PRESIDIO OIL CO, 10-K405, 1996-04-12

PRESIDIO OIL CO
10-K405, 1996-04-12
CRUDE PETROLEUM & NATURAL GAS

Previous: PREMIER INDUSTRIAL CORP, 15-12G, 1996-04-12

Next: PRINCETON AMERICAN CORP, 10QSB, 1996-04-12

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

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

FORM 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1995

[ ] 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 1-8241

PRESIDIO OIL COMPANY
(Exact name of registrant as specified in its charter)

DELAWARE 95-3049484
(State of Incorporation) (I.R.S. Employer Identification No.)

5613 DTC PARKWAY, SUITE 750
ENGLEWOOD, COLORADO 80111-3065
(Address of principal executive offices) (Zip Code)

(303) 773-0100
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: NONE

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

CLASS A COMMON STOCK, $.10 PAR VALUE PER SHARE
CLASS B COMMON STOCK, $.10 PAR VALUE PER SHARE
9% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2015

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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-K or any amendment to
this Form 10-K. [ X ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 29, 1996 was $339,000.

The number of shares outstanding of each of the registrant's classes of common
stock as of March 29, 1996 was as follows:

<TABLE>
<CAPTION>
Class Number Outstanding
----- ------------------
<S> <C>
CLASS A COMMON STOCK, $.10 PAR VALUE PER SHARE 25,318,085
CLASS B COMMON STOCK, $.10 PAR VALUE PER SHARE 3,216,585
</TABLE>

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Form (Items 10, 11, 12 and 13) is
incorporated by reference from the registrant's Proxy Statement.

1
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
EXPLORATION AND PRODUCTION OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
MARKETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
EXPLORATION AND PRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Estimated Proved Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Productive Wells and Developed Acreage . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Production, Unit Prices and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Undeveloped Acreage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Drilling Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
OFFICE LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . 10

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . 11
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . 13
LIQUIDITY AND CAPITAL RESOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . 19
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . . . . . . 20
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Statements of Stockholders' Equity (Deficit) for the
Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . 45

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . . . . 45
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . 45
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . 45

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 46
LIST OF DOCUMENTS FILED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>

2
<PAGE> 3
PART I

ITEM 1. BUSINESS.

GENERAL

Presidio Oil Company is an independent oil and gas company organized under the
laws of the State of Delaware in April 1976 to continue the business of
Presidio Exploration, Inc. (organized in 1968) of engaging, primarily through
subsidiaries, in onshore oil and gas exploration, development and production in
selected regions in the continental United States. The Company maintains its
corporate offices at 5613 DTC Parkway, Suite 750, Englewood, Colorado 80111-
3065. Its telephone number at that location is (303) 773-0100. Unless the
context otherwise requires, all references in this Annual Report on Form 10-K
(this "Report") to "Presidio" or the "Company" are to Presidio Oil Company and
its consolidated subsidiaries.

The Company conducts most of its exploration, development and production
operations in two regional areas: (i) the Rocky Mountains, with operations
primarily in Wyoming and North Dakota, and (ii) the Mid-Continent, with
operations primarily in western Oklahoma and south Louisiana. Within these
regional areas, the Company's operations are concentrated in five core areas:
the Green River Basin in Wyoming; the Powder River Basin in Wyoming; the
Williston Basin in North Dakota; the Anadarko Basin in western Oklahoma; and
south Louisiana.

FINANCIAL CONDITION

During 1994 and 1995, the financial condition and operating cash flows of the
Company were materially and adversely affected by continued declines in oil and
gas production levels and a significant decline in the price of natural gas in
the Rocky Mountain region where 60% of the Company's gas production is located.
The Company's revenues and operating cash flows thus declined significantly
during such periods. Because of the Company's deteriorating financial
condition and because of its failure to make interest payments and other
obligations on its Public Debt and principal payments on its bank debt, Events
of Default have occurred under the indentures governing the Company's Public
Debt and under the Credit Agreement governing the Company's bank debt. It is
unlikely that the Company will be able to continue as a going concern in its
current financial structure. See Items 7 and 8 of this Report for additional
information as to the Company's financial condition.

EXPLORATION AND PRODUCTION OPERATIONS

The exploration and production activities of the Company consist of the
geological and geophysical evaluation of prospective oil and gas properties,
the acquisition of oil and gas leases or other interests in exploratory
prospects, the drilling of exploratory test wells, and the development and
operation of properties for the production and sale of oil and gas. The
Company's drilling activities include participation in a substantial amount of
low-risk development drilling operations, as well as in selected high-risk,
high-potential exploration prospects. The Company generates most of its
exploration prospects, particularly in the Rocky Mountains, through its
in-house geological staff. However, exploration and development drilling
prospects may be identified by third parties, including independent petroleum
consultants and other oil and gas companies through joint interest programs,
particularly in the Mid-Continent. All of the drilling activities of the
Company are performed by independent drilling contractors. The Company's two
principal regional operating areas, and the operations conducted therein, are
briefly described below. The reserves outside of such two regional operating
areas totaled 18.7 billion cubic feet ("BCF") of gas, of which 2.4 BCF of gas
was proved developed reserves with net production for the month ended January
31, 1996 of .7 million cubic feet ("MMCF") of gas per day.

3
<PAGE> 4
ROCKY MOUNTAINS

At December 31, 1995, the Company had 440 gross (167 net) producing wells,
98,500 gross (37,600 net) developed acres and 619,900 gross (298,900 net)
undeveloped acres in this area, primarily located in (i) the Moxa Arch and Red
Desert areas of the Green River Basin in Wyoming, (ii) the Powder River Basin in
Wyoming and (iii) the Williston Basin in North Dakota. The Company operates 329
of these gross wells. For the month ended January 31, 1996, net production from
the Rocky Mountain area averaged approximately 21.3 MMCF of gas per day and 1.8
thousand barrels ("MBbls") of oil per day, representing approximately 66% of the
Company's average daily production for such period. At December 31, 1995 the
Rocky Mountain area had proved reserves of 161.5 BCF of gas and 9.8 million
barrels ("MMBbls") of oil, representing approximately 62% of the Company's total
proved oil and gas reserves, of which 84.2 BCF of gas and 8.2 MMBbls of oil were
proved developed reserves.

MID-CONTINENT

At December 31, 1995, the Company had 247 gross (97 net) producing wells,
53,800 gross (20,900 net) developed acres and 41,200 gross (13,600 net)
undeveloped acres in this area, primarily located in (i) south Louisiana and
(ii) the Anadarko Basin in western Oklahoma. The Company operates 105 of these
gross wells. For the month ended January 31, 1996, net production from the
Mid-Continent area averaged approximately 13.8 MMCF of gas per day and .4 MBbls
of oil per day, representing approximately 34% of the Company's average daily
production for such period. At December 31, 1995 the Mid- Continent area had
proved reserves of 107.8 BCF of gas and 2.0 MMBbls of oil, representing
approximately 33% of the Company's total proved oil and gas reserves, of which
60.3 BCF of gas and 1.3 MMBbls of oil were proved developed reserves.

EMPLOYEES

As of March 29, 1996, the Company had 88 employees of which 28 were field
employees. The Company's employment level will change over time as required by
its operations. In addition, the Company intends to engage the services of
independent geological, engineering, land, accounting and other consultants
from time to time to assist with its operations.

MARKETS

The Company's gas production has historically been sold under contracts with
marketing companies. During 1994 and 1995 there have been significant regional
declines in gas pricing, particularly in the Rocky Mountain region where the
Company produces 60% of its gas, even though pricing levels in respect of gas
futures contracts on the New York Mercantile Exchange ("NYMEX") increased in
late 1995 and early 1996. For example, the differential between the NYMEX and
Rocky Mountain index prices was $.92 as of December 31, 1995. See Item 7 of
this Report for additional information as to the Company's markets and prices.

The Company markets most of its oil production with independent third-party
resellers and refiners at market ("posted") prices. These posted prices
generally reflect the prices determined by the trading of West Texas
Intermediate ("WTI") oil futures contracts on the NYMEX, with adjustments for
the geographical area in which the producing properties are located and for the
quality of the oil produced. NYMEX prices continue to be influenced by
worldwide production levels and a variety of political and economic events over
which the Company has no control.

4
<PAGE> 5
COMPETITION

Competition in the oil and gas industry is intense. Many companies and
individuals compete to acquire prospective oil and gas leases and other mineral
interests, as well as to obtain exploration and development funding. Many of
these competitors are large, well-established companies with substantially
larger operating staffs and greater capital resources than the Company, and
they have been engaged in the energy business for a much longer period than the
Company. The Company may be at a competitive disadvantage with these larger
entities.

There is also competition in the marketing of gas, insofar as numerous
companies are active gas marketers, including marketing affiliates of
interstate pipelines, major integrated oil companies, Canadian gas producers
and pipelines, and local and national gas gatherers, brokers and marketers of
widely varying sizes, financial resources and experience. Certain competitors
have capital resources many times greater than the Company's, and they control
substantially greater supplies of gas. Local utilities and distributors of gas
(some of which are customers of the Company) are, in some cases, engaged
directly and through affiliates in marketing activities that compete with those
of the Company.

REGULATION

The Company's oil and gas operations are subject to various federal, state and
local governmental regulations. Matters subject to regulation include discharge
permits for drilling operations, drilling bonds, reports concerning operations,
the spacing of wells, unitization and pooling of properties and taxation. From
time to time, regulatory agencies have imposed price controls and limitations
on production by restricting the rate of flow of oil and gas wells below actual
production capacity in order to conserve supplies of oil and gas.

The Federal Energy Regulatory Commission ("FERC") regulates interstate natural
gas transportation rates and service conditions, which affect the marketing of
natural gas produced by the Company, as well as the revenues received by the
Company for sales of such production. Since the mid-1980s, the FERC has issued
a series of orders, culminating in Order Nos. 636, 636-A and 636-B ("Order
636"), that have significantly altered the marketing and transportation of
natural gas. Order 636 mandates a fundamental restructuring of interstate
pipeline sales and transportation service, including the unbundling by
interstate pipelines of the sales, transportation, storage and other components
of the city-gate sales services such pipelines previously performed. One of
the FERC's purposes in issuing the orders is to increase competition within all
phases of the natural gas industry. Order 636 and subsequent FERC orders on
rehearing have been appealed and are pending judicial review. Because these
orders may be modified as a result of the appeals, it is difficult to predict
the ultimate impact of the orders on the Company and its natural gas marketing
efforts. Generally, Order 636 has eliminated or substantially reduced the
interstate pipelines' traditional role as wholesalers of natural gas, and has
substantially increased competition and volatility in natural gas markets.
While significant regulatory uncertainty remains, Order 636 may ultimately
enhance the Company's ability to market and transport its natural gas, although
it may also subject the Company to greater competition and more restrictive
pipeline imbalance tolerances and greater associated penalties for violation of
such tolerances.

The FERC also regulates rates and service conditions for interstate
transportation of crude oil, liquids and condensate, which can affect the price
the Company receives from the sale of these products. Effective January 1,
1995, the FERC adopted regulations establishing an indexing system for
transportation rates for oil pipelines, which generally indexes such rates to
inflation. These regulations, which could increase the cost of transporting
crude oil, liquids and condensate by pipeline, have been appealed and are
pending judicial decision. Because the regulations are subject to review, the
Company cannot predict the ultimate effect of the orders on the Company.

5
<PAGE> 6
The U.S. Minerals Management Service ("MMS") recently issued a notice of
proposed rulemaking in which it proposed to amend its regulations governing the
calculation of royalties and the valuation of hydrocarbons produced from
federal leases. The principal feature of the amendments, as proposed, would
establish an alternative market-index based method to calculate royalties on
certain hydrocarbon production sold to affiliates or pursuant to
non-arm's-length sales contracts. The MMS proposed this rulemaking to
facilitate royalty valuation relative to various changes in the hydrocarbon
marketing environment. The Company cannot predict what action the MMS will
take on these matters, nor can it predict at this stage of the rulemaking
proceeding how the Company might be affected by amendments to the regulations.

Oil and gas operations are also subject to extensive federal, state and local
laws regulating the discharge of materials into the environment or otherwise
relating to the protection of human health and the environment. These
regulations are often difficult and costly to comply with and carry substantial
penalties for failure to comply. In addition, these regulations may restrict
the rate of oil and gas production below the rate that would otherwise exist.
Legislation affecting the oil and gas industry is under constant review for
amendment or expansion by Congress, the FERC, state regulatory bodies and the
courts. The Company cannot predict when or if any such proposals might become
effective, or their effect, if any, on the Company's operations. The
regulatory burden on the oil and gas industry increases its cost of doing
business and, consequently, affects its profitability. To date, expenditures
by the Company related to compliance with these laws have not been significant.
The Company believes, however, that environmental regulations, including
regulations with respect to the handling and disposal of oil and gas
exploration and production wastes and oil field wastes contaminated by
naturally occurring radioactive materials, and the imposition of financial
responsibility requirements with respect to environmental cleanup costs (e.g.
regulations requiring environmental liability insurance or other types of
financial assurance) may result in additional costs to the Company in the
future. For example, amendments to the Resource Conservation and Recovery Act
to regulate further the handling, transportation, storage and disposal of oil
and gas exploration and production wastes have been considered by Congress and
may be adopted. Also, in August 1993 the U.S. Minerals Management Service
published an advance notice of its intent to adopt regulations that may require
owners of oil and gas facilities that could be the source of an oil spill into
waters of the United States to provide $150 million in financial assurances to
cover costs that might be incurred by governmental authorities in responding to
and cleaning up an oil spill. Furthermore, at least two courts have ruled that
certain wastes associated with the production of crude oil may be classified as
"hazardous substances" under the Comprehensive Environmental Response,
Compensation, and Liability Act (commonly called the "Superfund") and thus such
wastes may be subject to the cleanup and liability standards established under
the Superfund program. Such legislation, regulations and court decisions, if
enacted, adopted or upheld, could have a significant adverse impact on the
Company's operating costs.

ITEM 2. PROPERTIES.

EXPLORATION AND PRODUCTION

The Company's operations are concentrated in five core areas where the Company
conducts most of its exploration and development drilling and acquisition
activity: the Green River Basin in Wyoming; the Powder River Basin in Wyoming;
the Williston Basin in North Dakota; the Anadarko Basin in western Oklahoma;
and south Louisiana. None of the Company's oil and gas production is subject
to long-term supply or similar agreements with foreign governments or
authorities.

6
<PAGE> 7
OPERATIONS

At December 31, 1995, the Company operated approximately 76% of the net
producing wells in which it owned an interest. The operator of a well
supervises production, maintains production records, employs field personnel
and performs other functions on behalf of all owners of such operated wells.
See "Business - Exploration and Production Operations" contained in Item 1 of
this Report for information concerning the Company's operating areas.

