1998" shall be changed
to "July 1, 1999."

(f) In lines 2 and 3 of the definition of "Maximum Credit Amount" in
Section 1.1 on page 9 of the Credit Agreement, the maximum amount specified for
Facility B in clause (ii) shall be changed to "One Million Five Hundred Thousand
Dollars ($1,500,000)."

(g) In line 11 of Section 2.3 on page 12 of the Credit Agreement,
"January 1, 1999" shall be changed to "January 1, 2000."

(h) The following shall be substituted for the last sentence of
Section 2.6 on page 13 of the Credit Agreement:

Any election to terminate the Commitment or reduce the Maximum
Credit Amount shall be irrevocable, except as otherwise provided in
Sections 4.2 and 4.4 below.

(i) In line B of Section 3.3 on page 15 of the Credit Agreement,
"August 1, l998" shall be changed to "August 1, 2001."

(j) In lines 4 and 5 of Section 3.6(a) on page 16 of the Credit
Agreement, "950 Seventeenth Street" shall be changed to "918 Seventeenth
Street."

(k) The following shall be substituted for the second sentence of
Section 3.1(c) on page 14 of the Credit Agreement: "The Letter of Credit Fee
will be payable concurrently with the issuance of each Letter of Credit;
provided that, if any Letter of Credit is terminated or released prior to its
expiry date, the Letter of Credit Fee determined as set forth in the prior
sentence shall be recalculated based upon the actual term of the Letter of
Credit, and, if such recalculation results in a lesser Letter of Credit Fee, the
Bank shall refund to Borrower the excess of the amount originally paid over the
recalculated amount."

(l) The following shall be substituted for Section 4.2 on pages 18
and l9 of the Credit Agreement:

Section 4.2 Production Borrowing Base Determinations. The
Production Borrowing Base under Facility A shall be redetermined (a)
during the Revolving

2
<PAGE>

Period by the Bank as of (i) each July 1, commencing July 1, 1997
(based upon the Bank's evaluation of annual independent engineering
reports to be provided to the Bank by the Borrowers as more fully
described in Section 4.5(a)) and (ii) each January 1, commencing
January 1, l997 (based upon the Bank's evaluation of the Borrowers'
actual production, revenue and expense data to be provided to the Bank
by the Borrowers as more fully described in Section 4.5(b)) and (b)
during the Amortizing Period by the Bank as of each July 1 (based upon
the aforementioned independent engineering reports) and (c) otherwise
may be redetermined by the Bank from time to time during the terms of
this Agreement at the Bank's option and in the sole discretion of the
Bank in accordance with the Bank's standard parameters for making oil
and gas production based loans in effect at the time of such
redetermination, together with such adjustments as the Bank determines
to be appropriate, in its sole discretion reasonably exercised, to
reflect the impact on the value of such properties of breaches of
Environmental Laws, if any, by the Borrowers or their predecessors in
ownership of any of the Mortgaged Properties and (d) so long as the
Borrowers have not previously elected to reduce the Production
Borrowing Base as described below since the previous regular
redetermination of the Production Borrowing Base pursuant to clause
(a) or (b) above (or only with the prior written consent of the Bank,
if the Borrowers have previously so elected to reduce the Production
Borrowing Base), upon the request of the Borrowers by written notice
to the Bank, not more than once during each time period between two
consecutive regular redeterminations of the Production Borrowing Base
pursuant to clauses (a) and (b) above. Any increase in the Production
Borrowing Base above $11,500,000 shall require prior written approval
of the Bank's credit committees, which may be given or withheld in the
Bank's sole discretion. The Bank shall notify the Borrowers of each
change in the Production Borrowing Base under Facility A and the
amount set forth in such notice shall be the amount of the Production
Borrowing Base for all purposes of this Agreement until notice of a
new Production Borrowing Base is given by the Bank to the Borrowers;
provided, however, that the Borrowers may, by written notice to the
Bank, not more than once during each time period between two
consecutive regular redeterminations of the Production Borrowing Base
pursuant to clauses (a) and (b) above, reduce the amount of the

