BARGO ENERGY CO, 10KSB, 2000-03-13

BARGO ENERGY CO
10KSB, 2000-03-13
CRUDE PETROLEUM & NATURAL GAS

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<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended DECEMBER 31, 1999
-----------------

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------

COMMISSION FILE NUMBER 0-8609

BARGO ENERGY COMPANY

(Exact name of small business issuer as specified in charter)

TEXAS 87-0239185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

700 LOUISIANA, SUITE 3700
HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (713) 236-9792

Securities registered pursuant to section 12(b) of the Act:

Title of Class Name of each exchange on which registered
None None
-------------- -----------------------------------------

Securities registered pursuant to section 12(g) of the Act:

COMMON STOCK, PAR VALUE $0.01
-----------------------------
(Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

Registrant's revenues for the most recent fiscal year: $19,134,000

The aggregate market value of the Company's voting stock held by nonaffiliates
computed at the closing bid price in the over-the-counter market as quoted on
the National Association of Securities Dealers Electronic Bulletin Board system
on March 3, 2000 was approximately $6 million.

As of March 3, 2000, the Company had outstanding 87,932,726 shares of its common
stock, par value $0.01 and 5,000,000 shares of preferred stock, par value $.01.

Transitional Small Business Disclosure Format No [X] Yes [ ]

<PAGE> 2
PREFACE

Caution Respecting Forward-Looking Information

This report includes "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"). All
statements other than statements of historical fact included in the Report (and
the exhibits hereto), including without limitation, statements regarding plans
and intentions of management, the Company's financial position and estimated
quantities and net present values of reserves, are forward looking statements.
The Company can give no assurances that the assumptions upon which such
statements are based will prove to have been correct. Important factors that
could cause actual results to differ materially from the Company's expectations
("Cautionary Statements") are disclosed in the section "Risk Factors" included
herein and other periodic reports filed under the Exchange Act, which are herein
incorporated by reference. All subsequent written and oral forward looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified by the Cautionary Statements.

CERTAIN DEFINITIONS

All defined terms under rule 4-10(a) of Regulation S-X promulgated by
the Securities and Exchange Commission ("Commission") shall have their
statutorily prescribed meanings when used in this report. In addition, the
following terms have the meaning set forth below when used herein.

"API" means American Petroleum Institute.

"BOE" means barrel of oil equivalent, converting gas to oil at a ratio of six
Mcf of gas to one barrel of oil.

"BPD" means barrels of oil per day.

"BBL" means barrel of oil.

"BCF" means billion cubic feet of natural gas.

"DEVELOPMENT WELL" means a well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon know to be productive.

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

"MBBL" means thousand barrels of oil.

"MBOE" means thousand BOE.

"MMBBL" means million barrels of oil.

"MMBO" means million barrels of oil.

"MMBTU" means million British thermal units.

"MCFG" means thousand cubic feet of natural gas.

"MMMCFG" means billions cubic feet of natural gas.

"COPAS" means Council of Petroleum Accountants Societies.

"PROVED RESERVES" means the estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e. prices and costs as of
the date the estimate is made. "Proved reserves" may be developed or
undeveloped.

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

"RESERVE ENGINEERS" means T.J. Smith & Company, independent petroleum reserve
engineers.

2
<PAGE> 3
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION PAGE
- -----------------------
<S> <C>
PART I
Items 1. and 2. Business and Properties ............................................. 4

Item 3. Legal Proceedings ........................................................... 18

Item 4. Submission of Matters to a Vote of Security Holders ......................... 19

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ....... 19

Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................................... 21

Item 7. Financial Statements and Supplementary Data ................................. 24

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ........................................................ 24

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act ........................................... 24

Item 10. Executive Compensation ..................................................... 27

Item 11. Security Ownership of Certain Beneficial Owners and Management ............. 32

Item 12. Certain Relationships and Related Transactions ............................. 33

Item 13. Exhibits and Reports on Form 8-K ........................................... 35
</TABLE>

3
<PAGE> 4

PART I

- --------------------------------------------------------------------------------
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
- --------------------------------------------------------------------------------

THE COMPANY

Bargo Energy Company (the "Company" or "Bargo") is engaged in the
development of oil and natural gas properties located onshore primarily in the
Gulf Coast Region (Texas and Louisiana) and California. The Company's principal
business strategies include (i) maximizing the value of its existing
high-quality, long-life reserves through efficient operating and marketing
practices, (ii) conducting detailed field studies using the latest technology to
identify additional reserves and exploration potential, and (iii) seeking
acquisitions of producing properties, with exploration and development potential
in areas where the Company has operating experience and expertise. Bargo intends
to continue its efforts to aggressively grow the Company's resource base both
through oil and gas property acquisitions and corporate consolidations.

As of December 31, 1999, the Company's estimated net proved reserves
were 28,999,000 BOE. At December 31, 1998, the Company owned estimated net
proved reserves of 15,144,000 BOE. This represents a 92% increase in estimated
net proved reserves over December 31, 1998. This increase is attributable to the
Company's active acquisition program and a material increase in oil prices from
year-end 1998 to 1999. Approximately 51% of the Company's reserves are proved
developed producing reserves.

RECENT DEVELOPMENTS

On February 22, 2000, the Company agreed to purchase oil and gas
properties from subsidiaries of Texaco, Inc. for $161.1 million. The effective
date of the purchase is January 1, 2000 and closing is expected to occur late in
the first quarter of this year. The properties are located in the Permian Basin,
East Texas, Oklahoma and Kansas. Aggregate current net production from the
properties totals approximately 9,000 barrels of oil and 11 million cubic feet
of gas per day. Following the acquisition, Bargo will have proven reserves of
approximately 70 million equivalent barrels of oil. The purchase price to be
paid for the properties is subject to reduction if the joint working interest
owners exercise preferential rights to purchase certain properties, or for title
or other environmental defects identified before closing.

The Company has received commitments from commercial banks to loan the
Company sufficient amounts to finance the entire acquisition and refinance
existing bank indebtedness. Depending on the amount of any adjustments made to
the purchase price, up to $45 million of these loans will mature in nine months
following the closing date. The Company has received commitments from several of
its current stockholders to purchase preferred stock, and has also received a
commitment from one of its lenders to convert a portion of the loan into
preferred stock, in an amount sufficient in the aggregate to repay this nine
month loan in full. These commitments to purchase preferred stock at maturity of
the nine-month loan also provide for the issuance of new common stock.

The Company does not expect to use the purchase commitments from its
stockholders or the conversion commitment from its lender. The Company intends
to sell non-core properties from this acquisition, of which a portion of the
proceeds would be available to finance repayment of the loan. The Company may
also issue new debt or equity securities to refinance part or all of the bank
loans.

The consummation of the purchase is subject to various conditions and
no assurances can be made that such purchase will be consummated.

4
<PAGE> 5

STRATEGIC DEVELOPMENTS

On April 26, 1999, Future Petroleum Corporation, a Utah corporation
"Future"), merged with Bargo Energy Company, a Texas corporation ("Bargo").
Pursuant to the merger, each of the 22,320,066 shares of common stock of Future
outstanding were converted into one share of Bargo's common stock and each of
the 100,000 shares of preferred stock of Future were converted into one share of
Bargo preferred stock. The Company's symbol on the OTC Bulletin Board was
changed from FUPT to BARG.

On May 14, 1999, the Company issued and sold to Kayne Anderson Energy
Fund, L.P. ("Kayne"), BancAmerica Capital Investors SBIC I, L.P.
("BancAmerica"), Eos Partners, L.P., Eos Partners SBIC, L.P., Eos Partners SBIC
II, L.P. (collectively, "Eos"), Energy Capital Investment Company PLC, EnCap
Energy Capital Fund III-B, L.P., BOCP Energy Partners, L.P., EnCap Energy
Capital Fund III, L.P. (collectively, "EnCap") and SGC Partners II LLC ("SGC"
and together with Kayne, BancAmerica, Eos, EnCap and SGC, the "Investors")
shares of a newly created class of preferred stock. Five million shares of the
Company's Cumulative Redeemable Preferred Stock, Series B ("Preferred Stock")
were issued in exchange for total gross proceeds of $50 million. As additional
consideration, the Company issued an aggregate of 43,815,810 shares of its
common stock to the Investors equal to 40% of the outstanding common stock (on a
fully diluted basis). If the Company redeems all of the outstanding shares of
Preferred Stock prior to May 14, 2001, the Investors must sell back to the
Company 12.5% of the shares of Common Stock originally issued to the Investors.

Dividends on the Preferred Stock equal to 10% per annum are payable
quarterly. The dividend rate is subject to increase (but in no event to more
than 16%) or decrease (but in no event to less than 10%) based upon the
Company's ratio of assets to liabilities which is calculated on January 1 and
July 1 of each year or at such other time as requested by the Investors. The
Preferred Stock may be redeemed at any time by the Company and must be redeemed
upon the occurrence of certain events, including upon the fifth anniversary of
the issue date or upon a change of control. A change of control is deemed to
occur upon any merger, reorganization, purchase or sale of more than 50% of the
Company's voting securities, the sale of substantially all of the assets of the
Company or at any time Tim Goff ceases to serve as the Company's Chief Executive
Officer. The Company is prohibited from taking certain actions, including
authorizing, creating or issuing any shares of capital stock, amending the
articles of incorporation of the Company and authorizing a merger or change of
control, without the consent of the holders of a majority of the outstanding
shares of Preferred Stock.

On September 30, 1999 the Company amended and restated its credit
agreement to increase the commitment from Bank of America and two additional
banks to $100 million (see Item 6. MD&A - Liquidity & Capital Resources). The
three-year revolver has a current borrowing base of $55 million.

In May 1999, Kimberly G. Seekely, Elizabeth Vanderhider and B. Carl
Price resigned from the Company's Board of Directors. At that time, J. Travis
Hain, Daniel M. Weingeist and Brian D. Young were appointed directors of the
Company. Each of Messrs. Hain, Weingeist and Young is affiliated with one of the
Investors. See "Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act."

5
<PAGE> 6

Directors, the Shareholders Agreement among the Company and certain stockholders
of the Company was amended to provide that Mr. Clarkson would be appointed to
the Board of Directors and that Mr. Pottow would be appointed as a
representative of SGC.

OIL AND GAS PROPERTIES

In September 1999, Bargo acquired interests in approximately 40 leases,
a waterflood unit, over 60 royalty properties and an oil transportation contract
in East Texas (the "East Texas field") from Atlantic Richfield Company. The
acquisition was effective October 1, 1999 and was acquired for approximately $16
million. As of December 31, 1999 estimated net proved reserves attributable to
this acquisition is approximately 4,000 MBOE.

In May 1999, Bargo acquired interests in the Raccoon Bend field located
in Austin and Waller Counties, Texas from Exxon Corporation. Bargo acquired a
100% working interest and a net revenue interest of approximately 80%. The
acquisition was effective January 1, 1999 and was acquired for approximately $10
million. As of December 31, 1999 estimated net proved reserves attributable to
this acquisition is approximately 4,200 MBOE.

The Company's properties are located onshore principally in Texas,
Louisiana and California. As of December 31, 1999, the Company owns interests in
a total of 1,224 gross (887 net) producing wells, of which 863 gross wells are
operated by the Company. As of that date, the Company owned 67,686 gross (46,673
net) acres. Generally, production is from depths of less than 12,000 feet. For
additional information about these properties, see "ITEM 7 - Financial
Statements and Supplementary Data".

In the oil and gas industry and as used herein, the word "gross" well
or acre is a well or acre in which a WI is owned; the number of gross wells is
the total number of wells in which a WI is owned. A "net" well or acre is deemed
to exist when the sum of fractional ownership WIs in gross wells or gross acres
equals one. The number of net wells or acres is the sum of the fractional WIs
owned in gross wells or gross acres.

PRODUCTIVE WELLS AND ACREAGE

Shown below are tabulations of the productive wells and estimates of
the Company's net interest in total proved reserves of crude oil, condensate,
natural gas liquids and natural gas as of December 31, 1999, based on
information prepared by the Company's Reserve Engineers. All wells are located
in the United States.

<TABLE>
<CAPTION>
PRODUCTIVE WELLS
----------------
Gross Net
----- ------
<S> <C> <C>
Gas 173 63
Oil 1,051 824
----- -----
Total 1,224 887
===== =====
</TABLE>

6
<PAGE> 7

The following table sets forth developed and undeveloped acreage owned by the
Company as of December 31, 1999.

<TABLE>
<CAPTION>
DEVELOPED ACREAGE UNDEVELOPED ACREAGE TOTAL ACREAGE
GROSS NET GROSS NET GROSS NET
------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Texas 38,422 27,224 10,688 9,856 49,110 37,080
New Mexico 2,357 1,789 -- -- 2,357 1,789
Oklahoma 5,795 2,684 1,630 98 7,425 2,782
Louisiana 2,088 995 -- -- 2,088 995
Mississippi 460 62 -- -- 460 62
California 6,246 3,965 -- -- 6,246 3,965
------ ------ ------ ----- ------ ------
Total 55,368 36,719 12,318 9,954 67,686 46,673
====== ====== ====== ===== ====== ======
</TABLE>

OIL AND NATURAL GAS RESERVES

Presented below are the estimated quantities of proved developed and
proved undeveloped reserves of oil and natural gas and the Present Value of
Future Net Revenues (before income taxes) owned by the Company as of December
31, 1999.

PROVED RESERVES AS OF DECEMBER 31, 1999

<TABLE>
<S> <C>
Net Oil (MBbls)................................................................... 16,156.3
Net Natural Gas (MMcf)............................................................ 77,054.0
Total MBOE........................................................................ 28,998.6
Discounted Present Value Before Income Tax, M$.................................... $179,466.4(1)
</TABLE>

(1) Discounted at 10% present value as of December 31, 1999 (year-end
prices held constant). The amounts are before income taxes and
therefore are not the same as the "Standardized Measure" disclosed in
Note 16 of the Notes to Consolidated Financial Statements.

The Reserve Engineers prepared the estimates of net proved reserves and
the future net cash flows (and present value thereof) attributable to such
proved reserves. Reserves were estimated using oil and gas prices and production
and development costs in effect on December 31 of each such year, without
escalation. The reserves were determined using both volumetric and production
performance methods.

Petroleum engineering is not an exact science and involves estimates
based upon numerous factors, many of which are inherently variable and
uncertain. Consequently, reserve estimates are imprecise and are subject to
change as additional information becomes available. Estimates based upon short
periods of production may not be as reliable as those based upon longer
production histories. Further, estimates of oil and gas reserves, of necessity,
are projections based on engineering data. As a result of the uncertainties
inherent in the interpretation of such data, there can be no assurance that the
Company's estimated oil and gas reserves would ultimately be developed.
Estimates of the reserves and future net revenues involve projecting future
results under current operating and economic conditions. Actual production,
revenues, taxes, development expenditures and operating expenses may not occur
as estimated. Product prices vary over time due to market forces, which are
beyond the Company's control. The Company has not filed any reports with other
federal agencies that contain an estimate of total proved net oil and gas
reserves.

The following table sets forth certain information about the estimated
proved reserves of the Company as of the dates set forth below.

7
<PAGE> 8

PROVED RESERVES

<TABLE>
<CAPTION>
Oil &
Natural gas
-----------
Liquids Gas
----------- -----------
(BBLS) (MCFG)
<S> <C> <C>
Balance, December 31, 1997 2,179,000 6,139,000
Purchase of minerals in place 3,245,000 55,840,000
Revisions of previous estimates (1,729,000) 8,584,000
Production (126,000) (1,109,000)
----------- -----------
Balance, December 31, 1998 3,569,000 69,454,000
Purchase of minerals in place 8,589,000 3,003,000
Revisions of previous estimates 4,626,000 8,398,000
Production (627,000) (3,762,000)
Sales of minerals in place (1,000) (39,000)
----------- -----------
Balance, December 31, 1999 16,156,000 77,054,000
</TABLE>

The following tables summarize the net production owned by the Company
and produced to its interest, less production and royalties due others, for all
properties in which the Company had an interest during the periods indicated.
The net production to the Company increased during 1999 as a result of the
significant number of oil and gas acquisitions made in 1999 and in the last
quarter of 1998.

OPERATIONS

<TABLE>
<CAPTION>
ANNUAL PRODUCTION 1999 1998
- ----------------- --------- ---------
<S> <C> <C>
Barrels of oil equivalents (BOE) 1,254,000 310,833
Natural gas (MCFG) 3,762,000 1,109,000
Oil, natural gas liquids & condensate (BBLS) 627,000 126,000
</TABLE>

DAILY PRODUCTION
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998
------ --------
<S> <C> <C>
Average net daily production
Gas (MCFG) 10,307 3,038
Oil and NGL (Bbls) 1,718 345

Average sales price
Gas ($ per MCFG) $ 2.25 $ 2.34
Oil and NGL ($ per Bbl) $ 20.10 $ 8.46
</TABLE>

The average production cost per barrel of oil equivalent, which
includes lifting costs (electricity, fuel, water disposal, repairs, maintenance,
pumper, transportation, and similar items), and production taxes, were $6.13 for
1999 and $ 5.88 for 1998. To facilitate comparisons, units of production are
expressed, in common units, with gas converted to a common unit of oil
production on the basis of six MCFG of gas for one Bbl of oil.

The Company sells gas on a contract basis to one of several purchasers
in each of the areas in which it has productive gas wells. The Company sells oil
at posted field prices to one of

8
<PAGE> 9

several purchasers in each of the areas in which it has productive oil wells.
See "Item 1 and 2. Business and Properties - Oil and Gas Marketing and Major
Customers".

DRILLING ACTIVITIES

The wells drilled by the Company during the periods indicated are
summarized in the following table.

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1999 1998
------------- ---------------
Gross Net Gross Net
----- ----- ----- -----
<S> <C> <C> <C> <C>
Development
Gas 3 .08 1 .10
Oil -- -- -- --
Non-productive -- -- -- --
----- ----- ----- -----

Totals 3 .08 1 .10
===== ===== ===== =====

Exploratory
Gas -- -- -- --
Oil -- -- -- --
Non-productive -- -- -- --
----- ----- ----- -----
Totals -- -- -- --
===== ===== ===== =====
</TABLE>

The following describes the Company's principal oil and gas properties:

TEXAS PANHANDLE

The Company's Texas Panhandle properties have long-lived oil and
natural gas reserves. The Company has identified over 30 Brown Dolomite, Granite
Wash and Moore County Lime development drilling locations in this area. The gas
produced is high in natural gas liquids, which enables the Company to receive
premium prices for its gas sold. In addition, the use of advanced hydraulic
fracturing methods to complete development wells and fracturing up existing
wells has increased recoverable reserves.