The Company's oil and gas operations are subject to all of the operating
hazards and risks normally incident to drilling for and producing oil and gas,
such as fires, explosions, encountering formations with abnormal pressures,
blowouts, cratering and oil spills, any of which can result in loss of
hydrocarbons, environmental pollution, personal injury claims and loss of life.
Such hazards can also severely damage or destroy equipment, sub-surface
structures, surrounding areas or property of others. As protection against
such operating hazards, the Company maintains insurance coverage, including
operator's extra expense, physical damage on certain risks, employer's
liability, comprehensive general liability and workers' compensation. The
Company believes that such insurance is adequate and customary for companies of
a similar size engaged in operations similar to those of the Company, but
losses can occur from uninsurable risks or in amounts in excess of existing
insurance coverage. The Company does not carry business interruption insurance
in respect of most of its operations and the occurrence of an event that is not
fully covered by insurance could have an adverse impact upon the Company's
financial condition and results of operations.

ESTIMATED PROVED RESERVES

The following tables set forth estimates of proved oil and gas reserves and the
present value of estimated future net revenues attributable to such reserves,
based on the assumptions that oil and gas prices will remain fixed at yearend
levels, with escalation up to prices which prevail under fixed and determinable
escalation provisions of existing oil and gas contracts, and that operating
costs will remain fixed at yearend levels. The present value of the estimated
future net revenues from proved oil and gas reserves at the dates indicated
below was computed by discounting the aggregate estimated future net revenues
by 10% per year. The present value does not represent the fair market value of
such reserves. This information is based primarily upon reserve reports
prepared by the Company and reviewed by Huddleston & Co., Inc., Houston, Texas,
an independent petroleum and geological engineering firm.

Proved reserves are the estimated quantities of oil, gas and natural gas
liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
existing economic and operating conditions. Proved developed reserves are
proved reserves that can be expected to be recovered through existing wells
with existing equipment and operating methods. The estimation of reserves
requires substantial judgment on the part of petroleum engineers resulting in
imprecise determinations, particularly with respect to new discoveries. The
accuracy of any reserve estimate depends on the quality of available data and
engineering and geological interpretation and judgement. Results of drilling,
testing and production subsequent to the date of the estimate may result in
revisions of such estimate. Accordingly, estimates of reserves are often
materially different from the quantities of oil and gas that are ultimately
recovered and such estimates will change as future production and development
information becomes available. The reserve data represents estimates only and
should not be construed as being exact.

7
<PAGE> 8
Estimates of proved reserves at December 31, 1995 have not been previously
filed by the Company with, or included in reports to, any federal authority or
agency.

<TABLE>
<CAPTION>
December 31,
---------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Estimated proved oil and gas reserves: (1)
Oil and condensate (MBbls) 11,807 13,273 13,036
Gas (MMCF) 288,000 323,978 302,954
Present value of future net revenues (thousands) (2) $208,879 $236,639 $294,650
Estimated proved developed oil and gas reserves:
Oil and condensate (MBbls) 9,506 9,494 9,942
Gas (MMCF) 146,943 176,207 164,530
Present value of future net revenues (thousands) (2) $139,117 $161,173 $184,055
</TABLE>

(1) Includes proved undeveloped gas reserves of 16.3 BCF, 26.1 BCF and
27.5 BCF at December 31, 1995, 1994 and 1993, respectively, which are
subject to a joint drilling participation agreement as discussed in
Note 8 to the Company's Consolidated Financial Statements contained in
Item 8 of this Report.
(2) Represents the present value, discounted at 10%, of the estimated
future net revenues from proved oil and gas reserves, before a
provision for future income taxes.

See Note 12 to the Company's Consolidated Financial Statements contained in
Item 8 of this Report for an analysis of changes in proved oil and gas reserves
and changes in the present value of future net revenues.

PRODUCTIVE WELLS AND DEVELOPED ACREAGE

The following table sets forth the Company's developed acreage and productive
wells at December 31, 1995. "Gross" refers to the total acres or wells in
which the Company has a working interest, and "Net" refers to gross acres or
wells multiplied by the percentage of working interest owned by the Company.

<TABLE>
<CAPTION>
Productive Wells (2)
----------------------------------------------------------------
Developed Acreage(1) Oil Gas Total
-------------------- ---------------- ---------------- ----------------
Gross Net Gross Net Gross Net Gross Net
----- --- ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C>
153,800 59,100 267 113 454 162 721 275
</TABLE>

(1) Developed acreage is acreage assignable to productive wells.
(2) Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connection or
necessary governmental certification to commence deliveries, and oil
wells awaiting connection to production facilities. Wells which are
completed in more than one producing horizon are counted as one well.
The gross wells reported above which had multiple completions totaled
13.

8
<PAGE> 9
PRODUCTION, UNIT PRICES AND COSTS

Information with respect to production and average unit prices and costs for
the years ended December 31, 1995, 1994 and 1993 is set forth below:

<TABLE>
<CAPTION>
Years Ended December 31, 1995
-----------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Production:
Oil and condensate (MBbls) 866 1,137 1,436
Gas (MMCF) 14,790 17,219 15,340
Average sales price:
Oil and condensate
(per Bbl) $15.31 $13.81 $14.55
Gas (per MCF) $ 1.22 $ 1.45 $ 1.73
Average production costs per
equivalent barrel (1)(2) $ 3.94 $ 3.71 $ 4.10
Average production costs per
equivalent MCF (1)(2) $ .66 $ .62 $ .68
</TABLE>

(1) Oil and gas are converted to a common unit of measure ("equivalent
barrel" or "equivalent MCF") on the basis of six thousand cubic feet
("MCF") of gas to one barrel ("Bbl") of oil.
(2) The components of production costs may vary substantially among wells,
depending on the methods of recovery employed and other factors, but
generally include production taxes, administrative overhead, workovers,
maintenance and repair, labor and utilities.

UNDEVELOPED ACREAGE

At December 31, 1995, the Company owned 824,500 gross (398,400 net) undeveloped
acres, all of which are located in the continental United States. The table
below sets forth the states in which such acreage is located and the number of
gross and net acres in each.

<TABLE>
<CAPTION>
State Gross Acres Net Acres
----- ----------- ---------
<S> <C> <C>
Wyoming 426,800 249,200
West Virginia (1) 163,400 85,900
Montana 160,500 28,600
North Dakota 24,400 14,300
Louisiana 15,300 3,400
Texas 12,100 4,800
Oklahoma 7,500 3,900
New Mexico 2,100 1,000
Other 12,400 7,300
------- -------

TOTAL 824,500 398,400
======= =======
</TABLE>

(1) This acreage is subject to a joint drilling participation agreement as
discussed in Note 8 to the Company's Consolidated Financial Statements
contained in Item 8 of this Report.

9
<PAGE> 10
DRILLING ACTIVITY

During the periods indicated, the Company drilled or participated in the
drilling of the following exploratory and development wells:

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
1995 1994 1993
----------------------- ----------------------- -----------------------
Success Success Success
Gross Net Ratio Gross Net Ratio Gross Net Ratio
----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory:
Productive 2 .20 16.7 1 .24 11.2 3 1.57 71.0
Non-Productive 1 1.00 83.3 6 1.91 88.8 2 .64 29.0
--- ----- ----- --- ----- ----- --- ----- -----
3 1.20 100.0 7 2.15 100.0 5 2.21 100.0
--- ----- ------ --- ----- ------ --- ------ ------

Development:
Productive 40 12.46 98.3 56 15.99 92.4 51 12.66 91.7
Non-Productive 1 .22 1.7 3 1.32 7.6 3 1.14 8.3
--- ----- ----- --- ----- ----- --- ----- -----
41 12.68 100.0 59 17.31 100.0 54 13.80 100.0
--- ----- ----- --- ----- ----- --- ----- -----

Total:
Productive 42 12.66 91.2 57 16.23 83.4 54 14.23 88.9
Non-Productive 2 1.22 8.8 9 3.23 16.6 5 1.78 11.1
--- ----- ----- --- ----- ----- --- ----- -----
44 13.88 100.0 66 19.46 100.0 59 16.01 100.0
=== ===== ===== === ===== ===== === ===== =====
</TABLE>

The above well information excludes wells in which the Company has only an
overriding royalty interest.

At December 31, 1995, the Company was participating in the drilling or
completion of 5 gross (1.60 net) wells.

OFFICE LEASES

The Company has entered into certain leases for office space in Denver and New
York City.

ITEM 3. LEGAL PROCEEDINGS.

There are no material pending legal proceedings to which the Company is a
party, or to which any of its properties are subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

10
<PAGE> 11
PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.

The following table sets forth the high and low sales prices of the Company's
common stock on the American Stock Exchange:

<TABLE>
<CAPTION>
Class A Class B
---------------- ----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C> <C>
1994:
1st Quarter . . . . . 2 3/8 1 5/8 2 1/2 1 5/8
2nd Quarter . . . . . 1 15/16 1 1/4 1 7/8 1 5/8
3rd Quarter . . . . . 1 13/16 1 1/16 1 5/8 1 1/8
4th Quarter . . . . . 1 5/16 3/8 1 3/8 5/8

1995:
1st Quarter . . . . . 5/8 1/8 5/8 3/16
2nd Quarter . . . . . 5/16 1/8 1/2 1/8
3rd Quarter . . . . . 1/2 3/16 7/16 1/4
4th Quarter . . . . . 1/4 1/64 1/4 1/64
</TABLE>

Trading of the Company's Class A and Class B Common Stock was halted by the
American Stock Exchange ("AMEX") on November 17, 1995; and, subsequently, the
Company was informed that it no longer satisfied all of the financial
guidelines of the AMEX for the continued listing of its Class A and Class B
Common Stock on February 16, 1996. There is no established trading market for
the Company's Class A and Class B Common Stock at the current time, although
certain trading in such Common Stock may take place from time to time in the
over-the-counter market.

At March 29, 1996, the Company estimates that there were approximately 970
record holders of Class A Common Stock and 500 record holders of Class B Common
Stock.

The Company does not intend to pay dividends and its ability to do so is
subject to the provisions of various covenants contained in the Company's
revolving credit facility and certain indentures relating to its public debt.

11
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data indicates certain trends in the Company's
financial condition and results of operations. For a more complete
presentation of such trends and a discussion of items which affect the
comparability of the information reflected below, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in
Item 7 of this Report and the Company's Consolidated Financial Statements and
the Notes thereto contained in Item 8 of this Report.

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
--------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
FOR THE PERIOD:

Oil and gas revenues $ 31, 298 $ 40,643 $ 47,476 $ 64,442 $ 95,151
Gross profit (loss) 3,776 8,132 12,757 1,093 (42,439)
Loss from continuing operations (29,588) (24,562) (18,783) (32,696) (76,112)
Net loss attributable to common shares (29,588) (24,562) (7,233) (23,869) (74,268)
Loss from continuing operations
per share of Class A Common Stock (1.08) (.91) (.70) (1.13) (2.65)
Loss from continuing operations
per share of Class B Common Stock (1.08) (.91) (.70) (1.23) (2.75)
Loss per share of Class A Common Stock (1.08) (.91) (.27) (.82) (2.58)
Loss per share of Class B Common Stock (1.08) (.91) (.27) (.92) (2.68)
Dividends per share of Class A Common Stock - - - .10 .10

AT END OF PERIOD:

Total assets $241,946 $259,572 $280,420 $276,959 $440,389
Bank Debt 21,413 21,000 15,000 73,000 187,500
Senior Secured Notes 75,000 75,000 75,000 - -
Convertible Subordinated Debentures 50,000 50,000 50,000 50,000 50,000
Gas Indexed Notes 100,000 100,000 100,000 100,000 100,000
Stockholders' equity (deficit) (49,995) (20,548) 3,565 10,851 37,945
</TABLE>

The Company's historical results have been affected by a number of transactions
during the five years shown above, the most significant of which were: (i) as a
result of the low oil and gas prices received at certain times during 1992 and
1991, the Company was required to reduce the carrying value of its oil and gas
properties by $15 million and $68 million, respectively, which, in turn,
reduced its stockholders' equity by an equivalent amount; (ii) in July 1992,
the Company completed the sale of Mountain Gas Resources, Inc. ("MGRI"), a
subsidiary of the Company which then owned its Wyoming gas gathering and
processing business, as well as its marketing operations (all of which have
been accounted for as discontinued operations) for net cash proceeds of $77.5
million which were used to prepay an equivalent amount of bank debt; (iii) in
December 1992, the Company completed the sale of its proved developed reserves
and associated gathering systems in West Virginia for net cash proceeds of
$32.6 million which was used to repay bank and other indebtedness of the
Company; and (iv) in July 1993 the Company received $11.6 million from the sale
of the Company's remaining equity interest in MGRI (which has been accounted
for as discontinued operations).

12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto contained in Item 8 of
this Report.

LIQUIDITY AND CAPITAL RESOURCES

CURRENT FINANCIAL CONDITION AND RECENT DEVELOPMENTS

Current Financial Condition. During 1994 and 1995, the financial condition and
operating cash flows of the Company were materially and adversely affected by a
significant decline in the price that the Company received for its natural gas
production. The Company's revenues and operating cash flows thus declined
significantly during such periods, making it unlikely that the Company will be
able to continue as a going concern in its current financial structure.
Because of the Company's deteriorating financial condition the Company has
failed to satisfy certain payments and other obligations under, and Events of
Default have occurred in respect of, the Company's public debt and bank debt
obligations. See "Liquidity and Ability to Service Debt; Related Defaults"
below.

Because of the Company's deteriorating financial condition, during the first
six months of 1995 the Company engaged in discussions with various third
parties and certain of its creditors in an effort to arrange a restructuring of
the Company's various debt obligations under which the Company would retain all
or most of its oil, gas and related assets. In June 1995, Tom Brown, Inc.
("Tom Brown") acquired approximately $56 million in principal amount of the
Company's Senior Gas Indexed Notes Due 2002 (the "Senior Gas Indexed Notes")
and reiterated a previously expressed interest in acquiring the Company or all
of its assets. In response to Tom Brown's expression of interest and after
consulting with certain of its significant creditors, the Company decided to
explore the possibility of selling the Company or all of its assets. In August
1995, the Company began soliciting bids from persons interested in acquiring
the Company or all of its assets. A data room was established which provided
potential buyers with information about the Company and its assets. Bids were
received from a number of companies that participated in the data room process.
The Company and its financial advisors evaluated those bids and on November 15,
1995, selected Tom Brown as the bidder with which the Company would pursue
negotiations for a potential sale of the Company or all of its assets. Tom
Brown's November 15, 1995 bid contemplated the acquisition of all of the
Company's assets in consideration of approximately $180 million consisting of a
combination of cash and Tom Brown common stock.