3
<PAGE>

Production Borrowing Base from the amount set forth in the Bank's
notice to the Borrowers to any lesser amount which is equal to or in
excess of the aggregate Principal Amount of Facility A Loans and the
Face Amount of Letters of Credit issued under Facility A. Any notice
given by the Borrowers to reduce the Production Borrowing Base, shall
be effective two (2) Business Days following the receipt of such
notice by the Bank, and the amount set forth in such notice shall be
the amount of the Production Borrowing Base for all purposes of this
Agreement until notice of a new Production Borrowing Base is given by
the Bank to the Borrowers. However, if the Production Borrowing Base
is reduced by the Borrowers pursuant to this Section 4.2, so long as
no Event of Default has occurred and is continuing, the Borrowers may,
not more than once during each time period between two consecutive
regular redeterminations of the Production Borrowing Base pursuant to
clauses (a) and (b) above, upon two (2) Business Days' prior written
notice given to the Bank, increase the Production Borrowing Base up to
the amount originally specified in the Bank's notice to the Borrowers
on which such reduction was based. Such notice of increase must be
accompanied by payment to the Bank of an amount equal to the Borrowing
Base Commitment Fees specified in Section 3.1(b) which would have
accrued and been invoiced by the Bank on the amount of the increase to
the date of reinstatement if the amount of such increase had been
included within the Production Borrowing Base at all times from the
date of the Bank's notice to the Borrowers. Any such amounts which are
payable by the Borrowers but which would not have been invoiced by the
Bank shall be payable at the next scheduled invoice for Borrowing Base
Commitment Fees.

(m) In line 6 of the first paragraph of Section 4.4 on page 20 of the
Credit Agreement, "BFMC's and BFM Corp.'s" shall be changed to "Borrowers.'" In
line 2 of the second paragraph of Section 4.4 on page 20 of the Credit
Agreement, "BFMC and BFM Corp." shall be changed to "Borrowers."

(n) The following shall be inserted as a new third paragraph of
Section 4.4, immediately after the second paragraph of Section 4.4 on page 21 of
the Credit Agreement:

The Borrowers may, by written notice to the Bank, reduce the
Maximum Credit Amount for Facility B to any lesser amount which is
equal to or in excess of the aggregate Principal Amount of Facility B
Loans and the Face Amount

4
<PAGE>

of Letters of Credit issued under Facility B. Any notice given by the
Borrowers to reduce the Maximum Credit Amount for Facility B shall be
effective two (2) Business Days following the receipt of such notice
by the Bank, and the amount set forth in such notice shall be the
Maximum Credit Amount for Facility B. However, if the Maximum Credit
Amount for Facility B is reduced by the Borrowers pursuant to this
Section 4.4, so long as no Event of Default has occurred and is
continuing, the Borrowers may, not more than once prior to the
Facility B Maturity Date, upon two (2) Business Days' prior written
notice given to the Bank, increase the Maximum Credit Amount for
Facility B up to $1,500,000. Such notice of increase must be
accompanied by payment to the Bank of an amount equal to the Borrowing
Base Commitment Fees specified in Section 3.1(b) which would have
accrued and been invoiced by the Bank on the amount of the increase to
the date of reinstatement if the amount of such increase had been
included within the Maximum Credit Amount for Facility B at all times
from the effective date of the reduction by Borrowers. Any such
amounts which are payable by the Borrowers but which would not have
been previously invoiced by the Bank shall be payable at the next
scheduled invoice for Borrowing Base Commitment Fees.

