BURLINGTON RESOURCES INC, 10-K/A, 2000-08-11

BURLINGTON RESOURCES INC
10-K/A, 2000-08-11
CRUDE PETROLEUM & NATURAL GAS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A NO. 1

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 1-9971

BURLINGTON RESOURCES INC.
5051 WESTHEIMER, SUITE 1400, HOUSTON, TEXAS 77056
TELEPHONE: (713) 624-9500

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<S> <C>
INCORPORATED IN THE STATE OF DELAWARE EMPLOYER IDENTIFICATION NO. 91-1413284
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS

THE ABOVE SECURITIES ARE REGISTERED ON THE NEW YORK STOCK EXCHANGE.

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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. [ ]

State the aggregate market value of the voting stock held by non-affiliates
of the registrant: Common Stock aggregate market value as of February 29, 2000:
$5,946,038,509

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. Class: Common Stock,
par value $.01 per share, on February 29, 2000, Shares Outstanding: 215,241,213

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated:

Burlington Resources Inc. 1999 Annual Report to stockholders, which is
incorporated by reference into Part I and Part II of this Form 10-K.

Burlington Resources Inc. definitive proxy statement, to be filed not later
than 120 days after the end of the fiscal year covered by this report, is
incorporated by reference into Part III.
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EXPLANATORY NOTE

Burlington Resources Inc. (the "Company") is filing this amendment to its
Annual Report on Form 10-K for the year ended December 31, 1999 in order to
restate the Financial Statements and revise the Management's Discussion and
Analysis of Financial Condition and Results of Operations. The Company
discovered an accounting error that resulted in a $26 million overstatement of
revenues for the fourth quarter of 1998. The net effect, after adjusting for
income tax of $9 million, is a $17 million increase in net loss from $321
million to $338 million for the year ended December 31, 1998 and a $17 million
reduction in stockholders' equity at December 31, 1998 and 1999. See Note 14 of
the Notes to Consolidated Financial Statements.

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BURLINGTON RESOURCES INC.

TABLE OF CONTENTS

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PAGE
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PART II

Item Six

Selected Financial Data................................ 1

Item Seven and Seven A

Management's Discussion and Analysis of Financial
Condition and Results of Operations and Quantitative
and Qualitative Disclosures About Market Risk......... 1

Item Eight

Financial Statements and Supplementary Financial
Information........................................... 8

PART IV

Item Fourteen

Exhibits, Financial Statement Schedules and Reports on
Form 8-K.............................................. 38
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ITEM SIX

SELECTED FINANCIAL DATA

The selected financial data for Burlington Resources Inc. set forth below
for the five years ended December 31, 1999 should be read in conjunction with
the consolidated financial statements. Prior year amounts have been restated to
include Poco Petroleums Ltd. Certain financial data for 1998 and 1999 have been
further restated as described in Note 14 to the Consolidated Financial
Statements.

<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues........................................ $2,065 $1,983 $2,375 $2,477 $1,905
Operating Income (Loss)......................... 236 (439) 605 643 (508)
Net Income (Loss)............................... 1 (338) 352 354 (332)
Basic Earnings (Loss) per Common Share.......... .01 (1.60) 1.69 1.72 (1.65)
Diluted Earnings (Loss) per Common Share........ $ -- $(1.60) $ 1.67 $ 1.70 $(1.65)
BALANCE SHEET DATA
Total Assets.................................... $7,165 $7,060 $7,164 $6,790 $6,169
Long-term Debt.................................. 2,769 2,684 2,317 2,223 2,306
Stockholders' Equity............................ 3,229 3,301 3,550 3,320 2,848
Cash Dividends Declared per Common Share........ $ .46 $ .46 $ .39 $ .37 $ .38
Common Shares Outstanding....................... 216 216 209 209 201
</TABLE>

ITEM SEVEN AND SEVEN A

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AND QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ACQUISITION OF POCO

On August 16, 1999, the Company entered into a definitive agreement to
acquire Poco Petroleums Ltd. ("Poco"), a corporation existing under the laws of
the Province of Alberta, Canada (the "Acquisition"). The Acquisition was
consummated on November 18, 1999.

Under the terms of the Acquisition, Poco shareholders received .25 BR
common equivalent shares ("exchangeable shares"), totaling 38,393,135 BR shares,
for each Poco share held. The exchangeable shares are Canadian securities, which
began trading on The Toronto Stock Exchange November 23, 1999 under the symbol
BRX. These shares have the same voting rights, dividend entitlements and other
attributes as shares of BR Common Stock and are exchangeable, at each
shareholder's option, for BR Common Stock on a one for one basis. The
Acquisition was accounted for as a pooling of interests.

All operational and financial information contained herein includes the
business activities of Poco for all periods presented.

FINANCIAL CONDITION AND LIQUIDITY

The Company's long-term debt to capital ratio at December 31, 1999 and 1998
was 47 percent and 45 percent, respectively.

1
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$600 million, $400 million, $310 million, $121 million and $52 million. The $600
million revolver expires in February 2003. The other credit facilities expire in
March 2000 unless renewed by mutual consent, with the exception of the $52
million revolver which is cancelable by the creditor upon demand. Balances
outstanding on the $310 million revolver automatically become five year
amortizing notes at expiration of the agreement.

In March 1999 and April 1999, the Company issued $450 million of 7 3/8
percent fixed-rate debt and $19 million of 6.40 percent fixed-rate debt,
respectively. During 1999, the Company repaid $474 million of fixed-rate debt.
The Company has a total of $961 million of debt to be repaid in 2000. Of this
amount, $362 million represents fixed-rate debt which the Company intends to
refinance with other fixed-rate long-term debt. The remaining $599 million is
comprised of $267 million of commercial paper outstanding at December 31, 1999
with an average interest rate of 7 percent and $332 million of credit facility
notes with interest rates between 5 and 6 percent.

In July 1998, the Company's Board of Directors approved the repurchase of
up to two million shares of its Common Stock. During 1999, the Company
repurchased 250,000 shares of its Common Stock for $9 million. Since December
1988, the Company has repurchased approximately 32 million shares.

Net cash provided by operating activities for 1999 was $1,102 million
compared to $980 million and $1,363 million in 1998 and 1997, respectively. The
increase in 1999 compared to 1998 was primarily due to higher operating income
and working capital and other changes. The decrease in 1998 compared to 1997 was
primarily due to significantly lower operating income and lower working capital
and other changes.

The Company and its subsidiaries are named defendants in numerous lawsuits
and named parties in numerous governmental and other proceedings arising in the
ordinary course of business. While the outcome of lawsuits and other proceedings
cannot be predicted with certainty, management believes these matters will not
have a material adverse effect on the consolidated financial position of the
Company, although results of operations and cash flows could be significantly
impacted in the reporting periods in which such matters are resolved.

The Company has certain other commitments and uncertainties related to its
normal operations. Management believes that there are no other commitments or
uncertainties that will have a material adverse effect on the consolidated
financial position, results of operations or cash flows of the Company.

CAPITAL EXPENDITURES AND RESOURCES

Capital expenditures during 1999 totaled $989 million compared to $1,839
million and $1,682 million in 1998 and 1997, respectively. The Company invested
$792 million on internal development and exploration during 1999 compared to
$1,291 million and $1,220 million in 1998 and 1997, respectively. The Company
invested $135 million for proved property acquisitions in 1999 compared to $437
million and $340 million in 1998 and 1997, respectively.

Capital expenditures for 2000, excluding proved property acquisitions, are
projected to be approximately $1 billion. Capital expenditures are expected to
be primarily for internal development and exploration of oil and gas properties
and plant and pipeline expenditures. Capital expenditures will be funded from
internal cash flows, supplemented, if needed, by external financing.

MARKETING

North America

The Company's marketing strategy is to maximize the value of its production
by developing marketing flexibility from the wellhead to its ultimate sales. The
Company's natural gas production is gathered, processed, exchanged and
transported utilizing various firm and interruptible contracts and routes to
access the highest value market hubs. The Company's customers include local
distribution companies, electric utilities, industrial users and marketers. The
Company maintains the capacity to ensure its production can be marketed either
at the wellhead or downstream at market sensitive prices.

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All of the Company's crude oil production is sold to third parties at the
wellhead or transported to market hubs where it is sold or exchanged. NGLs are
typically sold at field plants or transported to market hubs and sold to third
parties.

International

The Company's international production is marketed to third parties either
directly by the Company or by the operators of the properties. Production is
sold at the platforms or local sales points based on spot or contract prices.

COMMODITY RISK

Substantially all of the Company's crude oil and natural gas production is
sold on the spot market or under short-term contracts at market sensitive
prices. Spot market prices for domestic crude oil and natural gas are subject to
volatile trading patterns in the commodity futures market, including among
others, the New York Mercantile Exchange ("NYMEX"). Quality differentials,
worldwide political developments and the actions of the Organization of
Petroleum Exporting Countries also affect crude oil prices.

There is also a difference between the NYMEX futures contract price for a
particular month and the actual cash price received for that month in a U.S.
producing basin or at a U.S. market hub, which is referred to as the "basis
differential."

The Company utilizes over-the-counter price and basis swaps as well as
options to hedge its production in order to decrease its price risk exposure.
The gains and losses realized as a result of these derivative transactions are
substantially offset when the hedged commodity is delivered. In order to
accommodate the needs of its customers, the Company also uses price swaps to
convert natural gas sold under fixed price contracts to market prices.