Since late November of 1995, the Company and Tom Brown have been negotiating
with each other and with certain of the Company's creditors regarding a
proposed transaction pursuant to which Tom Brown would acquire the Company or
all of its assets (the "Tom Brown Transaction"). The negotiations with Tom
Brown and certain of the Company's creditors are currently ongoing in an
attempt to reach an informal consensual agreement regarding the terms of the
Tom Brown Transaction, including the allocation of the proceeds thereof.
Failure to reach such an informal consensual agreement would have an adverse
effect on the amount of recovery, if any, that will be received by the holders
of the Company's public debt (in particular its Senior Gas Indexed Notes and 9%
Convertible Subordinated Debentures Due 2015 (the "Subordinated Debentures")),
as well as by the holders of the Company's common stock.

Since the consideration Tom Brown has offered for the Company or all of its
assets would be insufficient to liquidate the Company's bank debt and public
debt obligations at par, the Tom Brown Transaction contemplates that it would
be implemented by means of the Company and its subsidiaries filing a plan of
reorganization under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). Such a plan would implement the Tom Brown Transaction and
provide for the allocation and distribution of the proceeds realized therefrom
among the Company's debt and equity holders. The Company, however, expects
that no creditors of the Company other than holders of the Public Debt (defined
below) will be materially impaired in connection with the Tom Brown
Transaction. A bankruptcy filing and the publicity attendant thereto may
adversely affect the business of the Company and its subsidiaries. While the
Company believes that any such adverse effects would be mitigated if the
bankruptcy filing was made in connection with a consensual Tom Brown
Transaction, a protracted bankruptcy case could have a material adverse effect
on the Company and its ability to implement the Tom Brown Transaction or any
other transaction or restructuring.

13
<PAGE> 14
The Company expects to enter into an agreement with Tom Brown regarding the Tom
Brown Transaction during the second quarter of 1996. There can be no assurance,
however, that such an agreement with Tom Brown will be reached or, if such an
agreement is entered into, that an informal consensual agreement with the
Company's bank lenders and certain of the significant holders of the Public Debt
can be agreed upon as to the amount or nature of the proceeds that would be
available for distribution to the Company's debt and equity holders if the Tom
Brown Transaction is consummated. Should the Company, Tom Brown or other
parties interested in the Tom Brown Transaction fail to reach an agreement
concerning such transaction, then it is likely that the Company would seek
protection from its creditors under chapter 11 of the Bankruptcy Code and seek
other purchasers or effect a restructuring thereunder.

Liquidity and Ability to Service Debt; Related Defaults. As of March 29, 1996,
the Company had cash and cash equivalents of approximately $8 million. The
Company believes that such funds, together with the revenues anticipated to be
received from its ongoing activities, will be sufficient to fund its operations
for the time period necessary to implement the Tom Brown Transaction assuming
that the Company does not make any payments in respect of its Public Debt, or
in respect of its bank debt in excess of the current interest payments being
made thereon. Because of its current financial condition, the Company's
available cash flow is not adequate to meet its debt service requirements
relating to its bank debt and the Public Debt. Moreover, the Company's
available cash flow could be reduced below anticipated levels as a result of
risks and uncertainties associated with the Company's operations as well as
lower prices for oil and gas. For a discussion of these risks and
uncertainties see "Properties - Exploration and Production - Operations" and
"Markets and Prices".

The Company has failed to satisfy its interest payment and certain other
obligations under the Senior Gas Indexed Notes, the Subordinated Debentures and
its 11.5% Senior Secured Notes Due 2000 (the "Senior Secured Notes"), resulting
in Events of Default thereunder. As a result of the Events of Default with
respect to the Senior Secured Notes, the outstanding $75 million of Senior
Secured Notes could be declared to be immediately due and payable, and the
trustee under the Senior Secured Note Indenture would be entitled to exercise
various remedies, including foreclosure of a mortgage on a substantial portion
of the Company's oil and gas properties. As a result of the Events of Default
with respect to the Senior Gas Indexed Notes and the Subordinated Debentures,
the outstanding $100 million of Senior Gas Indexed Notes and $50 million of
Subordinated Debentures could be declared immediately due and payable. The
Senior Gas Indexed Notes and the Subordinated Debentures are unsecured. Except
in connection with the Tom Brown Transaction or a similar sale or
restructuring, the Company does not anticipate making any future payments on
the Senior Secured Notes, the Senior Gas Indexed Notes or the Subordinated
Debentures (the "Public Debt").

In addition, Events of Default in respect of the Public Debt have resulted in
an Event of Default under the Company's bank credit agreement (the "Credit
Agreement"). The Company has also failed to make principal payments under the
Credit Agreement of $1.2 million due October 1, 1995 and $1.4 million due on
each of January 1 and April 1, 1996, resulting in further Events of Default.
In addition, on March 15, 1996, the Company caused Presidio West Virginia,
Inc., a Delaware corporation and wholly-owned subsidiary of the Company
("Presidio West Virginia"), to commence a bankruptcy case in Delaware resulting
in all obligations of the Company and its subsidiaries under the Credit
Agreement being accelerated and becoming immediately due and payable. The
acceleration also could lead to the foreclosure of a mortgage on substantially
all of the Company's oil and gas properties not pledged to secure the Senior
Secured Notes. Except in connection with the Tom Brown Transaction or a
similar sale or restructuring, the Company does not anticipate making any
payments on its bank debt other than interest thereon.

Additionally, any of the Events of Default described herein could provide the
opportunity for creditors of the Company to initiate involuntary bankruptcy
proceedings against the Company under the Bankruptcy Code.

Collateral Value Requirement for the Senior Secured Notes. The Senior Secured
Notes are secured by a lien on certain proved oil and gas reserves (the
"Pledged Assets") pursuant to a pledged assets agency agreement (the "Pledged
Assets Agency Agreement"). The Pledged Assets Agency Agreement requires that,
as of various dates,

14
<PAGE> 15
the Security Value (as defined below) of the Pledged Assets and the Security
Value of the Pledged Assets that are proved developed producing reserves (the
"Pledged Producing Assets") must be equal to or greater than certain specified
percentages of the then outstanding amount of Senior Secured Notes. For the
purposes of this discussion, "Security Value" means the aggregate present value
(computed at a discount rate equal to 10% per annum) of the future net revenues
of proved oil and gas reserves, calculated in accordance with the rules of the
Securities and Exchange Commission.

Because of the decline in gas prices during the second half of 1994, the
Security Values of both the Pledged Assets and the Pledged Producing Assets as
of December 31, 1994 were less than the required percentages (125% in respect
of the Pledged Assets and 105% in respect of the Pledged Producing Assets),
resulting in deficiencies (the "Deficiencies") in respect of the Pledged Assets
and Pledged Producing Assets of $4 million and $7.3 million, respectively. As
of December 31, 1995, the Deficiencies were $9.4 million in respect of the
Pledged Assets and $18.1 million in respect of the Pledged Producing Assets.
(See Note 3 to the Company's Consolidated Financial Statements contained in
Item 8 of this Report.)

The Company has not complied with the requirements for curing the Deficiencies
by the dates set forth for such compliance in the Senior Secured Note
Indenture. As a result, an Event of Default under the Senior Secured Note
Indenture has occurred and the trustee under such Indenture and the holders of
Senior Secured Notes have the remedies described above in respect of an Event
of Default under the Senior Secured Note Indenture. See "Liquidity and Ability
to Service Debt; Related Defaults" above.

Ability to Replace Reserves Produced and Maintain Production Levels. The
ability of the Company to maintain its current level of oil and gas production
and to find and develop new proved reserves of oil and gas to replace the
reserves produced in 1995 depends on the availability of funds for capital
expenditures. Due to the Company's current financial condition, the Company
has limited funds available for drilling operations during 1996. In addition,
the Company expects its ability to use such funds to be subject to restrictions
contained in any agreement it reaches with Tom Brown, and to be subject to the
approval of the bankruptcy court subsequent to the date when a filing is made
under the Bankruptcy Code. See "Capital Expenditures" below. As a result, the
Company's production and volumes of proved oil and gas reserves are likely to
continue to decline during 1996. Such a decline in production would adversely
affect the Company's short-term liquidity. A decline in reserve volumes could
cause increased Deficiencies under the collateral requirement relating to the
Senior Secured Notes and could adversely affect the value of the collateral
securing the Senior Secured Notes and the Company's bank debt. See "Liquidity
and Ability to Service Debt; Related Defaults" and "Collateral Value Requirement
for the Senior Secured Notes" above.

LONG-TERM DEBT

At March 29, 1996, the total debt of the Company was $246.4 million. Of such
amount, $21.4 million was outstanding under the Credit Agreement and was
secured by mortgages on substantially all of the Company's oil and gas
properties (the "Mortgaged Properties") other than the Pledged Assets.
Borrowings under the Credit Agreement currently bear interest at a per annum
rate of either prime plus 3% or LIBOR plus 4.5%, reflecting a default rate of
interest resulting from the fact that all obligations of the Company and its
subsidiaries have been accelerated and are immediately due and payable, as
described above. See "Liquidity and Ability to Service Debt; Related Defaults"
and Note 3 to the Company's Consolidated Financial Statements contained in Item
8 of this Report.

The other long-term debt of the Company consists of $50 million of Subordinated
Debentures, $75 million of Senior Secured Notes, and $100 million of Senior Gas
Indexed Notes. The Senior Secured Notes bear interest at 11.5% per annum and
are secured by a mortgage on the Pledged Assets as described above. The Senior
Gas Indexed Notes are unsecured and currently bear interest at 13.25% per
annum; however, such rate may increase pursuant to a formula, based upon
certain published average spot gas prices, as set forth in Note 3 to the
Company's Consolidated Financial Statements contained in Item 8 of this Report.
The Subordinated Debentures bear interest at 9% per annum, are unsecured and
are subordinated to the Company's bank debt, the Senior Secured Notes and the
Senior Gas Indexed Notes. As discussed above, the Company is currently

15
<PAGE> 16
in default in respect of, and making no payments in respect of, the Public
Debt. See "Liquidity and Ability to Service Debt; Related Defaults."

CAPITAL EXPENDITURES

The Company's capital expenditures on its oil and gas operations totaled
approximately $18.0 million in 1995, as compared to capital expenditures on
such operations of $34.5 million and $21 million in 1994 and 1993,
respectively. Of the capital expenditures made during 1995, $9.2 million was
used in development and recompletion activities, $4.6 million was used in
exploratory activities, and $4.2 million was used in various other activities,
including acquisitions of producing properties and undeveloped acreage. The
Company funded its capital expenditures during 1995 with borrowings under the
Credit Agreement and a portion of the proceeds from approximately $15 million
of asset sales. Due to the current uncertainty as to its financial condition,
the Company plans to limit its capital expenditures, subject to the
availability of funds (as to which no assurance can be given), during the
remainder of 1996 to those that are required to maintain its producing oil and
gas properties as well as certain other drilling operations and activities.
The Company also expects any agreement it reaches with Tom Brown to contain
restrictions on the Company's ability to make significant capital expenditures
without Tom Brown's approval. The unavailability of funds for capital projects
could also materially and adversely impact the value of the Company's interest
in properties it owns jointly and with others. Pursuant to the operating
agreements governing these joint ownership relationships, the Company could be
forced to contribute funds for capital projects in respect to these properties
or suffer "non-consent" penalties. Such penalties could materially and
adversely affect the value of the Company's ownership interest in any such
properties.

MARKETS AND PRICES

The Company's revenues, net income and cash flows are directly linked to the
price of oil and natural gas. Oil and gas prices depend on a number of factors
outside the control of the Company, including industry-wide inventory levels,
the availability of imported oil and gas, the availability and marketing of
competitive fuels, governmental regulation, seasonal weather patterns, and
general economic conditions. As a result, an accurate prediction cannot be
made as to what the prices of oil and gas may be in future periods.

During 1995, the average prices received for oil and gas by the Company were
$15.31 per barrel and $1.22 per MCF, respectively, as compared to $13.81 per
barrel of oil and $1.45 per MCF of gas in 1994 and $14.55 per barrel of oil and
$1.73 per MCF of gas in 1993. During February 1996, the average prices
received for oil and gas by the Company were $15.78 per barrel and $1.67 per
MCF, respectively. The Company estimates that (i) a $1.00 per barrel change in
the average oil price received by the Company during 1996 would result in an
estimated change of approximately $.7 million to both the Company's net income
and cash flow for 1996; and (ii) a $.10 per MCF change in the average gas price
received by the Company during 1996 would result in an estimated change of
approximately $1.2 million to both the Company's net income and cash flow for
1996. However, such estimates are subject to the risks and uncertainties
described in "Properties - Exploration and Production - Operations", and thus
no assurance can be given that such estimates are accurate. In addition, any
substantial and extended decline in the price of oil or gas would have a
further material adverse effect on the Company's financial condition and its
results of operations.

OTHER

Certain of the West Virginia gas reserves sold by the Company to the purchaser
thereof (the "Purchaser") in 1992 are subject to a long-term gas contract
providing for prices above the current spot market price for West Virginia gas.
In connection with the sale, the Company guaranteed certain minimum levels of
performance, on an annual basis, by the gas purchaser under this contract such
that should performance under this contract be less than the levels guaranteed
by the Company, the Purchaser can draw on a letter of credit established for
such purpose by the Company under the Credit Agreement. During the years
ending April 1, 1997 through 1999, the maximum amounts that could be drawn by
the Purchaser on such letter of credit are: $1,735,000,

16
<PAGE> 17
$1,692,000 and $1,656,000, respectively. The expense associated with such
guarantee for the years ended December 31, 1995, 1994 and 1993 totaled
$323,000, $166,000, and $0, respectively.

RESULTS OF OPERATIONS

LOSS FROM CONTINUING OPERATIONS

The Company recognized losses from continuing operations of $29,588,000,
$24,562,000 and $18,783,000 for 1995, 1994 and 1993, respectively.

Oil and Gas Revenues. Oil and gas revenues have decreased during each of
the past three years due primarily to lower oil and gas production and
lower gas prices. Oil production for 1995 and 1994 decreased 24% and 21%,
respectively, from their prior-year levels. Sales of certain producing
properties accounted for 70% of the decrease in oil production in 1995 and
74% of the decrease in 1994 with the remaining decrease in oil production
resulting from lower production rates in several significant fields. Gas
production for 1995 decreased 14% from the prior- year level due to the
sale of certain producing properties. Gas production for 1994 increased
12% from 1993 due to the Company's successful drilling operations.

The following table reflects the average prices received for oil and gas
and the amount of oil and gas production for 1995, 1994 and 1993.