(o) The following shall be substituted for Section 8.1(e) on page 33
of the Credit Agreement:

(e) Financial Covenants. Comply, on a consolidated basis, as of
the end of each Quarter, beginning June 30, 1998, with the following
financial tests, all determined in accordance with generally accepted
accounting principles:

<TABLE>
<S> <C>
Minimum Working Capital (1): $250,000
Minimum Current Ratio (1): 1.05x
Minimum Net Worth: $8,000,000
Maximum Debt/Worth: 2.00x
Minimum Fixed Charge Coverage (2): 1.00x
</TABLE>

(1) With the current portion of Facility A treated as a non-current
liability, and with the unused portion of Facility A treated as a
current asset.

(2) (i) Net income after tax plus interest expense plus depreciation,
depletion and amortization plus other non-

5
<PAGE>

cash charges, divided by (ii) interest expenses plus required
principal payments, calculated on a fiscal year-to-date basis.

(p) The parenthetical expression in lines 3 through 5 of Section
8.2(1) on page 39 of the Credit Agreement shall be deleted.

(q) Section 9.1(j) on page 41 of the Credit Agreement shall be
deleted.

(r) Borrower's suite number, as set forth in the address of Borrower
in Section 10.2 on page 42 of the Credit Agreement, shall be changed to "Suite
2200."

(s) The following shall be substituted for the address of the Bank in
Section 10.2 on page 43 of the Credit Agreement:

Bank: U.S. Bank National Association
918 Seventeenth Street
Denver, Colorado 80202
Attention: Mr. Mark E. Thompson,
Energy Group
Facsimile: (303) 585-4362

2. The Notes. The Facility A Note, the Facility B Note and the Term Note
shall be amended, such amendments to be effected by Allonges (the "Allonges"),
among Borrower and USB, to be attached to the Facility A Note, the Facility B
Note and the Term Note, respectively, and to be substantially in the form of
Exhibits A-1, A-2 and A-3 attached hereto and made a part hereof.

4. Conditions Precedent. The obligations of the parties under this
Amendment are subject, at the option of USB, to the prior satisfaction of the
condition that Borrower shall have delivered to USB the following (all documents
to be satisfactory in form and substance to USB and, if appropriate, duly
executed and/or acknowledged on behalf of the parties other than USB):

(a) This Amendment.

(b) The Allonges.

(c) Any and all other loan documents required by USB, including
without limitation such amendments and supplements to the Collateral Documents
as may be required by USB.

6
<PAGE>

(d) Such title opinions, supplemental title opinions, UCC searches
and other title information concerning Borrower's title to the Collateral or any
portions thereof as may be satisfactory to USB.

5. Representations and Warranties. Borrower hereby certifies to USB
that, as of the date of this Amendment, all of Borrower's representations and
warranties contained in the Credit Agreement are true, accurate and complete in
all material respects, no Event of Default has occurred and no event has
occurred which, with the giving of notice, the lapse of time, or both, would
constitute an Event of Default.

EXECUTED as of the date first above written.

BONNEVILLE FUELS CORPORATION

By: _______________________________________
President

BONNEVILLE FUELS MARKETING CORPORATION

By: _______________________________________
President

COLORADO GATHERING CORPORATION

By: _______________________________________
President

7
<PAGE>

BONNEVILLE FUELS OPERATING CORPORATION

By: ________________________________________
President

BONNEVILLE FUELS MANAGEMENT CORPORATION

By: ________________________________________
President

U.S. BANK NATIONAL ASSOCIATION f/k/a
COLORADO NATIONAL BANK

By: ________________________________________
Vice President

8
<PAGE>

Exhibit A-1
Allonge

Reference is made to the Third Amendment of Amended and Restated Credit
Agreement dated as of May 15, 1998 (the "Amendment"), by and among BONNEVILLE
FUELS CORPORATION, a Colorado corporation, BONNEVILLE FUELS MARKETING
CORPORATION, a Utah corporation, COLORADO GATHERING CORPORATION, a Utah
corporation, BONNEVILLE FUELS OPERATING CORPORATION, a Utah corporation,
BONNEVILLE FUELS MANAGEMENT CORPORATION, a Utah corporation (collectively,
"Borrower"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association
("USA"), f/k/a COLORADO NATIONAL BANK ("CNB").