PANHANDLE FIELD. The Company has an interest in and operates 148 wells
in the Panhandle of Texas. These wells are located in Gray, Carson, Hutchinson,
Moore and Roberts Counties, Texas, primarily in the Panhandle Field. This field
is on the Amarillo uplift west of the Anadarko Basin. All of the Company's wells
produce from the Wolfcamp Brown Dolomite of Permian age and the Pennsylvanian
granite wash. Production is primarily oil, natural gas liquids and gas on the
uplift. The Company's wells on the western edge of the Anadarko Basin (Bar Nine
Field) flanking the uplift are located on anticlines along a structural ridge.
These wells produce gas from the same brown dolomite found on the uplift in the
main Panhandle Field.

TEXAS GULF COAST

EAST TEXAS FIELD. The Company has an interest in 40 leases, a
waterflood unit, over 60 royalty properties and an oil transportation contract
in the field. Current daily net production is 2,789 Bpd and 2.0 MMCF/D from 500
producing wells. The field produces from the Upper Cretaceous age Woodline
sandstone, at depths of approximately 3,600 feet. It is located in East Texas in
Gregg and Rusk Counties.

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<PAGE> 10

RACCOON BEND FIELD. This field is located in Austin and Waller
Counties, Texas approximately 45 miles Northwest of Houston. It is a deep seated
salt dome with in excess of 30 pay sands that include the Eocene age Wilcox,
Sparta, Cook Mountain and Yegua formations, the Oligocene age Vicksburg and
Frio, as well as the shallower Miocene. Production is from numerous reservoirs
caused by both structural and stratigraphic traps. A new 3-D seismic program has
been researched, designed, and put out to bid. It is expect that acquisition
will begin in the second quarter of 2000. There have been in excess of 200 wells
drilled in the field of which 77 are actively producing; 12 are salt-water
disposal; and 75 are shut-in. Upside potential lies in behind pipe zones,
waterflooding certain reservoirs, and identifying attic plays and undrilled
traps by virtue of the 3-D. Bargo is the operator and holds a 100% WI and 80%
NRI in 7,316 gross acres (7,060 net acres).

CROSS CREEK FIELD. The Cross Creek Field is located in northeastern
Harris County, Texas, just north of the city of Houston. It was discovered in
1993 by Chevron and produces from the geopressured upper Wilcox sandstones at a
depth of 11,000 ft. The Wilcox sands are trapped up against the northwest flank
of the prolific Humble salt dome that also produces from the shallower Yegua,
Frio, and Miocene formations. Besides many recompletion opportunities in the
eight producing wellbores, infill drilling opportunities exist. Bargo acts as
operator and holds a 100% WI with 75-80% NRI.

SAN MIGUEL CREEK FIELD. Located in McMullen County, Texas this field is
operated by Exxon Corporation and Lakewood Operating Co. Bargo's WI ranges from
33% to 50% with NRI from 25% to 40%. The field was discovered in 1953 by Humble
Oil and is a deep seated salt dome with numerous faults both overlaying and
adjacent to the salt plug. The deeper gas production is from the Cretaceous age
Edwards limestone and the shallower oil production is from the Eocene age Wilcox
sandstone. There have been in excess of 70 wells drilled in the field; 12 remain
active. No well has yet penetrated salt, which is estimated at 14,000 ft. Upside
potential lies in gas compression on the mechanical side and also undertaking a
detailed field study to integrate the 3-D seismic survey.

BRIGHT FALCON FIELD. The Bright Falcon Field is located along the Texas
Gulf Coast in Jackson County. The field is operated by Cox and Perkins. Two
wells are presently producing from the Eocene age, geopressured Yegua sands,
with behind pipe reserves in one of the wells. One additional development
location has been identified on 3-D seismic. This well is expected to spud in
the first quarter of 2000.

NORTH EAST LIMES FIELD. The Company owns a 10% WI and a 7.5% NRI in
this field in Live Oak County, Texas which is operated by Southern Resources
Company. It produces from three geopressured Wilcox sands (F-1, F-4, F-5) and
there are presently 6 producing wells and 7 additional proved, undeveloped
locations. Most wells also have proved behind pipe reserves.

CANDY B FIELD. This field produces from Oligocene age, normally
pressured, Frio sandstones. Bargo operates the field and owns a 67.24% WI with a
52.52% NRI. At present there are 2 producing wells with proved behind pipe
reserves and 2 proved undeveloped drilling locations. The field is located along
the Texas Gulf Coast in San Patricio County.

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<PAGE> 11

CALIFORNIA

SOUTH COLES LEVEE UNIT. South Coles Levee Unit is located in the
southern end of the San Joaquin Valley, Kern County, California, 15 miles
southwest of the city of Bakersfield. The field lies just southeast of the
petroleum reserve at Elk Hills and was discovered in 1938 by the Ohio Oil
Company (now Marathon Oil Co.) as a result of extensive seismic work. The
discovery well, the "KCL-F" 1 (now the SCLU 74-10) was drilled to a total depth
of 9365' and completed flowing 885 Bpd of 44.5(Degree) gravity oil. The initial
completion was from the Miocene Age, upper Stevens member of the Antelope
formation and designated the F-1 zone. Subsequent drilling discovered a lower
member in 1939 that was called the F-2 zone. Both zones are deepwater, turbidite
sandstones. The field's trap is formed by both structural and stratigraphic
components. Upside opportunities lie in behind pipe zones, infill drilling,
re-initiating the F-1 waterflood, an F-2 waterflood, and shooting a 3-D seismic
program. The field is presently operated by Aera Energy L.L.C. (Mobile-Shell
Joint Venture). Bargo owns a 63.5% WI and 48.6% NRI in 52 currently producing
wells.

LOUISIANA

NORTH LEROY FIELD. North Leroy Field is located in southern Louisiana
in Vermilion Parish and is operated by Westland Oil Co. and Cajun Minerals.
There are two active wells that produce from Oligocene age Frio sandstones.
There are additional behind pipe reserves as well as one proved, undeveloped
location.

OKLAHOMA

WAKITA FIELD. The Company owns 1,340 proven producing acres in the Red
Fork trend containing 8 producing wells. A recent uphole recompletion in the
Oread Formation by an offset operator is producing 600 MCF per day. 2 and
possibly 4 wells have uphole recompletion potential in the Oread Formation.
There is also one proven, undeveloped location. The Company has a 100% WI and
87.5% NRI.

SHAWNEE TOWNSITE FIELD. This field is located in Pottawatomie County,
Oklahoma and is operated by Vintage Petroleum, Inc. The waterflood produces from
the Pennsylvanian age Skinner sandstones. The reservoirs are a series of
fluvial-delta channels and bars. The Company has a 11.2% WI and 8.95% NRI. There
are 5 proved, undeveloped locations.

TITLE TO PROPERTIES

The Company believes that the title to its oil and gas properties is
good and defensible in accordance with standards generally accepted in the oil
and gas industry, subject to such exceptions which, in the opinion of the
Company, are not so material as to detract substantially from the use or value
of such properties. The Company's properties are typically subject, in one
degree or another, to one or more of the following: royalties and other burdens
and obligations, express or implied, under oil and gas leases; overriding
royalties and other burdens created by the Company or its predecessors in title;
a variety of contractual obligations (including, in some cases, development
obligations) arising under operating agreements, farmout agreements, production
sales contracts and other agreements that may affect the properties or their
titles; back-ins and reversionary interests existing under purchase agreements
and leasehold assignments; liens that arise in the normal course of operations,
such as those for unpaid taxes, statutory liens securing obligations to unpaid
suppliers and contractors and contractual liens under operating agreements;

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<PAGE> 12

pooling, unitization and communitization agreements, declarations and orders;
and easements, restrictions, rights-of-way and other matters that commonly
affect property. To the extent that such burdens and obligations affect the
Company's rights to production revenues, they have been taken into account in
calculating the Company's NRIs and in estimating the size and value of the
Company's reserves. The Company believes that the burdens and obligations
affecting its properties are conventional in the industry for properties of the
kind owned by the Company.

OIL AND GAS MARKETING AND MAJOR CUSTOMERS

All of the Company's oil and gas marketing efforts are contracted out
to EnerTrade, Inc., a Texas based oil and gas marketing consulting firm. Our
strategy for product marketing is to achieve the highest market value while
ensuring credit worthiness of the purchaser.

Gas Sales. Substantially all of the Company's marketing arrangements
are month-to-month contracts structured to be tied to the appropriate regional
index for the location in which the gas is produced. This allows for gas price
hedging, as well as location based hedging. The Company's largest gas volumes
are at South Coles Levee and Cross Creek. South Coles Levee gas is sold on a
month to month contract tied to the SOCAL Border Index with various purchasers
including Southern Energy Marketing and ARCO Western Energy. Cross Creek gas is
sold to Dynegy, Inc. under a long-term market based contract tied to the Houston
Ship Channel Index.

Oil Sales. The Company's liquid contracts are month-to-month contracts
structured to be tied to the Cushing WTI price with appropriate transparent
adjustments for location, grade, and transportation. The company typically uses
NYMEX prompt month index or a Plats P Plus index for Cushing value. This also
allows for liquid price hedging, as well as location and grade hedging. The
largest liquid volume is from the company's East Texas properties. Oil is
currently sold to Sunoco, Inc. under a month-to-month contract tied to Cushing
Plats P Plus price less a transportation discount.

Due to the availability of other markets and pipeline connections, the
Company does not believe that the loss of any single oil or natural gas customer
would adversely affect the Company's results of operations.

The Company implements oil and gas hedges as it deems appropriate to
ensure minimum levels of cash flow or as market conditions are believed to
create an opportunity to increase cash flows. Approximately 50% (or 150,000
MMBTU per month) of current natural gas production was hedged through calendar
year 1999. For the Company's South Coles Levee production a hedge was in place
for 65,000 MMBTU at prices ensuring a floor of $2.00 per MMBTU and a ceiling of
$2.45 per MMBTU based on Southern California border prices. For the Company's
Gulf Coast properties a hedge was in place for 85,000 MMBTU at prices ensuring a
floor of $2.00 per MMBTU and a ceiling of $2.04 per MMBTU based on Houston Ship
Channel pricing. The Company currently has no outstanding natural gas hedges.

At December 31, 1999 collars were in place for portions of the
Company's oil production for October 1 through September 2000 at floors of
$18.00 and ceilings of $20.75 and $23.08. Contracted volumes total 50,200
barrels per month declining each month to 42,000 barrels. Beginning October 2000
through September 2001 the Company has two swaps in place at $17.55 and $18.05.
Contracted volumes total 41,350 barrels per month declining to 34,300 barrels
per month representing approximately 50% of the Company's projected oil
production.

Revenue was decreased under the above hedging agreements by
approximately $700,000 for the year ended December 31, 1999.

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<PAGE> 13

COMPETITION

The oil and gas industry is highly competitive. Major oil and gas
companies, independent concerns, drilling and production purchase programs and
individual producers and operators are active bidders for desirable oil and gas
properties, as well as the equipment and labor required to operate those
properties. Many competitors have financial resources substantially greater than
those of the Company. Many competitors also have substantially larger staffs and
facilities than those of the Company. The availability of a ready market for the
Company's oil and gas production depends in part on the cost and availability of
alternative fuels, the level of consumer demand, the extent of other domestic
production of oil and gas, the extent of importation of foreign oil and gas, the
cost of and proximity to pipelines and other transportation facilities,
regulations by state and federal authorities and the cost of complying with
applicable environmental regulations.

REGULATION

General. Domestic development, production and transportation of oil and
gas are extensively regulated at both the federal and state levels. Legislation
affecting the oil and gas industry is under constant review for amendment,
frequently increasing the regulatory burden on the industry. Also, numerous
departments and agencies, both federal and state, have issued rules and
regulations binding on the oil and gas industry and its individual members,
compliance with which is often difficult and costly and some of which carry
substantial penalties for noncompliance. The following discussion of oil and gas
industry regulation is summary in nature and is not intended to cover all
regulatory matters that could affect the Company.

State Regulation. State statutes and regulations require permits for
drilling operations and construction of gathering lines, as well as drilling
bonds and reports concerning operations, often creating delays in drilling,
completing new wells and connecting completed wells. Texas and other states in
which the Company conducts operations also have statutes and regulations
governing conservation matters, including regulation of the size of drilling and
spacing or proration units, the density of wells that may be drilled and the
unitization or pooling of oil and gas properties. In addition, state
conservation laws establish maximum rates of production from oil and gas wells,
generally prohibit the venting or flaring of gas and impose certain requirements
on the ratability of production. Many states including Texas also have
regulatory mechanisms that attempt to match monthly production to the market
demand for oil and gas. Certain existing statutes or regulations may set limits
below the rates at which oil and gas is currently produced from wells in which
the Company owns an interest or the prices received for its production.

Federal Regulation. Since the lifting of federal price controls in
1981, sales of crude oil, condensate and natural gas liquids can be made at
uncontrolled market prices. For many years, the sale and transportation of
natural gas in interstate commerce have been subject to regulation under various
federal laws, including the Natural Gas Act of 1938 ("NGA") and the Natural Gas
Policy Act of 1978 ("NGPA"), both of which are administered by the Federal
Energy Regulatory Commission ("FERC"). The provisions of these acts and
regulations are complex. Under these acts, producers and marketers have
historically been required to obtain from FERC certificates to make so called
"first sales" and abandonment authority to discontinue those sales.
Additionally, first sales have been subject to price regulations. However, as a
result of the enactment of the NGPA and the Natural Gas Wellhead Decontrol Act
of 1989, the remaining regulations imposed by the NGA and the NGPA on first
sales were terminated on January 1, 1993. Thus, sales of natural gas may
currently be made at uncontrolled market prices. FERC jurisdiction over
transportation and sales other than first sales has not been affected.

Commencing in the mid-1980s, FERC promulgated several orders designed
to enhance competition in natural gas markets by requiring that access to the
interstate transportation facilities necessary to reach those markets be
provided on an open nondiscriminatory basis. FERC has also adopted regulations
intended to make intrastate natural gas transportation

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<PAGE> 14

accessible to gas buyers and sellers on an open nondiscriminatory basis through
procedures under which intrastate pipelines may participate in certain
interstate activities without becoming subject to FERC's full NGPA jurisdiction.
These orders have had a profound influence upon natural gas markets in the
United States and, among other things, have fostered the development of a large
short term or spot market for gas. The most significant of these orders is Order
636.

FERC issued Order 636 in April 1992 to require further restructuring of
the sales and transportation services provided by interstate pipelines that
perform open access transportation. The changes were intended to improve the
competitive structure of the interstate natural gas pipeline industry and to
create a regulatory framework that put gas sellers into more direct contractual
relations with gas buyers. Order 636 required individual pipeline service
restructuring proceedings designed to "unbundle" the services provided by
interstate pipelines so that producers and purchasers of natural gas may secure
transportation and storage services from the most economical source, whether
interstate pipelines or other parties. These initiatives have substantially
reduced or eliminated the interstate pipelines' traditional role as wholesalers
of natural gas in favor of providing only natural gas storage and transportation
services.

Although Order 636 does not actually regulate gas producers, FERC has
stated that Order 636 is intended to foster increased competition within all
phases of the natural gas industry. It is unclear what impact, if any, increased
competition within the natural gas industry under Order 636 will have on the
Company as a producer. Furthermore, because the requirements of Order 636 are
still relatively new it is impossible to predict what effect, if any, Order 636
will have on the Company's gas marketing operations.

The increasing complexity of the energy regulatory environment has
prompted many producers, including the Company, to rely on highly specialized
experts for the conduct of gas marketing operations. The need for these
specialized services is expected to continue.

Energy Policy Act. The Energy Policy Act of 1992 (the "Energy Act") was
enacted to promote vehicle fuel efficiency and the development of renewable
energy sources such as hydroelectric, solar, wind and geothermal energy. Other
provisions of the Energy Act include initiatives for reducing restrictions on
certain natural gas imports and exports and for expanding and deregulating
natural gas markets. While these provisions could have a positive impact on the
Company's natural gas sales on a long-term basis, any positive impact could be
offset by measures promoting the use of alternative energy sources other than
natural gas. The impact of the Energy Act on the Company has not been material.

Environmental. The Company's activities are subject to various federal,
state and local laws and regulations designed to protect the environment. The
Company does not conduct activities offshore. Operations on the Company's
onshore properties may generally be liable for clean-up costs to the federal
government for up to $50 million for each discharge of oil or hazardous
substances under the Federal Clean Water Act, up to $350 million for each oil
discharge under the Oil Pollution Act of 1990 and for up to $50 million plus
response costs for hazardous substance contamination under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (Superfund).

Although no assurances can be made, the Company believes that, absent
the occurrence of an extraordinary event, compliance with existing federal,
state and local laws, rules and regulations regulating the release of materials
in the environment or otherwise relating to the protection of the environment
will not have a material effect upon the capital expenditures, earnings or the
competitive position of the Company with respect to its existing assets and
operations. The Company cannot predict what effect additional regulation or
legislation, enforcement policies thereunder, and claims for damages to
property, employees, other persons and the environment resulting from the
Company's operations could have on its activities.

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<PAGE> 15

Management believes that the Company is in compliance with current
applicable environmental laws and regulations and that continued compliance with
existing requirements will not have a material adverse impact on the Company.

EMPLOYEES

As of December 31, 1999 the Company had eighteen (18) full-time
employees all of whom are associated with the Company's oil and gas activities.
The Company also contracts with various independent contractors for accounting,
engineering, land research and fieldwork.

RISK FACTORS

VOLATILITY OF OIL AND GAS PRICES; MARKETABILITY OF PRODUCTION. The
Company's revenues, profitability and future growth and the carrying value of
its oil and gas properties are substantially dependent on prevailing prices of
oil and gas. The Company's ability to maintain or increase its borrowing
capacity and to obtain additional capital on attractive terms is also
substantially dependent upon oil and gas prices. Prices for oil and gas are
subject to large fluctuations in response to relatively minor changes in the
supply of and demand for oil and gas, market uncertainty and a variety of
additional factors beyond the control of the Company. Any substantial and
extended decline in the price of oil or gas would have an adverse effect on the
Company's carrying value of its proved reserves, borrowing capacity, revenues,
profitability and cash flows from operations.