The Company uses a sensitivity analysis technique to evaluate the
hypothetical effect that changes in the market value of crude oil and natural
gas may have on the fair value of the Company's derivative instruments. At
December 31, 1999, the potential decrease in fair value of derivative
instruments assuming a 10 percent adverse movement (an increase in the
underlying commodities price) would result in a $65 million increase in the net
deferred amount.

For purposes of calculating the hypothetical change in fair value, the
relevant variables include the type of commodity, the commodity futures prices,
the volatility of commodity prices and the basis and quality differentials. The
hypothetical change in fair value is calculated by multiplying the difference
between the hypothetical price (adjusted for any basis or quality differentials)
and the contractual price by the contractual volumes.

FOREIGN CURRENCY RISK

The Company's reported cash flows related to Canadian operations is based
on cash flows measured in Canadian dollars converted to the U.S. dollar
equivalent based on the average of the Canadian and U.S. dollar exchange rates
for the period reported. The Company's Canadian subsidiary has financial
obligations that are denominated in U.S. dollars. A decrease in value of 10
percent in Canadian dollars relative to the U.S. dollar from the year-end
exchange rate would result in a foreign currency loss of $20 million based on
December 31, 1999 amounts. The Company considers its current risk exposure to
exchange rate movements, based on net cash flows, to be immaterial.

DIVIDENDS

On January 19, 2000, the Board of Directors declared a common stock
quarterly cash dividend of $.1375 per share, payable April 3, 2000 to
shareholders of record on March 10, 2000. Dividend levels are determined by the
Board of Directors based on profitability, capital expenditures, financing and
other factors. The Company declared cash dividends on Common Stock totaling
approximately $103 million during 1999.

3
<PAGE> 6

RESULTS OF OPERATIONS

Year Ended December 31, 1999 Compared With Year Ended December 31, 1998

The Company reported net income of $1 million or $.01 basic earnings per
common share in 1999 compared to a net loss of $338 million or $1.60 basic loss
per common share in 1998. The 1999 and 1998 results included a non-cash per
share charge of $.65 and $1.85, respectively, related to the impairment of oil
and gas properties. The Company evaluates the impairment of its oil and gas
properties on a field-by-field basis whenever events or changes in circumstances
indicate an asset's carrying amount may not be recoverable. Unamortized capital
costs are reduced to fair value if the sum of the expected undiscounted future
cash flows is less than the assets' net book value. Cash flows are determined
based upon proved reserves using prices and costs consistent with those used for
internal decision making. In the fourth quarter of 1999, the Company determined
there would be performance related downward reserve adjustments associated with
certain properties located on the Gulf of Mexico shelf and in the Permian Basin.
As a result, the Company recognized a pretax impairment charge of $225 million
($140 million after tax) related to those properties. In the fourth quarter of
1998, the market experienced a weakness in commodity prices. The Company
subjected all properties to impairment testing and subsequently recognized a
pretax impairment charge related to certain Canadian properties of $706 million
($390 million after tax). The 1999 results also included a $.12 per share charge
related to severance and transaction costs associated with the Acquisition.

Revenues were $2,065 million in 1999 compared to $1,983 million in 1998.
Average oil prices increased 31 percent to $16.85 per barrel in 1999 and average
gas prices increased 6 percent to $2.01 per MCF which increased revenues $131
million and $88 million, respectively. Oil sales volumes decreased 14 percent in
1999 to 89.9 MBbls per day and gas sales volumes decreased 4 percent to 2,004
MMCF per day which decreased revenues $69 million and $51 million, respectively.
Oil sales volumes decreased primarily due to natural production declines in the
Gulf Coast, Mid-Continent and North Sea areas.

Costs and Expenses were $1,829 million in 1999 compared to $2,422 million
in 1998. Costs and expenses in 1999 and 1998 included a $225 million and $706
million charge, respectively, related to the impairment of oil and gas
properties. Costs and expenses in 1999 also included a charge of $37 million
related to severance and transaction costs associated with the Acquisition.
Excluding the $262 million of charges in 1999 and the $706 million charge in
1998, costs and expenses in 1999 decreased $149 million compared to 1998. The
decrease was primarily due to a $114 million decrease in exploration costs and a
$48 million decrease in depreciation, depletion and amortization ("DD&A").
Exploration costs decreased due to lower exploratory spending resulting in lower
geological and geophysical ("G&G") expenses of $58 million and lower exploratory
dry hole expense of $69 million partially offset by higher impairment expense of
$13 million. DD&A decreased due to lower production volumes and a lower unit
rate resulting in reduced expenses of $38 million and $16 million, respectively,
partially offset by higher fixed-rate expense of $6 million.

Interest Expense was $211 million in 1999 compared to $193 million in 1998.
The increase was primarily due to higher outstanding fixed-rate debt and higher
outstanding commercial paper borrowings during 1999.

Other Expense (Income) -- Net was an expense of $2 million in 1999 compared
to income of $8 million in 1998. The decrease in other income is primarily due
to lower interest income in 1999.

Income taxes were an expense of $22 million, a rate of 95 percent in 1999
compared to a benefit of $286 million, a rate of 46 percent in 1998. The
increased tax expense in 1999 compared to 1998 was primarily a result of
substantially higher pretax income and lower benefits from nonconventional fuel
tax credits.

Year Ended December 31, 1998 Compared With Year Ended December 31, 1997

The Company reported a net loss of $338 million or $1.60 basic loss per
common share in 1998 compared to net income of $352 million or $1.69 basic
earnings per common share in 1997. The 1998 results included a non-cash per
share charge of $1.85 related to the impairment of oil and gas properties. The
1997 results included a $.34 per share charge for severance and transaction
costs related to the 1997 merger ("Merger") with The Louisiana Land and
Exploration Company ("LL&E"). The 1997 results also included a per share gain of
$.15 related to the sales of oil and gas properties associated with the
divestiture program.

4
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Revenues were $1,983 million in 1998 compared to $2,375 million in 1997.
Average oil prices decreased 32 percent to $12.86 per barrel in 1998 and average
gas prices decreased 10 percent to $1.89 per MCF which decreased revenues $235
million and $152 million, respectively. Oil sales volumes decreased 3 percent to
104.5 MBbls per day which decreased revenues $25 million. Oil sales volumes
decreased primarily due to natural declines in the Gulf Coast and Mid-Continent
areas. Gas sales volumes increased 1 percent to 2,077 MMCF per day which
increased revenues $19 million.

Costs and Expenses were $2,422 million in 1998 compared to $1,770 million
in 1997. Costs and expenses in 1998 included a $706 million charge related to
the impairment of oil and gas properties. Costs and expenses in 1997 included an
$80 million charge for severance and transaction costs associated with the
Merger. Excluding the $706 million charge in 1998 and the $80 million charge in
1997, costs and expenses in 1998 increased $26 million from 1997. The increase
was primarily due to a $44 million increase in exploration costs partially
offset by a $19 million decrease in production taxes. Exploration costs
increased due to higher exploratory spending resulting in higher G&G expenses.
Production taxes decreased primarily due to lower oil and gas revenues.

Interest Expense was $193 million in 1998 compared to $174 million in 1997.
The increase was primarily due to higher outstanding fixed-rate debt and higher
outstanding commercial paper borrowings during 1998.

Other Expense (Income) -- Net was income of $8 million in 1998 compared to
income of $39 million in 1997. The decrease in other income was primarily
related to lower gains on sales of oil and gas properties and higher losses
related to foreign exchange transactions.

Income taxes were a benefit of $286 million, a rate of 46 percent in 1998
compared to an expense of $118 million, a rate of 25 percent in 1997. The
decrease in tax expense in 1998 compared to 1997 is primarily a result of lower
pretax income partially offset by lower benefits from nonconventional fuel tax
credits.

OTHER MATTERS

Year 2000 Compliance

The year 2000 issue is the result of computer systems and other equipment
with embedded chips or processors using two digits instead of four to define a
specific year and potentially being unable to process accurately certain data
before, during or after the year 2000. This could result in system failures or
miscalculations, causing disruptions to various activities and operations.

During 1999, the Company completed its year 2000 readiness plan for its
critical information technology and operating systems. The readiness plan
involved four phases: assessment, remediation, testing and implementation. Since
entering the year 2000, the Company has not experienced any significant year
2000 failures in its own information technology or operating systems or those of
its vendors. The Company will continue to monitor these systems throughout the
year but does not anticipate any material disruptions.

The year 2000 readiness plan was funded through operating cash flows at an
approximate cost of $3 million.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133, as amended, establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
enterprises to recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The requisite
accounting for changes in the fair value of a derivative will depend on the
intended use of the derivative and the resulting designation. The Company must
adopt SFAS 133 effective January 1, 2001. Based on the Company's outstanding
derivatives contracts, the Company believes that the impact of adopting this
standard would not have a material adverse effect on the Company's operations or
consolidated financial condition. However, no assurances can be given with
regard to the level of the Company's derivatives activities at the time SFAS 133
is adopted or the resulting effect on the Company's operations or consolidated
financial condition.