The Revolving Note dated May 31, 1994, as amended, made by Borrower,
payable to the order of CNB, in the face amount of $20,000,000 (the "Revolving
Note") is hereby modified as follows:

1. All references in the Revolving Note to Colorado National Bank or the
"Bank" shall be deemed to refer to U.S. Bank National Association.

2. In lines 2 and 3 of the third paragraph on page 1 of the Revolving
Note, "950 Seventeenth Street" shall be changed to "918 Seventeenth Street."

Executed as of the date first above written

BONNEVILLE FUELS CORPORATION

By: _____________________________________
President

BONNEVILLE FUELS MARKETING CORPORATION

By: _____________________________________
President

COLORADO GATHERING CORPORATION

By: _____________________________________
President

A-1-1
<PAGE>

BONNEVILLE FUELS OPERATING CORPORATION

By: ________________________________________
President

BONNEVILLE FUELS MANAGEMENT CORPORATION

By: ________________________________________
President

U.S. BANK NATIONAL ASSOCIATION f/k/a
COLORADO NATIONAL BANK

By: ________________________________________
Vice President

A-1-2
<PAGE>

Exhibit A-2
Allonge

The Promissory Note dated May 31, 1994, as amended, made by Borrower,
payable to the order of CNB, in the face amount of $1,000,000 (the "Facility B
Note") is hereby modified as follows:

1. All references in the Facility B Note to Colorado National Bank, the
"Bank" or "Holder" shall be deemed to refer to U.S. Bank National Association.

2. In the caption of the Facility B Note and in lines 5 and 6 of the
first paragraph on page 1 of the Facility B Note, the face amount of the
Facility B Note shall be increased to $1,500,000.

3. In line 4 of the first paragraph on page 1 of the Facility B Note,
"950 Seventeenth Street" shall be changed to "918 Seventeenth Street."

4. In line 3 of the first paragraph on page 2 of the Facility B Note, the
maturity date of the Facility B Note shall be changed to July 1, 1999.

Executed as of the date first above written.

BONNEVILLE FUELS CORPORATION

By: ______________________________________
President

BONNEVILLE FUELS MARKETING CORPORATION

By: ______________________________________
President

A-2-1
<PAGE>

COLORADO GATHERING CORPORATION

By: _______________________________________
President

BONNEVILLE FUELS OPERATING CORPORATION

By: _______________________________________
President

BONNEVILLE FUELS MANAGEMENT CORPORATION

By: _______________________________________
President

COLORADO NATIONAL BANK

By: _______________________________________
Vice President

A-2-2
<PAGE>

Exhibit A-3
Allonge

The Term Note dated May 31, 1994, as amended, made by Borrower, payable to
the order of CNB, in the face amount of $20,000,000 (the term Note") is hereby
modified as follows:

1. All references in the Term Note to Colorado National Bank or the
"Bank" shall be deemed to refer to U.S. Bank National Association.

2. In lines 2 and 3 of the third paragraph on page 1 of the Term Note,
"950 Seventeenth Street" shall be changed to "918 Seventeenth Street."

Executed as of the date first above written.