Volatile oil and gas prices make it difficult to estimate the value of
producing properties for acquisition and often cause disruption in the market
for oil and gas producing properties, as buyers and sellers have difficulty
agreeing on such value. Price volatility also makes it difficult to budget for
and project the return on acquisitions and development and exploitation
projects.

In addition, the marketability of the Company's production depends upon
the availability and capacity of gas gathering systems, pipelines and processing
facilities. Federal and state regulation of oil and gas production and
transportation, general economic conditions and changes in supply and demand all
could adversely affect the Company's ability to produce and market its oil and
natural gas. If market factors were to change dramatically, the financial impact
on the Company could be substantial. The availability of markets and the
volatility of product prices are beyond the control of the Company and represent
a significant risk.

RISKS OF EXPLORATION AND DEVELOPMENT. Exploration and drilling
activities are generally considered to be of a higher risk than acquisitions of
producing oil and gas properties. Additionally, certain of the Company's wells
seek to discover deposits of gas at deep formations and have more risk than
wells seeking to develop hydrocarbons from shallow formations. No assurances can
be made that the Company will discover oil and gas in commercial quantities in
its exploration and development operations. Expenditure of a material amount of
funds in exploration for oil and gas without discovery of commercial quantities
of reserves will have a material adverse effect upon the Company.

OPERATING HAZARDS AND UNINSURED RISKS. The Company's operations are
subject to risks inherent in the oil and gas industry, such as blowouts,
cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires,
pollution and other environmental risks. These risks could result in substantial
losses to the Company due to injury and loss of life, severe damage to and
destruction of property and equipment, pollution and other environmental damage
and suspension of operations.

The Company maintains insurance of various types to cover its
operations, including comprehensive general liability. Amounts in excess of base
coverages are provided by an

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<PAGE> 16

umbrella liability policy. In addition, the Company maintains operator's extra
expense coverage, which provides coverage for the control of wells drilled
and/or producing and redrilling expenses and pollution coverage for wells out of
control.

No assurances can be given that the Company will be able to maintain
adequate insurance in the future at rates the Company considers reasonable. The
occurrence of a significant event not fully insured or indemnified against could
materially and adversely affect the Company's financial condition and results of
operations.

ESTIMATES OF OIL AND GAS RESERVES. This document contains estimates of
oil and gas reserves, and the future net cash flows attributable to those
reserves, prepared by T.J. Smith & Company, Inc., independent petroleum and
geological engineers (the "Reserve Engineers"). There are numerous uncertainties
inherent in estimating quantities of proved reserves and cash flows attributable
to such reserves, including factors beyond the control of the Company and the
Reserve Engineers. Reserve engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
manner. The accuracy of an estimate of quantities of reserves, or of cash flows
attributable to such reserves, is a function of the available data, assumptions
regarding future oil and gas prices and expenditures for future development and
exploitation activities, and of engineering and geological interpretation and
judgment. Additionally, reserves and future cash flows may be subject to
material downward or upward revisions, based upon production history,
development and exploitation activities and prices of oil and gas. Actual future
production, revenue, taxes, development expenditures, operating expenses,
quantities of recoverable reserves and the value of cash flows from such
reserves may vary significantly from the assumptions and estimates set forth
herein. In addition, reserve engineers may make different estimates of reserves
and cash flows based on the same available data. In calculating reserves on a
BOE basis, gas was converted to an oil equivalent at the ratio of six Mcf of gas
to one Bbl of oil. While this ratio approximates the energy equivalency of gas
to oil on a Btu basis, it may not represent the relative prices received by the
Company on the sale of its oil and gas production.

The estimated quantities of proved reserves and the discounted present
value of future net cash flows attributable to estimated proved reserves set
forth in this document were prepared by the Reserve Engineers in accordance with
the rules of the Commission, and are not intended to represent the fair market
value of such reserves.

ABILITY TO REPLACE RESERVES. The Company's future success depends upon
its ability to find, develop and acquire additional oil and gas reserves that
are economically recoverable. As is generally the case in the Gulf Coast region,
many of the Company's producing properties are characterized by a high initial
production rate, followed by a steep decline in production. As a result, the
Company must locate and develop or acquire new oil and gas reserves to replace
those being depleted by production. Without successful exploration or
acquisition activities, the Company's reserves and revenues will decline
rapidly. No assurances can be given that the Company will be able to find and
develop or acquire additional reserves at an acceptable cost.

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

SUBSTANTIAL CAPITAL REQUIREMENTS. The Company makes, and will continue
to make, substantial capital expenditures for the exploitation, exploration,
acquisition and production of oil

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<PAGE> 17

and gas reserves. Historically, the Company has financed these expenditures
primarily with cash generated by operations, proceeds from bank borrowings and
issuance of debt and equity securities. The Company believes that it will have
sufficient cash flows provided by operating activities, proceeds of equity
offerings and borrowings under its credit agreement to fund planned capital
expenditures. The Company makes solicited and unsolicited offers for the
acquisition of oil and gas properties in the normal course of business.

If revenues or the Company's borrowing base decrease as a result of
lower oil and gas prices, operating difficulties or declines in reserves, the
Company may have limited ability to expend the capital necessary to undertake or
complete future drilling programs. There can be no assurance that additional
debt or equity financing or cash generated by operations will be available to
meet these requirements.

HEDGING OF PRODUCTION. Part of the Company's business strategy is to
reduce its exposure to the volatility of oil and gas prices by hedging a portion
of its production. See "Item 1 and 2. Business and Properties--Oil and Gas
Marketing and Major Customers." In a typical hedge transaction, the Company will
have the right to receive from the counterparts to the hedge, the excess of the
fixed price specified in the hedge over a floating price based on a market
index, multiplied by the quantity hedged. If the floating price exceeds the
fixed price, the Company is required to pay the counterparts this difference
multiplied by the quantity hedged. The Company is required to pay the difference
between the floating price and the fixed price (when the floating price exceeds
the fixed price) regardless of whether the Company has sufficient production to
cover the quantities specified in the hedge. Significant reductions in
production at times when the floating price exceeds the fixed price could
require the Company to make payments under the hedge agreements even though such
payments are not offset by sales of production. Hedging will also prevent the
Company from receiving the full advantage of increases in oil or gas prices
above the fixed amount specified in the hedge.

ENVIRONMENTAL AND OTHER REGULATIONS. The Company's operations are
subject to numerous laws and regulations governing the discharge of materials
into the environment or otherwise relating to environmental protection. See
"Item 1 and 2. Business and Properties - Regulation." These laws and regulations
may require the acquisition of a permit before drilling commences, restrict the
types, quantities and concentration of various substances that can be released
into the environment in connection with drilling and production activities,
limit or prohibit drilling activities on certain lands lying within wilderness,
wetlands and other protected areas, require remedial measures to mitigate
pollution from former operations, such as plugging abandoned wells, and impose
substantial liabilities for pollution resulting from the Company's operations.
Moreover, the recent trend toward stricter standards in environmental
legislation and regulation is likely to continue. The enactment of stricter
legislation or the adoption of stricter regulation could have a significant
impact on the operating costs of the Company, as well as on the oil and gas
industry in general.

The Company's operations could result in liability for personal
injuries, property damage, oil spills, discharge of hazardous materials,
remediation and clean-up costs and other environmental damages. Moreover, the
Company could be liable for environmental damages caused by previous property
owners. As a result, substantial liabilities to third parties or governmental
entities may be incurred, the payment of which could have a material adverse
effect on the Company's financial condition and results of operations. The
Company maintains insurance coverage for its operations, including limited
coverage for sudden and accidental environmental damages, but does not believe
that insurance coverage for environmental damages that occur over time is
available at a reasonable cost. Moreover, the Company does not believe that
insurance coverage for the full potential liability that could be caused by
sudden and accidental environmental damages is available at a reasonable cost.
Accordingly, the Company may be subject to liability or may lose the privilege
to continue exploration or production activities upon substantial portions of
its properties in the event of certain environmental damages.

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<PAGE> 18

The Oil Pollution Act of 1990 imposes a variety of regulations on
"responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws or
regulations, including regulations promulgated pursuant to the Oil Pollution Act
of 1990, could have a material adverse impact on the Company.

MARKETS. The Company's ability to market oil and gas from its wells
depends upon numerous factors beyond the Company's control, including the extent
of domestic production and imports of oil and gas, the proximity of the gas
production to gas pipelines, the availability of capacity in such pipelines, the
demand for oil and gas by utilities and other end users, the availability of
alternative fuel sources, the effects of inclement weather, and state and
federal regulation of oil and gas production and federal regulation of gas sold
or transported in interstate commerce. No assurance can be given that the
Company will be able to market all of the oil or gas produced by the Company or
that favorable prices can be obtained for the oil and gas the Company produces.

In view of the many uncertainties affecting the supply and demand for
oil, gas and refined petroleum products, the Company is unable to predict future
oil and gas prices and demand or the overall effect such prices and demand will
have on the Company. Management does not believe that the loss of any of the
Company's oil purchasers would have a material adverse effect on the Company's
operations. Additionally, since substantially all of the Company's gas sales are
on the spot market, the loss of one or more gas purchasers should not materially
and adversely affect the Company's financial condition.

MINERAL HOLDINGS

The Company holds a variety of mineral interests, none of which is in
production. The Company intends to sell these holdings or, in the event that a
sale is not feasible, enter into sublease or joint venture arrangements with
third parties. Pending sale or such arrangements, the Company may drill and
trench to further delineate reserves on certain of the properties. The Company's
mineral holdings are not material to the Company's business.

EXECUTIVE OFFICES

The Company's principal executive offices, consisting of approximately
19,255 square feet of office space located at 700 Louisiana, Suite 3700,
Houston, Texas 77002, are rented from an unrelated party at a current rate of
$25,884 per month, under a lease expiring August 31, 2002.

- --------------------------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------

Neither the Company nor any of its property is subject to any material
pending legal proceeding.

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<PAGE> 19
- --------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------

No matters were submitted to a vote of the shareholders during the
fourth quarter of 1999.

PART II

- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------

The Company's Common Stock is traded in the over-the-counter market and
is quoted on the OTC Electronic Bulletin Board of the National Association of
Securities Dealers, Inc. under the symbol "BARG". The following table sets forth
the high and low bid quotations for the Company's Common Stock as reported on
the OTC Bulletin Board for the periods indicated, based on interdealer bid
quotations, without markup, markdown, commissions or adjustments (which may not
reflect actual transactions). The Company's Common Stock has traded on a very
limited basis during the preceding three years.

<TABLE>
<CAPTION>
Bid Quotation
----------------------
High Low
--------- ---------
1999
- ----
<S> <C> <C>
Quarter ended March 31 $ 0.510 $ 0.260
Quarter ended June 30 $ 0.468 $ 0.220
Quarter ended September 30 $ 0.687 $ 0.156
Quarter ended December 31 $ 0.687 $ 0.250

1998
- ----
Quarter ended March 31 $ 0.625 $ 0.312
Quarter ended June 30 $ 0.687 $ 0.437
Quarter ended September 30 $ 0.531 $ 0.343
Quarter ended December 31 $ 0.406 $ 0.260
</TABLE>

As of March 3, 2000, the Company's Stock was quoted on the OTC
Electronic Bulletin Board at a closing bid of $2.875.

On March 3, 2000, the Company had approximately 990 shareholders.

The Company has not paid dividends on the Common Stock and intends to
retain its cash flow from operations, net of preferred stock dividends, for the
future operation and development of its business. In addition, the Company's
primary credit facility and the terms of the outstanding preferred stock
restrict payments of dividends on its Common Stock.

The Company has not paid dividends on the Preferred Stock and does not
anticipate paying any in the future.

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<PAGE> 20

UNREGISTERED SALES OF SECURITIES

During the three years ending December 31,1999 the Company sold
securities without registration under the Securities Act of 1933 (the
"Securities Act") in the following transactions:

On April 26, 1999, Future Petroleum Corporation, a Utah corporation
("Future"), merged into Bargo, with Bargo as the surviving corporation. As of
that date, each of the 22,320,066 shares of common stock of Future outstanding
were converted into one share of Bargo's common stock and each of the 100,000
shares of preferred stock of Future outstanding were converted into one share of
Bargo preferred stock. Since the sole purpose of this transaction was to change
the state of incorporation of Future, under Rule 145 promulgated under the
Securities Act of 1933, this transaction was not subject to registration.

On May 14, 1999, the Company issued and sold to Kayne Anderson Energy
Fund, L.P. ("Kayne"), BancAmerica Capital Investors SBIC I, L.P.
("BancAmerica"), Eos Partners, L.P., Eos Partners SBIC, L.P., Eos Partners SBIC
II, L.P. (collectively, "Eos"), Energy Capital Investment Company PLC, EnCap
Energy Capital Fund III-B, L.P., BOCP Energy Partners, L.P., EnCap Energy
Capital Fund III, L.P. (collectively, "EnCap") and SGC Partners II LLC ("SGC"
and together with Kayne, BancAmerica, Eos, EnCap and SGC, the "Investors")
shares of a newly created class of preferred stock. Five million shares of the
Company's Cumulative Redeemable Preferred Stock, Series B ("Preferred Stock")
were issued in exchange for an aggregate purchase price of $50 million. As
additional consideration, the Company issued an aggregate of 43,815,810 shares
of its common stock to the Investors equal to 40% of the outstanding common
stock (on a fully diluted basis).

In February 1999, the Company issued 37,720 shares of common stock
pursuant to previously granted stock options at an exercise price of $.267

In May 1998, the Company issued 150,000 shares of common stock to NCI
Enterprises, Inc. for the acquisition of an interest in the Shawnee Townsite
Unit, valued at $37,500. In conjunction with this transaction, the Company
issued 31,238 common shares to EnCap Equity 1994 and 18,762 shares to Energy
Capital Investment Company PLC valued at $7,809.50 and $4,690.50, respectively.

In July 1998, the Company issued 110,000 shares of common stock
pursuant to previously granted stock options at an exercise price of $.53125.

In August 1998, the Company acquired certain producing properties from
BER Partnership, Ltd. for $5.8 million, 4.7 million shares of common stock and a
warrant for 250,000 shares of common stock and the EnCap entities agreed to
modify and extend their outstanding loans in exchange for 2.8 million shares of
common stock. In conjunction with an employment agreement entered into as part
of this transaction, B. Carl Price was issued 350,000 options to purchase common
stock.

In October 1998, the Company acquired an additional interest in the
Shawnee Townsite Unit and acquired an interest in the Gin Unit from NCI
Reserves, Ltd., Southwest Sulfur & Oil, Inc., Wayne Newkumet, and Castello
Enterprises, Inc. for 280,000 shares of common stock.

In December 1998, the Company acquired substantially all of the assets
and liabilities of BER Partnership, Ltd. for $2 million and 100,000 shares of
preferred stock.

In December 1998, the Company issued an aggregate of 8,333,333 shares
of common stock to BEC Partnership and TJG Investments, Inc. in exchange for the
cancellation of outstanding debt aggregating $4 million.

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<PAGE> 21

In November 1997, the Company acquired certain producing properties and
partnership interests for $6.6 million and 1,575,000 shares of restricted common
stock.

During 1997, 1998 and 1999, the Company granted stock options to
various employees.

The securities issued in the transactions described above (other than
the reincorporation) were issued in reliance on the exemption from the
registration and prospectus delivery requirements of the Securities Act provided
in Section 4(2) thereof. Each purchaser was provided with business and financial
information respecting the Company and was provided with the opportunity to
obtain additional information in order to verify the information provided or to
further inform themselves with respect to the Company. Each of the persons
acquiring such securities acknowledged in writing that such person was obtaining
"restricted securities" as defined in rule 144 under the Securities Act; that
such shares could not be transferred without registration or an available
exemption there from; that such person must bear the economic risk of the
investment for an indefinite period; and that the Company would restrict the
transfer of the securities in accordance with such representations. Such persons
also agreed that any certificates representing such shares would be stamped with
a restrictive legend covering the transfer of such shares. The certificates
representing the foregoing shares bear an appropriate restrictive legend
conspicuously on their face, and stop transfer instructions are noted on the
Company's stock transfer records.

- --------------------------------------------------------------------------------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
- --------------------------------------------------------------------------------

GENERAL

The Company's revenues, profitability and future growth and the
carrying value of its oil and gas properties are substantially dependent on
prevailing prices of oil and gas and its ability to find, develop and acquire
additional oil and gas reserves that are economically recoverable. The Company's
ability to maintain or increase its borrowing capacity and to obtain additional
capital on attractive terms is also influenced by oil and gas prices.

Prices for oil and gas are subject to large fluctuations in response to
relatively minor changes in the supply of and demand for oil and gas, market
uncertainty and a variety of additional factors beyond the control of the
Company. These factors include weather conditions in the United States, the
condition of the United States economy, the actions of the Organization of
Petroleum Exporting Countries, governmental regulation, political stability in
the Middle East and elsewhere, the foreign supply of crude oil and natural gas,
the price of foreign imports and the availability of alternate fuel sources. Any
substantial and extended decline in the price of crude oil or natural gas would
have an adverse effect on the Company's carrying value of its proved reserves,
borrowing capacity, revenues, profitability and cash flows from operations.

The Company uses the full cost method of accounting for the Company's
investment in oil and gas properties. Under the full cost method of accounting,
all costs of acquisition, exploration and development of oil and gas reserves
are capitalized into a "full cost pool." Oil and gas properties in the pool,
plus estimated future expenditures to develop proved reserves and future
abandonment, site remediation and dismantlement costs, are depleted and charged
to operations using the unit of production method based on the portion of
current production to total estimated proved recoverable oil and gas reserves.
To the extent that such capitalized cost (net of depreciation, depletion and
amortization) exceed the discounted future net cash flows on an after-tax basis
of estimated proved oil and gas reserves, such excess costs are charged to
operations.

21
<PAGE> 22

Once incurred, the write down of oil and gas properties is not reversible at a
later date even if oil or natural gas prices increase.

The Company does not have a specific acquisition budget because of the
unpredictability of the timing and size of forthcoming acquisition activities.
There is no assurance that the Company will be able to identify suitable
acquisition candidates in the future, or that the Company will be successful in
the acquisition of producing properties. In order to finance any possible future
acquisitions, the Company will either use borrowings available under its credit
facility or the Company may seek to obtain additional debt or equity financing
in the public or private capital markets. Further, there can be no assurances
that any future acquisitions made by the Company will be integrated successfully
into the Company's operations or will achieve desired profitability objectives.

In June 1998 the Financial Accounting Standards Board issued SFAS 133
"Accounting for Derivative Instruments and Hedging Activities". This standard is
effective for fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company). SFAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The Company has not yet completed
its evaluation of the impact of the adoption of this new standard.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of capital are its cash flows from
operations, borrowings and issuance of debt and equity securities.