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FORWARD-LOOKING STATEMENTS

The Company, in discussions of its future plans, objectives and expected
performance in periodic reports filed by the Company with the Securities and
Exchange Commission (or documents incorporated by reference therein) and in
written and oral presentations made by the Company, may include projections or
other forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, as
amended. Such projections and forward-looking statements are based on
assumptions which the Company believes are reasonable, but are by their nature
inherently uncertain. In all cases, there can be no assurance that such
assumptions will prove correct or that projected events will occur, and actual
results could differ materially from those projected. Some of the important
factors that could cause actual results to differ from any such projections or
other forward-looking statements follow.

Changes in crude oil and natural gas prices (including basis differentials)
from those assumed in preparing projections and forward-looking statements could
cause the Company's actual financial results to differ materially from projected
financial results and can also impact the Company's determination of proved
reserves and the standardized measure of discounted future net cash flows
relative to crude oil and natural gas reserves. In addition, periods of sharply
lower commodity prices could affect the Company's production levels and/or cause
it to curtail capital spending projects and delay or defer exploration,
exploitation or development projects.

Projections relating to the price received by the Company for natural gas
also rely on assumptions regarding the availability and pricing of
transportation to the Company's key markets. In particular, the Company has
contractual arrangements for the transportation of natural gas from the San Juan
Basin eastward to Eastern and Midwestern markets or to market hubs in Texas,
Oklahoma and Louisiana. The natural gas price received by the Company could be
adversely affected by any constraints in pipeline capacity to serve these
markets.

Exploration and Production Risks. The Company's business is subject to all
of the risks and uncertainties normally associated with the exploration for and
development and production of crude oil and natural gas.

Reserves which require the use of improved recovery techniques for
production are included in proved reserves if supported by a successful pilot
project or the operation of an installed program. The process of estimating
quantities of proved reserves is inherently uncertain and involves subjective
engineering and economic determinations. In this regard, changes in the economic
conditions (including commodity prices) or operating conditions (including,
without limitation, exploration, development and production costs and expenses
and drilling results from exploration and development activity) could cause the
Company's estimated proved reserves or production to differ from those included
in any such forward-looking statements or projections.

Projecting future crude oil and natural gas production is imprecise.
Producing oil and gas reservoirs eventually have declining production rates.
Projections of production rates rely on certain assumptions regarding historical
production patterns in the area or formation tests for a particular producing
horizon. Actual production rates could differ materially from such projections.
Production rates depend on a number of additional factors, including commodity
prices, market demand and the political, economic and regulatory climate.

Another major factor affecting the Company's production is its ability to
replace depleting reservoirs with new reserves through acquisition, exploration
or development programs. Exploration success is extremely difficult to predict
with certainty, particularly over the short term where the timing and extent of
successful results vary widely. Over the long term, the ability to replace
reserves depends not only on the Company's ability to locate crude oil and
natural gas reserves, but on the cost of finding and developing such reserves.
Moreover, development of any particular exploration or development project may
not be justified because of the commodity price environment at the time or
because of the Company's finding and development costs for such project. No
assurances can be given as to the level or timing of success that the Company
will be able to achieve in acquiring or finding and developing additional
reserves.

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Projections relating to the Company's production and financial results rely
on certain assumptions about the Company's continued success in its acquisition
and asset rationalization programs and in its cost management efforts.

The Company's drilling operations are subject to various hazards common to
the oil and gas industry, including explosions, fires, and blowouts, which could
result in damage to or destruction of oil and gas wells or formations,
production facilities and other property and injury to people. They are also
subject to the additional hazards of marine operations, such as capsizing,
collision and damage or loss from severe weather conditions.

Development Risk. A significant portion of the Company's development plans
involve large projects in the Gulf of Mexico and other areas. A variety of
factors affect the timing and outcome of such projects including, without
limitation, approval by the other parties owning working interests in the
project, receipt of necessary permits and approvals by applicable governmental
agencies, the availability of the necessary drilling equipment, delivery
schedules for critical equipment and arrangements for the gathering and
transportation of the produced hydrocarbons.

Foreign Operations Risk. The Company's operations outside of the U.S. are
subject to risks inherent in foreign operations, including, without limitation,
the loss of revenue, property and equipment from hazards such as expropriation,
nationalization, war, insurrection and other political risks, increases in taxes
and governmental royalties, renegotiation of contracts with governmental
entities, changes in laws and policies governing operations of foreign-based
companies, currency restrictions and exchange rate fluctuations and other
uncertainties arising out of foreign government sovereignty over the Company's
international operations. Laws and policies of the U.S. affecting foreign trade
and taxation may also adversely affect the Company's international operations.

The Company's ability to market oil and natural gas discovered or produced
in its foreign operations, and the price the Company could obtain for such
production, depends on many factors beyond the Company's control, including
ready markets for oil and natural gas, the proximity and capacity of pipelines
and other transportation facilities, fluctuating demand for oil and natural gas,
the availability and cost of competing fuels, and the effects of foreign
governmental regulation of oil and gas production and sales. Pipeline and
processing facilities do not exist in certain areas of exploration and,
therefore, any actual sales of the Company's production could be delayed for
extended periods of time until such facilities are constructed.

Competition. The Company actively competes for property acquisitions,
exploration leases and sales of crude oil and natural gas, frequently against
companies with substantially larger financial and other resources. In its
marketing activities, the Company competes with numerous companies for gas
purchasing and processing contracts and for natural gas and NGLs at several
steps in the distribution chain. Competitive factors in the Company's business
include price, contract terms, quality of service, pipeline access,
transportation discounts and distribution efficiencies.

Political and Regulatory Risk. The Company's operations are affected by
national, state and local laws and regulations such as restrictions on
production, changes in taxes, royalties and other amounts payable to governments
or governmental agencies, price or gathering rate controls and environmental
protection regulations. Changes in such laws and regulations, or interpretations
thereof, could have a significant effect on the Company's operations or
financial results.

Potential Environmental Liabilities. The Company's operations are subject
to various national, state and local laws and regulations covering the discharge
of material into, and protection of, the environment. Such regulations affect
the costs of planning, designing, operating and abandoning facilities. The
Company expends considerable resources, both financial and managerial, to comply
with environmental regulations and permitting requirements. Although the Company
believes that its operations and facilities are in general compliance with
applicable environmental laws and regulations, risks of substantial costs and
liabilities are inherent in crude oil and natural gas operations. Moreover, it
is possible that other developments, such as increasingly strict environmental
laws, regulations and enforcement, and claims for damage to property or persons
resulting from the Company's current or discontinued operations, could result in
substantial costs and liabilities in the future.

7
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ITEM EIGHT

FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION

BURLINGTON RESOURCES INC.

CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
RESTATED
(SEE NOTE 14)
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1999 1998 1997
------ ------------- ------
(IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES.................................................... $2,065 $1,983 $2,375
------ ------ ------
COSTS AND EXPENSES
Production Taxes.......................................... 109 100 119
Production and Processing................................. 472 478 471
Depreciation, Depletion and Amortization.................. 631 679 671
Exploration Costs......................................... 214 328 284
Impairment of Oil and Gas Properties...................... 225 706 --
Merger Costs.............................................. 37 -- 80
Administrative............................................ 141 131 145
------ ------ ------
Total Costs and Expenses.................................... 1,829 2,422 1,770
------ ------ ------
Operating Income (Loss)..................................... 236 (439) 605
Interest Expense............................................ 211 193 174
Other Expense (Income) -- Net............................... 2 (8) (39)
------ ------ ------
Income (Loss) Before Income Taxes........................... 23 (624) 470
Income Tax Expense (Benefit)................................ 22 (286) 118
------ ------ ------
NET INCOME (LOSS)........................................... $ 1 $ (338) $ 352
====== ====== ======
BASIC EARNINGS (LOSS) PER COMMON SHARE...................... $ .01 $(1.60) $ 1.69
====== ====== ======
DILUTED EARNINGS (LOSS) PER COMMON SHARE.................... $ -- $(1.60) $ 1.67
====== ====== ======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

8
<PAGE> 11

BURLINGTON RESOURCES INC.