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- -----
<S> <C> <C> <C>
Average Price:
Oil and condensate (per Bbl) $15.31 $13.81 $14.55
Gas (per MCF) $ 1.22 $ 1.45 $ 1.73

Production:
Oil and condensate (MBbls) 866 1,137 1,436
Gas (MMCF) 14,790 17,219 15,340
</TABLE>

Operating Expenses. Lease operating expenses have fluctuated due to the
sale of oil and gas properties. The properties sold during 1994 were
higher operating cost properties and those sold during 1995 were lower
operating cost properties. Production taxes and depletion, depreciation
and amortization have each decreased when comparing 1995 to 1994 and when
comparing 1994 to 1993. The decrease in production taxes resulted from the
reduced oil and gas revenues received when compared to those received a
year earlier. The reduced amount of depletion, depreciation and
amortization was due to a decrease in production (on an equivalent barrel
basis) and the addition of reserves at a finding cost below the Company's
depletion rate.

The following table shows certain costs associated with oil and gas
revenues per equivalent barrel of oil for 1995, 1994 and 1993.

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- -----
(per equivalent barrel)
<S> <C> <C> <C>
Production Costs $3.94 $3.71 $4.10
Depletion, Depreciation and Amortization $4.32 $4.41 $4.60
</TABLE>

General and Administrative Expense. The Company has significantly reduced
its ongoing general and administrative expenses due to a reduction in
personnel during 1995. However, severance costs of $900,000 incurred in
connection with such reduction in personnel have resulted in general and

17
<PAGE> 18
administrative costs for 1995 being reduced by only 9% from 1994. General
and administrative expense increased 14% during 1994 as compared to 1993
due to a general increase in the Company's expenses together with certain
non- recurring legal and other costs.

Interest Expense. The Company's interest expense increased during 1995 as
compared to 1994 due to the penalty interest accrued on the unpaid balance
of interest due on the Public Debt. The Company's interest expense
increased in 1994 as compared to 1993 as a result of (i) the Company's
issuance of $75 million of its 11.5% Senior Secured Notes in the second
half of 1993 and the utilization of the net proceeds thereof to repay an
equivalent amount of bank debt with a 7.3% borrowing rate during the 1993
period and (ii) an increase in the interest rate on the Company's Senior
GINs to an average of 14% in 1994 as compared to an average of 13.5% in
1993.

Debt Repayment Expense. Debt repayment expense for 1993 includes the
amortization of prepaid loan fees and costs associated with the Company's
bank debt. The Company accelerated the amortization of such costs in
connection with the significant reduction of, and amendments to, the
Company's bank debt during such period.

Income Taxes. The Company did not record a tax benefit associated with the
losses incurred during 1995, 1994 and 1993, because management believed
that the benefits would not be realized and, therefore, a valuation
allowance was provided for the deferred assets otherwise recorded.

INFLATION

In recent years inflation has not had a significant impact on the Company's
operations. Although oil and gas prices have significantly fluctuated during
such periods, the Company has generally experienced a decline in the costs
incurred to acquire quality exploration and development prospects as well as in
the costs of drilling and completing wells.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In 1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Both
of these statements must be adopted no later than 1996. With regard to oil and
gas companies, Statement No. 121 will have a more significant impact on those
companies using the successful efforts method of accounting, as Statement No.
121 revises the "ceiling test" for such companies. Statement No. 121 does not
affect the ceiling test for companies who follow the full cost method of
accounting. Therefore, such statement is not expected to have a material
impact on the Company's future operations.

With regard to the Company's present accounting for stock options, no
accounting is made until such time as the options are exercised. At that time,
the proceeds are added to stockholders' equity, and no expense is recognized.
Statement No. 123 provides companies with the option of expensing the "fair
value" of stock options granted. The Company will not change its current
accounting method regarding stock options, and therefore Statement No. 123 will
not impact the Company's future operating results.

18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEPENDENT AUDITORS' REPORT

Presidio Oil Company

We have audited the accompanying consolidated balance sheets of Presidio Oil
Company and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express (or disclaim) an opinion on these financial
statements based on our audits.

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

In our opinion, the 1994 and 1993 consolidated financial statements present
fairly, in all material respects, the financial position of Presidio Oil
Company and subsidiaries at December 31, 1994 and the results of its operations
and its cash flows for the years ended December 31, 1994 and 1993 in conformity
with generally accepted accounting principles.

The accompanying 1995 and 1994 consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
described in Note 1 to the financial statements, the Company's recurring losses
from operations, negative working capital, and stockholders' capital deficiency
raise substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Because of the possible material effects of the uncertainty referred to in the
preceding paragraph, we are unable to express, and we do not express, an
opinion on the financial statements for 1995.

DELOITTE & TOUCHE LLP
Denver, Colorado

April 5, 1996

19
<PAGE> 20
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS

<TABLE>
<CAPTION>
December 31
-------------------------
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,060 $ 6,423
Accounts receivable:
Oil and gas sales 4,572 6,759
Joint interest owners and other 2,255 6,828
Other 1,280 1,203
-------- --------
Total current assets 15,167 21,213
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties using full cost accounting:
Subject to amortization 490,795 488,054
Not subject to amortization 24,432 23,816
Other 4,371 4,268
-------- --------
Total 519,598 516,138
Less accumulated depletion,
depreciation and amortization 302,733 287,463
-------- --------
Net property, plant and equipment 216,865 228,675
-------- --------
OTHER ASSETS:
Deferred charges 8,761 8,055
Other 1,153 1,629
-------- --------
Total other assets 9,914 9,684
-------- --------
$241,946 $259,572
======== ========
</TABLE>

See notes to consolidated financial statements.
20
<PAGE> 21
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
December 31
------------------------
1995 1994
--------- ---------
(in thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable:
Oil and gas sales $ 2,139 $ 3,368
Trade and other 5,137 12,724
Accrued interest 23,214 3,576
Accrued ad valorem and severance taxes 2,933 3,492
Other accrued liabilities 980 1,921
Current debt 246,413 -
--------- ---------
Total current liabilities 280,816 25,081
--------- ---------
LONG-TERM DEBT - 246,000
--------- ---------
OTHER NONCURRENT LIABILITIES 11,125 9,039
--------- ---------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
Class A Common Stock, $.10 par value; 25,318,000
and 25,317,000 outstanding at December 31, 1995
and 1994, respectively 2,532 2,532
Class B Common Stock, $.10 par value; 3,217,000
and 3,218,000 outstanding at December 31, 1995
and 1994, respectively 322 322
Additional paid-in capital 126,776 129,029
Deferred compensation - (2,394)
Retained deficit (179,625) (150,037)
--------- ---------
Total stockholders' deficit (49,995) (20,548)
--------- ---------
$ 241,946 $ 259,572
========= =========
</TABLE>

See notes to consolidated financial statements.
21
<PAGE> 22
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1995 1994 1993
-------- -------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Oil and gas revenues $ 31,298 $ 40,643 $ 47,476
Less - direct costs:
Lease operating 11,342 12,483 13,431
Production taxes 1,775 2,373 2,931
Depletion, depreciation and amortization 14,405 17,655 18,357
-------- -------- --------
3,776 8,132 12,757
-------- -------- --------
General and administrative expense 5,529 6,089 5,326
-------- -------- --------
Other income (expense):
Interest expense (29,566) (28,130) (25,034)
Debt repayment expense - - (1,971)
Other 1,731 1,525 791
-------- -------- --------
(27,835) (26,605) (26,214)
-------- -------- --------
Loss from continuing operations (29,588) (24,562) (18,783)
Discontinued operations:
Gain on sale - - 11,550
-------- -------- --------
Net loss $(29,588) $(24,562) $ (7,233)
======== ======== ========
Loss per share of Class A and
Class B Common Stock:
Loss from continuing operations $ (1.08) $ (.91) $ (.70)
Discontinued operations - - .43
-------- -------- --------
Loss per share $ (1.08) $ (.91) $ (.27)
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

22
<PAGE> 23
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)

<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock Additional Deferred
------------------- ------------------- Paid-in Compen- Retained
Shares Amount Shares Amount Capital sation Deficit
------ ------ ------ ------ ---------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 25,216 $2,522 3,319 $ 332 $133,896 $(7,657) $(118,242)
Net loss - - - - - - (7,233)
Difference between historical
cost and fair market value
of allocated ESOP shares - - - - (428) - -
ESOP contribution in excess
of ESOP stock purchases - - - - - 340 -
Exchange of Class A Common
Stock for Class B Common
Stock 96 10 (96) (10) - - -
Other - - - - 35 - -
------ ------ ------ ------ -------- ------- ---------
BALANCE, December 31, 1993 25,312 2,532 3,223 322 133,503 (7,317) (125,475)
Net loss - - - - - - (24,562)
Reduction of the ESOP
outstanding notes payable - - - - (4,481) 4,481 -
Difference between historical
cost and fair market value
of allocated ESOP shares - - - - (65) - -
ESOP contribution in excess
of ESOP stock purchases - - - - - 442 -
Exchange of Class A Common
Stock for Class B Common
Stock 5 - (5) - - - -
Other - - - - 72 - -
------ ------ ------ ------ -------- ------- ---------
BALANCE, December 31, 1994 25,317 2,532 3,218 322 129,029 (2,394) (150,037)
Net loss - - - - - - (29,588)
Reduction of the ESOP
outstanding notes payable - - - - (2,272) 2,272 -
ESOP contribution - - - - - 122 -
Exchange of Class A Common
Stock for Class B Common
Stock 1 - (1) - - - -
Other - - - - 19 - -
------ ------ ------ ------ -------- ------- ---------
BALANCE, December 31, 1995 25,318 $2,532 3,217 $ 322 $126,776 $ - $(179,625)
====== ====== ====== ====== ======== ======= =========
</TABLE>

See notes to consolidated financial statements.
23
<PAGE> 24
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(29,588) $(24,562) $ (7,233)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depletion, depreciation and amortization 15,270 18,122 18,856
Gain on sale of discontinued operations - - (11,550)
Amortization of debt issuance costs included
in interest and debt repayment expense 1,251 1,241 3,683
Other 1,258 1,694 1,897
Changes in other assets and liabilities:
Decrease in accounts receivable 6,760 983 1,458
Decrease (increase) in other current assets (817) 428 (2,347)
Decrease (increase) in other
noncurrent assets (1,416) 661 (73)
Decrease in accounts payable (8,816) (1,784) (897)
Increase (decrease) in accrued
interest and liabilities 18,138 (838) (5,714)
Increase (decrease) in other
noncurrent liabilities 1,779 (532) 358
-------- -------- --------
Net cash provided by (used in)
operating activities 3,819 (4,587) (1,562)
-------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (18,145) (35,208) (21,096)
Proceeds from asset sales 14,648 27,161 12,684
-------- -------- --------
Net cash used in investing activities (3,497) (8,047) (8,412)
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings of bank debt 8,700 54,277 61,900
Payments of bank debt (8,287) (48,277) (119,900)
Payment of loan fees (65) (463) (4,375)
Other noncurrent financing (33) (39) (549)
Issuance of Senior Secured Notes - - 75,000
-------- -------- --------
Net cash provided by
financing activities 315 5,498 12,076
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 637 (7,136) 2,102
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 6,423 13,559 11,457
-------- -------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 7,060 $ 6,423 $ 13,559
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

24
<PAGE> 25
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1995, 1994 and 1993

1. FINANCIAL POSITION

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. During 1994 and 1995, the financial
condition and operating cash flows of the Company were materially and adversely
affected by a significant decline in the price that the Company received for
its natural gas production. The Company's revenues and operating cash flows
thus declined significantly during such periods, making it unlikely that the
Company will be able to continue as a going concern in its current financial
structure. Because of the Company's deteriorating financial condition the
Company has failed to satisfy certain payment and other obligations under, and
Events of Default have occurred in respect of, the Company's public debt and
bank debt obligations. (See Note 3 for a further discussion of the Company's
Events of Default).

Since late November of 1995, the Company and Tom Brown have been negotiating
with each other and with certain of the Company's creditors regarding a proposed
transaction pursuant to which Tom Brown would acquire the Company or all of its
assets (the "Tom Brown Transaction"). As of March 29, 1996, the negotiations
with Tom Brown and certain of the Company's creditors are continuing in an
attempt to reach an informal consensual agreement regarding the terms of the Tom
Brown Transaction, including the allocation of the proceeds thereof. Failure to
reach such an informal consensual agreement could have an adverse effect on the
amount of recovery, if any, that will be received by the holders of the
Company's public debt (in particular its Senior Gas Indexed Notes and 9%
Convertible Subordinated Debentures Due 2015 (the "Subordinated Debentures")),
as well as by the holders of the Company's common stock.

25
<PAGE> 26
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

The Company expects to enter into an acquisition agreement with Tom Brown
during the second quarter of 1996. There can be no assurance, however, that an
agreement with Tom Brown will be reached or, if such an agreement is entered
into, that an informal consensual agreement with the Company's bank lenders and
certain of the significant holders of its public debt will be arranged. Should
the Company and Tom Brown fail to reach an agreement concerning the proposed
Tom Brown Transaction, then it is likely that the Company would seek protection
from its creditors under chapter 11 of the Bankruptcy Code and seek other
purchasers or effect a restructuring thereunder.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying Consolidated Financial Statements present the financial
position of Presidio Oil Company and its wholly-owned subsidiaries (the
"Company" or "Presidio"). The Company is an independent oil and gas company
whose business is onshore oil and gas exploration, development and production
in selected regions in the continental United States. The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern. As described in Note 1, certain factors raise substantial
doubt about the Company's ability to continue as a going concern in its current
financial structure; however, the financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

The Company's Senior Subordinated Gas Indexed Notes, Senior Gas Indexed Notes
and Senior Secured Notes (collectively the "Notes") are guaranteed by all
significant subsidiaries of the Company (the "Guarantors"). Separate financial
statements of the Guarantors are not included herein because the Guarantors
have fully, unconditionally, jointly and severally guaranteed the Company's
obligations with respect to the Notes and the Company (which is primarily a
holding company and whose operating income is generated by its subsidiaries)
has no separate operations of its own. The operations, assets, liabilities and
equity of the subsidiaries of the Company that are not Guarantors are
inconsequential.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities as of the date of the financial
statements. Such estimates and assumptions also affect the reported amounts of
revenues and expenses during the reporting period, including estimates and
assumptions as to the future production from proved reserves and the costs to
develop proved undeveloped reserves. Actual results could differ from those
estimates.

Property, Plant and Equipment and Depletion, Depreciation and Amortization

The Company follows the full cost method of accounting for oil and gas
producing activities whereby all costs incurred in the acquisition, exploration
and development of oil and gas properties are capitalized. Sales of oil and
gas properties are recorded as an adjustment of capitalized costs, with no gain
or loss recognized. Capitalized costs, including unevaluated acreage, are
subject to a ceiling limitation test based on the estimated fair market value
of the unevaluated acreage and a computed value of the Company's present value
of estimated future net revenues from proved reserves using current prices
(with consideration of price changes only to the extent provided by contractual
arrangements), discounted at 10%, after adjusting for tax effects at the end of
each period.