The Company reported net income of $663,000 for the year ended December
31, 1999 compared to net income of $1,408,000 for the year ended December 31,
1998. At December 31, 1999, the Company had working capital of $5,516,000 which
was a $13,550,000 increase from the negative $8,034,000 working capital that the
Company had as of December 31, 1998. This increase in working capital was
primarily a result of the Company amending and restating its credit facility on
September 30, 1999 whereby the terms of the agreement changed from a one-year
revolver (which converted to a term loan) to a straight three-year revolver. In
addition, the Company's working capital has increased as a result of the
property acquisitions referred to above.

Effective August 14, 1998, the Company entered into a credit agreement
with Bank of America ("Credit Agreement"). Borrowings under the Credit Agreement
are secured by mortgages covering substantially all of the Company's producing
oil and gas properties as well as by certain pledges of the Company's Common
Stock. The Credit Agreement initially provided for a commitment amount of $20
million and a $10.5 million borrowing base ("Borrowing Base"). This Credit
Agreement was amended and increased to $27.5 million on November 15, 1998. In
December 1998, the Company amended and restated the Credit Agreement to increase
the commitment amount to $50 million subject to a borrowing base as determined
by Bank of America on an acquisition by acquisition basis.

On September 30, 1999 the Company amended and restated the Credit
Agreement to increase the commitment from Bank of America and two additional
banks to $100 million. The three-year revolver has a current borrowing base of
$55 million.

The Company has a choice of two different interest rates: the Base Rate
or the LIBO Rate. The debt bears interest under the Base Rate (which is the
higher of the lender's "Prime Rate" or the Federal Funds Rate plus .5%) plus an
applicable margin of .75%. The debt bears interest under the LIBO Rate at the
LIBO rate (reserve adjusted) plus 1.75%. The Company may

22
<PAGE> 23

convert any portion of the outstanding debt from one interest rate type to
another in increments of $500,000 with a minimum transfer amount of $1,000,000.
Borrowings under the Credit Agreement were $20,780,000 as of December 31, 1999.

CASH FLOW TO OPERATING ACTIVITIES

Operating activities of the Company during 1999 provided net cash of
$2,361,000. The Company acquired oil and gas properties totaling $27,900,000 in
1999 (the East Texas acquisition and Raccoon Bend acquisition). Investing
activities in 1999 used net cash of $27,999,000, primarily due to the
acquisitions referred to above. Financing activities in 1999 provided net cash
of $26,772,000 primarily due to the $50 million in gross proceeds from the
issuance of redeemable preferred stock in May 1999, which was reduced by the
repayment of debt.

Operating activities of the Company during 1998 provided net cash of
$350,000. The Company acquired oil and gas properties totaling $29,857,000 in
1998 with the majority of these acquisitions occurring in the 4th quarter of the
year. Investing activities in 1998 used net cash of $31,692,000, primarily due
to the acquisition of these oil and gas properties. Financing activities in 1998
provided net cash of $32,290,000 primarily due to proceeds from the issuance of
debt.

RESULTS OF OPERATIONS

Comparison of Years Ended December 31, 1999 and 1998

Total revenues in 1999 increased to $19,134,000 from $3,679,000 in
1998, primarily due to increased production as a result of the acquisitions the
Company made in 1999 and late in the fourth quarter of 1998. Production costs
increased to $7,685,000 for 1999 from $1,826,000 in 1998 as a result of these
acquisitions. Production and operating costs increased $.25 per BOE, or 4%, to
$6.13 per BOE for 1999, from $5.88, per BOE for 1998. General and administrative
expenses increased to $3,659,000 from $783,000 in 1998 due to increased overhead
associated with the Company's acquisition activities. The Company had net income
of $663,000 in 1999 compared to net income of $1,408,000 in 1998. The Company's
net income before extraordinary items for 1999 is $663,000, which is an increase
of $1,841,000 compared to the net loss before extraordinary items of $1,178,000
in 1998. This increase is attributable to increased production from
acquisitions.

INFLATION

The Company's activities have not been, and in the near term are not
expected to be, materially affected by inflation. The Company's oil exploration
and production activities are generally affected by prevailing prices for oil,
however.

23
<PAGE> 24
- --------------------------------------------------------------------------------
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------

The table of contents of the financial statements and supplementary
data included in this report is contained in "ITEM 13. EXHIBITS AND REPORTS ON
FORM 8-K".

- --------------------------------------------------------------------------------
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------

None

PART III

- --------------------------------------------------------------------------------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
- --------------------------------------------------------------------------------

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth the name, age and position of each
executive officer and director of the Company.

<TABLE>
<CAPTION>
Director
Term
Name Age Position Expires
---- --- -------- -------
<S> <C> <C> <C>
Tim J. Goff 41 Chairman of the Board, Chief
Executive Officer 2002
Jonathan M. Clarkson 49 President, Chief Operating
Officer **
Thomas D. Barrow 53 Director 2001
D. Martin Phillips 46 Director 2001
Gary R. Petersen 53 Director 2002
J. Travis Hain 40 Director **
Daniel M. Weingeist 36 Director **
Brian D. Young 46 Director **
V. Frank Pottow 36 Director **
</TABLE>

** Serves until the next annual meeting of shareholders.

24
<PAGE> 25

In August 1999, the Board of Directors increased the size of the Board
from seven to eight members and appointed Jonathan M. Clarkson as a director.
Mr. Clarkson was also appointed President and Chief Operating Officer of the
Company at that time. In November 1999, the Board of Directors appointed Mr.
Frank Pottow as a director, increasing the size of the Board to nine members.
Mr. Pottow is the Managing Director of SGC Partners II, L.L.C., a stockholder of
the Company. In connection with the appointment of Mr. Clarkson and Mr. Pottow
to the Board of Directors, the Shareholders Agreement among the Company and
certain stockholders of the Company was amended to provide that Mr. Clarkson
would be appointed to the Board of Directors and that Mr. Pottow would be
appointed as a representative of SGC Partners.

Officers serve at the pleasure of the board of directors. Biographical
information for each of the executive officers and directors is presented below.

TIM J. GOFF

Mr. Goff was appointed as Chairman of the Board of Directors in August
of 1998 and served as President and Chief Executive Officer from December 1998
until September 1999 when Jonathan M. Clarkson joined the Company as President
and Chief Operating Officer. Mr. Goff has over 18 years of oil and gas industry
experience. Prior to his present position with Future, Mr. Goff was Managing
Principal and Chief Executive Officer of Bargo Energy Company ("Bargo"), which
was formed in 1993 to acquire oil and gas properties. In the five years he ran
Bargo, Mr. Goff acquired more than $100 million of oil and gas properties. Prior
to forming Bargo, Mr. Goff served as Vice President of Special Projects and
Assistant to the Chairman of the Board and CEO of Torch Energy Advisors, Inc. He
holds a Bachelor of Business Administration Degree in Accounting from Central
Arkansas University.

JONATHAN M. CLARKSON

Mr. Clarkson joined Bargo in September 1999 as President and Chief
Operating Officer. Mr. Clarkson has over 20 years of oil and gas industry
experience. Prior to joining the Company Mr. Clarkson was the Executive Vice
President and Chief Financial Officer of Ocean Energy, Inc. He had served as
Senior Vice President and Chief Financial Officer since October 1989 and from
May 1987 to September 1989, Mr. Clarkson was Ocean's Vice President and
Treasurer. Prior to joining Ocean, Mr. Clarkson served as Senior Vice President
of InterFirst Bank, Dallas, managing commercial lending functions in the Energy
and U.S. Corporate Divisions. Mr. Clarkson received a bachelor of science in
economics from Southern Methodist University and a master of management degree
(MBA) in finance and accounting from the J.L. Kellogg Graduate School of
Management - Northwestern University.

THOMAS D. BARROW

Thomas D. Barrow has been a director of the Company since August 1998.
Mr. Barrow has over 24 years of oil and gas industry experience. Mr. Barrow was
Managing Principal of Bargo since its formation in 1993. Prior to forming Bargo
with Mr. Goff, he was co-founder and President of Barrow Energy Company, and B&N
Petroleum, Inc., and currently serves as a Director of Nuevo Energy Company, a
New York Stock Exchange listed company.

25
<PAGE> 26

D. MARTIN PHILLIPS

D. Martin Phillips has been a director of the Company since August
1998. Mr. Phillips is a Managing Director and principal of EnCap Investments
L.C. which is a funds management and investment banking firm which focuses
exclusively on the oil and gas industry. Prior to joining EnCap, Mr. Phillips
served as Senior Vice President in the Energy Banking Group of NCNB Texas
National Bank in Dallas, Texas. He has over 20 years of experience in energy
banking. Mr. Phillips also serves as a Director of Breitburn Energy Company LLC
and is on the board of the Houston Producers' Forum.

GARY R. PETERSEN

Gary R. Petersen has been a director of the Company since August 1998.
Mr. Petersen is a co-founder and principal of EnCap Investments L.C. with over
25 years of energy experience. EnCap Investments specializes in procuring and
managing institutional capital and providing merchant/investment banking
services for exploration and production companies. Mr. Petersen had previously
served as Senior Vice President and Manager of the Corporate Finance Division of
the Energy Banking Group for Republic Bank Corporation in Houston, Texas. He
holds B.B.A. and M.B.A. degrees in finance from Texas Tech University and has
done post graduate studies at American University in Washington D.C. and the
Stonier Graduate School of Banking at Rutgers University. He is also a member of
the Board of Directors of Nuevo Energy Inc., Belden & Blake Energy Company,
Energy Capital Investment Company and Equus II, Inc.

J. TRAVIS HAIN

J. Travis Hain has been a director of the Company since May 1999. Mr.
Hain is Managing Director of Bank of America Capital Investors (formerly
NationsBank Capital Investors, a merchant banking unit of Bank of America
Corporation) where in 1992 he founded the Mezzanine Finance Group to make equity
and mezzanine investments on behalf of certain banking subsidiaries. Prior to
joining the bank in 1985, Mr. Hain worked at Manufacturers Hanover Trust. He has
over 5 years of experience in energy banking. Mr. Hain serves on the boards of
directors of FlexSol Holding Corp., Medical Analysis Systems, Inc., Rex
International, Inc. and Tepco Energy Resources, Inc. and the board of managers
of Titan Towers, L.L.C.

DANIEL M. WEINGEIST

Daniel M. Weingeist has been a director since May 1999. Mr. Weingeist
is Managing Director, Energy Investments, of Kayne Anderson Investment
Management, a registered investment advisor based in Los Angeles. He opened
Kayne Anderson's Houston office in August, 1999 to focus on identifying
investment opportunities as part of Kayne Anderson's focus on energy
transactions. Prior to joining Kayne Anderson, Mr. Weingeist was a Managing
Director and Principal at Torch Energy Advisors, a Houston-based company that
provides capital and specialized outsourcing services. Prior to that he served
as Vice President with EnCap Investments and as a Reservoir Engineer with Exxon.
He holds a B.S. Petroleum Engineering and M.B.A. from the University of Texas

BRIAN D. YOUNG

Brian D. Young was elected a director of the Company in May 1999. He
has been a General partner of Eos Partners, L.P. (investment partnership) since
January 1994. He is also a director of GSE Lining Technologies, Inc. and Black
Box Corporation.

26
<PAGE> 27

V. FRANK POTTOW

V. Frank Pottow was elected a director of the Company in November 1999.
He is a Managing Director of SG Capital partners, the North American merchant
banking affiliate of French bank Societe Generale, since 1997. From 1996 to 1997
he was a Managing Director of Thayer Capital Partners, a leveraged buyout fund
based in Washington, DC. From 1992 to 1996 he was a Principal of Odyssey
Partners L.P., a private investment partnership with over $2 billion of capital
under management. Mr. Pottow received a Masters of Business Administration
Degree from Harvard Business School and a Bachelor of Science Degree in
Economics from The Wharton School of Business. Mr. Pottow has been a director of
many private and public companies, including Archer Resources Ltd., Canrise
Resources Ltd., Hugoton Energy Corporation, IPEC Ltd., and Locksley Capital
Partners Inc. He currently serves as a director of Ballard Petroleum LLC and
Macassa Capital Corporation.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company during or respecting its last fiscal year, except as
described below, no person who, at any time during the most recent fiscal year
was a director, officer, beneficial owner of more than 10% of any class of
equity securities of the Company or any other person known to be subject to
Section 16 of the Exchange Act failed to file on a timely basis reports required
by Section 16(a) of the Exchange Act.

Mr. Frank Pottow filed his individual report on Form 3 late.

- --------------------------------------------------------------------------------
ITEM 10. EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------

EXECUTIVE OFFICER COMPENSATION

The following table sets forth, for the time periods indicated, cash
compensation received by persons serving as executive officers of the Company
during the last preceding fiscal year as well as cash compensation received by
the next two most highly compensated employees of the Company. No other
executive officer was paid a salary and bonus that exceeded $100,000 for the
most recent fiscal year.

27
<PAGE> 28

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------------------
Annual Compensation Awards Payouts
- -----------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All Other
Annual Restricted Underlying Compen-
Year Compen- Stock Options/ LTIP sation
Name and Principal Ended Salary Bonus sation Award(s) SARs Payouts
Position Dec. 31 ($) ($) ($) (#) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tim J. Goff,
Chairman & CEO 1999 $250,000 $50,000 $ -- -- 5,654,641(4) -- $4,800(3)
Director 1998 $ 25,000(1)

Jonathan M. Clarkson,
President & COO,
Director 1999 $ 66,666(2) $ -- $ -- -- 5,000,000(5) -- $2,667(3)

Thomas D. Worley
Vice President - Corp Dev.(7) 1999 $125,000 $25,000 $88,670(6) -- 2,375,039(6) -- $3,750(3)

Joseph G. Nicknish 1999 $125,000 $25,000 $88,670(6) -- 2,375,039(6) -- $3,750(3)
Vice President - Engineering(8)
</TABLE>

(1) Tim J. Goff became CEO and President of the Company on December 15,
1998.

(2) On September 1, 1999, Jonathan M. Clarkson became President and COO of
the Company.

(3) Represents Bargo's matching contributions under Bargo's Retirement
Savings Plan.

(4) On May 12, 1999, the Company granted to Tim J. Goff 10 year options
which vest over a three year period from the date of grant under the
Company's 1999 Stock Incentive Plan. These options have an exercise
price of $.10 per share, based on the approximate market price (as
determined by the Company's Board of Directors) of the Company's common
stock on the date of grant.

(5) On September 1, 1999, the Company granted to Jonathan M. Clarkson 10
year options which vest over a three year period from the date of grant
under the Company's 1999 Stock Incentive Plan. These options have an
exercise price of $.25 per share, based on the approximate market price
(as determined by the Company's Board of Directors) of the Company's
common stock on the date of grant.

(6) On May 12, 1999, the Company granted to Thomas D. Worley and Joseph G.
Nicknish 1,903,729 ten year options which vest over a three year period
from the date of grant under the Company's 1999 Stock Incentive Plan.
These options have an exercise price of $.10 per share, based on the
approximate market price (as determined by the Company's Board of
Directors) of the Company's common stock on the date of grant. In
addition, in December 1999, in exchange for $3,902 818 shares, the
Company assumed liabilities for stock to be assigned to the former
employees of BER, BEC and TJG. The obligation was extinguished when
Bargo issued options (which were vested immediately) for the shares
previously due to be assigned to these employees. Thomas D. Worley and
Joseph G. Nicknish each received 652,269 of these fully vested ten year
options which are exercisable six months from the date of grant. These
options have an exercise price of $.01 per share. The Company
repurchased 180,959 of the fully vested $.01 options from both Thomas
D. Worley and Joseph G. Nicknish for $.50 per share in December 1999.
See Note 6 of the Notes to Consolidated Financial Statements for
further discussion.

(7) Mr. Worley became an employee of the Company on December 15, 1998.

(8) Mr. Nicknish became an employee of the Company on December 15, 1998.

28
<PAGE> 29

The following table sets forth, for the last fiscal year, option grants
to the persons named in the Summary Compensation Table.

Option Grants in 1999
<TABLE>
<CAPTION>

Number of Percent of
Securities Total Options
Underlying Granted to Exercise Expiration
Name Options Granted Employees in 1999 Price (4) Date
---- --------------- ----------------- --------- ----
<S> <C> <C> <C> <C>
Tim J. Goff 5,654,641(1) 22.7% $0.10 May 12, 2009

Jonathan M. Clarkson
5,000,000(2) 20.1% $0.25 September 1, 2009

Thomas D. Worley 1,903,729(1) 7.6% $0.10 May 12, 2009
471,310(3) 1.9% $0.01 December 17, 2009

Joseph G. Nicknish 1,903,729(1) 7.6% $0.10 May 12, 2009
471,310(3) 1.9% $0.01 December 17, 2009
</TABLE>

(1) The options vest over a three year period from the date of grant (May 12,
1999).
(2) The options vest over a three year period from the date of grant (September
1, 1999).
(3) The options are exercisable in full six months from the date of grant
(December 17, 1999).
(4) Because the Company's common stock trades on a very limited basis, the
exercise price represents the approximate fair market price of the Company's
stock as determined by the Board of Directors on the date of grant.

AGGREGATE OPTION EXERCISES IN 1999 AND OPTION VALUES

The following table sets forth information respecting the exercise of
options during the fiscal year ended December 31, 1999, by executive officers
named in the Summary Compensation Table and the fiscal year end values of
unexercised options.

<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options
Options at FYE at FYE ($)(1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
Tim J. Goff -- -- --/5,654,641 $--/$1,374,078
Jonathan M. Clarkson -- -- --/5,000,000 $ --/$465,000
Thomas D. Worley -- -- --/2,375,039 $ --/$619,885
Joseph G. Nicknish -- -- --/2,375,039 $ --/$619,885
</TABLE>

(1) Based on the closing price of $.343 for the last trade of the year over the
OTC Bulletin Board on December 30, 1999.

29
<PAGE> 30

EMPLOYMENT AGREEMENTS, DEFERRED SALARY AND BENEFITS

On September 1, 1999, the Company entered into Change of Control
Agreements (the "Agreements") with Tim J. Goff and Jonathan M. Clarkson ("Bargo
Executives") providing for certain benefits to each Bargo Executive in the event
that a "change of control" occurs during the three-year period after the
execution of such agreement. Each Agreement is for a three-year term and is
automatically extended from year-to-year unless either party gives six months
prior notice of termination to the other party; provided that the term of each
Agreement shall be until the later of (i) two years following the date of a
Change of Control which occurs during the term of the Agreements and (ii) until
all of the obligations of the parties are satisfied.