BONNEVILLE FUELS CORPORATION

By: _______________________________________
President

BONNEVILLE FUELS MARKETING CORPORATION

By: _______________________________________
President

COLORADO GATHERING CORPORATION

By: _______________________________________
President

A-3-1
<PAGE>

BONNEVILLE FUELS OPERATING CORPORATION

By: _______________________________________
President

BONNEVILLE FUELS MANAGEMENT CORPORATION

By: _______________________________________
President

U.S. BANK NATIONAL ASSOCIATION f/k/a
COLORADO NATIONAL BANK

By: _______________________________________
Vice President

A-3-2
<PAGE>

FIFTH AMENDMENT OF AMENDED AND

RESTATED CREDIT AGREEMENT

THIS FIFTH AMENDMENT OF AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), dated as of May 15, 1998, is by and among BONNEVILLE FUELS
CORPORATION, a Colorado corporation, BONNEVILLE FUELS MARKETING CORPORATION, a
Utah corporation, COLORADO GATHERING CORPORATION, a Utah corporation, BONNEVILLE
FUELS OPERATING CORPORATION, a Utah corporation, BONNEVILLE FUELS MANAGEMENT
CORPORATION, a Utah corporation (collectively, "Borrower"), and U.S. BANK
NATIONAL ASSOCIATION, a national banking association ("USB"), f/k/a COLORADO
NATIONAL BANK, a national banking association ("CNB").

RECITALS

A. Borrower and USB are parties to an Amended and Restated Credit
Agreement dated as of May 31, 1994, as amended by amendments dated as of April
1, 1995, April 1, 1996, September 18, 1996 and May 15, 1998 (the "Credit
Agreement").

B. Borrower and USB wish to enter into this Amendment in order to amend
certain terms and provisions of the Credit Agreement.

AMENDMENT

NOW, THEREFORE, in consideration of $10.00 and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:

1. Credit Agreement. The Credit Agreement shall be, and hereby is,
amended as follows, effective as of the date of this Amendment:

a. In line 3 of the definition of "Facility B Maturity Date" in
Section 1.1 on page 6 of the Credit Agreement, "July 1, l999" shall be changed
to "July 1, 2001".

b. In line 11 of Section 2.3 on page 12 of the Credit Agreement,
"January 1, 2000" shall be changed to "January 1, 2002".

c. The Production Borrowing Base under Facility A shall be
$11,400,000 for the time period from June 1, 1999 until the effectiveness of the
January 1, 2000 redetermination thereof pursuant to Section 4.2 of the Credit
Agreement, unless the Production Borrowing Base under Facility A is redetermined
prior to such date in accordance with the provisions of the Credit Agreement.

2. The Facility B Note. The Facility B Note shall be amended, such
amendment to be effected by an Allonge (the "Allonge"), among Borrower and USB,
to
<PAGE>

be attached to the Facility B Note and to be substantially in the form of
Exhibit A attached hereto and made a part hereof.

3. Loan Documents. All references in any document to the Credit Agreement
or the Facility B Note shall refer to the Credit Agreement or the Facility B
Note, as amended pursuant to this Amendment and the Allonge.

4. Conditions Precedent. The obligations of the parties under this
Amendment are subject, at the option of USB, to the prior satisfaction of the
condition that Borrower shall have delivered to USA the following (all documents
to be satisfactory in form and substance to USB and, if appropriate, duly
executed and/or acknowledged on behalf of the parties other than USB):

a. This Amendment.

b. The Allonge.

c. Any and all other loan documents required by USB, including
without limitation such amendments and supplements to the Collateral Documents
as may be required by USB.

d. Such title opinions, supplemental title opinions, UCC searches
and other title information concerning Borrower's title to the Collateral or any
portions thereof as may be satisfactory to USB.

5. Representations and Warranties. Borrower hereby certifies to USB that,
as of the date of this Amendment, all of Borrower's representations and
warranties contained in the Credit Agreement are true, accurate and complete in
all material respects, no Event of Default has occurred and no event has
occurred which, with the giving of notice, the lapse of time, or both, would
constitute an Event of Default.

6. Continuation of the Credit Agreement. Except as specified in this
Amendment and the Allonge, the provisions of the Credit Agreement and the
Facility B Note shall remain in full force and effect, and if there is a
conflict between the terms of this Amendment or the Allonge and those of the
Credit Agreement or the Facility B Note or any other document executed and
delivered in connection therewith, the terms of this Amendment and the Allonge
shall control.

7. Miscellaneous. This Amendment shall be governed by and construed under
the laws of the State of Colorado and shall be binding upon and inure to the
benefit of the parties hereto and their successors and assigns. This Amendment
may be executed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.