26
<PAGE> 27
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

The provision for depletion, depreciation and amortization of oil and gas
properties is calculated by multiplying current period oil and gas production
by a rate which is determined by dividing capitalized oil and gas costs (except
for costs of certain unevaluated acreage discussed below) plus estimated future
costs to develop the Company's proved oil and gas reserves, by the quantities
of estimated proved oil and gas reserves. The Company excludes investments in
unevaluated acreage from costs to be amortized pending determination as to the
existence of proved reserves on such acreage. The Company's unevaluated
acreage is subject to a periodic review for impairment and, if necessary, the
amount of impairment is included in the costs to be amortized. The Company
capitalizes interest on unevaluated properties not subject to amortization.
The Company capitalized interest of $1,177,000, $1,141,000 and $1,278,000 (out
of total interest costs of $30,743,000, $29,271,000 and $26,312,000) for the
years ended December 31, 1995, 1994 and 1993, respectively.

Income Taxes

The Company files a consolidated income tax return and provides deferred tax
liabilities and assets for the future tax consequences of events that have been
recognized in the Company's consolidated financial statements or tax returns
(see Note 4).

Deferred Charges

The Company records the fees and expenses associated with its bank and public
debt as deferred charges and amortizes such costs to interest expense over the
life of the debt using the effective interest method. Debt repayment expense
reflects the accelerated amortization of certain of such costs during the year
ended December 31, 1993.

Consolidated Statements of Cash Flows

The Company considers investments purchased with an original maturity of three
months or less to be cash equivalents. Included in the Consolidated Statements
of Cash Flows is $8,677,000, $26,896,000 and $23,945,000 of interest paid, net
of amounts capitalized, during the years ended December 31, 1995, 1994 and
1993, respectively. During the year ended December 31, 1993, $99,770,000 of
Senior Subordinated Gas Indexed Notes were exchanged for an equivalent amount
of Senior Gas Indexed Notes (see Note 3); and, insofar as such exchange was a
non-cash transaction, it is not reflected in the Consolidated Statements of
Cash Flows.

Gas Balancing Arrangements

The Company uses the entitlement method of recording gas revenues. Under such
method, sales are recorded based upon the Company's proportionate share of gas
sold. The Company then records a receivable (payable) to the extent it
receives less (more) than its proportionate share of the gas revenues. At
December 31, 1995 and 1994, the Company had net gas balancing liabilities of
$3,703,000 associated with approximately 2.0 billion cubic feet ("BCF") of gas
and $4,074,000 associated with 2.6 BCF of gas, respectively.

27
<PAGE> 28
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

Loss Per Common Share

Loss per common share is computed as follows:

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1995 1994 1993
--------- --------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Weighted average number of common shares
outstanding 28,535 28,535 28,535
Less: Weighted average number of unallocated
shares held by the Company's Employee Stock
Ownership Plan (see Note 7) (1,240) (1,497) (1,479)
--------- --------- --------
27,295 27,038 27,056
========= ========= ========
Net loss from continuing operations $ (29,588) $ (24,562) $(18,783)
Discontinued operations - - 11,550
--------- --------- --------
Net loss $ (29,588) $ (24,562) $ (7,233)
========= ========= ========
Loss from continuing operations per share
of Class A and Class B Common Stock $ (1.08) $ (.91) $ (.70)
========= ========= ========
Discontinued operations per share of
Class A and Class B Common Stock $ - $ - $ .43
========= ========= ========
Loss per share of Class A and Class B
Common Stock $ (1.08) $ (.91) $ (.27)
========= ========= ========
</TABLE>

Impact of Recently Issued Accounting Standards

In 1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Both
of these statements are effective beginning in 1996. With regard to oil and
gas companies, Statement No. 121 will have a more significant impact on those
companies using the successful efforts method of accounting, as Statement No.
121 revises the "ceiling test" for such companies. Statement No. 121 does not
affect the ceiling test for companies who follow the full cost method of
accounting. Therefore, such statement is not expected to have a material
impact on the Company's future operations.

28
<PAGE> 29
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

3. DEBT

<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------------------------------- ---------------------------------------
Accrued Accrued
Principal Interest Principal Interest
------------------------------ -------- ---------------------------- --------
Current Long-Term Total Current Long-Term Total
-------- --------- -------- ------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bank Debt $ 21,413 $ - $ 21,413 $ 326 $ - $ 21,000 $ 21,000 $ 121
Senior Secured Notes 75,000 - 75,000 7,090 - 75,000 75,000 383
Gas Indexed Notes 100,000 - 100,000 12,156 - 100,000 100,000 1,747
9% Debentures 50,000 - 50,000 3,642 - 50,000 50,000 1,325
-------- ----- -------- -------- ----- -------- -------- --------
Total $246,413 $ - $246,413 $ 23,214 $ - $246,000 $246,000 $ 3,576
======== ===== ======== ======== ===== ======== ======== ========
</TABLE>

Events of Default/Ability to Service Debt

Because of the Company's deteriorating financial condition the Company has
failed to satisfy certain interest payment and other obligations under, and
Events of Default have occurred in respect of, the Company's Senior Gas Indexed
Notes Due 2002 (the "Senior Gas Indexed Notes"), 11.5% Senior Secured Notes Due
2000 (the "Senior Secured Notes"), and 9% Convertible Subordinated Debentures
Due 2015 (the "Subordinated Debentures") (collectively the "Public Debt").
Moreover, to cure a collateral deficiency, the indenture governing the Senior
Secured Notes (the "Senior Secured Note Indenture") required the Company to
offer to purchase at par approximately $7.3 million of Senior Secured Notes
prior to June 22, 1995. The Company did not make such offer during the 30-day
grace period subsequent to June 22, 1995 as required by the Senior Secured Note
Indenture, resulting in an Event of Default. As a result of the Events of
Default with respect to the Senior Secured Notes, the outstanding $75 million
of Senior Secured Notes could be declared to be immediately due and payable and
the trustee under the Senior Secured Note Indenture would be entitled to
exercise various remedies, including foreclosure of a mortgage on a significant
portion of the Company's oil and gas properties. Although the Company
currently is paying interest on its bank debt, the Company did not make
principal payments thereon of $1.2 million due on October 1, 1995 and $1.4
million due on January 1, 1996 and $1.4 million due on April 1, 1996, resulting
in Events of Default under the Company's bank credit agreement, as amended
("Credit Agreement"). In addition, the Events of Default described above on
the Public Debt have caused an Event of Default under the Credit Agreement.
Also, on March 15, 1996, the Company caused Presidio West Virginia, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company ("Presidio West
Virginia"), to commence a bankruptcy case in Delaware resulting in all
obligations of the Company and its subsidiaries under the Credit Agreement
being accelerated and becoming immediately due and payable. This acceleration
also could lead to a foreclosure on the Company's oil and gas properties
pledged to secure the bank debt outstanding under the Credit Agreement, which
properties consist of substantially all of the Company's oil and gas properties
not subject to the mortgage securing the Senior Secured Notes.

The Company has not paid interest on its (i) Senior Gas Indexed Notes since
February 14, 1995, (ii) Senior Secured Notes since March 14, 1995, and (iii)
Subordinated Debentures since March 14, 1995 and because of its current
financial condition, the Company believes that, except in connection with the
Tom Brown Transaction, it will not make further payments on the Public Debt.

29
<PAGE> 30
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

Bank Debt

At December 31, 1995, the Company had bank debt of $21.4 million outstanding
under the Credit Agreement. The Company had $21 million outstanding under such
Credit Agreement at December 31, 1994.

The Credit Agreement (i) is secured by mortgages on certain of the Company's
oil and gas properties (the "Mortgaged Properties"); (ii) provides for a
non-default interest rate of either prime plus 1% or LIBOR plus 2.5% and a
default interest rate of either prime plus 3% or LIBOR plus 4.5%; (iii)
requires that the commitment be reduced by 100% of the proceeds realized from
the sale of Mortgaged Properties; (iv) requires that 75% of the proceeds (in
excess of $5 million sold subsequent to September 30, 1994) from the sale of
assets other than Mortgaged Properties be used to develop the Company's
hydrocarbon reserves; (v) requires regular quarterly commitment reductions of
approximately $1.4 million beginning on October 1, 1995 through July 1, 1999;
(vi) requires capital expenditures of not less than $5 million per annum during
the three-year period ending October 1, 1996 in respect of the development of
the Mortgaged Properties; and (vii) provides that, on a quarterly basis, the
Company's ratio of bank debt to total capitalization (excluding the effect of
any reduction in the carrying amount of oil and gas properties) to be greater
than .15 on the last day of each quarter, and the Company maintain at least a
1:1 ratio of its operating cash flows plus the proceeds of asset sales during
the preceding four quarters (the "Period") to interest paid by the Company
during the Period plus the amount of any required commitment reductions during
the four quarters following the Period.

As described above, the Company is currently in default under the Credit
Agreement and, as a result of the Presidio West Virginia bankruptcy filing, all
obligations of the Company under the Credit Agreement have been accelerated and
are immediately due and payable.

Gas Indexed Notes; Senior Secured Notes

On August 6, 1993, the Company completed various transactions (the "Private
Exchange") with certain holders (and their affiliates) (the "Holders") of the
Company's Senior Subordinated Gas Indexed Notes Due 1999 (the "Old Gas Indexed
Notes"), pursuant to which a total of $75 million aggregate principal amount of
the Old Gas Indexed Notes was exchanged for an equivalent principal amount of
Senior Gas Indexed Notes and the Holders purchased $56.25 million aggregate
principal amount of Senior Secured Notes. The net proceeds of the sale of the
Senior Secured Notes were used to prepay $55 million of bank debt.

On November 30, 1993, the Company completed a public exchange offer (the
"Exchange Offer") pursuant to which (i) $24.77 million of the $25 million of
the Old Gas Indexed Notes remaining after the Private Exchange were exchanged
for an equivalent principal amount of the Senior Gas Indexed Notes and (ii)
$18.75 million of Senior Secured Notes were sold with the proceeds of such sale
being used to prepay bank debt.

The terms of the Senior Gas Indexed Notes are generally the same as those of
the Old Gas Indexed Notes, except that the Senior Gas Indexed Notes: (i) rank
pari passu with other senior debt of the Company (including bank debt and the
Senior Secured Notes, as discussed below, which are also secured by mortgages
on certain of the Company's oil and gas properties which provide preferential
claims to such properties) and rank senior to the Old Gas Indexed Notes; (ii)
mature in 2002 and have no sinking fund requirements; (iii) have a 15% maximum
interest rate above which the 13.25% base interest rate may not be increased as
a result of the gas indexing feature as discussed below (which is the same as
that in the Old Gas Indexed Notes), instead of the 18% maximum contained in the
Old Gas Indexed Notes; and (iv) are redeemable, at the option of the Company,
at the prices (expressed as a percentage of principal amount) and during the
indicated years

30
<PAGE> 31
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

beginning August 15: 1996 - 106%; 1997 - 103%; and 1998 - 100%. Both the Old
Gas Indexed Notes and Senior Gas Indexed Notes are unsecured and bear interest
at a base rate of 13.25% per annum. Concurrently with each quarterly interest
payment the Company is required to pay to the holders additional interest, if
any, based upon the amount by which the average gas spot price ("Average Spot
Price") based upon spot gas prices published by Natural Gas Clearinghouse, Inc.
exceeds $1.75 per million British Thermal Units (MMBTU) during a twelve-month
period preceding such quarterly interest payment period up to a maximum overall
interest rate of 15% per annum for the Senior Gas Indexed Notes and 18% per
annum for the Old Notes. At December 31, 1995, the twelve-month Average Spot
Price was $1.50 per MMBTU resulting in an interest rate of 13.25% per annum for
the period February 15, 1996 to May 14, 1996.

The Senior Secured Notes (i) rank pari passu with other senior debt of the
Company (including bank debt and the Senior Gas Indexed Notes) and rank senior
to the Old Gas Indexed Notes and the Company's Subordinated Debentures, (ii)
mature in 2000 and have no sinking fund requirements, (iii) bear interest at
the rate of 11.5%, (iv) are secured by a lien on certain of the Company's oil
and gas properties (the "Pledged Assets"), with the amount and type of such
properties being subject to adjustment, based upon the value of the properties
and certain other factors, and (v) are redeemable, at the option of the
Company, at the prices (expressed as a percentage of principal amount) and
during the indicated years beginning September 15: 1996 - 103%; 1997 - 102%;
1998 - 101%; and 1999 - 100%. In accordance with the provisions of (iv) above,
the Security Value of the Pledged Assets was required to be $93.8 million or
more as of December 31, 1994 (with $78.8 million thereof being attributable to
proved developed producing properties). As discussed above, the Security Value
as of December 31, 1994 was below the required level which has resulted in an
Event of Default under the Senior Secured Note Indenture. As of December 31,
1995, the Security Values were less than the required percentages (125% in
respect of the Pledged Assets and 110% in respect of the Pledged Producing
Assets), resulting in Deficiencies of $9.4 million in respect of the Pledged
Assets and $18.1 million in respect of the Pledged Producing Assets.

9% Convertible Subordinated Debentures

In February 1990 the Company issued $50,000,000 in aggregate principal amount of
the Subordinated Debentures which are unsecured and bear interest at 9% per
annum. The Subordinated Debentures are currently convertible at any time prior
to redemption or maturity into Class A Common Stock, at a conversion price per
share of $9.38, subject to adjustment. The terms of the Subordinated Debentures
provide for redemption through the operation of a mandatory sinking fund
pursuant to which on March 15 in each of the years 2000 to 2014 (the "Redemption
Period") 5% of the outstanding principal amount of the Subordinated Debentures
are redeemable at 100% of the principal amount thereof plus accrued interest.
At its option, the Company may make additional sinking fund payments in amounts
sufficient to redeem annually up to an additional 10% of the outstanding
principal amount of the Subordinated Debentures. The Subordinated Debentures
are redeemable, otherwise than through the mandatory sinking fund, at the
Company's option, at 105% of their principal amount plus accrued interest
through March 15, 1996, and thereafter reducing by 1% each year to 100% of their
principal amount plus accrued interest at March 15, 2000 and thereafter.

As described herein, the Company is currently in default in respect of all of
its Public Debt.