Pursuant to the Agreements, if any Bargo Executive's employment with
the Company is terminated within 24 months following a change of control by (a)
the Company for cause or disability, (b) by reason of such executive's death or
(c) by such executive other than for good reason, Bargo will pay to such
executive in a single lump sum cash payment an amount equal to all amounts of
compensation, any unreimbursed expenses and any vacation pay that have been
earned or accrued through the date of such termination but have not been paid as
of such date ("Accrued Compensation"). If any Bargo Executive's employment with
the Company is terminated within 24 months following a change of control (or, in
certain cases, within six months prior to a change of control) for any reason
other than as set forth in the prior sentence, each such executive is entitled
to receive a single lump sum cash payment in an amount equal to the sum of (i)
his Accrued Compensation and (ii) an amount determined by multiplying 3.0 times
the executive's annual base salary in effect as of the date of the change of
control or, if greater, any time thereafter. Based on current compensation
levels, the total cash payments which could be incurred if the Bargo Executives
were terminated as a result of a change in control is $1.4 million.

The Agreements also provide that all stock options held by the Bargo
Executives shall automatically become fully exercisable notwithstanding any
vesting or exercisability provisions.

The Agreements also provide that if any payments to one of the Bargo
Executives will be subject to any excise tax under Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), a "gross-up" payment will be made
to place such executive in the same net after-tax position as would have been
the case if no excise tax had been payable.

STOCK OPTION AND AWARD PLAN

The Company has adopted, and the shareholders have approved, a 1993
Employee Incentive Plan (the "Plan") intended to advance the interests of the
Company by attracting competent executive personnel and other employees,
ensuring the retention of the services of existing executive personnel and
employees, and providing incentives to all of such personnel to devote the
utmost effort and skill to the advancement and betterment of the Company by
permitting them to participate in the ownership of the Company and thereby
permitting them to share in increases in the value of the Company which they
will help to produce.

The Plan is administered by the board of directors or a committee
appointed from time to time by the board of directors. Under the Plan, the board
or duly appointed committee may grant stock options, which may be incentive
stock options ("ISOs") as defined in the Internal Revenue Code (the "Code"), or
options which do not qualify as ISOs, to directors and employees of the Company
who, in the opinion of the board or committee, are expected to contribute
materially to the Company's success in the future. All employees of the Company
are eligible to participate in the Plan. A maximum of 800,000 shares, subject to
adjustment for certain events of dilution, are available for grant under the
Plan, provided, however, that in no event may the aggregate fair

30
<PAGE> 31

market value of shares of the Company's common stock with respect to which ISO
is exercisable for the first time in any calendar year exceed $100,000.

The exercise price of options granted under the Plan may not be less
than 100% of the fair market value of the Company common stock on the date the
option is granted in the case of ISOs (110% of the fair market value in the case
of 10% stockholders). All ISOs granted under the Plan shall expire not later
than ten years from the date of grant (5 years in the case of ISOs granted to
10% stockholders), and all nonqualified options shall expire at such date as the
board or a duly appointed committee shall determine. The option price may be
paid by cash or, at the discretion of the board or a duly appointed committee,
by delivery of common stock or options already owned by the optionee (valued at
their fair market value at the date of exercise), or a combination thereof.

The aggregate number of shares of common stock with respect to which
options may be granted under the Plan, the number of shares thereof covered by
each outstanding option, and the purchase price per share thereof in each such
option, shall be adjusted for any increase or decrease in the number of issued
shares of common stock of the Company resulting from a recapitalization,
reorganization, merger, consolidation, exchange of shares, stock dividend, stock
split, reverse stock split, or other subdivision or consolidation of shares or
other increase or decrease in such shares effected without receipt by the
Company of consideration approved by the board of directors of the Company (an
"Event of Dilution"), in amounts to prevent substantial dilution or enlargement
of rights granted to or available for eligible employees. In the case of an ISO,
the ratio of the option price to the fair market value of the stock subject to
the option immediately after the change must not be more favorable to the
optionee on a share by share comparison than the ratio of the old option price
to the fair market value of the stock subject to the option immediately before
such transaction. All such adjustments shall be made by the board or a duly
appointed committee, whose good faith determination shall be binding absent
manifest error.

The board of directors of the Company may from time to time alter,
amend, suspend, or discontinue the Plan with respect to any shares of common
stock as to which options have not been granted. However, no such alteration or
amendment (unless approved by the stockholders) shall (a) increase (except in
the case of an Event of Dilution) the maximum number of shares for which options
may be granted under the Plan either in the aggregate or to any eligible
employee; (b) reduce (except in the case of an Event of Dilution) the minimum
option prices which may be established under the Plan; (c) extend the period or
periods during which options may be granted or exercised; (d) materially modify
the requirements as to eligibility for participation in the Plan; (e) change the
provisions of the preceding paragraph relating to Events of Dilution; or (f)
materially increase the benefits accruing to the eligible employees under the
Plan.

On June 6, 1998 the shareholders of the Company approved an amendment
to the 1993 Employee Incentive Plan increasing the number of authorized shares
that may be granted under the Plan from 800,000 to 1,600,000 shares. An
important element of the Company's compensation program is the award of stock
options. The increase in the total number of shares that may be granted under
the Plan was made to ensure that select employees maintain a sufficient equity
interest in the Company as stock is issued in connection with the acquisition of
additional oil and gas interests of the Company and for other reasons. All other
provisions of the Plan remain unchanged.

In May 1999 the Board of Directors adopted the 1999 Stock Incentive
Plan which provides for stock options to be granted to employees with exercise
prices not less than the fair market value of the underlying common stock. These
options will have a term of 10 years from the date of grant and will vest over a
three year period from the date of grant. During the year ended December 31,
1999 approximately 26 million options were granted under this plan to employees
of the company at exercise prices ranging from $.01 to $.50 per share.

31
<PAGE> 32
- --------------------------------------------------------------------------------
ITEM 11. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------

The following table sets forth information with respect to the
ownership of shares of Common Stock and Preferred Stock as of January 31, 2000,
by (i) each director and executive officer of the Company, (ii) all executive
officers and directors of the Company as a group and (iii) each person known by
the Company to own beneficially more than 5% of the outstanding shares of Common
Stock or Preferred Stock. To the Company's knowledge, the persons indicated
below have sole voting and investment power with respect to the shares indicated
as owned by them, except as otherwise stated. The address for each director and
beneficial owner of more than 5% of the outstanding shares of Common Stock is
700 Louisiana, Suite 3700, Houston, Texas 77002, unless otherwise indicated.

<TABLE>
<CAPTION>
COMMON STOCK(1) PREFERRED STOCK(1)
------------------------------------------ ---------------------------------
PERCENT OF PERCENT OF
NAME OF BENEFICIAL OWNER AMOUNT CLASS AMOUNT CLASS
- ------------------------------------ --------------------- ------------------- --------------- ----------------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Thomas D. Barrow(2) 11,331,958 12.9% -- --
Jonathan M. Clarkson -- -- -- --
Tim J. Goff(5) 17,792,040 20.2% -- --
J. Travis Hain(7) -- -- -- --
Gary R. Petersen(4) -- -- -- --
D. Martin Phillips(4) -- -- -- --
V. Frank Pottow(10) -- -- -- --
Daniel M. Weingeist(8) -- -- -- --
Brian D. Young(9) 4,381,581 4.9% 500,000 10.0%

Common Stock owned by
All directors and executive
Officers as a group(9 persons) 33,505,579 38.1% 500,000 10.0%

5% STOCKHOLDERS:
Encap Energy Capital
Fund III, L.P.(3) 5,583,755 6.3% 637,185 12.7%
EnCap Equity 1994, L.P.(3) 2,424,973 2.7% -- --
EnCap Energy Capital Fund
III-B L.P.(3) 4,222,999 4.8% 481,904 9.6%
BOCP Partners, L.P.(3) 1,366,277 1.5% 155,911 3.1%
Energy Capital Investment
Co., PLC(3) 4,241,598 4.8% 225,000 4.5%
BancAmerica Capital
Investors SBIC I, L.P.(7) 13,144,743 14.9% 1,500,000 30.0%
Kayne Anderson Energy, LP(8) 8,763,162 9.9% 1,000,000 20.0%
SGC Partners II, LLC(10) 4,381,581 4.9% 500,000 10.0%
EOS Partners SBIC, L.P.(9) 3,417,633 3.8% 390,000 7.8%
EOS Partners SBIC II, L.P.(9) 638,329 0.7% 72,500 1.4%
EOS Partners, L.P.(9) 328,619 0.3% 37,500 0.8%
BEC Partnership(11) 6,370,500 7.2% -- --
James E. Sowell(6) 9,208,458 10.4% -- --
</TABLE>

32
<PAGE> 33
(1) As of March 3, 2000 there were 87,932,726 shares of Common Stock and
5,000,000 shares of Preferred Stock outstanding.

(2) Mr. Barrow's address is P.O. Box 2588, Longview, Texas 75606.

(3) The address of EnCap Energy Capital Fund III, L.P., EnCap Energy
Capital Fund III-B L.P., BOCP Partners, L.P., Energy Capital
Investment Co., PLC and EnCap Equity 1994, L.P. is 1100 Louisiana,
Suite 3150, Houston, Texas 77002. EnCap Investments L.C. is the
general partner of EnCap Equity 1994 L.P. and serves as an investment
advisor to Energy Capital Investment Co. P.L.C. EnCap Investments L.C.
disclaims any beneficial ownership of Energy Capital Investments Co.
P.L.C.'s and EnCap Equity 1994 L.P.'s shares.

(4) According to a Schedule 13D/A filed by Energy Capital Investment Co.
PLC ("Energy PLC"), EnCap Equity 1994, L.P., ("EnCap") and certain of
their affiliates on September 4, 1998, Messrs. Petersen and Philips
are not deemed to have beneficial ownership of any of the shares of
Common Stock held by Energy PLC and EnCap.

(5) Mr. Goff shares voting and investment power with TJG Investments, Inc.
("TJG") with respect to 1,129,500 shares, with BEC Partnership ("BEC")
with respect to 6,370,500 shares, and jointly with BOC Operating
Corporation ("BOC") and BER Partnership L.P. ("BER") with respect to
1,625,374 shares. Mr. Goff has sole voting and investment power with
respect to 8,406,666 shares and shares voting and investment power
with BOC with respect to 260,000 shares of Common Stock.

(6) Mr. Sowell's address is 3131 McKinney Avenue, Suite 200, Dallas, TX
75204.

(7) According to a Schedule 13D filed by BancAmerica Capital Investors
SBIC I, L.P. ("BancAmerica") and certain of their affiliates on May
21, 1999, Mr. Hain is not deemed to have beneficial ownership of any
of the shares of Common Stock held by BancAmerica. The address for
BancAmerica is 100 North Tryon Street, 25th Floor, Charlotte, North
Carolina 28255.

(8) According to a Schedule 13D filed by Kayne Anderson Energy Fund, L.P.
("Kayne") and certain of their affiliates on May 18, 1999, Mr.
Weingeist is not deemed to have beneficial ownership of any of the
shares of Common Stock held by Kayne. The address for Kayne is 1800
Avenue of the Stars, Second Floor, Los Angeles, California 90067.

(9) According to a Schedule 13D filed by Eos Partners, L.P., Eos Partners
SBIC, L.P. and Eos Partners SBIC II, L.P. on May 21, 1999, Mr. Young
may be deemed to have beneficial ownership of the shares of Common
Stock and Preferred stock held by Eos Partners, L.P., Eos Partners
SBIC, L.P. and Eos Partners SBIC II, L.P. The address for the
aforementioned entities is 320 Park Avenue, 22nd Floor, New York, New
York 10022.

(10) According to a Schedule 13D filed by SGC Partners II, LLC ("SGC") and
certain of their affiliates on May 24, 1999, Mr. Pottow is not deemed
to have beneficial ownership of any of the shares of Common Stock held
by SGC. The address for SGC is 1221 Avenue of the Americas, 15th
Floor, New York, New York 10020.

(11) BEC Partnership shares voting and investment power with Mr. Goff.

- --------------------------------------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
During the year ended December 31, 1999 the Company incurred field
operating fees of $94,000 and reimbursed direct field expenses in the amount of
$163,000 to Gas Solutions, Ltd. (a Texas limited partnership) in which the
Chairman of the Board and Chief Executive Officer and another Director own a
significant interest. Fees and reimbursed expenses due to Gas Solutions, Ltd.
were $199,000 at December 31, 1999.

In August 1998, the Company renewed and extended indebtedness to the
EnCap entities, principal shareholders of the Company, in the amount of $7.3
million. In connection with the renewal and extension, EnCap and ECIC were
issues 1,373,097 and 1,471,782 shares of common stock, respectively. The
indebtedness was paid in full in December 1998. Gary R.

33
<PAGE> 34

Petersen and D. Martin Phillips are principals of EnCap Investments L.C. EnCap
Investments L.C. is the general partner of EnCap and serves as an investment
advisor to ECIC.

On October 15, 1998, the Company acquired certain interests, effective
September 1, 1998, in oil and gas properties located in Texas from BER
Partnership, Ltd. ("BER"), a principal shareholder of the Company at that time.
The properties were on the same date acquired by BER from Chevron, U.S.A. Inc.
for $6.1 million. In consideration for assigning all of its rights and interests
in these properties to the Company per the purchase and sale agreement, BER
received a fee of $166,000 which approximated the net revenue for the month of
September 1998. Tim J. Goff and Thomas D. Barrow are partners of BER.

On October 15, 1998, the Company issued $4 million in subordinated
promissory notes to BEC and TJG in connection with the acquisition of certain
oil and gas properties from BEC and TJG. Tim J. Goff is the sole shareholder of
TJG. Mr. Goff and Thomas D. Barrow, a director of the Company, are partners of
BEC.

On October 15, 1998, the Company acquired certain oil and gas
properties from Pledger Partners, Ltd. ("Pledger") for $1 million. Pledger is a
Texas limited partnership owned by BEC and certain EnCap entities.

On November 19, 1998, the Company acquired interests in oil and gas
properties located in Texas and Louisiana from BER, a principal shareholder of
the Company at that time, for a cash purchase price of $4,354,000. The
properties were on the same date acquired by BER from Cody Energy, Inc., a
Delaware corporation ("Cody Energy"), and Cody Texas, L.P. a Texas limited
partnership ("Cody Texas"), for a purchase price of $4,354,000.

On December 14, 1998, the Company acquired additional interests in
Texas for a cash purchase price of $3,526,000. The Company acquired the
additional properties from BER, which properties were on the same date acquired
by BER from Cody Energy and Cody Texas.

On December 15, 1998 the Company acquired substantially all of the
assets and liabilities, including the going concern value, of BER, a principal
shareholder of the Company, for $2 million and 100,000 shares of preferred
stock. In addition, the Company issued 8,333,333 shares of its common stock to
BEC and TJG in exchange for the cancellation of outstanding debt aggregating $4
million associated with the October transaction. BEC and TJG are affiliates of
BER. Tim J. Goff is the sole shareholder of TJG. Mr. Goff and Thomas D. Barrow,
a director of the Company, are partners of BEC.

As of December 31, 1998, the Company owed BER $521,162 and BEC $53,040
for costs incurred on its behalf.

34
<PAGE> 35
- --------------------------------------------------------------------------------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------

(a)(1) Financial Statements. The following statements are included in this
report:

<TABLE>
<CAPTION>
TITLE OF DOCUMENT PAGE
<S> <C>
Independent Auditor's Report for the Year Ended December 31, 1999
and 1998 F-1

Consolidated Balance Sheet as of December 31, 1999 and 1998 F-2

Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998 F-3

Consolidated Statement of Changes in Stockholders' Equity for the
Years Ended December 31, 1999 and 1998 F-4

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 F-5

Notes to Consolidated Financial Statements F-6
</TABLE>

(a)(2) Exhibits. The following exhibits are included as part of this
report. (See exhibit index in separate exhibit volume):

(a) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT NUMBER TITLE OF DOCUMENT

<S> <C> <C>
2. Plan of acquisition, reorganization, arrangement, (1)
liquidation or succession

3. Articles of Incorporation and By-laws

3.1 Articles of Incorporation of Bargo Energy Company
(Incorporated by reference from Exhibit 3.1 to the
Company's Current Report on Form 8-K dated April 26,
1999, filed with the Securities and Exchange
Commission on April 29, 1999)

3.2 Agreement and Plan of Merger, dated as of April 6,
1999 between Future Petroleum Corporation and FPT
Corporation (Incorporated by reference from Exhibit
2.1 to the Company's Current Report on Form 8-K dated
April 26, 1999, filed with the Securities and
Exchange Commission on April 29, 1999)

3.3 By-laws of Bargo Energy Company (Incorporated by
reference from Exhibit 3.2 to the Company's Current
Report on Form 8-K dated April 26, 1999, filed with
the Securities and Exchange Commission on April 29,
1999)
</TABLE>

35
<PAGE> 36

<TABLE>
<CAPTION>
EXHIBIT NUMBER TITLE OF DOCUMENT
<S> <C> <C>
3.4 Amendment to Bargo Energy Company By-laws
(Incorporated by reference from Exhibit 3.4 to
the Company's Quarterly Report on Form 10-QSB
for the period ended March 31, 1999, filed with
the Securities and Exchange Commission on May
21, 1999)

4. Instruments defining the rights of security holders

4.1 Certificate of Designations of Cumulative Redeemable
Preferred Stock, Series B (Incorporated by reference
from Exhibit 4.1 to the Company's Quarterly Report on
Form 10-QSB for the period ended March 31, 1999,
filed with the Securities and Exchange Commission on
May 21, 1999)

9. Voting Trust Agreement (1)

10. Material Contracts

10.1 Second Amended and Restated Shareholders' Agreement,
dated May 14, 1999, by and among Bargo Energy
Company, B. Carl Price, Don Wm. Reynolds, Energy
Capital Investment Company PLC, EnCap Equity 1994
Limited Partnership, Bargo Energy Resources, Ltd.,
TJG Investments, Inc., BargoEnergy Company, Tim J.
Goff, Thomas Barrow, James E. Sowell, BargoOperating
Company, Inc., EnCap Energy Capital Fund III-B, L.P.,
BOCPEnergy Partners, L.P., EnCap Energy Capital Fund
III, L.P., Kayne Anderson Energy Fund, L.P.,
BancAmerica Capital Investors SBIC I, L.P., Eos
Partners, L.P., Eos Partners SBIC, L.P., Eos Partners
SBIC II, L.P., and SGC Partners II LLC. (Incorporated
by reference from Exhibit 10.1 to the Company's
Quarterly Report on Form 10-QSB for the period ended
March 31, 1999, filed with the Securities and
Exchange Commission on May 21,1999)