2
<PAGE>

EXECUTED as of the date first above written.

BONNEVILLE FUELS CORPORATION

By:
-----------------------------
President

BONNEVILLE FUELS MARKETING
CORPORATION

By:
-----------------------------
President

COLORADO GATHERING CORPORATION

By:
-----------------------------
President

BONNEVILLE FUELS OPERATING
CORPORATION

By:
-----------------------------
President

BONNEVILLE FUELS MANAGEMENT
CORPORATION

By:
---------------------------
President

U.S. BANK NATIONAL ASSOCIATION f/k/a
COLORADO NATIONAL BANK

By:
-----------------------------
President

3
<PAGE>

EXHIBIT A

ALLONGE

Reference is made to the Fifth Amendment of Amended and Restated Credit
Agreement dated as of June 1, 1999 (the "Amendment"), by and among BONNEVILLE
FUELS CORPORATION, a Colorado corporation, BONNEVILLE FUELS MARKETING
CORPORATION, a Utah corporation, COLORADO GATHERING CORPORATION, a Utah
corporation, BONNEVILLE FUELS OPERATING CORPORATION, a Utah corporation,
BONNEVILLE FUELS MANAGEMENT CORPORATION, a Utah corporation (collectively,
"Borrower"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association
("USB"), f/k/a COLORADO NATIONAL BANK ("CNB").

The Promissory Note dated May 31, 1994, as amended, made by Borrower,
payable to the order of CNB, in the original face amount of $1,000,000,
subsequently increased to $1,500,000 (the "Facility B Note"), is hereby modified
by substituting July 1, 2001 for July 1, 1999 as the maturity date of the
Facility B Note in line 3 of the first paragraph on page 2 of the Facility B
Note.

EXECUTED as of June 1, 1999.

BONNEVILLE FUELS CORPORATION

By:
-----------------------------
President

BONNEVILLE FUELS MARKETING CORPORATION

By:
-----------------------------
President

COLORADO GATHERING CORPORATION

By:
-----------------------------
President

4
<PAGE>

BONNEVILLE FUELS OPERATING
CORPORATION

By:
-----------------------------
President

BONNEVILLE FUELS MANAGEMENT
CORPORATION

By:
-----------------------------
President

U.S. BANK NATIONAL ASSOCIATION f/k/a
COLORADO NATIONAL BANK

By:
-----------------------------
Vice President

5
<PAGE>

U.S. Bank National Association
918 - 17th Street
Denver, CO 80202

Re: Year 2000 Compliance

Dear Sir/Madam:

As a condition to the extension or continuation of credit to the undersigned
(the "Borrower") by you (the "Bank") under each existing or any contemplated
credit agreement between Borrower and Bank and each related promissory note,
Bank has required Borrower to make the following representations and agreements
upon which Bank will rely.

The Borrower has reviewed and assessed its business operations and computer
systems and applications to address the "year 2000 problem" (that is, that
computer applications and equipment used by the Borrower, directly or indirectly
through third parties, may be unable to properly perform date-sensitive
functions before, during and after January 1, 2000). The Borrower reasonably
believes that the year 2000 problem will not result in a material adverse change
in the Borrower's business condition (financial or otherwise), operations,
properties or prospects or ability to repay any indebtedness due to Bank.

The Borrower agrees that this representation will be true and correct on each
date the Borrower requests a loan or advance or delivers information to the
Bank.

In addition to the events of default in any of Borrower's agreements with Bank,
it will be an event of default under each such agreement if (a) any
representation in this letter is false or misleading when made, or becomes false
or misleading at any time thereafter; (b) Borrower fails to perform or comply
with any term, condition or obligation set forth herein; or (c) there is any
material adverse change in Borrower's business condition (financial or
otherwise), operations, prospects or ability to repay Bank which relates to or
results from the year 2000 problem.

The Borrower agrees to promptly deliver to Bank such information relating to
this representation as Bank may request from time to time.