31
<PAGE> 32
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

4. INCOME TAXES

Actual tax expense (benefit) differs from the statutory rate as shown below:

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1995 1994 1993
------------------- -------------------- -------------------
Amount % Amount % Amount %
--------- ---- --------- ---- --------- ----
(in thousands, except percent amounts)
<S> <C> <C> <C> <C> <C> <C>
Income tax based on Federal statutory rate $ (10,060) (34.0) $ (8,351) (34.0) $ (2,459) (34.0)
Expired net operating losses and
investment tax credits 417 1.0 217 1.0 - -
Valuation allowance against deferred tax asset 9,643 33.0 8,134 33.0 2,459 34.0
--------- ---- --------- ---- --------- ----
Total actual tax expense (benefit) $ - - $ - - $ - -
========= ==== ========= ==== ========= ====
</TABLE>

The components of the Company's tax assets and liabilities are shown below.
The Company did not record a tax benefit associated with the losses incurred
during 1995, 1994 and 1993, because management believed that the benefits would
not be realized and, therefore, a valuation allowance was provided for the
deferred assets otherwise recorded.

<TABLE>
<CAPTION>
December 31,
------------------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Assets
------

Net operating loss carryforwards $ 90,619 $ 79,371 $ 73,327
Statutory depletion carryforwards 3,309 3,309 3,269
Excess of financial statement depletion,
depreciation and amortization over
income tax amounts 66,715 60,659 55,342
Investment tax credit carryforwards 435 537 583
Valuation allowance (59,387) (49,744) (41,610)
-------- -------- --------
Total assets 101,691 94,132 90,911
-------- -------- --------
Liabilities
-----------

Intangible drilling costs and other costs
capitalized for financial statement purposes
and deducted for income tax purposes 99,652 92,362 88,984
Other 2,039 1,770 1,927
-------- -------- --------
Total liabilities 101,691 94,132 90,911
-------- -------- --------
Net deferred tax asset (liability) $ - $ - $ -
======== ======== ========
</TABLE>

32
<PAGE> 33
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

At December 31, 1995 the Company had net operating loss carryforwards for
income tax purposes of approximately $243,638,000 expiring 1996 through 2010 if
not previously utilized. The net operating loss carryforwards of $243,638,000
excludes $22,888,000 of 1995 accrued unpaid interest on the Company's Public
Debt. The Company's net operating losses are subject to various restrictions
that could limit their utilization. The Company has investment tax credit
carryforwards of approximately $435,000 expiring 1996 through 2000 if not
previously utilized. The Company also has statutory depletion carryforwards of
approximately $9,732,000 which may be carried forward until utilized.

5. COMMON STOCK

The Company has two classes of common stock, Class A Common Stock and Class B
Common Stock. Each share of Class B Common Stock is convertible into one share
of Class A Common Stock. Both classes of common stock are $.10 par value per
share. There are 80,000,000 authorized shares of Class A Common Stock and
20,000,000 authorized shares of Class B Common Stock.

From July 1987 through December 1992, the Company paid a quarterly cash
dividend of $.025 on its Class A Common Stock. In January 1993 the Company
announced the elimination of Class A Common Stock dividends. If cash dividends
are paid on Class B Common Stock, a cash dividend must also be paid on Class A
Common Stock in an amount equal to 110% of the per share amount of the cash
dividend paid on Class B Common Stock. The Company's ability to pay dividends
is subject to the provisions of certain covenants contained in the Credit
Agreement and the indentures relating to the Senior Gas Indexed Notes and the
Old Gas Indexed Notes. Holders of Class A Common Stock are entitled to
one-twentieth of one vote per share and holders of Class B Common Stock are
entitled to one vote per share.

The Class B Common Stock is subject to certain restrictions on transfer
designed to prevent the sale of "control blocks" of Class B Common Stock at a
premium price not available to all holders of Class A Common Stock and Class B
Common Stock. No transfer of Class B Common Stock may be made (i) if the
transferee thereof would, as a result of such transfer, have acquired from such
transferor, within the last twelve months, in excess of 15% of the total voting
power of all outstanding shares of the Class A Common Stock and the Class B
Common Stock, (a "Control Block"), and (ii) if any of the shares held by the
transferee comprising the Control Block were acquired by such transferee within
twelve months of the proposed transfer at a price in excess of the market price
when acquired; unless such transferee, concurrently with the proposed transfer,
offers to purchase all of the outstanding shares of both the Class A Common
Stock and the Class B Common Stock at a price not less than the highest price
per share paid, within twelve months of the proposed transfers by such
transferee, to the transferor with respect to any of the shares comprising the
Control Block. Presidio can refuse to recognize any transfer of shares made in
violation of this limitation, including for purposes of voting and dividend
rights, and to require the sale of any such shares. Except for this
limitation, shares of both the Class A Common Stock and the Class B Common
Stock are freely transferable.

33
<PAGE> 34
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

During the six month period ended December 31, 1987, George P. Giard, Jr., and
Robert L. Smith, President and Chief Operating Officer of the Company,
purchased warrants from the Company for $75,000 and $40,000, respectively.
These warrants, which expire in 1997, were to acquire 75,000 shares and 40,000
shares of the Company's Class B Common Stock at an exercise price of $4.625 per
share, which equalled or exceeded the market value of such stock on the date of
purchase. During 1993 Mr. Giard's and Mr. Smith's warrants were amended and
restated and now provide for Mr. Giard to acquire 46,912 shares of Class B
Common Stock at $2.50 per share and Mr. Smith to acquire 20,000 shares of Class
B Common Stock at $4.625 per share and 10,811 shares of Class B Common Stock at
$2.50 per share.

The Company also has issued warrants to acquire: (i) 150,000 shares of Class A
Common Stock at $7.125 per share which expire in 1999; (ii) 50,000 shares of
Class B Common Stock at $4.625 per share which expire in 1997; and (iii) 15,000
shares of Class A Common Stock at $1.0625 which expire in 2003.

6. RELATED PARTY TRANSACTIONS

In connection with the sale of Mountain Gas Resources ("MGRI") (see Note 11),
George P. Giard, Jr. and Robert L. Smith entered into consulting agreements
with MGRI which provided for Mr. Giard and Mr. Smith to provide consulting
services to MGRI for a minimum period of two years; and, in respect of such
consulting services, they each received options to purchase 6,000 shares of
Class A Common Stock of MGRI at an exercise price of $60.00 per share. In July
1993 Mr. Giard and Mr. Smith each received proceeds of $281,000 as a result of
the sale of such options in connection with the MGRI Equity Sale.

See Note 5 for information as to the purchase of warrants from the Company by
certain of the Company's officers.

7. BENEFIT PLANS

On May 17, 1990 the Company's stockholders amended the 1985 Incentive and
Non-Qualified Stock Option and Stock Appreciation Rights Plan. Under such
amended plan, options to purchase up to 6,000,000 shares of the Company's Class
A Common Stock or Class B Common Stock may be granted to key employees at an
exercise price not less than the market price of the stock at the date of
grant. Such stock options expire after ten years. The amended plan also
allows for the issuance of stock appreciation rights in conjunction with the
issuance of options to key employees and provides for granting of non-qualified
stock options or incentive stock options. The Compensation Committee of the
Board of Directors determines the number of options and exercise prices under
which stock options or stock appreciation rights are issued. At December 31,
1995, no stock appreciation rights had been granted. The stock options vest
incrementally over four years.

The Company's stockholders approved Non-Employee Director Stock Option Plans
which granted options to purchase up to 200,000 shares of the Company's Class A
Common Stock and 267,100 shares of the Company's Class B Common Stock to non-
employee directors. The stock options vest incrementally over four years.
These options were granted at an exercise price of not less than the market
price of the stock on the date of grant and expire after ten years.

34
<PAGE> 35
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

At December 31, 1995 and 1994 options to purchase shares of common stock were
as follows:

<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
------------------------------ -----------------------------
December 31, December 31,
------------------------------ -----------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Incentive Stock Option Plan (1)
- ---------------------------
At year end -
Options outstanding 1,106,000 1,438,500 733,200 855,800
Options exercisable 457,800 241,000 733,200 578,400
Option price $ .75-$4.09 $ .75-$4.09 $2.50-$6.00 $2.50-$6.00

Non-Employee Director Stock Option Plans (1)
- ----------------------------------------
At year end -
Options outstanding 125,000 200,000 160,400 267,100
Options exercisable 62,500 50,000 160,400 192,200
Option price $1.81 $1.81 $2.50-$4.75 $2.50-$4.75
</TABLE>

(1) No options have been exercised under either the Incentive Stock Option
Plan or the Non-Employee Director Stock Option Plans during the years
ended December 31, 1995, 1994 and 1993.

The Company has an Employee Stock Ownership Plan ("ESOP") which allows the
Company to make contributions as determined each year by the Compensation
Committee of the Company's Board of Directors. The ESOP is leveraged with
loans provided by the Company. During 1994 the Company repriced all of the
unallocated shares of the Company's Common Stock held by the ESOP at $1.75 per
share and, thus, reduced the ESOP loans by $4,481,000. During 1995 the Company
repriced all the unallocated shares held by the ESOP at $.09 per share which
reduced the ESOP loans by $2,272,000. Shares are allocated to participants
based on the principal payments made each year in respect of such loans by the
ESOP. All full-time employees are eligible to participate in the ESOP. The
amounts charged to expense in connection with the annual ESOP contribution are
based on the market price of the Company's Common Stock. The total amounts
charged to general and administrative expense in connection with the ESOP for
the years ended December 31, 1995, 1994 and 1993, were $122,000, $300,000 and
$256,000, respectively.

At December 31, 1995 and 1994 the ESOP held the following shares of the
Company's Common Stock:

<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Shares of Common Stock allocated to
participants' accounts 860,000 869,000
Shares of Common Stock committed to be
released to participants' accounts in
connection with such years contribution 1,362,000 280,000
Unallocated shares of Common Stock held
for future years contributions - 1,362,000
--------- ---------
2,222,000 2,511,000
========= =========
</TABLE>

The fair market value of the unallocated shares of Common Stock held for future
contributions totaled $0 and $800,000 at December 31, 1995 and 1994,
respectively.

35
<PAGE> 36
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

On January 1, 1994 the Company adopted a 401(k) Plan for all full-time
employees. The 401(k) Plan allows for voluntary employee contributions and for
discretionary Company contributions as determined each year by the Compensation
Committee of the Company's Board of Directors. The total amount charged to
general and administrative expense for the years ended December 31, 1995 and
1994 in connection with the 401(k) Plan was $265,000 and $416,000,
respectively.

In 1993 the Company adopted a non-qualified supplemental employee retirement
plan ("SERP") that, as amended, provides certain executive officers with
defined retirement benefits in excess of qualified plan limits imposed by
federal tax law. Payments under the SERP commence upon the executive reaching
age 65 or, after a change of control of the Company and at the option of the
executive, at a discounted amount upon the executive's termination which at
December 31, 1995 totaled $620,000. At December 31, 1995 and 1994 the
estimated executive benefits and the Company's associated obligations for the
SERP (which is unfunded) were as follows:

<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Vested Benefits $ 620,000 $ 480,000
Non-vested Benefits 175,000 165,000
---------- ----------
Total $ 795,000 $ 645,000
========== ==========

Projected benefit obligations $1,522,000 $1,259,000
Less: Unrecognized prior service cost 615,000 659,000
---------- ----------
Accrued liability $ 907,000 $ 600,000
========== ==========
</TABLE>

SERP expense for the years ended December 31, 1995, 1994 and 1993 was as
follows which assumes a 6% discount rate and a 6% rate of compensation
increase:

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service Cost $192,000 $317,000 $135,000
Interest Cost 115,000 101,000 47,000
-------- -------- --------
Total $307,000 $418,000 $182,000
======== ======== ========
</TABLE>

During 1995 the Company adopted severance agreements (the "Severance
Agreements") for certain key employees and a severance plan (the "Severance
Plan") for all other employees. The Severance Plan generally provides for a
payment equal to one-twelfth of the employee's annual base salary multiplied by
the number of years of continuous service with the Company plus two months'
salary, and the Severance Agreements generally provide for a payment equal to an
employee's annual base salary (including the Company's historical retirement
plan contribution to such employee), as adjusted in the case of certain key
employees by an additional seven to eight months' salary and for certain other
factors. Health and medical payments are also provided under both plans for
severed employees for a period of at least six months. During the year ended
December 31, 1995, the Company incurred $900,000 of expense associated with the
Severance Plan.

36
<PAGE> 37
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

8. COMMITMENTS AND CONTINGENCIES

The Company has lease commitments for various office facilities and computer
equipment. Future minimum annual rental payments required under such leases
for the years ending December 31, 1996 through 2000 are $1,051,000, $741,000,
$553,000, $134,000 and $0, respectively. Rental expense for the years ended
December 31, 1995, 1994 and 1993 totaled $1,014,000, $1,011,000 and $1,025,000,
respectively.

In December 1992 the Company completed the sale of the common stock of its
wholly-owned subsidiaries, Peake Energy, Inc. and Peake Operating Company, to a
purchaser (the "Purchaser"). Subsequent to the sale, the Company retained
proved undeveloped gas reserves and undeveloped acres in West Virginia (see
Note 12), and such reserves and acreage will be developed by the Company and the
Purchaser in accordance with a joint drilling participation agreement. This
agreement gives the Purchaser the option to participate, to the extent of 50% of
the Company's interest (or more by mutual consent), in the development of such
reserves and acreage. The consideration for the Purchaser's participation in
each well drilled pursuant to the joint drilling participation agreement is (i)
payment of its share of drilling and completion costs, (ii) payment to the
Company of an additional $90 per net acre for its share of the drillsite acreage
allocated to each such well and (iii) payment to the Company of an overriding
royalty of 3.125% (proportionately reduced) in accordance with its net interest
in the revenues attributable to each such well. The Company believes that,
subject to the availability of funds, virtually all of its proved undeveloped
gas reserves and unproved undeveloped acreage will be fully developed prior to
the termination of the joint drilling participation agreement in 2008; however,
the agreement provides that 50% of any such reserves and/or acreage that might
be retained by the Company as of such termination date would be conveyed to the
Purchaser for no additional consideration.

A portion of the gas reserves sold to the Purchaser is subject to a long-term
gas contract providing for prices above the current spot market price for West
Virginia gas. In connection with the sale, the Company guaranteed certain
minimum levels of performance, on an annual basis, by the gas purchaser under
this contract such that should performance under this contract be less than the
levels guaranteed by the Company, the Purchaser can draw on a letter of credit
entered into by the Company. During the years ending April 1, 1997 through
1999, respectively, the following amounts can be drawn by the Purchaser on such
letter of credit: $1,735,000, $1,692,000 and $1,656,000. The expense
associated with such guarantee for the years ended December 31, 1995, 1994 and
1993 totaled $323,000, $166,000 and $0, respectively.