10.3 Consent and Agreement dated May 14, 1999 between
Bargo Energy Company and Bank of America National
Trust and Savings Association (Incorporated by
reference from Exhibit 10.6 to the Company's
Quarterly Report on Form 10-QSB for the period ended
March 31, 1999, filed with the Securities and
Exchange Commission on May 21, 1999)

10.4 SBA Side Letter dated May 14, 1999 between Bargo
Energy Company and BancAmerica Capital Investors SBIC
I, L.P., Eos Partners SBIC, L.P., Eos Partners SBIC
II, L.P., and SGC Partners II LLC. (Incorporated by
reference from Exhibit 10.7 to the Company's
Quarterly Report on Form 10-QSB for the period ended
March 31, 1999, filed with the Securities and
Exchange Commission on May 21, 1999)
</TABLE>

36
<PAGE> 37

<TABLE>
<CAPTION>
EXHIBIT NUMBER TITLE OF DOCUMENT
<S> <C> <C>
10.5 SBA Side Letter dated May 14, 1999 between Bargo
Energy Company, EnCap Equity 1994 Limited
Partnership, TJG Investments, Inc. Bargo Energy
Company, Bargo Energy Resources, Ltd., Bargo
Operating Company, Inc., Tim J. Goff and BancAmerica
Capital Investors SBIC I, L.P., Eos Partners SBIC,
L.P., Eos Partners SBIC II, L.P., and SGC Partners II
LLC. (Incorporated by reference from Exhibit 10.8 to
the Company's Quarterly Report on Form 10-QSB for the
period ended March 31, 1999, filed with the
Securities and Exchange Commission on May 21, 1999)

10.6 Stock Purchase Agreement dated May 14, 1999 between
Bargo Energy Company and Energy Capital Investment
Company PLC, EnCap Energy Capital Fund III-B, L.P.,
BOCP Energy Partners, L.P., EnCap Energy Capital Fund
III, L.P., Kayne Anderson Energy Fund, L.P.,
BancAmerica Capital Investors SBIC I, L.P., Eos
Partners, L.P., Eos Partners SBIC, L.P., Eos Partners
SBIC II, L.P., and SGC Partners II LLC. (Incorporated
by reference from Exhibit 10.9 to the Company's
Quarterly Report on Form 10-QSB for the period ended
March 31, 1999, filed with the Securities and
Exchange Commission on May 21, 1999)

10.7 Bargo Energy Company 1999 Stock Incentive Plan
(Incorporated by reference from Exhibit 10.10 to the
Company's Quarterly Report on Form 10-QSB for the
period ended March 31, 1999, filed with the
Securities and Exchange Commission on May 21, 1999)

10.8 Confidentiality and Non-compete Agreement dated May
14, 1999 between Bargo Energy Company and Tim J. Goff
(Incorporated by reference from Exhibit 10.11 to the
Company's Quarterly Report on Form 10-QSB for the
period ended March 31, 1999, filed with the
Securities and Exchange Commission on May 21, 1999)

10.9 Second Amended and Restated Credit Agreement, Dated
as of September 30, 1999, among Bargo Energy Company,
Bank of America, N.A. and Certain Financial
Institutions (Incorporated by reference from Exhibit
10.10 to the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1999, filed
with the Securities and Exchange Commission on
November 19, 1999)

10.10 Registration Rights Agreement among the Company and
Bargo Energy Resources, Ltd. dated August 14, 1998
(Incorporated by reference from Exhibit 10.1 to the
Company's Quarterly Report on Form 10-QSB for the
period ended June 30, 1998, filed with the Securities
and Exchange Commission on August 25, 1998)
</TABLE>

37
<PAGE> 38

<TABLE>
<CAPTION>
EXHIBIT NUMBER TITLE OF DOCUMENT
<S> <C> <C>
10.11 First Amendment to Registration Rights Agreement
among the Company, Bargo Energy Resources, Ltd.,
Bargo Energy Company, TJG Investments, Inc. and
certain other shareholders dated December 15, 1998
(Incorporated by reference from Exhibit 99.2 to the
Company's Current Report on Form 8-K dated December
15, 1998, filed with the Securities and Exchange
Commission on December 30, 1998)

10.12 Registration Rights Agreement dated November 25,
1997, among the Company, Energy Capital Investment
Company PLC, and EnCap Equity 1994 Limited
Partnership (Incorporated by reference from Exhibit
10.05 to the Company's Current Report on Form 8-K
dated November 25, 1997, filed with the Securities
and Exchange Commission on December 10, 1997)

10.13 Registration Rights Agreement among the Company,
Energy Capital Investment Company PLC and EnCap
Equity 1994 Limited Partnership dated August 14, 1998
(Incorporated by reference from Exhibit 10.2 to the
Company's Quarterly Report on Form 10-QSB for the
period ended June 30, 1998, filed with the Securities
and Exchange Commission on August 25, 1998)

10.14 First Amendment to Registration Rights Agreement
among the Company, Energy Capital Investment Company
PLC and EnCap Equity 1994 Limited Partnership dated
December 15, 1998 (Incorporated by reference from
Exhibit 99.4 to the Company's Current Report on Form
8-K dated December 15, 1998, filed with the
Securities and Exchange Commission on December 30,
1998)

10.15 Registration Rights Agreement among the Company, B.
Carl Price and certain other shareholders dated
August 14, 1998 (Incorporated by reference from
Exhibit 10.3 to the Company's Quarterly Report on
Form 10-QSB for the period ended June 30, 1998, filed
with the Securities and Exchange Commission on August
25, 1998)

10.16 First Amendment to Registration Rights Agreement
among the Company, B. Carl Price and certain
other shareholders dated December 15, 1998
(Incorporated by reference from Exhibit 99.6 to
the Company's Current Report on Form 8-K dated
December 15, 1998, filed with the Securities and
Exchange Commission on December 30, 1998)
</TABLE>

38
<PAGE> 39

<TABLE>
<CAPTION>
EXHIBIT NUMBER TITLE OF DOCUMENT
<S> <C> <C>
10.17 Stock Purchase Warrant by the Company to Bargo Energy
Resources, Ltd. dated August 14, 1998 (Incorporated
by reference from Exhibit 10.4 to the Company's
Quarterly Report on Form 10-QSB for the period ended
June 30, 1998, filed with the Securities and Exchange
Commission on August 25, 1998)

10.18 1993 Employee Incentive Plan (Incorporated by
reference from the Company's Annual Report on Form
10-K for the fiscal year ended December 30, 1993,
filed with the Securities and Exchange Commission on
May 20, 1994)

10.19 First Amendment to Second Amended and Restated
Shareholder's Agreement, dated August 11, 1999
(Incorporated by reference to Exhibit 10.20 to the
Company's Quarterly Report on Form 10-QSB for the
period ended September 30, 1999, filed with the
Securities and Exchange Commission on November 19,
1999.

10.20 Purchase and Sale Agreement between Exxon Corporation
and Future Acquisition 1995, Ltd., et al.
(Incorporated by reference from Exhibit 2.1 to the
Company's Quarterly Report on Form 10-QSB for the
period ended June 30, 1999, filed with the Securities
and Exchange Commission on August 16, 1999)

10.21 Purchase and Sale Agreement by and Between
Atlantic Richfield Company and Future
Acquisition 1995, Ltd. (Incorporated by
reference from Exhibit 2.2 to the Company's
Quarterly Report on Form 10-QSB for the period
ended September, 30, 1999, filed with the
Securities and Exchange Commission on November
19, 1999)

11. Statement regarding computation of per share earnings (1)

13. Annual or quarterly reports, Form 10-Q (1)

16. Letter on change in certifying accountant (1)

18. Letter on change in accounting principles (1)

21. Subsidiaries of the Registrant

22. Published report regarding matters submitted to vote (1)

23. Consents of experts and counsel

24. Power of attorney (1)

27. Financial data schedule

99. Additional exhibits (1)
</TABLE>

39
<PAGE> 40
- -----------------------------------

(1) Inapplicable to this filing.

(b) REPORTS ON FORM 8-K.

During the last quarter of the fiscal year ended December 31, 1999, the
Company filed reports on Form 8-K as follows:

<TABLE>
<CAPTION>
DATE OF EVENT REPORTED ITEM REPORTED
- ---------------------- ---------------------------------------------
<S> <C>
November 19, 1999 Item 7. Financial Statements and Exhibits

October 14, 1999 Item 5. Other Events

October 12, 1999 Item 2. Acquisition or Disposition of Assets
</TABLE>

40
<PAGE> 41
- --------------------------------------------------------------------------------
SIGNATURES
- --------------------------------------------------------------------------------

In accordance with Section 13 or 15(d) of the Exchange Act of 1934, as
amended, Registrant has duly caused this report on form 10-KSB to be signed on
its behalf by the undersigned, thereunto duly authorized, this 10th day of
March, 2000.

BARGO ENERGY COMPANY
(Registrant)

By /s/ JONATHAN M. CLARKSON
-------------------------------
Jonathan M. Clarkson, President

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this form 10-KSB was signed by the following persons in the capacities
stated on the 10th day of March 2000.

/s/ TIM J. GOFF
- ----------------------------
Tim J. Goff, Chairman, Chief Executive Officer and Director (principal executive
officer)

/s/ JONATHAN M. CLARKSON
- -----------------------------
Jonathan M. Clarkson, President and Director (principal financial and accounting
officer)

/s/ THOMAS D. BARROW
- -----------------------------
Thomas D. Barrow, Director

/s/ J. TRAVIS HAIN
- -----------------------------
J. Travis Hain, Director

/s/ D. MARTIN PHILLIPS
- -----------------------------
D. Martin Phillips, Director

/s/ GARY R. PETERSEN
- -----------------------------
Gary R. Petersen, Director

/s/ V. FRANK POTTOW
- -----------------------------
V. Frank Pottow, Director

/s/ DANIEL M. WEINGEIST
- -----------------------------
Daniel M. Weingeist, Director

/s/ BRIAN D. YOUNG
- -----------------------------
Brian D. Young, Director

DATE FILED: MARCH 10, 2000 SEC FILE NO. 0-8609
- --------------------------------------------------------------------------------

<PAGE> 42

[PRICEWATERHOUSECOOPERS LOGO]

BARGO ENERGY COMPANY
AND SUBSIDIARIES
(FORMERLY FUTURE PETROLEUM CORPORATION)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

<PAGE> 43

[PRICEWATERHOUSECOOPERS LETTERHEAD]

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors of
Bargo Energy Company

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of stockholders' equity
present fairly, in all material respects, the financial position of Bargo Energy
Company and its subsidiaries (formerly Future Petroleum Corporation) at December
31, 1999 and 1998, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
Houston, Texas
March 3, 2000

<PAGE> 44

BARGO ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
(in thousands) 1999 1998

ASSETS

<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,375 $ 1,241
Trade accounts receivable:
Accrued oil and gas sales 7,629 2,581
Joint interest billings 210 55
Advance to related party 19 8
--------- ---------
Total current assets 10,233 3,885
--------- ---------
Property and equipment:
Oil and gas properties, full cost method 76,107 45,992
Other 696 648
--------- ---------
Total property and equipment 76,803 46,640
Less - accumulated depletion, depreciation
and amortization (6,220) (1,566)
--------- ---------
Net property and equipment 70,583 45,074
--------- ---------
Other assets:
Goodwill, net of accumulated amortization of
$208 and $8, respectively 1,792 1,984
Loan costs, net of accumulated amortization of
$436 and $25, respectively 1,890 965
Other 41 40
--------- ---------
Total other assets 3,723 2,989
--------- ---------
Total assets $ 84,539 $ 51,948
========= =========
</TABLE>

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

<PAGE> 45

BARGO ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
(in thousands) 1999 1998

LIABILITIES AND STOCKHOLDERS' EQUITY

<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 6 $ 8,952
Trade accounts payable 2,623 1,457
Accrued oil and gas proceeds payable 1,805 514
Accrued interest payable 84 430
Advance from related party 199 566
-------- --------
Total current liabilities 4,717 11,919
-------- --------
Long-term debt, less current portion 20,780 30,907
-------- --------
Deferred tax liability 3,085 1,011
-------- --------
Commitments and contingencies (Note 9)
Redeemable preferred stock; 10% cumulative; $.01
par value; 5,000,000 and 0 shares authorized and issued,
respectively, net of unamortized issuance costs 51,664
--------
Stockholders' equity:
Preferred stock, $.01 par value, 0 and 200,000 shares
authorized, 0 and 100,000 shares issued and outstanding
at December 31, 1999 and 1998, respectively 1
Common stock, $.01 par value; 120,000,000 and 30,000,000
shares authorized, 87,932,726 and 22,320,066 shares
outstanding at December 31, 1999 and 1998, respectively 921 223
Additional paid-in capital 6,878 6,543
Treasury stock (2,040)
Retained earnings (deficit) (1,466) 1,344
-------- --------
Total stockholders' equity 4,293 8,111
-------- --------
Total liabilities and stockholders' equity $ 84,539 $ 51,948
======== ========
</TABLE>

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

<PAGE> 46

BARGO ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
(in thousands, except for share data) 1999 1998

<S> <C> <C>
Revenues:
Oil and gas sales $ 19,134 $ 3,663
Well operation fees 16
------------ ------------
Total revenues 19,134 3,679
------------ ------------
Costs and expenses:
Lease operations and production taxes 7,685 1,826
General and administrative 3,659 783
Depletion, depreciation and amortization 4,898 1,316
------------ ------------
Total expenses 16,242 3,925
------------ ------------
Other income and expense:
Interest expense 2,378 1,238
Interest income and other (8) (19)
------------ ------------
Total other income and expense 2,370 1,219
------------ ------------
Income (loss) before income taxes and
extraordinary item 522 (1,465)
Income tax benefit 141 287
------------ ------------
Income (loss) before extraordinary item 663 (1,178)
Extraordinary gain on conversion of debt 2,586
------------ ------------
Net income 663 1,408
Redeemable preferred stock dividends, including
accretion (Note 2) (3,473)
------------ ------------

Net income (loss) available to common
shareholders $ (2,810) $ 1,408
============ ============
Net income (loss) per common share -
basic and diluted $ (0.04) $ 0.14

Weighted average common shares
outstanding 75,942,000 9,924,000
</TABLE>

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

<PAGE> 47

BARGO ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

(in thousands, except for share data)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- ------------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL

<S> <C> <C> <C> <C> <C>
Balances, December 31, 1997 5,678,779 $ 57 $ 4,413

Shares issued for oil and gas properties 100,000 1 5,163,192 52 21
Shares issued for fixed assets 2,414,776 24 593
Shares issued for retirement of debt 8,495,683 85 1,312
Shares issued for options exercised 110,000 1 57
Shares issued for repayment of interest 267,400 2 66
Shares issued for services 190,236 2 81
Net income
-------- --------- ---------- ------------ ------------
Balances, December 31, 1998 100,000 1 22,320,066 223 6,543

Stock issuance costs (420)
Shares issued for options exercised 37,720 10
Preferred shares converted to common shares (100,000) (1) 26,000,000 260 (259)
Shares issued at reorganization (Note 2) 43,815,810 438 (438)
Treasury shares acquired by assignment 1,951
Treasury shares acquired for cash
Stock options repurchased (509)
Redeemable preferred stock dividends, including
accretion (Note 2)
Net income
-------- --------- ---------- ------------ ------------
Balances, December 31, 1999 -- $ -- 92,173,596 $ 921 $ 6,878
======== ========= ========== ============ ============

<CAPTION>
TREASURY STOCK RETAINED TOTAL
----------------------- EARNINGS STOCKHOLDERS'
SHARES AMOUNT (DEFICIT) EQUITY

<S> <C> <C> <C> <C>
Balances, December 31, 1997 $ (64) $ 4,406

Shares issued for oil and gas properties 74
Shares issued for fixed assets 617
Shares issued for retirement of debt 1,397
Shares issued for options exercised 58
Shares issued for repayment of interest 68
Shares issued for services 83
Net income 1,408 1,408
------------ ------------
Balances, December 31, 1998 1,344 8,111

Stock issuance costs (420)
Shares issued for options exercised 10
Preferred shares converted to common shares
Shares issued at reorganization (Note 2)
Treasury shares acquired by assignment (3,902,818) $ (1,951)
Treasury shares acquired for cash (338,052) (89) (89)
Stock options repurchased (509)
Redeemable preferred stock dividends, including
accretion (Note 2) (3,473) (3,473)
Net income 663 663
---------- ------------ ------------ ------------
Balances, December 31, 1999 (4,240,870) $ (2,040) $ (1,466) $ 4,293
========== ============ ============ ============
</TABLE>

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

<PAGE> 48

BARGO ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
(in thousands) 1999 1998

<S> <C> <C>
Cash flows from operating activities:
Net income $ 663 $ 1,408
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation and amortization 4,898 1,316
Extraordinary gain on conversion of debt (2,586)
Amortization of debt issue costs 411
Amortization of organizational costs 45
Stock issued for services 83
Stock issued to pay interest expense 68
Deferred income taxes (141) (287)
-------- --------
5,831 47
Change in working capital items:
(Increase) in accounts receivable (5,202) (2,359)
(Increase) in advances to related parties (12)
Increase in accounts payable and
accrued liabilities 2,111 2,101
Increase (decrease) in advances from related parties (367) 561
-------- --------
Net cash provided by operating activities 2,361 350
-------- --------
Cash flows from investing activities:
Acquisition of oil and gas properties (27,900) (29,857)
Acquisition of assets (2) (2,000)
Acquisition of property and equipment (97)
Decrease in notes receivable and deferred gain 53
Decrease in lease operating rights 96
Other 16
-------- --------
Net cash (used in) investing activities (27,999) (31,692)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of debt 18,935 44,505
Proceeds from issuance of redeemable preferred stock 50,000
Stock issuance costs (2,229)
Purchase of treasury stock (89)
Repurchase of stock options (509)
Repayment of debt (38,009) (11,283)
Debt issue costs (1,337) (990)
Proceeds from exercise of stock options 10 58
-------- --------
Net cash provided by financing activities 26,772 32,290
-------- --------
Net increase in cash 1,134 948
Cash and cash equivalents, beginning of year 1,241 293
-------- --------
Cash and cash equivalents, end of year $ 2,375 $ 1,241
======== ========
Supplemental information:
Cash paid during the year for interest $ 2,162 $ 739

NON-CASH INVESTING AND FINANCING ACTIVITIES

See Notes 4, 6 and 8.
</TABLE>

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

<PAGE> 49

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

COMPANY OPERATIONS

Bargo Energy Company (formerly Future Petroleum Corporation) (the Company
or Bargo) is engaged primarily in the acquisition, development and
production of oil and gas reserves and operation of oil and gas wells.