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
RESTATED
(SEE NOTE 14)
-----------------------
1999 1998
------- ------------
(IN MILLIONS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS

Current Assets
Cash and Cash Equivalents................................. $ 89 $ --
Accounts Receivable....................................... 473 442
Inventories............................................... 53 53
Other Current Assets...................................... 26 22
------- -------
641 517
------- -------
Oil and Gas Properties (Successful Efforts Method).......... 12,834 11,943
Other Properties............................................ 935 898
------- -------
13,769 12,841
Accumulated Depreciation, Depletion and Amortization...... 7,412 6,494
------- -------
Properties -- Net......................................... 6,357 6,347
------- -------
Deferred Income Taxes....................................... 32 61
------- -------
Other Assets................................................ 135 135
------- -------
Total Assets....................................... $ 7,165 $ 7,060
======= =======

LIABILITIES

Current Liabilities
Accounts Payable.......................................... $ 449 $ 457
Taxes Payable............................................. 93 53
Accrued Interest.......................................... 36 30
Other Current Liabilities................................. 19 41
Current Maturities of Long-term Debt...................... 51 --
------- -------
648 581
------- -------
Long-term Debt.............................................. 2,769 2,684
------- -------
Deferred Income Taxes....................................... 96 112
------- -------
Other Liabilities and Deferred Credits...................... 423 371
------- -------
Put Options on Common Stock................................. -- 11
------- -------

Commitments and Contingent Liabilities

STOCKHOLDERS' EQUITY

Preferred Stock, Par Value $.01 per Share (Authorized
75,000,000 Shares; One Share Issued)...................... -- --
Common Stock, Par Value $.01 per Share (Authorized
325,000,000 Shares; Issued 241,188,770 and 241,083,924
Shares for 1999 and 1998, respectively)................... 2 2
Paid-in Capital............................................. 3,966 3,953
Retained Earnings........................................... 328 429
Deferred Compensation -- Restricted Stock................... (3) (2)
Accumulated Other Comprehensive Loss........................ (54) (74)
Cost of Treasury Stock (25,219,025 and 25,420,562 Shares for
1999 and 1998, respectively).............................. (1,010) (1,007)
------- -------
Stockholders' Equity........................................ 3,229 3,301
------- -------
Total Liabilities and Stockholders' Equity......... $ 7,165 $ 7,060
======= =======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.
9
<PAGE> 12

BURLINGTON RESOURCES INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
RESTATED
(SEE NOTE 14)
-------------
1999 1998 1997
------ ------------- -------
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)......................................... $ 1 $ (338) $ 352
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided By Operating Activities
Depreciation, Depletion and Amortization............... 631 679 671
Deferred Income Taxes.................................. 13 (304) 58
Exploration Costs...................................... 214 328 284
Gain on Sales of Oil and Gas Properties................ -- (13) (50)
Impairment of Oil and Gas Properties................... 225 706 --
Working Capital Changes
Accounts Receivable.................................... (31) (19) 99
Inventories............................................ -- -- (7)
Other Current Assets................................... (4) 7 1
Accounts Payable....................................... (8) 4 40
Taxes Payable.......................................... 40 (18) (4)
Accrued Interest....................................... 6 (1) 2
Other Current Liabilities.............................. (22) (3) (21)
Other..................................................... 37 (48) (62)
------ ------- -------
Net Cash Provided By Operating Activities......... 1,102 980 1,363
------ ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Properties................................... (989) (1,839) (1,682)
Short-term Investments.................................... -- 83 (83)
Proceeds from Sales and Other............................. (4) 241 467
------ ------- -------
Net Cash Used In Investing Activities............. (993) (1,515) (1,298)
------ ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long-term Debt.............................. 632 410 213
Reduction in Long-term Debt............................... (528) (15) (115)
Dividends Paid............................................ (127) (97) (74)
Common Stock Purchases.................................... (9) (15) (58)
Common Stock Issuances.................................... 7 114 3
Other..................................................... 5 (14) 32
------ ------- -------
Net Cash Provided By (Used In) Financing
Activities...................................... (20) 383 1
------ ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... -- -- 9
------ ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 89 (152) 75
CASH AND CASH EQUIVALENTS
Beginning of Year......................................... -- 152 77
------ ------- -------
End of Year............................................... $ 89 $ -- $ 152
====== ======= =======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

10
<PAGE> 13

BURLINGTON RESOURCES INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ACCUMULATED
DEFERRED OTHER COST OF
COMMON PAID-IN RETAINED COMPENSATION -- COMPREHENSIVE TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS RESTRICTED STOCK LOSS STOCK EQUITY
------ ------- ------------- ---------------- ------------- -------- --------------
RESTATED RESTATED
(SEE NOTE 14) (SEE NOTE 14)
------------- --------------
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996...................... $2 $3,741 $ 595 $-- $(29) $ (989) $3,320
-- ------ ----- --- ---- ------- ------
Comprehensive Income
Net Income................ 352 352
Foreign Currency
Translation............. (22) (22)
-- ------ ----- --- ---- ------- ------
Comprehensive Income.... 330
-- ------ ----- --- ---- ------- ------
Cash Dividends ($.39 per
Share).................... (82) (82)
Common Stock Purchases
(1,312,500 Shares)........ (58) (58)
Common Stock Issuances...... 3 3
Stock Option Activity and
Other..................... 28 9 37
-- ------ ----- --- ---- ------- ------
Balance, December 31,
1997...................... 2 3,772 865 -- (51) (1,038) 3,550
-- ------ ----- --- ---- ------- ------
Comprehensive Loss
Net Loss.................. (338) (338)
Foreign Currency
Translation............. (23) (23)
-- ------ ----- --- ---- ------- ------
Comprehensive Loss...... (361)
-- ------ ----- --- ---- ------- ------
Cash Dividends ($.46 per
Share).................... (98) (98)
Common Stock Purchases
(435,000 Shares).......... (15) (15)
Common Stock Issuances...... 188 188
Stock Option Activity and
Other..................... (7) (2) 46 37
-- ------ ----- --- ---- ------- ------
Balance, December 31,
1998...................... 2 3,953 429 (2) (74) (1,007) 3,301
-- ------ ----- --- ---- ------- ------
Comprehensive Income
Net Income................ 1 1
Foreign Currency
Translation............. 20 20
-- ------ ----- --- ---- ------- ------
Comprehensive Income.... 21
-- ------ ----- --- ---- ------- ------
Cash Dividends ($.46 per
Share).................... (103) (103)
Common Stock Purchases
(250,000 Shares).......... (9) (9)
Common Stock Issuances...... 7 7
Stock Option Activity and
Other..................... 6 1 (1) 6 12
-- ------ ----- --- ---- ------- ------
Balance, December 31,
1999...................... $2 $3,966 $ 328 $(3) $(54) $(1,010) $3,229
== ====== ===== === ==== ======= ======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

11
<PAGE> 14

BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

Principles of Consolidation and Reporting

The consolidated financial statements include the accounts of Burlington
Resources Inc. ("BR") and its majority-owned subsidiaries (the "Company"). All
significant intercompany transactions have been eliminated in consolidation. Due
to the nature of financial reporting, management makes estimates and assumptions
in preparing the consolidated financial statements. Actual results could differ
from estimates. The consolidated financial statements include certain
reclassifications that were made to conform to current presentation. All
operational and financial information contained herein includes the business
activities of Poco Petroleums Ltd. ("Poco") for all periods presented.

Cash and Cash Equivalents

All short-term investments purchased with a maturity of three months or
less are considered cash equivalents. Cash equivalents are stated at cost, which
approximates market value.

Short-term Investments

Short-term investments consist of highly-liquid debt securities with a
maturity of more than three months. The securities are available for sale and
are carried at fair value based on quoted market prices. Unrealized gains and
losses, net of tax, are included as a component of other comprehensive income.
Realized gains and losses are based on specific identification of the securities
sold.

Inventories

Inventories of materials, supplies and products are valued at the lower of
average cost or market.

Properties

Oil and gas properties are accounted for using the successful efforts
method. Under this method, all development costs and acquisition costs of proved
properties are capitalized and amortized on a units-of-production basis over the
remaining life of proved developed reserves and proved reserves, respectively.
Costs of drilling exploratory wells are initially capitalized, but charged to
expense if and when a well is determined to be unsuccessful. In addition,
unamortized capital costs at a field level are reduced to fair value if the sum
of expected undiscounted future cash flows is less than net book value.

Costs of retired, sold or abandoned properties that constitute a part of an
amortization base are charged or credited, net of proceeds, to accumulated
depreciation, depletion and amortization. Gains or losses from the disposal of
other properties are recognized currently. Expenditures for maintenance, repairs
and minor renewals necessary to maintain properties in operating condition are
expensed as incurred. Major replacements and renewals are capitalized. Estimated
dismantlement and abandonment costs for oil and gas properties are capitalized
at their estimated net present value and amortized net of salvage value. The
Company's abandonment liability was $154 million and $93 million at December 31,
1999 and 1998, respectively.

Revenue Recognition

Gas revenues are recorded on the entitlement method. Under the entitlement
method, revenue is recorded based on the Company's net interest.

Functional Currency

The assets, liabilities and operations of BR's Canadian subsidiaries are
measured using the Canadian dollar as the functional currency. The foreign
exploration and production operations of BR other than in

12
<PAGE> 15
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Canada are considered an extension of the Company's domestic operations. The
assets, liabilities and operations of these locations are therefore measured
using the United States dollar as the functional currency. Foreign currency
transaction gains of $9 million in 1999 and losses of $17 million and $11
million in 1998 and 1997, respectively, are included in net income.

Foreign currency translation adjustments are reported as other
comprehensive income.

Hedging and Related Activities

In order to mitigate the risk of market price fluctuations, the Company
utilizes options and swaps to hedge future crude oil and natural gas production.
Changes in the market value of these contracts and premiums paid for option
contracts are deferred until the gain or loss is recognized on the hedged
commodity. If the contract is not a hedge, changes in market value are recorded
currently. To qualify as a hedge, these transactions must be designated as a
hedge and changes in their fair value must correlate with changes in the price
of anticipated future production such that the Company's exposure to the effects
of commodity price changes is reduced. These hedging instruments are measured
for effectiveness on an enterprise basis both at the inception of the contract
and on an ongoing basis. If these instruments are terminated prior to maturity,
resulting gains or losses continue to be deferred until the hedged item is
recognized in income.

The Company also enters into swap agreements to convert fixed price gas
sales contracts to market-sensitive contracts. Gains or losses resulting from
these transactions are included in revenue as the related physical production is
delivered.