37
<PAGE> 38
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107 requires disclosure in
respect of the fair value of various financial instruments owned or issued by
the Company. The estimated fair values of such financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
------------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value (1) Amount Value (1)
-------- ------ -------- ------
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents (2) $ 7,060 $ 7,060 $ 6,423 $ 6,423
Long-term bank debt (3) 21,413 21,413 21,000 21,000
Senior Secured Notes (4) 75,000 75,750 75,000 56,250
Senior Gas Indexed Notes (4) 99,770 66,347 99,770 44,897
Senior Subordinated Gas Indexed Notes (4) 230 153 230 104
9% Convertible Subordinated Debentures (4) 50,000 9,375 50,000 16,500
Letters of Credit (5) - 330 - 524
</TABLE>

The following methods and assumptions were used to estimate the fair value
for each class of financial instruments:

(1) The fair value is an estimate and does not necessarily represent the
amount that would be paid in an actual sale.
(2) The carrying amount approximates fair value because of the short
maturity of those instruments.
(3) The carrying amount approximates fair value because such debt is
secured by a portion of the Company's oil and gas assets and the
interest thereon was at the prime rate plus 1%.
(4) The fair value was estimated based on quoted market prices.
(5) The fair value was estimated based on the fees to be incurred in
connection with the letters of credit since, under present
circumstances, no amounts will be required to be drawn against such
letters of credit.

10. MAJOR PURCHASERS

The Company had sales to two purchasers which accounted for in excess of 10% of
the Company's oil and gas revenues during 1995, 1994 and 1993. Sales to one of
such purchasers totaled $8,841,000 (28%), $13,688,000 (34%) and $11,541,000
(24%) for 1995, 1994 and 1993, respectively, and sales to the other purchaser
totaled $4,776,000 (15%), $5,728,000 (14%) and $9,078,000 (19%) for 1995, 1994
and 1993, respectively. A discontinuance of oil and gas sales to these two
purchasers would not have a material impact on the Company's operations because
the Company believes that a number of other companies are available to purchase
its oil and gas production.

38
<PAGE> 39
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

11. DISCONTINUED OPERATIONS

In July 1992 the Company completed a transaction with MS Gas Resources, Inc., a
newly-formed subsidiary of The Morgan Stanley Leveraged Equity Fund II, L.P.
(the "Morgan Stanley Fund"), pursuant to which the Company's wholly-owned
subsidiary, Mountain Gas Resources, Inc., was merged into MS Gas Resources (the
"MGRI Divestiture") whose name was then changed to Mountain Gas Resources, Inc.
("MGRI"). Prior to the MGRI Divestiture, Mountain Gas Resources owned and
operated all of the Company's natural gas gathering and processing facilities
in the Green River Basin in southwestern Wyoming and marketed natural gas and
natural gas liquids. In connection with the MGRI Divestiture, the Company
received an equity interest in MGRI. Such interest provided the Company with
the right to share in any profits realized upon a subsequent sale of MGRI prior
to December 31, 1996. In July 1993 the Company received $11.6 million from the
sale (the "MGRI Equity Sale") of such equity interest in MGRI. The proceeds of
the MGRI Equity Sale were used to prepay an equivalent amount of the Company's
bank debt.

12. OIL AND GAS COST AND RESERVE INFORMATION

Capitalized Costs Related to Oil and Gas Producing Activities

The Company's oil and gas operations are conducted entirely in the United
States. Aggregate capitalized costs relating to such operations and related
accumulated depletion, depreciation and amortization are as follows:

<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
--------- ---------
(in thousands)
<S> <C> <C>
Oil and gas properties:
Proved $ 487,770 $ 484,903
Unproved:
Subject to amortization 3,025 3,151
Not subject to amortization (1) 24,432 23,816
Accumulated depletion,
depreciation and amortization (299,314) (284,909)
--------- ---------
Net oil and gas properties $ 215,913 $ 226,961
========= =========
</TABLE>

(1) The total as of December 31, 1995 is comprised of costs incurred during
1995, 1994, 1993 and prior to 1993 of $6.6 million, $6.1 million, $1.7
million, and $10.0 million, respectively.

39
<PAGE> 40
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

Costs Incurred in Oil and Gas Producing Activities

Costs incurred in oil and gas operations and related depletion, depreciation
and amortization per equivalent barrel are as follows:

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1995 1994 1993
------- ------- -------
(in thousands, except per barrel amounts)
<S> <C> <C> <C>
Property acquisition costs:
Proved $ 187 $ 1,831 $ 1,003
Unproved 3,945 4,768 1,571
------- ------- -------
$ 4,132 $ 6,599 $ 2,574
======= ======= =======
Exploration costs $ 4,629 $ 3,500 $ 2,965
======= ======= =======
Development costs $ 9,244 $24,420 $15,478
======= ======= =======
Depletion, depreciation and amortization $14,405 $17,655 $18,357
======= ======= =======
Depletion, depreciation and amortization
per equivalent barrel $ 4.32 $ 4.41 $ 4.60
======= ======= =======
</TABLE>

Estimated Quantities of Proved Oil and Gas Reserves (Unaudited)

The reserve information presented below is based upon reports prepared by the
Company and reviewed by its independent petroleum engineering firm. Reserve
estimates are inherently imprecise and estimates of new discoveries are more
imprecise than those of producing oil and gas properties. Accordingly, these
estimates are expected to change as future information becomes available.

Proved oil and gas reserves are the estimated quantities of oil, gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed oil and gas
reserves are those expected to be recovered through existing wells with
existing equipment and operating methods.

40
<PAGE> 41
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

Net quantities of proved reserves and proved developed reserves of oil
(including condensate and natural gas liquids) and gas for the Company as of
the beginning and the end of the years ended December 31, 1995, 1994 and 1993,
as well as the changes in proved reserves during such periods, are set forth in
the tables below.

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Oil reserves (thousands of barrels):
-----------------------------------

Proved oil reserves, beginning of period 13,273 13,036 13,863
Revisions of previous estimates (628) 1,076 304
Extensions, discoveries and other additions 293 2,816 397
Purchases of reserves in place 29 255 113
Sales of reserves in place (294) (2,773) (205)
Production (866) (1,137) (1,436)
------- ------- -------
Proved oil reserves, end of period 11,807 13,273 13,036
======= ======= =======
Proved developed oil reserves, end of period 9,506 9,494 9,942
======= ======= =======
Gas reserves (MMCF):
------------------

Proved gas reserves, beginning of period 323,978 302,954 268,871
Revisions of previous estimates (35,606) (4,618) 15,450
Extensions, discoveries and other additions 33,298 64,666 31,113
Purchases of reserves in place 681 6,242 5,618
Sales of reserves in place (19,561) (28,047) (2,758)
Production (14,790) (17,219) (15,340)
------- ------- -------
Proved gas reserves, end of period (1) 288,000 323,978 302,954
======= ======= =======
Proved developed gas reserves, end of period 146,943 176,207 164,530
======= ======= =======
</TABLE>

(1) Includes proved undeveloped gas reserves at December 31, 1995, 1994 and
1993 of 16.3 BCF, 26.1 BCF and 27.5 BCF, respectively, which are subject
to a joint drilling participation agreement as discussed in Note 8.

41
<PAGE> 42
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

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

Future net cash flows presented below are computed using period-end prices and
costs with consideration of price changes only to the extent provided by
contractual arrangements. Future income tax expenses are estimated after
consideration of statutory tax rates, permanent differences and tax credits.
Future general and administrative expenses and interest expense have not been
considered.

<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1995(1) 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Future oil and gas sales $688,448 $741,640 $848,193
Future production costs 227,361 226,459 241,204
Future development costs 68,387 79,959 68,172
-------- -------- --------
Future net cash flows before income tax 392,700 435,222 538,817
Future income taxes 7,905 20,491 60,365
-------- -------- --------
Future net cash flows after income taxes 384,795 414,731 478,452
Discount at 10% per annum 180,121 189,233 216,813
-------- -------- --------
Standardized measure of discounted
future net cash flows, after tax $204,674 $225,498 $261,639
======== ======== ========
Discounted future net cash flows
before income taxes (2) $208,879 $236,639 $294,650
======== ======== ========
</TABLE>

(1) The ability of the Company to maintain and/or increase current levels
of oil and gas production and to find and develop new proved reserves
of oil and gas to replace the reserves being produced in 1996 depends
on the availability of funds for capital expenditures. Due to the
Company's current financial condition, the Company has limited
funds available for development and other drilling operations.
Therefore, the Company's production and volumes of proved oil and gas
reserves could decline significantly during 1996 and would result in
a reduction in discounted future net cash flows (See Note 1).
(2) Includes proved undeveloped reserves at December 31, 1995, 1994 and
1993 with a present value of future net revenues discounted at 10% of
$2,354,000, $2,294,000 and $3,260,000, respectively, which are
subject to a joint drilling participation agreement as discussed in
Note 8.

42
<PAGE> 43
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

Standardized Measure of Discounted Future Net Cash Flows, After Tax (Unaudited)

The following are the principal sources of change in the standardized measure
of discounted future net cash flows, after tax.

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Beginning of period $225,498 $261,639 $252,224
Sales of oil and gas produced,
net of production costs (18,181) (25,787) (31,114)
Sales of reserves in place (19,212) (41,253) (2,737)
Purchases of reserves in place 531 4,476 5,783
Net changes in price and
production costs 1,789 (65,284) (18,931)
Extensions, discoveries and improved
recovery, less related costs 13,959 49,656 25,356
Previously estimated development
costs incurred during the year 4,978 10,234 7,216
Revisions of previous quantity estimates (26,912) 1,276 15,036
Accretion of discount 23,664 29,465 28,491
Net change in income taxes 6,937 21,870 (324)
Changes in production rates and other (8,377) (20,794) (19,361)
-------- -------- --------
End of period $204,674 $225,498 $261,639
======== ======== ========
</TABLE>

43
<PAGE> 44
PRESIDIO OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)

13. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- ------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Oil and gas revenues $ 8,844 $ 8,093 $ 6,771 $ 7,590 $ 31,298
Gross profit 1,141 973 335 1,327 3,776
Loss from continuing operations (7,617) (8,076) (8,476) (5,419) (29,588)
Net loss (7,617) (8,076) (8,476) (5,419) (29,588)
Loss from continuing operations per share
of Class A Common Stock (.28) (.30) (.31) (.20) (1.08)
Loss from continuing operations per share
of Class B Common Stock (.28) (.30) (.31) (.20) (1.08)
Loss per share of Class A Common Stock (.28) (.30) (.31) (.20) (1.08)
Loss per share of Class B Common Stock (.28) (.30) (.31) (.20) (1.08)

Year ended December 31, 1994:
Oil and gas revenues $ 10,542 $ 10,145 $ 9,742 $ 10,214 $ 40,643
Gross profit 2,496 1,854 1,811 1,971 8,132
Loss from continuing operations (5,727) (6,205) (6,803) (5,827) (24,562)
Net loss (5,727) (6,205) (6,803) (5,827) (24,562)
Loss from continuing operations per share
of Class A Common Stock (.21) (.23) (.25) (.21) (.91)
Loss from continuing operations per share
of Class B Common Stock (.21) (.23) (.25) (.21) (.91)
Loss per share of Class A Common Stock (.21) (.23) (.25) (.21) (.91)
Loss per share of Class B Common Stock (.21) (.23) (.25) (.21) (.91)

Year ended December 31, 1993:
Oil and gas revenues $ 12,329 $ 12,352 $ 10,963 $ 11,832 $ 47,476
Gross profit 3,465 3,816 2,233 3,243 12,757
Loss from continuing operations (3,775) (3,564) (7,055) (4,389) (18,783)
Net earnings (loss) (3,775) (3,564) 4,495 (1) (4,389) (7,233)
Loss from continuing operations per share
of Class A Common Stock (.14) (.13) (.26) (.16) (.70)
Loss from continuing operations per share
of Class B Common Stock (.14) (.13) (.26) (.16) (.70)
Earnings (loss) per share of Class A Common Stock (.14) (.13) .17 (.16) (.27)
Earnings (loss) per share of Class B Common Stock (.14) (.13) .17 (.16) (.27)
</TABLE>

(1) Includes a $11.6 million gain on the sale of the Company's remaining
equity interest in its discontinued gas gathering, processing and
marketing operations (see Note 11).

44
<PAGE> 45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information called for by this Item 10 is incorporated herein by reference
to the definitive Proxy Statement to be filed by the Company pursuant to
Regulation 14A of the General Rules and Regulations under the Securities and
Exchange Act of 1934 not later than April 29, 1996.

ITEM 11. EXECUTIVE COMPENSATION.

The information called for by this Item 11 is incorporated herein by reference
to the definitive Proxy Statement to be filed by the Company pursuant to
Regulation 14A of the General Rules and Regulations under the Securities and
Exchange Act of 1934 not later than April 29, 1996.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information called for by this Item 12 is incorporated herein by reference
to the definitive Proxy Statement to be filed by the Company pursuant to
Regulation 14A of the General Rules and Regulations under the Securities and
Exchange Act of 1934 not later than April 29, 1996.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information called for by this Item 13 is incorporated herein by reference
to the definitive Proxy Statement to be filed by the Company pursuant to
Regulation 14A of the General Rules and Regulations under the Securities and
Exchange Act of 1934 not later than April 29, 1996.

45
<PAGE> 46
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) LIST OF DOCUMENTS FILED

(1) Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements

(2) Financial Statement Schedules:
None

(3) Exhibits:

3.1 Restated Certificate of Incorporation of the Company as
filed on March 17, 1987 with the Secretary of State of the
State of Delaware, as amended by the Certificate of
Amendment filed on December 15, 1987 and the Second
Certificate of Amendment filed on June 8, 1990 with the
Secretary of State of the State of Delaware. (Incorporated
herein by reference to Exhibit 4.1 to Presidio's
Registration Statement on Form S-3, Registration No.
33-37747.)

3.2 The Company's Bylaws, as amended to February 27, 1991.
(Incorporated herein by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990.)

4.1 Amendment and Restatement of Amendment, Restatement and
Consolidation of Credit Agreement dated as of August 6, 1993
among the Company, Exploration, each bank which is a
signatory thereto and Chase, as agent (the "Credit
Agreement"). (Incorporated herein by reference to Exhibit
4.1 to the Company's Quarterly Report on Form 10-Q for the
six months ended June 30, 1993.)

4.2 Amendment No. 1, dated as of December 28, 1993 relating to
the Credit Agreement. (Incorporated herein by reference to
Exhibit 4.7 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993.)

4.3 Amendment No. 2, dated as of September 30, 1994 relating to
the Credit Agreement. (Incorporated herein by reference to
Exhibit 4.3 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.)

4.4 Amendment No. 3, dated as of December 6, 1994 relating to
the Credit Agreement. (Incorporated herein by reference to
Exhibit 4.4 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.)

46
<PAGE> 47
4.5 Amendment No. 4, dated as of March 21, 1995 relating to the
Credit Agreement. (Incorporated herein by reference to
Exhibit 4.5 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.)