The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Alaska Eldorado Gold Company (AEG),
Future Cal-Tex Corporation (FCT), Future Energy Corporation (FEC) and
Future Petroleum Corporation of Texas (FPCT). In addition, the financial
statements include the accounts of BMC Development No. 1, Ltd. (BMC),
Future Acquisition 1995, Ltd. (FAQ) and NCI Shawnee Limited Partnership
(NCI) (the Partnerships). As of December 31, 1999 and 1998, Bargo and its
subsidiaries held 100% of the ownership interests of the Partnerships (Note
4). Intercompany accounts and transactions are eliminated in consolidation.

On April 26, 1999 (the Effective Date), Future Petroleum Corporation, a
Utah corporation (Future), merged with Bargo Energy Company, a Texas
corporation (Bargo). Bargo was incorporated under the name FPT Corporation
on January 26, 1999 as a wholly-owned subsidiary of Future, solely for the
purpose of reincorporating Future in Texas.

The reincorporation occurred pursuant to a merger agreement dated April 6,
1999 entered into between Future and Bargo (Merger Agreement). In
accordance with the terms of the Merger Agreement, Future merged into
Bargo, with Bargo as the surviving corporation. On the Effective Date, each
of the 22,320,066 shares of Future common stock were converted into one
share of Bargo's common stock and each of the 100,000 shares of Future's
preferred stock were converted into one share of Bargo preferred stock.

The reincorporation merger increased the Company's authorized capital stock
from 30.2 million shares to 125 million shares. The articles of
incorporation of Bargo authorize 125 million shares of capital stock, of
which 120 million shares are common stock and 5 million shares are
preferred stock. Future's article of incorporation authorized 30 million
shares of common stock and 200,000 shares of preferred stock.

OIL AND GAS PROPERTIES

The Company uses the full-cost method of accounting for its oil and gas
properties. The Company's properties are all located in the continental
United States, primarily Texas, Louisiana, California and Oklahoma and;
therefore, its costs are capitalized in one cost center. Under the
full-cost method, all costs related to the acquisition, exploration or
development of oil and gas properties are capitalized into the "full-cost
pool". Such costs include those related to lease acquisitions, drilling and
equipping of productive and nonproductive wells, delay rentals, geological
and geophysical work and certain internal costs directly associated with
the acquisition, exploration or development of oil and gas properties. Upon
the sale or disposition of oil and gas properties, no gain or loss is
recognized, unless such adjustments of the full-cost pool would
significantly alter the relationship between capitalized costs and proved
reserves.

-1-

<PAGE> 50

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

Under the full-cost method of accounting, a "full-cost ceiling test" is
required wherein net capitalized costs of oil and gas properties cannot
exceed the present value of estimated future net revenues from proved oil
and gas reserves, discounted at 10%, less any related income tax effects.

Depletion, depreciation and amortization of oil and gas properties is
computed using the unit-of-production method based on estimated proved oil
and gas reserves. Depletion, depreciation and amortization per equivalent
barrel of oil was approximately $3.68 and $3.61 for the years ended
December 31, 1999 and 1998.

OTHER PROPERTY

Other property and equipment consists of office furniture, fixtures,
equipment and leasehold improvements, which are carried at cost.
Depreciation is provided using the straight-line method over estimated
useful lives ranging from three to 39 years. Gain or loss on retirement or
sale or other disposition of assets is included in income in the period of
disposition.

INCOME TAXES

Deferred income taxes are recorded for the temporary differences between
the tax and financial statement bases of assets and liabilities and
adjusted when new tax rates are enacted.

NET INCOME (LOSS) PER COMMON SHARE

Net income or loss per common share is based on the weighted average number
of common shares outstanding. In accordance with SFAS 128, "Earnings Per
Share," income available to common stockholders is reduced by the amount of
dividends on cumulative preferred stock and accretion of related stock
issuance costs. The Company's common stock equivalents, which consisted of
stock options and warrants, were antidilutive in 1999 and 1998.

CASH EQUIVALENTS

The Company considers cash and unrestricted interest-bearing deposits with
original maturities of three months or less to be cash equivalents.

USE OF ESTIMATES AND CERTAIN SIGNIFICANT ESTIMATES

The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts reported in
these financial statements and accompanying notes. Significant assumptions
are required in the valuation of proved oil and gas reserves which, as
described above, may affect the amounts at which oil and gas properties are
recorded. Actual results could differ from those estimates.

STOCK-BASED COMPENSATION

The Company accounts for stock options and warrants granted to directors
and employees pursuant to APB Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations.

-2-

<PAGE> 51

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

GOODWILL

The excess of the Company's cost over its underlying net assets is being
amortized using the straight-line method over the estimated remaining life
of the assets over a period not to exceed 10 years. Such amortization is
included in depreciation, depletion and amortization.

The Company periodically evaluates the propriety of the carrying amount of
goodwill, as well as the amortization period, to determine whether current
events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. At this time, the Company believes no
such impairment has occurred and no reduction in useful lives is warranted.

CONCENTRATION OF BUSINESS

The Company's business is concentrated in the sale of petroleum-based
products. Market conditions of the oil and gas industry, particularly the
price of oil and gas, influence the results and level of the Company's
business.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The reported amounts of the Company's financial instruments (including
cash, receivables, payables, and debt) approximate fair value due to the
short maturities of these investments or market rates of interest.

2. PREFERRED STOCK ISSUANCE

On May 14, 1999, the Company closed a transaction pursuant to which it
issued and sold to Kayne Anderson Energy Fund, L.P. (Kayne), BancAmerica
Capital Investors SBIC I, L.P. (BancAmerica), Eos Partners, L.P., Eos
Partners SBIC, L.P., Eos Partners SBIC II, L.P. (collectively, Eos), Energy
Capital Investment Company PLC, EnCap Energy Capital Fund III-B, L.P.,
BOCP Energy Partners, L.P., EnCap Energy Capital Fund III, L.P.
(collectively, EnCap) and SGC Partners II LLC (SGC and together with Kayne,
BancAmerica, Eos, EnCap and SGC, the Investors) shares of a newly created
class of preferred stock. Five million shares of the Company's Cumulative
Redeemable Preferred Stock, Series B (Preferred Stock) were issued in
exchange for an aggregate purchase price of $50 million. As additional
consideration, the Company issued an aggregate of 43,815,810 shares of its
common stock to the Investors equal to 40% of the outstanding common stock
(on a fully diluted basis). If the Company redeems all of the outstanding
shares of Preferred Stock prior to May 14, 2001, the Investors must sell
back to the Company 12.5% of the shares of Common Stock originally issued
to the Investors.

-3-

<PAGE> 52

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

reorganization, purchase or sale of more than 50% of the Company's voting
securities, the sale of substantially all of the assets of the Company or
at any time Tim Goff ceases to serve as the Company's Chief Executive
Officer. The Company is prohibited from taking certain actions, including
authorizing, creating or issuing any shares of capital stock, amending the
articles of incorporation of the Company and authorizing a merger or change
of control, without the consent of the holders of a majority of the
outstanding shares of Preferred Stock.

As of December 31, 1999, holders of shares of the Series B Preferred were
entitled to receive, when, and if declared by the Board of Directors, as
legally available, cumulative dividends totaling $3,243,578. Issuance costs
totaling $1,809,000 related to the offering are being accreted ratably over
five years. As of December 31, 1999, $229,000 of issuance costs had been
accreted into the Series B Preferred Stock.

3. RELATED-PARTY TRANSACTIONS

As of December 31, 1998, the Company owed Bargo Energy Resources Ltd.
(BER) $521,000 and BEC Partnership (BEC) $53,000 for costs incurred on its
behalf. As of December 31, 1998, BER and BEC had a combined 78% common
ownership interest in the Company's outstanding stock. The Chairman of the
Board and Chief Executive Officer of the Company has a material interest in
both BER and BEC.

At December 31, 1999, Pledger Partners, Ltd. (Pledger) owed the Company
$19,000 for costs incurred on its behalf. At December 31, 1999, all of the
partners in Pledger were also shareholders of the Company.

During the year ended December 31, 1999 the Company incurred field
operating fees of $94,000 and reimbursed direct field expenses in the
amount of $163,000 to Gas Solutions, Ltd. (a Texas limited partnership) in
which the Chairman of the Board and Chief Executive Officer and another
Director own a significant interest. Fees and reimbursed expenses due to
Gas Solutions, Ltd. were $199,000 at December 31, 1999.

See Notes 4 and 6 for additional related party disclosures.

4. INVESTMENTS IN PARTNERSHIP AND OIL AND GAS PROPERTY ACQUISITIONS

On September 13, 1999, the Company acquired interests in 40 leases, a
waterflood unit, over 60 royalty properties and an oil transportation
contract in the East Texas Field from Atlantic Richfield Company effective
October 1, 1999. The purchase price was approximately $16 million.

On May 14,1999, FAQ acquired certain interests, effective January 1, 1999,
in the Raccoon Bend field located in Austin and Waller Counties, Texas from
Exxon Corporation. The Company purchased a 100% working interest and a net
revenue interest approximating 80% of this field, which has approximately
65 active wells. These interests were acquired for a gross purchase price
of $10 million.

On December 22, 1998, FCT acquired certain additional interests in the
South Coles Levee Field located in Kern County, California, effective
December 1, 1998. BER assigned to FCT all of its rights and interests in a
purchase and sale agreement with Chevron U.S.A., Inc. for the purchase of
these interests. The interests were acquired for a gross purchase price of
$3,500,000.

-4-

<PAGE> 53

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999 AND 1998
- --------------------------------------------------------------------------------

On December 15, 1998, the Company entered into an Asset Purchase Agreement
with an effective date of November 1, 1998, with BER and BEC.

BER sold, assigned and transferred to the Company certain assets,
consisting primarily of personnel, contracts to purchase oil and gas
properties, financing contacts and all rights to the name "Bargo". Certain
owned or leased real property and personal property were transferred along
with the related lease agreements. All office supplies, files, records,
logs, customer and supplier lists, sales records and similar type office
items were transferred. Certain receivables and liabilities relating to the
period starting with the effective date were also transferred. In return,
the Company paid BER $2 million cash and issued 100,000 shares of Company
preferred stock to BER (each preferred share is convertible to 260 shares
of Company common stock).

On December 14, 1998, FAQ acquired certain interests, effective August 1,
1998, in the Bright Falcon Field located in Jackson County, Texas, and the
Giddings Field located in Fayette, Brazos and Burleson Counties, Texas. BER
assigned to FAQ all of its rights and interests in a purchase and sale
agreement with Cody Energy, Inc. and Cody Texas, L.P., for the purchase of
these interests. The interests were acquired for a gross purchase price of
$3,526,000.

On November 19, 1998 FAQ acquired certain interests, effective August 1,
1998, in the Foster Field located in Ector County, Texas, the San Miguel
Creek Field located in McMullen County, Texas, the Turtle Creek Field
located in Matagorda County, Texas, the Cheniere Field located in Ouachita
Parish, Louisiana, and the Leroy North Field located in Vermilion Parish,
Louisiana. BER assigned to FAQ all of its rights and interests in a
purchase and sale agreement with Cody Energy, Inc. and Cody Texas, L.P., to
facilitate the closing of this transaction. The interests were acquired for
a gross purchase price of $4,354,000.

On October 15, 1998, the Company, through NCI, acquired additional
interests, effective August 1, 1998, in the Shawnee Townsite Unit. The
interests were acquired from NCI 1990, Ltd., NCI Reserves, Ltd. and three
other parties in exchange for 116,676 shares of the Company's common stock
and $375,000 cash, before purchase price adjustments.

On October 15, 1998, the Company acquired certain interests, effective
August 1, 1998 in the Gin Unit located in Dawson County, Texas. The
interests were acquired from NCI Properties, Ltd. in exchange for 163,324
shares of the Company's common stock and $493,000 cash, before purchase
price adjustments.

On October 15, 1998, FAQ acquired certain interests from Chevron, U.S.A.
Inc., effective September 1, 1998, in the Cross Creek Field located in
Harris County, Texas. In consideration for assigning to FAQ all of its
rights and interests in the Cross Creek Field purchase and sale agreement
with Chevron, BER received a fee of $166,000 which approximated the net
revenue for the month of September 1998. The interests were acquired for a
gross purchase price of $6,100,000.

-5-

<PAGE> 54

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

On October 15, 1998, FAQ acquired certain interests, effective September 1,
1998, in the N.E. Limes Field located in Live Oak County, Texas, the Bruce
Roy Field located in Wharton County, Texas, the Candy Field located in San
Patricio County, Texas, the Sand Hills Field located in Crane County,
Texas, the Bluitt Field located in Roosevelt County, New Mexico and the N.
Yellow Creek Field located in Wayne and Clarke Counties, Mississippi. These
interests were acquired from BEC and TJG Investments, Inc. (TJG) for a
gross purchase price of $3,000,000 cash and the issuance of $4,000,000 in
subordinated debt, as further described in Note 5.

On October is, 1998, FAQ acquired certain interests, effective September
1, 1998, in the Buna Field located in Jasper County, Texas. These interests
were acquired from Pledger for a gross purchase price of $1,000,000.

On August 14, 1998, the Company acquired an interest, effective August 1,
1998, in the South Coles Levee Field located in Kern County, California, as
a result of the merger of FCT with a subsidiary of BER (the previous owner
of this interest). At closing, the Company paid approximately $5.8 million
cash, issued 4,695,869 shares of the Company's common stock and a warrant
to purchase 250,000 shares of the Company's common stock, as further
described in Note 6.

On May 1, 1998, the Company acquired the interests of NCI, a limited
partnership which owns interest in the Shawnee Townsite Unit located in
Pottawatomie County, Oklahoma. The general partnership interest was
acquired from NCI Enterprises, Inc. for 150,000 shares of the Company's
common stock. The limited partnership interests were acquired from EnCap
Equity 1994 Limited Partnership and Energy Capital Investment Company PLC
for 50,000 shares of the Company's common stock and the issuance of
$660,000 in promissory notes (Note 5).

The following unaudited pro forma information is presented as if the
interests in the partnerships and the oil and gas properties had been
acquired at the beginning of the respective periods. The following table
includes only those acquisitions deemed to be significant under regulations
as prescribed by the Securities and Exchange Commission.

<TABLE>
<CAPTION>
1999 1998

<S> <C> <C>
Revenues $30,244,000 $30,643,000
Net income 5,983,000 4,514,000
Net income per share 0.03 0.45
</TABLE>

5. LONG-TERM DEBT

BANK OF AMERICA DEBT

On August 14, 1998, the Company entered into a Credit Agreement with Bank
of America providing for a $20 million revolving line of credit (the Credit
Agreement). This line of credit was amended and increased to $27.5 million
on November 15, 1998, and to

-6-

<PAGE> 55

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

$50 million on December 4,1998. The line of credit was comprised of two
tranches, Tranche A (a revolving line of credit to convert to a four-year
term loan on December 4, 1999) and Tranche B (a revolving line of credit).

At December 31, 1998, the Tranche A loan commitment amount was $38 million,
of which $30.9 million had been borrowed, In connection with the May 14,
1999 equity transaction (Note 2), the Company paid down Tranche A to $2.5
million.

At December 31, 1998, the Tranche B loan commitment amount was $12
million, of which $8.9 million had been borrowed. The Company repaid the
full amount outstanding under Tranche B with the May 14, 1999 equity
transaction.

On September 30, 1999 the Company amended and restated the Credit Agreement
to increase the commitment from Bank of America and two additional banks to
$100 million. The revolver has a borrowing base of $55 million and is due
in 2002.

The Credit Agreement is secured by the Company's interest in underlying oil
and gas properties and contains certain restrictive covenants, the more
significant of which require the Company to maintain (as defined in the
Credit Agreement) a quarterly minimum tangible net worth requirement, a
quarterly minimum current ratio and a quarterly interest coverage ratio.

The Company has a choice of two different interest rates; the Base Rate or
the LIBO Rate. The debt bears interest under the Base Rate (which is the
higher of the lender's "Prime Rate" of the Federal Funds Rate plus .5%)
plus an applicable margin of .75%. The debt bears interest under the LIBO
Rate at the LIBO rate (reserve adjusted) plus 1.75%. The Company may
convert any portion of the outstanding debt from one interest rate type to
another in increments of $500,000 with a minimum transfer amount of
$1,000,000. Borrowings under the Credit Agreement are approximately $20.8
million as of December 31, 1999.

The Company is subject to various commitment and other fees associated with
the Credit Agreement above. At December 31, 1999 and 1998, there were
$84,255 and $430,000, respectively, of accrued interest and fees payable.

Long-term debt maturing in each year subsequent to December 31, 1999 is as
follows:

<TABLE>
<S> <C>
2000 $ --
2001 --
2002 20,780,000
2003 --
2004 --
------------
Total $ 20,780,000
============
</TABLE>

-7-

<PAGE> 56

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

ENCAP DEBT

The EnCap creditors (Encap) consist of EnCap Equity 1994 Limited
Partnership, Energy Capital Investment Company PLC and Gecko Booty 1994 I
Limited Partnership.

For the period from January 1, 1998 through April 30, 1998, the EnCap debt
carried an interest rate of 10% per annum and required monthly payments of
interest only. In May 1998, under the promissory notes, in addition to the
monthly interest payments, monthly principal payments in the amount of
$68,750 were to begin and continue through maturity on May 31, 2003.

On May 1, 1998, the promissory notes were amended and renewed in order for
the Company to borrow an additional $660,000 from EnCap to finance the
acquisition of NCI (Note 4). Additionally, the monthly interest-only
payments were extended through December 1998. Beginning in January 1999,
in addition to the monthly interest payments, monthly principal payments in
the amount of $75,625 were to begin and continue through maturity on
December 31, 2003.