Treasury lock agreements are used to hedge interest rate exposure on
specific anticipated debt issuances of the Company. Accordingly, the
differential paid or received by the Company on maturity of a treasury lock
agreement is recognized as an adjustment to interest expense over the term of
the underlying financing transaction.

Credit and Market Risks

The Company manages and controls market and counterparty credit risk
through established formal internal control procedures which are reviewed on an
ongoing basis. The Company attempts to minimize credit risk exposure to
counterparties through formal credit policies, monitoring procedures and through
establishment of valuation reserves related to counterparty credit risk. In the
normal course of business, collateral is not required for financial instruments
with credit risk.

Income Taxes

Income taxes are provided based on earnings reported for tax return
purposes in addition to a provision for deferred income taxes. Deferred income
taxes are provided to reflect the tax consequences in future years of
differences between the financial statement and tax basis of assets and
liabilities. Tax credits are accounted for under the flow-through method, which
reduces the provision for income taxes in the year the tax credits are earned. A
valuation allowance is established to reduce deferred tax assets if it is more
likely than not that the related tax benefits will not be realized.

Stock-based Compensation

The Company uses the intrinsic value based method of accounting for
stock-based compensation. Under this method, the Company records no compensation
expense for stock options granted when the exercise price for options granted is
equal to the fair market value of the Company's stock on the date of the grant.

13
<PAGE> 16
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Earnings Per Common Share

Basic earnings per common share ("EPS") is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. The weighted average number of common shares
outstanding for computing basic EPS was 216 million, 211 million and 209 million
for the years ended December 31, 1999, 1998 and 1997, respectively. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
The weighted average number of common shares outstanding for computing diluted
EPS, including dilutive stock options, was 217 million, 211 million and 211
million for the years ended December 31, 1999, 1998 and 1997, respectively. For
the years ended December 31, 1999, 1998 and 1997, approximately 4 million, 4
million and 700 thousand shares, respectively, attributable to the exercise of
outstanding options were excluded from the calculation of diluted EPS because
the effect was antidilutive. No adjustments were made to reported net income in
the computation of EPS.

2. BUSINESS COMBINATIONS

Poco

Under the terms of the Acquisition, Poco shareholders received .25 BR
common equivalent shares ("exchangeable shares"), totaling 38,393,135 BR shares,
for each Poco share held. The exchangeable shares are Canadian securities, which
began trading on the Toronto Stock Exchange on November 23, 1999 under the
symbol BRX. These shares have the same voting rights, dividend entitlements and
other attributes as shares of BR Common Stock and are exchangeable, at each
shareholder's option, for BR Common Stock on a one for one basis. The
Acquisition was accounted for as a pooling of interests.

During the fourth quarter of 1999, the Company recorded a pretax charge of
$37 million ($26 million after tax) for direct costs associated with the
Acquisition. These costs consist of $10 million for severance related to certain
executives, and $27 million for direct transaction costs. Approximately $25
million of severance and direct transaction costs remained unpaid as of December
31, 1999.

14
<PAGE> 17
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The historical consolidated financial statements of Poco were prepared in
Canadian dollars. The historical financial information of Poco presented here
has been converted to U.S. dollars. The historical consolidated financial
statements of Poco were prepared under Canadian GAAP using the full cost method
of accounting for oil and gas properties. Conforming adjustments consist
primarily of conversion of Poco financial information to the successful efforts
method of accounting for oil and gas properties. The separate results of
operations of BR and Poco are as follow.

<TABLE>
<CAPTION>
YEAR ENDED
NINE MONTHS ENDED DECEMBER 31,
SEPTEMBER 30, ----------------
1999 1998 1997
----------------- ------ ------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
BR.................................................... $1,162 $1,611 $2,000
Poco.................................................. 276 372 375
------ ------ ------
Combined.............................................. $1,438 $1,983 $2,375
====== ====== ======
Net Income (Loss)
BR.................................................... $ 47 $ 69 $ 319
Poco.................................................. 16 34 53
Conforming adjustments................................ 22 (441) (20)
------ ------ ------
Combined.............................................. $ 85 $ (338) $ 352
====== ====== ======
Stockholders' Equity
BR.................................................... $2,991 $3,001 $3,016
Poco.................................................. 839 780 592
Conforming adjustments................................ (483) (480) (58)
------ ------ ------
Combined.............................................. $3,347 $3,301 $3,550
====== ====== ======
</TABLE>

The Louisiana Land and Exploration Company

On July 17, 1997, BR and The Louisiana Land and Exploration Company
("LL&E") announced that they had entered into an Agreement and Plan of Merger
(the "Merger"). On October 22, 1997, the Merger was completed and LL&E became a
wholly-owned subsidiary of the Company. Pursuant to the Merger, BR issued
52,795,635 shares of its Common Stock based on an exchange ratio of 1.525 for
each outstanding share of LL&E stock. The Merger was accounted for as a pooling
of interests and qualified as a tax-free reorganization.

3. INCOME TAXES

The jurisdictional components of income (loss) before income taxes follow.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------ ------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Domestic.................................................... $(30) $ 113 $369
Foreign..................................................... 53 (737) 101
---- ----- ----
Total............................................. $ 23 $(624) $470
==== ===== ====
</TABLE>

15
<PAGE> 18
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provision for income taxes follows.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------ ------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Current
Federal................................................... $ 4 $ 10 $ 44
State..................................................... -- 5 2
Foreign................................................... 5 3 14
---- ----- ----
9 18 60
---- ----- ----
Deferred
Federal................................................... (20) (1) 30
State..................................................... 5 1 11
Foreign................................................... 28 (304) 17
---- ----- ----
13 (304) 58
---- ----- ----
Total............................................. $ 22 $(286) $118
==== ===== ====
</TABLE>

Reconciliation of the federal statutory income tax rate to the effective
income tax rate follows.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
----- ------ ------
<S> <C> <C> <C>
U.S. statutory rate......................................... 35.0% 35.0% 35.0%
State income taxes.......................................... 13.7 (.4) 2.1
Taxes on foreign income in excess of U.S. statutory rate.... 36.0 6.9 4.1
Tax credits................................................. (8.6) 5.1 (18.5)
Merger costs................................................ 17.2 -- 4.6
Other....................................................... 2.1 (.7) (2.2)
---- ----- -----
Effective rate......................................... 95.4% 45.9% 25.1%
==== ===== =====
</TABLE>

Deferred income tax liabilities (assets) follow.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1999 1998
----- -----
(IN MILLIONS)
<S> <C> <C>
Deferred income tax liabilities
Excess of book over tax basis of properties............... $ 488 $ 453
----- -----
Deferred income tax assets
AMT credit carryforward................................... (302) (308)
Deferred foreign tax credits.............................. (75) (71)
Net operating loss carryforward........................... (37) (3)
Foreign tax credit carryforward........................... (2) (2)
Financial accruals and other.............................. (45) (53)
----- -----
(461) (437)
----- -----
Less valuation allowance.................................... 37 35
----- -----
$ 64 $ 51
===== =====
Net Canadian deferred income tax asset...................... $ (32) $ (61)
----- -----
Net deferred income tax liability........................... $ 96 $ 112
===== =====
</TABLE>

16
<PAGE> 19
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The above net deferred income tax liabilities, as of December 31, 1999 and
1998, include deferred state income tax liabilities of approximately $21 million
and $15 million, respectively. The net deferred income tax liabilities also
include foreign tax liabilities of approximately $56 million and $55 million as
of December 31, 1999 and 1998, respectively.

The Alternative Minimum Tax ("AMT") credit carryforward, related primarily
to nonconventional fuel tax credits, is available to offset future federal
income tax liabilities. The AMT credit carryforward has no expiration date. The
benefit of these tax credits is recognized in net income for accounting purposes
and is reflected in the current tax provision to the extent the Company is able
to utilize the credits for tax return purposes.

The foreign tax credit carryforward is available to offset future federal
income taxes and will expire between 2001 and 2004 if not used. The federal
income tax net operating loss carryforward as of December 31, 1999 is available
through the year 2019 to offset expected future taxable income.

A valuation allowance is provided for uncertainties surrounding the
realization of certain non-Canadian deferred foreign tax credits. The Company
expects to realize the deferred income tax assets through future Canadian
taxable income. No deferred U.S. income tax liability has been recognized on the
undistributed earnings of foreign subsidiaries that have been retained for
reinvestment.

4. COMMODITY HEDGING AND RELATED ACTIVITIES

Natural Gas Swaps

The Company enters into gas swap agreements to fix the price of anticipated
future natural gas production. As of December 31, 1999, the Company had the
following volumes hedged.

<TABLE>
<CAPTION>
TOTAL HEDGED DEFERRED
VOLUME HEDGE/STRIKE GAIN/(LOSS)
PRODUCTION PERIOD (MMBTU) PRICE (IN MILLIONS)
----------------- ------------ ------------ -------------
<S> <C> <C> <C>
2000................................................... 164,065,000 $2.43 $ 2
2001................................................... 91,345,000 2.35 (15)
2002................................................... 2,530,000 $2.57 $ --
</TABLE>

The Company also enters into swap agreements that, when matched against
fixed price gas sales, convert our production back to a market sensitive
position. These arrangements are recorded as a revision to gas price in the
period the production is sold. As of December 31, 1999, the unrealized loss on
these positions was approximately $4 million.