Sincerely,
Bonneville Fuels Corporation Bonneville Fuels Marketing Corporation

By: By:
--------------------------- -----------------------------
Steven H. Stepanek, President Steven H. Stepanek, President

Colorado Gathering Corporation Bonneville Fuels Operating Corporation

6
<PAGE>

By: By:
------------------------------ -----------------------------
Steven H. Stepanek, President Steven H. Stepanek, President

Bonneville Fuels Management Corporation Date:
------------------------

By:
------------------------------
Steven H. Stepanek, President

7
<PAGE>

Allonge

Reference is made to the Fifth Amendment Restated Credit Agreement dated as
of June 1, 1999 (the "Amendment"), by and among BONNEVILLE FUELS CORPORATION, a
Colorado corporation, BONNEVILLE FUELS MARKETING CORPORATION, a Utah
corporation, COLORADO GATHERING CORPORATION, a Utah corporation, BONNEVILLE
FUELS OPERATING CORPORATION, a Utah corporation, BONNEVILLE FUELS MANAGEMENT
CORPORATION, a Utah corporation (collectively, "Borrower"), and U.S. BANK
NATIONAL ASSOCIATION, a national banking association ("USB"), f/k/a COLORADO
NATIONAL BANK ("CNB").

EXECUTED as of June 1, 1999.

BONNEVILLE FUELS CORPORATION

By:
-----------------------------
President

BONNEVILLE FUELS MARKETING CORPORATION

By:
-----------------------------
President

COLORADO GATHERING CORPORATION

By:
-----------------------------
President

BONNEVILLE FUELS OPERATING CORPORATION

By:
-----------------------------
President

8
<PAGE>

BONNEVILLE FUELS MANAGEMENT
CORPORATION

By:
-----------------------------
President

U.S. BANK NATIONAL ASSOCIATION f/k/a
COLORADO NATIONAL BANK

By:
-----------------------------
President

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
dated October 21, 1999 (and to all references to our Firm) included in or made a
part of this Registration Statement.

ARTHUR ANDERSEN LLP

Denver, Colorado
December 20, 1999

<PAGE>

EXHIBIT 23.3
INDEPENDENT AUDITOR'S CONSENT

We consent to the use in the Registration Statement and Prospectus of Carbon
Energy Corporation of our report dated February 26, 1999, accompanying the
consolidated financial statements of Bonneville Fuels Corporation contained in
such Registration Statement, and to the use of our name and the statements with
respect to us, as appearing under the heading "Experts" in the Prospectus.

Hein + Associates LLP

Denver, Colorado
December 17, 1999

<PAGE>
EXHIBIT 23.4

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Carbon Energy Corporation of our report
dated February 16, 1999 relating to the financial statements of CEC Resources
Ltd., which appears in such Prospectus. We also consent to the reference to us
under the heading "Experts" in such Prospectus.

PRICEWATERHOUSECOOPERS, LLP
Calgary, Canada
December 20, 1999

<PAGE>

12/8/99

POWER OF ATTORNEY

Each of the undersigned directors and officers of Carbon Energy Corporation
(the "Company") hereby authorizes Patrick R. McDonald and Kevin D. Struzeski and
each of them as their true and lawful attorneys-in-fact and agents: (1) to sign
in the name of each such person and file with the Securities and Exchange
Commission a Registration Statement on an appropriate form, and any and all
amendments (including post-effective amendments) to such Registration Statement,
for the registration under the Securities Act of 1933, as amended, of common
stock of the Company issuable in the exchange offer by the Company for shares of
CEC Resources Ltd. (in which exchange offer each holder of shares of CEC
Resources Ltd. will be offered shares of the Company); and (2) to take any and
all actions necessary or required in connection with such Registration Statement
and amendments to comply with the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.

Signature Title Date
- --------- ----- ----

/s/ Cortlandt S. Dietler Director December 8, 1999
- ---------------------------
Cortlandt S. Dietler

<PAGE>

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<PAGE>

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