On August 14, 1998, these promissory notes were amended, renewed and
subordinated to facilitate the Company's revolving line of credit agreement
with Bank of America (described below). The Company retired $1,585,000 of
the EnCap debt in conjunction with this restructuring transaction, leaving
a principal balance outstanding at August 14, 1998 of $5,500,000. Future
interest payment dates were revised from monthly to quarterly.
Additionally, EnCap was issued 2,844,859 shares of the Company's common
stock. On December 29, 1998, the Company paid EnCap in full for the
remaining principal of $5,500,000 and all accrued interest through that
date.

Cash paid to EnCap for interest during the year ended December 31, 1998
totaled $638,391.

BEC/TJC DEBT

On October 15, 1998, the Company issued $4,000,000 in subordinated
promissory notes to BEC and TJG in connection with the acquisition of
certain oil and gas properties from BEC and TJG (Note 4). The debt carried
an interest rate of 10% per annum with a maturity date of December 31,
2003.

On December 15, 1998, BEC and TJG canceled this indebtedness in return for
common stock of the Company; the Company issued 7,078,333 of the Company's
common stock to BEC and 1,255,000 shares of the Company's common stock to
TJG. Additionally, BEG conveyed certain assets, primarily consisting of
office furniture and equipment, to the Company. In connection with this
transaction, the Company realized an approximate $2.6 million nontaxable
extraordinary gain.

-8-

<PAGE> 57

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

6. STOCKHOLDERS' EQUITY

As of December 31, 1998, the Company had 200,000 shares of preferred stock
authorized with a par value of $.01. There were 100,000 shares issued and
outstanding as of December 31, 1998. Pursuant to the reincorporation merger
(Note 1), each of the 100,000 shares of Bargo preferred stock were
converted into 260 shares of Bargo common stock and 26,000,000 common
shares were issued.

In 1998, the Company issued 100,000 preferred shares and 16,741,287 common
shares, in conjunction with various oil and gas property acquisitions and
the restructuring of certain indebtedness (as further described in Notes 4
and 5).

On August 14, 1998, in conjunction with the acquisition of an interest in
the South Coles Levee Field (as further described in Note 4), the Company
issued warrants to purchase 250,000 shares of the Company's common stock.
The warrants have an exercise price of $.43 per share and are exercisable
until August 14, 2003.

During 1999, in exchange for 3,902,818 shares, Bargo assumed liabilities
for stock to be assigned to the former employees of BER, BEC, and TJG. The
obligation was extinguished when Bargo issued options (which vested
immediately) for the shares previously due to be assigned to these former
employees. The transaction had no impact on 1999 results of operations
since the transaction was capital in nature and the options granted were
not dependent on employment with Bargo. In December 1999, the Company
repurchased a portion of such options (totaling 1,020,408 shares) for
$509,000.

7. STOCK OPTIONS AND WARRANTS

1999 STOCK INCENTIVE PLAN

In May 1999, the Company adopted the 1999 Stock Incentive Plan which
provides for stock options to be granted to employees with exercise prices
not less than the fair market value of the underlying common stock. These
have a term of ten years from the date of grant and generally vest over a
three year period from the date of grant. During the year ended December
31, 1999 approximately 26 million options were granted under this plan,
including the 3.9 million options discussed in Note 6, to employees of the
Company at exercise prices ranging from $0.01 to $0.50 per share. As of
December 31, 1999, 25 million options were outstanding, with a weighted
average exercise price of $0.13 per share.

For all options granted during 1999, the market price of the Company's
common stock on the grant date was approximately equal to the exercise
price.

If not previously exercised, all options outstanding at December 31, 1999
will expire in 2009.

-9-

<PAGE> 58

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

1993 EMPLOYEE INCENTIVE PLAN

The Company has a stock option plan, under which key employees may be
granted options to purchase the Company's common stock at prices equal to
market value at the date of grant (110% of market value for stockholders
with more than 10% of the outstanding stock). The options may be exercised
anytime within five to ten years of the date of grant.

The following is a summary of activity under this stock option plan for the
years ended December 31,1999 and 1998:

<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE

<S> <C> <C> <C> <C>
Outstanding, beginning of year 737,844 $ 0.41 387,844 $ 0.41

Cancelled or expired (40,124) 0.24 -- --
Granted -- -- 460,000 0.44
Exercised (37,720) 0.27 (110,000) 0.53
------- -------- ------- --------

Outstanding, end of year 660,000 $ 0.43 737,844 $ 0.41
======= ======== ======= ========
</TABLE>

All options outstanding at December 31, 1999 and 1998, and those exercised
during 1999 and 1998, were granted to employees or stockholders of the
Company. For all options granted during 1999 and 1998, the market price of
the Company's common stock on the grant date was approximately equal to the
exercise price.

If not previously exercised, options outstanding at December 31, 1999 will
expire as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE

<S> <C> <C>
2001 20,000 $ 0.44
2002 290,000 .45
2008 350,000 .41
-------
Total 660,000
=======
</TABLE>

-10-

<PAGE> 59

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

WARRANTS AND OTHER STOCK OPTIONS

The Company has also granted warrants and other options which are
summarized as follows for the years ended December 31, 1999, and 1998:

<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE

<S> <C> <C> <C> <C>
Outstanding,
beginning of year 275,000 $ 0.62 25,000 $ 2.50

Granted to BER -- -- 250,000 0.43
------- ------- ------- -------
Outstanding,
end of year 275,000 $ 0.62 275,000 $ 0.62
======= ======= ======= =======
</TABLE>

All outstanding warrants and other options were exercisable at December 31,
1999. If not previously exercised, all warrants and other options
outstanding at December 31, 1999 will expire by the year 2008.

PRO FORMA STOCK-BASED COMPENSATION DISCLOSURES

As described in Note 1, the Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized for grants of options to employees
since the exercise prices were not lower than the market prices of the
Company's common stock on the measurement date. Had compensation been
determined based on the estimated fair value at the measurement dates for
awards under those plans consistent with the method prescribed by SFAS No.
123, the Company's 1999 and 1998 net income and earnings (loss) per share
would have been changed to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
(in thousands, except for share data) 1999 1998

<S> <C> <C>
Net income:
As reported $ 663 $ 1,408
Pro forma 110 1,320

Net income (loss) per share of
common stock:
As reported $ (0.04) $ 0.14
Pro forma (0.04) 0.13
</TABLE>

-11-

<PAGE> 60

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

The estimated fair value of each employee option and warrant granted in
1999 and 1998 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998

<S> <C> <C>
Expected volatility 188% 28% to 68%
Risk-free interest rate 6.41% 6.57%
Expected term (in years) 10 9
</TABLE>

8. INCOME TAXES

The Company's provision (benefit) for income taxes was comprised entirely
of deferred income taxes for the years ended December 31, 1999 and 1998.

The primary reasons for the difference between tax expense (benefit) at the
statutory federal income tax rate and the Company's provision (benefit) for
income taxes were:

<TABLE>
<CAPTION>
1999 1998

<S> <C> <C>
Theoretical tax at 34% $ 177,000 $(498,000)
Release of valuation allowance for net
operating losses in prior year (353,000) --
Valuation allowance on net operating
losses -- 193,000
Other 35,000 18,000
--------- ---------
$(141,000) $(287,000)
========= =========
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1999
and 1998 were as follows:

<TABLE>
<CAPTION>
1999 1998

<S> <C> <C>
Oil and gas properties $ 4,047,000 $ 1,536,000
Net operating loss (1,249,000) (1,165,000)
Valuation allowance 287,000 640,000
----------- -----------
Net deferred tax liability $ 3,085,000 $ 1,011,000
=========== ===========
</TABLE>

-12-

<PAGE> 61

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

At December 31, 1999, the Company has approximately $3.7 million of net
operating loss carryforwards, $2.6 million of which are subject to
limitations under Section 382 of the Internal Revenue Code and expire
between 2000 and 2019. A valuation allowance has been provided to the
extent that the Company believes the net operating losses (NOL's) will
expire unutilized. In 1999, $353,000 of the valuation allowance was
released based upon the improved financial condition of the Company and
revisions to projected future taxable income. The significant increase in
deferred taxes for oil and gas properties is a result of acquisitions.
Since the increase is a noncash item, it is not reflected in the statement
of cash flows.

9. COMMITMENTS AND CONTINGENCIES

The Company has an operating lease for 19,255 square feet of office space
which expires on August 31, 2002. Under the terms of the lease agreement,
the Company is liable for fixed, monthly rent payments. The Company
incurred office rent expense of $255,000 and $221,000, respectively for the
years ended December 31, 1999 and 1998, respectively. Minimum future
noncancelable lease payments for the years ended December 31, are as
follows:

In the course of its normal business affairs, the Company is subject to
possible loss contingencies arising from federal, state, and local
environmental, health, and safety laws and regulations and third-party
litigation. There are no matters which, in the opinion of management, will
have a material adverse effect on the financial position, results of
operations, or cash flows of the Company.

10. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

Financial instruments that subject the Company to credit risk consist
principally of accounts and notes receivable. The receivables are primarily
from companies in extractive industries. No single receivable is considered
to be sufficiently material as to constitute a concentration. The Company
does not ordinarily require collateral for accounts receivable, but in the
case of receivables for joint operations, the Company often has the ability
to offset amounts due against the participant's share of production from
the related party. No allowance for doubtful accounts was considered
necessary at December 31, 1999 and 1998.

-13-

<PAGE> 62

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

11. MAJOR CUSTOMERS

In 1999, three customers accounted for approximately 24%, 16%, and 12% of
the Company's revenues. In 1998, one of these purchasers accounted for
approximately 24% of the Company's revenues.

12. HEDGING ACTIVITIES

The Company engages in certain hedging activities related to the purchase
and delivery of oil and gas in the future. Such activities are accounted
for in accordance with Statement of Financial Accounting Standard No. 80,
"Accounting for Futures Contracts" (SFAS 80). The losses on hedging
contracts are included as a reduction of net revenues.

Approximately 50% (or 150,000 MMBTU per month) of current natural gas
production was hedged through calendar year 1999. For the Company's South
Coles Levee production a hedge was in place for 65,000 MMBTU at prices
ensuring a floor of $2.00 per MMBTU and a ceiling of $2.45 per MMBTU based
on Southern California border prices. For the Company's Gulf Coast
properties, a hedge was in place for 85,000 MMBTU at prices ensuring a
floor of $2.00 per MMBTU and a ceiling of $2.04 per MMBTU based on Houston
Ship Channel pricing.

At December 31, 1999, collars were in place for portions of the Company's
oil production from October 1999 through September 2000 at floors of $18.00
and ceilings of $20.75 and $23.08. Contracted volumes total 50,200 barrels
per month declining each month to 42,000 barrels. Beginning October 2000
through September 2001, the Company has two swaps in place at $17.55 and
$18.05. Contracted volumes total 41,350 barrels per month declining to
34,300 barrels per month, representing approximately 50% of the Company's
projected oil production.

13. SUBSEQUENT EVENT

On February 22, 2000, the Company announced its intention to purchase
significant operating assets from various subsidiaries of Texaco Inc. for
an estimated purchase price of $161 million. The purchase price to be paid
for the properties is subject to reduction if the joint working interest
owners exercise preferential rights to purchase certain properties, or for
other environmental defects identified before closing. The Company has
received commitments from commercial banks to loan the Company sufficient
amounts to finance the entire acquisition and replace existing bank
indebtedness. The Company expects to close this acquisition late in the
first quarter of 2000.

-14-

<PAGE> 63

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

14. FINANCIAL DATA FOR OIL AND GAS PRODUCING ACTIVITIES

The following table sets forth certain information with respect to the oil
and gas producing activities of the Company:

<TABLE>
<CAPTION>
1999 1998

<S> <C> <C>
Costs incurred in oil and gas producing
activities:
Acquisition of proved properties $ 27,881,000 $ 33,155,000
Development costs 2,234,000 103,000
------------ ------------
Total $ 30,115,000 $ 33,258,000
============ ============
Net capitalized costs related to oil and gas
producing activities:
Proved properties $ 76,107,000 $ 45,992,000
Less - accumulated depletion, depreciation,
amortization and impairment (6,135,000) (1,507,000)
------------ ------------
Net oil and gas property costs $ 69,972,000 $ 44,485,000
============ ============
</TABLE>

-15-

<PAGE> 64

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

15. OIL AND GAS RESERVE DATA (UNAUDITED)

The following table, based on information prepared by independent petroleum
engineers, summarizes changes in the estimates of the Company's net
interest in total proved reserves of crude oil and condensate, natural gas
liquids and natural gas, all of which are domestic reserves:

<TABLE>
<CAPTION>
OIL AND
NATURAL
GAS LIQUIDS NATURAL GAS
(BBLS) (MCF)

<S> <C> <C>
Balance, January 1, 1998 2,179,000 6,139,000
Purchase of minerals in place 3,245,000 55,840,000
Revisions of previous estimates (1,729,000) 8,584,000
Production (126,000) (1,109,000)
---------- ----------
Balance, December 31, 1998 3,569,000 69,454,000
Purchase of minerals in place 8,589,000 3,003,000
Revisions of previous estimates 4,626,000 8,398,000
Production (627,000) (3,762,000)
Sales of minerals in place (1,000) (39,000)
---------- ----------
Balance, December 31, 1999 16,156,000 77,054,000
========== ==========

</TABLE>

At December 31, 1999 and 1998, respectively, 10,528,600 and 2,935,700
barrels of oil and natural gas liquids and 52,516,700 and 50,066,000 mcf of
natural gas were classified as proved developed.

Proved oil and gas reserves are the estimated quantities of crude oil,
condensate, natural gas liquids and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed oil and gas reserves are reserves that can be
expected to be recovered through existing wells with existing equipment and
operating methods. The above estimated net interests in proved reserves are
based upon subjective engineering judgments and may be affected by the
limitations inherent in such estimation. The process of estimating reserves
is subject to continual revision as additional information becomes
available as a result of drilling, testing, reservoir studies and
production history. There can be no assurance that such estimates will not
be materially revised in subsequent periods.

-16-

<PAGE> 65

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

16. STANDARDIZED MEASURE OF CHANGES IN FUTURE NET REVENUES (UNAUDITED)

The standardized measure of discounted future net cash flows at December
31, 1999 and 1998 relating to proved oil and gas reserves is set forth
below. The assumptions used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board and as such, do not
necessarily reflect the Company's expectations of actual revenues to be
derived from those reserves nor their present worth. The limitations
inherent in the reserve quantity estimation process are equally applicable
to the standardized measure computations since these estimates are the
basis for the valuation process.

<TABLE>
<CAPTION>
1999 1998

<S> <C> <C>
Future cash inflows $ 572,790,000 $ 185,660,000
Future production costs (221,861,000) (75,262,000)
Future development costs (38,562,000) (12,814,000)
Future income tax expense (86,105,000) (22,077,000)
------------- -------------
Future net cash flows 226,262,000 75,507,000
10% annual discount for estimated
timing of cash flows (101,818,000) (33,978,000)
------------- -------------

Standardized measure of discounted
future net cash flows $ 124,444,000 $ 41,529,000
============= =============
</TABLE>

-17-

<PAGE> 66

BARGO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------

Future net cash flows were computed using year-end prices and costs, and
year-end statutory tax rates (adjusted for permanent differences) that
relate to existing proved oil and gas reserves at year-end. The following
are the principal sources of change in the standardized measure of
discounted future net cash flows:

<TABLE>
<CAPTION>
1999 1998

<S> <C> <C>
Sale of oil and gas produced, net
of production costs $ (11,449,000) $ (1,697,000)
Purchase of minerals in place 74,518,000 43,464,000
Net changes in prices and
production costs 37,400,000 (4,974,000)
Sales of minerals in place (65,000) --
Revisions and other 13,573,000 393,000
Accretion of discount 4,153,000 1,128,000
Net change in income taxes (35,215,000) (8,068,000)
------------- -------------
Net change 82,915,000 30,246,000
Balance, beginning of year 41,529,000 11,283,000
------------- -------------
Balance, end of year $ 124,444,000 $ 41,529,000
============= =============
</TABLE>

-18-
<PAGE> 67
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER TITLE OF DOCUMENT
<S> <C> <C>
2. Plan of acquisition, reorganization, arrangement, (1)
liquidation or succession

3. Articles of Incorporation and By-laws

3.4 Amendment to Bargo Energy Company By-laws
(Incorporated by reference from Exhibit 3.4 to the
Company's Quarterly Report on Form 10-QSB for the
period ended March 31, 1999, filed with the
Securities and Exchange Commission on May
21, 1999)

4. Instruments defining the rights of security holders

9. Voting Trust Agreement (1)

10. Material Contracts

<PAGE> 68

<PAGE> 69

10.16 First Amendment to Registration Rights Agreement
among the Company, B. Carl Price and certain other
shareholders dated December 15, 1998 (Incorporated by
reference from Exhibit 99.6 to the Company's Current
Report on Form 8-K dated December 15, 1998, filed
with the Securities and Exchange Commission on
December 30, 1998)
</TABLE>

<PAGE> 70

11. Statement regarding computation of per share earnings (1)

13. Annual or quarterly reports, Form 10-Q (1)

16. Letter on change in certifying accountant (1)

18. Letter on change in accounting principles (1)

21. Subsidiaries of the Registrant

22. Published report regarding matters submitted to vote (1)

23. Consents of experts and counsel

24. Power of attorney (1)

27. Financial data schedule

99. Additional exhibits (1)
</TABLE>

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

(1) Inapplicable to this filing.

<PAGE> 1
EXHIBIT 21

SCHEDULE OF SUBSIDIARIES

Future Petroleum Corporation, a Texas corporation

Alaska Eldorado Gold, a Nevada corporation

Future Energy Corporation, a Nevada corporation

Future CAL-TEX Corporation, a Texas corporation

<PAGE> 1
EXHIBIT 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of our report dated March 3, 2000 relating to the
financial statements of Bargo Energy Company and subsidiaries, which appears in
Bargo Energy Company's Annual Report on Form 10-KSB for the year ended December
31, 1999.

/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP

Houston, Texas
March 8, 2000

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,375
<SECURITIES> 0
<RECEIVABLES> 7,858
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,233
<PP&E> 76,803
<DEPRECIATION> (6,220)
<TOTAL-ASSETS> 84,539
<CURRENT-LIABILITIES> 4,717
<BONDS> 0
51,664
0
<COMMON> 921
<OTHER-SE> 3,372
<TOTAL-LIABILITY-AND-EQUITY> 84,539
<SALES> 19,134
<TOTAL-REVENUES> 19,134
<CGS> 16,242
<TOTAL-COSTS> 16,242
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,378
<INCOME-PRETAX> 522
<INCOME-TAX> (141)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 663
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)

</TABLE>