Natural Gas Options

The Company purchases call option agreements that allow the Company to
participate in market price increases that exceed hedge prices established when
the Company enters into a swap. Approximately 15 percent of the 164,065,000
MMBTU of year 2000 hedged natural gas production was matched with call options
that strike at an average price of $2.76 per MMBTU. The deferred loss on call
option agreements as of December 31, 1999 was approximately $1 million. The
Company also enters into producer collars to establish a floor and ceiling price
on anticipated future natural gas production. As of December 31, 1999, the
Company had 5.5 million MMBTU of year 2000 natural gas production hedged at a
floor price of $2.70 per MMBTU. Approximately 67 percent of that 5.5 million
MMBTU of collar floor volumes had a ceiling of $3.30 per MMBTU. The deferred
gain on these producer collar positions as of December 31, 1999 was
approximately $2 million.

17
<PAGE> 20
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Natural Gas Basis Swaps

The Company enters into natural gas basis swap agreements to fix a
component of the sales price of anticipated future natural gas production. This
component is expressed as the differential between CIG Rockies and Henry Hub.
These transactions are accounted for as hedges of the Company's underlying
production. As of December 31, 1999, the Company had 10.1 million MMBTU of year
2000 natural gas production hedged at a fixed differential of approximately
($.28) per MMBTU. There was no deferred gain or loss on these transactions.

Crude Oil Swaps

The Company enters into crude oil swap agreements to fix the price of
anticipated future crude oil production. As of December 31, 1999, the Company
had the following volumes hedged.

<TABLE>
<CAPTION>
TOTAL HEDGED DEFERRED
VOLUME HEDGE/STRIKE GAIN/(LOSS)
PRODUCTION PERIOD (BBLS) PRICE (IN MILLIONS)
----------------- ------------ ------------ -------------
<S> <C> <C> <C>
2000.................................................... 16,535,500 $20.33 $(30)
2001.................................................... 3,365,000 $19.57 $ 1
</TABLE>

Crude Oil Options

The Company purchases call option agreements that allow the Company to
participate in market price increases that exceed hedge prices established when
the Company enters into a swap. Approximately 66 percent of the 16,535,500 Bbl
of year 2000 hedged crude oil production was matched with call options that
strike at an average price of $20.28 per Bbl. All of the year 2001 hedged crude
oil production was matched with call options that strike at an average price of
$19.57 per Bbl. The deferred gain on these transactions as of December 31, 1999
was $32 million. The Company had an additional 7,585,000 Bbl of year 2001
purchased call options agreements and 180,000 Bbl of year 2002 purchased call
option agreements that had not been matched with crude oil swaps that strike at
an average price of $19.79 per Bbl and $19.89 per Bbl, respectively. The $12
million unrealized gain on unmatched call option agreements had been recognized
in income. Unmatched options are marked to market until matched with swap
agreements.

Due to a change in oil and gas prices, the deferred loss on all positions
as of February 22, 2000 was a loss of $78 million.

18
<PAGE> 21
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM DEBT

Long-term debt follows.

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Commercial Paper............................................ $ 267 $ 320
Credit Facility Notes....................................... 332 151
Capitalized Lease Obligations............................... 56 50
Notes 7.15%, due 1999....................................... -- 300
Notes 6 7/8%, due 1999...................................... -- 150
Notes, 9 5/8%, due 2000..................................... 150 150
Notes, 8 1/2%, due 2001..................................... 150 150
Notes, 8.54%, due 2001...................................... 40 60
Notes, 6.20%, due 2001...................................... 34 33
Notes, 8 1/4%, due 2002..................................... 100 100
Notes, 6.40%, due 2003...................................... 69 47
Notes, 7.12%, due 2005...................................... 47 50
Notes, 6.60%, due 2007...................................... 103 98
Notes, 6.91%, due 2008...................................... 50 50
Debentures, 9 7/8%, due 2010................................ 150 150
Notes, 7.00%, due 2011...................................... 75 75
Debentures, 7 5/8%, due 2013................................ 100 100
Debentures, 9 1/8%, due 2021................................ 150 150
Debentures, 7.65%, due 2023................................. 200 200
Debentures, 8.20%, due 2025................................. 150 150
Debentures, 6 7/8%, due 2026................................ 150 150
Debentures, 7 3/8%, due 2029................................ 450 --
Other, including discounts -- net........................... (3) --
------ ------
2,820 2,684
Less current maturities..................................... 51 --
------ ------
Total long-term debt.............................. $2,769 $2,684
====== ======
</TABLE>

The Company has debt maturities of $961 million, $185 million, $101
million, $123 million, $0 million and $1,453 million due in 2000, 2001, 2002,
2003, 2004 and thereafter, respectively. The Company's commercial paper
borrowings at December 31, 1999 and 1998 had average interest rates of 7 percent
and 6 percent, respectively. The credit facility notes bear interest at rates
between 5 and 6 percent. The capitalized lease obligations have an imputed
interest rate of 6 percent and expire in 2003.

The Company has unused credit commitments in the form of revolving
facilities ("revolvers") as of December 31, 1999. These revolvers are available
to cover debt due within one year, therefore, commercial paper, credit facility
notes and a portion of fixed-rate debt due within one year are classified as
long-term debt. During 1999, due to debt covenant violations, the Company
obtained waivers related to certain of its Canadian debt. In addition, the
Company has the capacity to issue $1 billion of securities under a shelf
registration statement filed with the Securities and Exchange Commission. The
revolvers are comprised of agreements for $600 million, $400 million, $310
million, $121 million and $52 million. The $600 million revolver expires in
February 2003. The other revolvers expire in March 2000, unless renewed by
mutual consent, with the exception of the $52 million revolver which is
cancellable by the creditor upon demand. Balances outstanding on the $310
million revolver automatically become five year amortizing notes at expiration
of the agreement.

19
<PAGE> 22
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At the Company's option, interest on borrowings under the $600 million and
$400 million revolvers is based on the prime rate or Eurodollar rates. The other
revolvers bear interest at rates based on prime, Eurodollar rates or bankers'
acceptances in Canada, also at the Company's option. Under the covenants of the
revolvers, Company debt cannot exceed 60 percent of capitalization (as defined
in the agreements). Also, the Company's Canadian subsidiary must limit the ratio
of debt net of working capital to pre-tax funds from operations to 3 3/4 to 1
and maintain tangible net worth in excess of a specified amount.

Outstanding borrowings of $103 million and $93 million as of December 31,
1999 and 1998, respectively, on Company-owned life insurance policies were
reported as a reduction to the cash surrender value.

6. TRANSPORTATION ARRANGEMENTS WITH EL PASO NATURAL GAS COMPANY

In 1999, 1998 and 1997, approximately 27 percent, 29 percent and 33
percent, respectively, of the Company's gas production was transported to direct
sale customers through El Paso Natural Gas Company's ("EPNG") pipeline systems.
These transportation arrangements are pursuant to EPNG's approved Federal Energy
Regulatory Commission tariffs applicable to all shippers. The Company expects to
continue to transport a substantial portion of its future gas production through
EPNG's pipeline system. See Note 9 for demand charges paid to EPNG which provide
the Company with firm and interruptible transportation capacity rights on
interstate and intrastate pipeline systems.

7. CAPITAL STOCK

Stock Options

The Company's 1993 Stock Incentive Plan (the "1993 Plan") succeeds its 1988
Stock Option Plan which expired by its terms in May 1993 but remains in effect
for options granted prior to May 1993. The 1993 Plan provides for the grant of
stock options, restricted stock, stock purchase rights and stock appreciation
rights or limited stock appreciation rights (together "SARs"). The Company
issued 110,250, 24,625 and 76,078 shares of restricted stock in 1999, 1998 and
1997, respectively.

Under the 1993 Plan, options may be granted to officers and key employees
at fair market value on the date of grant, exercisable in whole or part by the
optionee after completion of at least one year of continuous employment from the
grant date and have a term of ten years. At December 31, 1999, 5,516,459 shares
were available for grant under the 1993 Plan.

In 1997, the Company adopted the 1997 Employee Stock Incentive Plan (the
"1997 Plan") from which stock options and restricted stock ("Awards") may be
granted to employees who are not eligible to participate in the 1993 Plan. The
options are granted at fair market value on the grant date, become exercisable
in whole or part by the optionee after completion of at least one year of
continuous employment and have a term of ten years. The 1997 Plan limits Awards,
in aggregate, to a maximum of one million shares annually.

20
<PAGE> 23
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Activity in the Company's stock option plans follows.

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Balance, December 31, 1996.................................. 9,140,307 $34.78
Granted................................................... 2,976,177 39.27
Exercised................................................. (1,283,326) 24.82
Cancelled................................................. (344,823) 41.00
---------- ------
Balance, December 31, 1997.................................. 10,488,335 36.98
Granted................................................... 1,125,050 36.77
Exercised................................................. (1,578,818) 24.42
Cancelled................................................. (889,485) 44.69
---------- ------
Balance, December 31, 1998.................................. 9,145,082 37.84
Granted................................................... 822,880 33.35
Exercised................................................. (424,089) 30.50
Cancelled................................................. (645,075) 38.32
---------- ------
Balance, December 31, 1999.................................. 8,898,798 $37.80
========== ======
</TABLE>

The following table summarizes information related to stock options
outstanding and exercisable at December 31, 1999.