4.6 Guaranty dated as of December 1, 1989, from the Company to
each of the financial institutions party to the Credit
Agreement. (Incorporated herein by reference to Exhibit
10.14 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989.)

4.7 Indenture dated as of February 16, 1989 among the Company,
the subsidiaries of the Company listed on the signature
pages thereto and United States Trust Company of New York, a
New York banking corporation (the "Trustee"), relating to
the Company's Senior Subordinated Gas Indexed Notes Due 1999
(the "GIN Indenture"). (Incorporated herein by reference to
Exhibit 10.15 to the Company's Registration Statement on
Form S-2, Registration No. 33-32202.)

4.8 Indenture dated as of February 14, 1990 among the Company
and Bank of Montreal Trust Company, relating to the
Company's 9% Convertible Subordinated Debentures Due 2015.
(Incorporated herein by reference to Exhibit 4.8 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1989.)

4.9 First Supplemental Indenture to the GIN Indenture dated as
of August 5, 1993 among the Company, the subsidiaries of the
Company listed on the signature pages thereto, as Guarantors
(the "Guarantors") and the Trustee, relating to the
Company's Senior Subordinated Gas Indexed Notes Due 1999.
(Incorporated herein by reference to Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q for the six months
ended June 30, 1993.)

4.10 Indenture dated as of August 6, 1993 among the Company, the
Guarantors and the Trustee, relating to the Company's Senior
Gas Indexed Notes Due 2002. (Incorporated herein by
reference to Exhibit 4.3 to the Company's Quarterly Report
on Form 10-Q for the six months ended June 30, 1993.)

4.11 Indenture dated as of August 6, 1993 among the Company, the
Guarantors and the Trustee, relating to the Company's 11.5%
Senior Secured Notes Due 2000. (Incorporated herein by
reference to Exhibit 4.4 to the Company's Quarterly Report
on Form 10-Q for the six months ended June 30, 1993.)

4.12 Pledged Assets Agency Agreement dated as of August 6, 1993
between the Trustee, as Pledged Asset Agent, and Exploration
relating to the Company's 11.5% Senior Secured Notes Due
2000. (Incorporated herein by reference to Exhibit 4.5 to
the Company's Quarterly Report on Form 10-Q for the six
months ended June 30, 1993.)

4.13 Exchange Agreement dated as of July 19, 1993 by and among
the Company and The Prudential Insurance Company relating to
the Company's Senior Subordinated Gas Indexed Notes Due 1999
(and such other beneficial holders as set forth on Schedule
A attached thereto). (Incorporated herein by reference to
Exhibit 4.6 to the Company's Quarterly Report on Form 10-Q
for the six months ended June 30, 1993.)

47
<PAGE> 48
4.14 Subscription Agreement dated as of July 27, 1993 between the
Company and The Prudential Insurance Company relating to the
Company's 11.5% Senior Secured Notes Due 2000 (and such
other subscribers thereunder as set forth on Schedule A
attached thereto). (Incorporated herein by reference to
Exhibit 4.7 to the Company's Quarterly Report on Form 10-Q
for the six months ended June 30, 1993.)

4.15 Second Amended and Restated Agreement dated as of December
22, 1992, among the Company, Exploration and Chase, as agent
for certain banks, and Chase as collateral agent for such
banks. (Incorporated herein by reference to Exhibit 4.14 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1992.)

Executive Compensation Plans

10.1 The Company's Incentive and Non-Qualified Stock Option and
Stock Appreciation Rights Plan as approved by the Company's
board of directors (the "Board of Directors") on October 22,
1987 and approved by the Company's stockholders (the
"Stockholders") on December 9, 1987 (the "Stock Plan").
(Incorporated herein by reference to Part I of the Company's
Registration Statement on Form S-8, Registration No.
33-20496.)

10.2 Amendment to the Stock Plan dated May 25, 1989.
(Incorporated herein by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-3, Registration
No. 33-34350.)

10.3 Second Amendment to the Stock Plan dated May 17, 1990.
(Incorporated herein by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-3, Registration
No. 33-34350.)

10.4 Supplemental Executive Retirement Agreement dated as of
October 8, 1993 between the Company and George P. Giard, Jr.
(Incorporated herein by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993.)

10.5 Supplemental Executive Retirement Agreement dated as of
October 8, 1993 between the Company and Robert L. Smith.
(Incorporated herein by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993.)

10.6 First Amendment to Employee Stock Ownership Plan of Presidio
Oil Company (Incorporated herein by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 1994.)

10.7 Second Amendment to Employee Stock Ownership Plan of
Presidio Oil Company (Incorporated herein by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the three months ended March 31, 1994.)

10.8 Third Amendment to Employee Stock Ownership Plan of Presidio
Oil Company. (Incorporated herein by reference to Exhibit
10.8 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.)

10.9 The Company's Severance Benefit Plan effective as of July 1,
1995. (Incorporated herein by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the nine
months ended September 30, 1995.)

48
<PAGE> 49
10.10 Key Employee Severance Agreement, dated as of July 25, 1995,
together with a schedule identifying specific agreements
between the Company and Key Employees and setting forth the
material details in which those agreements differ from the
Key Employee Severance Agreement filed. (Incorporated
herein by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the nine months ended
September 30, 1995.)

10.11 Amendment to Key Employee Severance Agreements, dated August
16, 1995 and effective as of July 25, 1995. (Incorporated
herein by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the nine months ended
September 30, 1995.)

10.12 Amendments to Supplemental Executive Retirement Agreement,
dated October 26, 1995. (Incorporated herein by reference
to Exhibit 10.5 to the Company's Quarterly Report on Form
10-Q for the nine months ended September 30, 1995.)

Director Compensation Plans

10.13 The Company's Stock Option Plan for Non-Employee Directors
(the "1988 Plan") as approved by the Board of Directors on
October 22, 1987 and approved by the Stockholders on
December 9, 1987. (Incorporated herein by reference to
Exhibit 10.2 to the Company's Annual Report on Form 10-K for
the six months ended December 31, 1987.)

10.14 First Amendment to the Company's 1988 Plan executed May 25,
1989, to be effective January 1, 1989. (Incorporated herein
by reference to Exhibit 10.15 to the Company's Registration
Statement on Form S-3, Registration No. 33-34350.)

10.15 The Company's 1989 Stock Option Plan for Non-Employee
Directors as approved by the Board of Directors on March 30,
1989 and approved by the Stockholders on May 25, 1989.
(Incorporated herein by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-2, Registration
No. 33-32202.)

10.16 The Company's 1990 Stock Option Plan for Non-Employee
Directors as approved by the Board of Directors on March 15,
1990 and by the Stockholders on May 17, 1990. (Incorporated
herein by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-3, Registration No.
33-34350.)

10.17 The Company's 1991 Stock Option Plan for Non-Employee
Directors as approved by the Board of Directors on December
27, 1991 and by the Stockholders on May 14, 1992.
(Incorporated herein by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992.)

10.18 The Company's 1992 Stock Option Plan for Non-Employee
Directors as approved by the Board of Directors on April 16,
1993 and by the Stockholders on June 16, 1993.
(Incorporated herein by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the six months
ended June 30, 1993.)

Management Warrants and Agreements

10.19 Amended and Restated Warrant Agreement dated as of April 16,
1993 between the Company and Oil and Gas Finance Limited (a
company wholly owned by George P. Giard, Jr.).
(Incorporated herein by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the nine months
ended September 30, 1993.)

49
<PAGE> 50
10.20 Amended and Restated Warrant Agreement dated as of April 16,
1993 between the Company and Robert L. Smith.
(Incorporated herein by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the nine months
ended September 30, 1993.)

10.21 Indemnification Agreement, dated as of June 20, 1995,
together with a schedule identifying specific agreements
between the Company and each of the Company's directors and
Named Officers. (Incorporated herein by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the nine months ended September 30, 1995.)

Other Warrants

10.22 Warrant Agreement dated as of January 15, 1993 between the
Company and Christopher S. Hardesty. (Incorporated herein
by reference to Exhibit 10.15 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993.)

10.23 Warrant Agreement dated as of September 18, 1987 between the
Company and Grant E. Thayer. (Incorporated herein by
reference to Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the six months ended December 31, 1987.)

10.24 Warrant Agreement dated as of September 13, 1989 between the
Company and InterLiberty Investments, Inc. (Incorporated
herein by reference to Exhibit 10.37 to the Company's
Registration Statement on Form S-3, Registration No.
33-34350.)

Option Agreements

10.25 Option Agreement dated as of November 3, 1987 between the
Company and Philip S. Sirianni ("Sirianni"). (Incorporated
herein by reference to Exhibit 10.38 to the Company's
Registration Statement on Form S-3, Registration No.
33-34350.)

10.26 Option Agreement dated as of December 16, 1988 between the
Company and Sirianni. (Incorporated herein by reference to
Exhibit 10.39 to the Company's Registration Statement on
Form S-3, Registration No. 33-34350.)

10.27 Option Agreement dated as of September 13, 1989 between the
Company and Sirianni. (Incorporated herein by reference to
Exhibit 10.40 to the Company's Registration Statement on
Form S-3, Registration No. 33-34350.)

10.28 Amendment to Stock Option Agreement dated November 1, 1993
between the Company and Sirianni. (Incorporated herein by
reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the nine months ended September 30, 1993.)

10.29 Option Agreement dated November 1, 1993 between the Company
and Sirianni. (Incorporated herein by reference to Exhibit
10.5 to the Company's Quarterly Report on Form 10-Q for the
nine months ended September 30, 1993.)

50
<PAGE> 51
* 21 Subsidiaries of the Registrant.

* 23.1 Consent of Deloitte & Touche LLP.

* 23.2 Consent of Huddleston & Co., Inc.

* 27 Financial Data Schedule

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

* Filed herewith.

(b) REPORTS ON FORM 8-K

On November 20, 1995, a Form 8-K, dated November 15, 1995, was filed, which
reported under Item 5. "Other Events" that the Company had initiated
discussions with Tom Brown Inc. for a potential sale of substantially all of
the Company's assets and that due to the uncertainty concerning the amount of
proceeds, if any, that would be available for distribution to holders of the
Company's common stock, the American Stock Exchange has halted trading of the
Company's Class A and B common stock indefinitely, on such Exchange.

On December 28, 1995, a Form 8-K, dated December 22, 1995, was filed, which
reported under Item 5. "Other Events", the interest rate on the Company's
Senior Subordinated Gas Indexed Notes Due 1999 and Senior Gas Indexed Notes Due
2002 to be 13.250% for the period February 15, 1996 to May 14, 1996.

51
<PAGE> 52
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

PRESIDIO OIL COMPANY

By: /s/ Robert L. Smith Date: April 11, 1996
------------------------------- ---------------
Robert L. Smith
President and Chief Operating Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ George P. Giard, Jr. Chairman of the Board, Chief April 11, 1996
- --------------------------- Executive Officer and Director
George P. Giard, Jr. (Principal Executive Officer)

/s/ William D. Benjes, Jr. Director April 11, 1996
- ---------------------------
William D. Benjes, Jr.

/s/ Peter H. Havens Director April 11, 1996
- ---------------------------
Peter H. Havens

/s/ John W. Hyland, Jr. Director April 11, 1996
- ---------------------------
John W. Hyland, Jr.

/s/ Raymond J. Kosi Director April 11, 1996
- ---------------------------
Raymond J. Kosi

/s/ Robert L. Smith President, Chief Operating Officer April 11, 1996
- --------------------------- and Director
Robert L. Smith

/s/ Charles E. Brammeier Controller April 11, 1996
- --------------------------- (Principal Accounting Officer)
Charles E. Brammeier
</TABLE>

52
<PAGE> 53
INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

21 Subsidiaries of the Registrant.

23.1 Consent of Deloitte & Touche LLP.

23.2 Consent of Huddleston & Co., Inc.

27 Financial Data Schedule (Submitted to the SEC for its information).

<PAGE> 1
EXHIBIT 21

SUBSIDIARIES OF PRESIDIO OIL COMPANY

<TABLE>
<CAPTION>
COMPANY STATE OF INCORPORATION
- ------- ----------------------
<S> <C>
Presidio Exploration, Inc. Colorado

Presidio West Virginia, Inc. Delaware

Palisade Oil, Inc. Colorado
</TABLE>

<PAGE> 1
EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in (i) Registration Statement No.
33-6661 on Form S-8, (ii) Registration Statement No. 33-32202 on Form S-2,
(iii) Registration Statement No. 33-20496 on Form S-8, (iv) Registration
Statement No. 33-37747 on Form S-3, (v) Registration Statement No. 33-34350 on
Form S-3, (vi) Registration Statement No. 33-38620 on Form S-8, (vii)
Registration Statement No. 33-32821 on Form S-3, and (viii) Registration
Statement No. 33-44909 on Form S-8 of our report dated April 5, 1996, (which
expresses an unqualified opinion and includes an explanatory paragraph with
respect to the 1994 financial statements, and disclaims an opinion with respect
to the 1995 financial statements, in each instance relating to the Company's
ability to continue as a going concern) appearing in this Annual Report on Form
10-K of Presidio Oil Company for the year ended December 31, 1995.

/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP

Denver, Colorado
April 11, 1996

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT PETROLEUM ENGINEER

We hereby consent to reference of our firm in the Annual Report on Form 10-K of
Presidio Oil Company and its subsidiaries (the "Company") for the year ended
December 31, 1995, and the incorporation by reference thereof into the
Company's Registration Statement on Form S-2 (No. 33-32202), Form S-8 (No.
33-6661), Form S-8 (No. 33-20496), Form S-3 (No. 33-37747), Form S-8 (No.
33-38620), Form S-3 (No. 33-34350), Form S-3 (No. 33-32821), and Form S-8 (No.
33-44909).

Very truly yours,

HUDDLESTON & CO., INC.

By: /s/ Peter D. Huddleston
-------------------------
Peter D. Huddleston

April 11, 1996

<ARTICLE> 5
<LEGEND>
Financial Data Schedule for Year Ended December 31, 1995
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 7,060
<SECURITIES> 0
<RECEIVABLES> 6,827
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,167
<PP&E> 519,598
<DEPRECIATION> (302,733)
<TOTAL-ASSETS> 241,946
<CURRENT-LIABILITIES> 280,816
<BONDS> 0
<COMMON> 2,854
0
0
<OTHER-SE> (52,849)
<TOTAL-LIABILITY-AND-EQUITY> 241,946
<SALES> 31,298
<TOTAL-REVENUES> 31,298
<CGS> 0
<TOTAL-COSTS> 27,522
<OTHER-EXPENSES> 3,798
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,566
<INCOME-PRETAX> (29,588)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,588)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,588)
<EPS-PRIMARY> (1.08)
<EPS-DILUTED> (1.08)

</TABLE>