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS RANGE OF WEIGHTED AVERAGE REMAINING OPTIONS WEIGHTED AVERAGE
OUTSTANDING EXERCISE PRICES EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
----------- --------------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
4,730,438............. $19.51-35.38 $30.43 4.2 4,245,838 $29.87
4,168,360............. 35.43-52.03 46.16 6.7 3,392,526 45.88
------------ ------ --- --------- ------
8,898,798............. $19.51-52.03 $37.80 5.3 7,638,364 $36.98
============ ====== === ========= ======
</TABLE>

Exercisable stock options and weighted average exercise prices at December
31, 1998 and 1997 follow.

<TABLE>
<CAPTION>
OPTIONS WEIGHTED AVERAGE
EXERCISABLE EXERCISE PRICE
----------- ----------------
<S> <C> <C>
December 31, 1998........................................... 5,255,473 $37.22
December 31, 1997........................................... 4,681,281 $32.41
</TABLE>

21
<PAGE> 24
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The weighted average fair values of options granted during the years 1999,
1998 and 1997 were $11.13, $16.54 and $12.27, respectively. The fair values of
employee stock options were calculated using a variation of the Black-Scholes
stock option valuation model with the following weighted average assumptions for
grants in 1999, 1998 and 1997: stock price volatility of 27 percent, 25 percent
and 20 percent, respectively; risk free rate of return ranging from 5 percent to
6 percent; dividend yield of .88 percent, .33 percent and .81 percent,
respectively; and an expected term of between 4 and 6 years. If the fair value
based method of accounting had been applied, the Company's net income and EPS
would have been reduced to the pro forma amounts indicated below. The fair value
of stock options included in the pro forma amounts is not necessarily indicative
of future effects on net income and EPS.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------ ------- ------
(IN MILLIONS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Net income (loss) -- as reported............................ $ 1 $ (338) $ 352
Net income (loss) -- pro forma.............................. (30) (357) 339
Basic EPS -- as reported.................................... .01 (1.60) 1.69
Basic EPS -- pro forma...................................... (.14) (1.69) 1.62
Diluted EPS -- as reported.................................. -- (1.60) 1.67
Diluted EPS -- pro forma.................................... $(.14) $(1.69) $1.61
</TABLE>

Stock Appreciation Rights

The Company has granted SARs in connection with certain outstanding options
under the 1988 Stock Option Plan. SARs are subject to the same terms and
conditions as the related options. A SAR entitles an option holder, in lieu of
exercise of an option, to receive a cash payment equal to the difference between
the option price and the fair market value of the Company's Common Stock based
upon the plan provisions. To the extent the SAR is exercised, the related option
is cancelled and to the extent the option is exercised, the related SAR is
cancelled. The outstanding SARs are exercisable only under certain circumstances
related to significant changes in the ownership of the Company or its holdings,
or certain changes in the constitution of its Board of Directors. At December
31, 1999, there were 46,890 SARs outstanding related to stock options with a
weighted average exercise price of $34.68 per share. In January 2000, all
outstanding SARs expired.

Preferred Stock and Preferred Stock Purchase Rights

The Company is authorized to issue 75,000,000 shares of preferred stock,
par value $.01 per share. As of December 31, 1999, one share of preferred stock
was issued and designated as Special Voting Stock in connection with the Poco
acquisition. On December 9, 1998, the Company's Board of Directors designated
3,250,000 of the authorized preferred shares as Series A Junior Participating
Preferred Stock. Upon issuance, each one-hundredth of a share of Series A Junior
Participating Preferred Stock will have dividend and voting rights approximately
equal to those of one share of Common Stock of the Company. In addition, on
December 9, 1998, the Board of Directors declared a dividend distribution of one
Right for each outstanding share of Common Stock of the Company to shareholders
of record on December 16, 1998. The Rights become exercisable if, without the
Company's prior consent, a person or group acquires securities having 15 percent
or more of the voting power of all of the Company's voting securities (an
"Acquiring Person") or ten days following the announcement of a tender offer
which would result in such ownership. Each Right, when exercisable, entitles the
registered holder to purchase from the Company one-hundredth of a share of
Series A Junior Participating Preferred Stock at a price of $200 per one
hundredth of a share, subject to adjustment. If, after the Rights become
exercisable, the Company were to be involved in a merger or other business
combination in which its Common Stock was exchanged or changed or 50 percent or
more of the Company's assets or earning power were sold, each Right would permit
the holder to purchase, for the exercise price,

22
<PAGE> 25
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stock of the acquiring company having a value of twice the exercise price. In
addition, except for certain permitted offers, if any person or group becomes an
Acquiring Person, each Right would permit the purchase, for the exercise price,
of Common Stock of the Company having a value of twice the exercise price.
Rights owned by an Acquiring Person are void. The Rights may be redeemed by the
Company under certain circumstances until their expiration date for $.01 per
Right.

On November 8, 1999 (effective November 18, 1999), the Company's Board of
Directors designated one of the authorized preferred shares as Special Voting
Stock. The Special Voting Stock is entitled to a number of votes equal to the
number of outstanding Exchangeable Shares of Burlington Resources Canada Inc.
(other than Exchangeable Shares held by the Company), on all matters presented
to the stockholders of the Company. Upon the liquidation, dissolution or winding
up of the Company, the holder of the Special Voting Stock shall be entitled,
prior and in preference to any distribution to the holders of Common Stock and
after the distribution to the holders of any class or series of Preferred Stock
ranking senior to the Special Voting Stock of all amounts to which such holders
are entitled, to receive the sum of $.01. Except as aforesaid, no dividends or
distributions shall be payable to the holder of the Special Voting Stock. The
Special Voting Stock is not convertible into any other class or series of the
capital stock or to cash, property or other rights, and may not be redeemed. If
the Special Voting Stock shall be purchased or otherwise acquired by the
Company, it shall be deemed retired and shall be cancelled and may not
thereafter be reissued or otherwise disposed of by the Company. As long as any
Exchangeable Shares of Burlington Resources Canada Inc. are outstanding, the
number of shares comprising the Special Voting Stock shall not be increased or
decreased and no other term of the Special Voting Stock shall be amended, except
upon the unanimous approval of all shares of Common Stock. On November 18, 1999,
the one share of Special Voting Stock was issued to CIBC Mellon Trust Company,
as trustee pursuant to the Voting and Exchange Trust Agreement among the
Company, Burlington Resources Canada Inc. and CIBC Mellon Trust Company, for the
benefit of the holders of the Exchangeable Shares of Burlington Resources Canada
Inc.

8. RETIREMENT BENEFITS

The Company's pension plans are non-contributory defined benefit plans
covering all United States' employees. The benefits are based on years of
credited service and final average compensation. Contributions to the tax
qualified plans are limited to amounts that are currently deductible for tax
purposes. Contributions are intended to provide not only for benefits attributed
to service to date but also for those expected to be earned in the future.

23
<PAGE> 26
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following tables set forth the amounts recognized in the Consolidated
Balance Sheet and Statement of Income.

<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
BENEFITS BENEFITS
----------- ---------------
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1999 1998
---- ---- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year................... $182 $178 $ 32 $ 33
Service cost.............................................. 10 9 -- --
Interest cost............................................. 12 12 2 2
Amendments................................................ -- 2 (4) 1
Actuarial loss (gain)..................................... (15) 8 (3) (2)
Benefits paid............................................. (28) (27) (3) (2)
---- ---- ---- ----
Benefit obligation at end of year......................... 161 182 24 32
---- ---- ---- ----
Change in plan assets
Fair value of plan assets at beginning of year............ 172 161 -- --
Actual return on plan assets.............................. 22 30 -- --
Employer contribution..................................... 5 8 3 2
Benefits paid............................................. (28) (27) (3) (2)
---- ---- ---- ----
Fair value of plan assets at end of year.................. 171 172 -- --
---- ---- ---- ----
Funded status............................................... 10 (10) (24) (32)
Unrecognized net actuarial gain (loss)...................... (11) 16 (1) 1
Unrecognized net transition obligation...................... 1 1 -- --
Unrecognized prior service cost............................. 1 2 (3) 2
---- ---- ---- ----
Net prepaid (accrued) benefit cost.......................... $ 1 $ 9 $(28) $(29)
==== ==== ==== ====
</TABLE>

<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
-------------------- ------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ----- ----- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Benefit cost for the plans includes the
following components
Service cost.................................. $ 10 $ 9 $ 9 $-- $-- $1
Interest cost................................. 12 12 12 2 2 3
Expected return on plan assets................ (14) (13) (12) -- -- --
Amortization of prior service cost............ -- -- 1 -- -- --
Recognized net actuarial loss (gain).......... 1 2 1 -- (1) --
---- ---- ---- --- --- --
Net benefit cost...................... $ 9 $ 10 $ 11 $ 2 $ 1 $4
==== ==== ==== === === ==
</TABLE>

<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
----------------------- -----------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997 1999 1998 1997
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Weighted average assumptions
Discount rate......................... 7.75% 6.75% 7.25% 7.75% 6.75% 7.25%
Expected return on plan assets........ 9.00% 9.00% 9.00% -- -- --
Rate of compensation increase......... 5.00% 5.00% 5.00% -- -- --
</TABLE>

24
<PAGE> 27
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company provides postretirement medical, dental and life insurance
benefits for a closed group of retirees and their dependents. The Company also
provides limited retiree life insurance benefits to employees who retire under
the pension plan. The postretirement benefit plans are unfunded and the Company
funds claims on a cash basis.

During 1998, the Company recognized a settlement expense of approximately
$800 thousand related to the employee reduction associated with the Merger in
the fourth quarter of 1997.

A 5 percent annual rate of increase in the per capita cost of covered
health care benefits was assumed for 1999. The rate is assumed to decrease
gradually to 4 percent for 2003 and remain at that level thereafter. Assumed
health care cost trends have a significant effect on the amounts reported for
the postretirement medical and dental care plans. A one-percentage point change
in assumed health care cost trend rates would have the following effects.

<TABLE>
<CAPTION>
1-PERCENTAGE 1-PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Effect on total service and interest cost................... $ 167 $ (145)
Effect on postretirement benefit obligation................. $1,807 $(1,578)
</TABLE>

9. COMMITMENTS AND CONTINGENT LIABILITIES

Demand Charges

The Company has entered into contracts which provide firm transportation
capacity rights on interstate and intrastate pipeline systems. The remaining
terms on these contracts range from 1 to 23 years and require the Company to pay
transportation demand charges regardless of the amount of pipeline capacity
utilized by the Company. The Company paid $122 million, $109 million and $89
million of demand charges of which $36 million, $44 million and $34 million was
paid to EPNG for the years ended December 31, 1999, 1998 and 1997, respectively.

Future transportation demand charge commitments at December 31, 1999
follow.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
(IN MILLIONS)
<S> <C>
2000........................................................ $101
2001........................................................ 99
2002........................................................ 94
2003........................................................ 90
2004........................................................ 89
Thereafter.................................................. 346
----
Total............................................. $819
====
</TABLE>

Lease Obligations

The Company has operating leases for office space and other property and
equipment. The Company incurred lease rental expense of $24 million, $19 million
and $20 million for the years ended December 31, 1999, 1998 and 1997,
respectively.

25
<PAGE> 28
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum annual rental commitments at December 31, 1999 follow.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
(IN MILLIONS)
<S> <C>
2000........................................................ $ 23
2001........................................................ 21
2002........................................................ 20
2003........................................................ 20
2004........................................................ 19
Thereafter.................................................. 82
----
Total............................................. $185
====
</TABLE>

Drilling Rig Commitments

During 1998, the Company entered into agreements to lease or participate in
the use of various drilling rigs. The exposure with respect to these commitments
ranges from $142 million to $270 million depending on partner participation.
These agreements extend through the year 2004.

Legal Proceedings

The Company is involved in several proceedings challenging the payment of
royalties for its crude oil and natural gas production.

On November 20, 1997, the Company and numerous other defendants entered
into a settlement agreement in a lawsuit styled as The McMahon Foundation, et
al. v. Amerada Hess Corporation, et al. This lawsuit is a proposed class action
consisting of both working interest owners and royalty owners against numerous
defendants, all of which are oil companies and/or purchasers of oil from oil
companies, including Burlington Resources Oil & Gas Company, formerly known as
Meridian Oil Inc. ("BROG") and LL&E. The plaintiffs allege that the defendants
conspired to fix, depress, stabilize and maintain at artificially low levels the
prices paid for oil by, among other things, setting their posted prices at
arbitrary levels below competitive market prices. Cases involving similar
allegations have been filed in federal courts in other states. On January 14,
1998, the United States Judicial Panel on Multidistrict Litigation issued an
order consolidating these cases and transferring the McMahon case to the United
States District Court for the Southern District of Texas in Corpus Christi (In
Re Lease Oil Antitrust Litigation, MDL No. 1206). The Company and other
defendants have entered into a Settlement Agreement which received preliminary
approval by the Court on October 28, 1998. Following an evidentiary hearing, the
Court issued a final order dated September 10, 1999 finding that class
certification was appropriate and that the Settlement Agreement was fair,
adequate and reasonable. The Court further ordered the dismissal of all claims
against the Company and other designated defendants. Several appeals have been
filed and are pending.

The Company is also involved in several governmental proceedings relating
to the payment of royalties. Various administrative proceedings are pending
before the Minerals Management Service ("MMS") of the United States Department
of the Interior with respect to the proper valuation of oil and gas produced on
federal and Indian lands for purposes of paying royalties on production sold by
BROG to its affiliate, Burlington Resources Trading Inc. ("BRTI"), or gathered
by its affiliate, Burlington Resources Gathering, Inc. In general, these
proceedings stem from regular MMS audits of the Company's royalty payments over
various periods of time and involve the interpretation of the relevant federal
regulations.

In late February 1998, the Company and numerous other oil and gas companies
received a complaint filed in the United States District Court for the Eastern
District of Texas in Lufkin in a lawsuit styled as United States of America ex
rel. J. Benjamin Johnson, Jr., et al. v. Shell Oil Company, et al. alleging
violations of the civil False Claims Act. The United States has intervened in
this lawsuit as to some of the

26
<PAGE> 29
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

defendants, including the Company, and has filed a separate complaint. This suit
alleges that the Company underpaid royalties for crude oil produced on federal
and Indian lands through the use of below-market posted prices in the sale of
oil from BROG to BRTI. The suit alleges that royalties paid by BROG based on
these posted prices were lower than the royalties allegedly required to be paid
under federal regulations, and that the forms filed by BROG with the MMS
reporting the royalties paid were false, thereby violating the civil False
Claims Act.

The Company and others have also received document subpoenas and other
inquiries from the Department of Justice relating to the payment of royalties to
the federal government for natural gas production. These requests and inquiries
have been made in the context of one or more other False Claims Act cases
brought by individuals which remain under seal and are now being investigated by
the Civil Division of the Department of Justice. The Company has responded and
continues to respond to these requests and inquiries, but the Company does not
know what action, if any, the Department of Justice will take with regard to
these other cases. If the government chooses not to intervene and pursue these
cases, the individuals who initially brought these cases are free to pursue them
in return for a share, if any, of any final settlement or judgment. In addition,
the Company has been advised that it is a target of a criminal investigation by
the United States Attorney for the District of Wyoming into the alleged
underpayment of oil and gas royalties. The United States Attorney for the
District of Wyoming has also inquired into certain historical oil and gas
accounting and financial reporting practices of the Company. The Company has
responded to numerous grand jury document subpoenas in connection with the
investigation and is otherwise cooperating with the investigation. Management
cannot predict when the investigation will be completed or its ultimate outcome.

In April 1999, the court unsealed and the Company was served with the
petition in the False Claims Act lawsuits styled United States of America ex
rel. Jack J. Grynberg v. Burlington Resources Oil & Gas Company, et al. and
United States of America ex rel. Jack J. Grynberg v. The Louisiana Land and
Exploration Company, et al., filed in the United States District Court of the
District of Wyoming (the "Grynberg lawsuits"). In both cases the United States
Department of Justice declined to intervene following its investigation,
resulting in these claims being pursued by Grynberg individually. Grynberg has
filed seventy similar suits against more than three hundred defendants. On
October 20, 1999, the Judicial Panel on Multidistrict Litigation consolidated
sixty-six of the Grynberg False Claims Act lawsuits, including the referenced
suits against the Company, and transferred all cases to the United States
District Court for the District of Wyoming. The Grynberg lawsuits generally
allege that the Company and other defendants improperly measured and otherwise
undervalued natural gas in connection with the payment of royalties on
production from federal and Indian lands. Motions to Dismiss have been filed by
the Company and numerous other defendants and are pending before the Court.

Based on the Company's present understanding of the various governmental
and False Claims Act proceedings described above, the Company believes that it
has substantial defenses to these claims and intends to vigorously assert such
defenses. However, in the event that the Company is found to have violated the
civil False Claims Act or is indicted or convicted on criminal charges, the
Company could be subject to a variety of sanctions, including treble damages,
substantial monetary fines, civil and/or criminal penalties and a temporary
suspension from entering into future federal mineral leases and other federal
contracts for a defined period of time. While the ultimate outcome and impact on
the Company cannot be predicted with certainty, management believes that the
resolution of these proceedings will not have a material adverse effect on the
consolidated financial position of the Company, although results of operations
and cash flow could be significantly impacted in the reporting periods in which
such matters are resolved.

In addition to the foregoing, the Company and its subsidiaries are named
defendants in numerous other lawsuits and named parties in numerous governmental
and other proceedings arising in the ordinary course of business. While the
outcome of these other lawsuits and proceedings cannot be predicted with
certainty,

27
<PAGE> 30
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

management believes these matters, other than the above-described proceedings,
will not have a material adverse effect on the consolidated financial position,
results of operations or cash flows of the Company.

10. SUPPLEMENTAL CASH FLOW INFORMATION

The following is additional information concerning supplemental disclosures
of cash payments.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Interest paid............................................... $206 $192 $177
Income taxes paid -- net.................................... 13 26 60
</TABLE>

The following is additional information concerning supplemental disclosure
of non-cash investing and financing activities.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Issuance of Common Stock in exchange for oil and gas
properties................................................ -- $74 --
Capitalized lease obligations............................... -- 53 --
</TABLE>

11. IMPAIRMENT OF OIL AND GAS PROPERTIES

The Company evaluates the impairment of its oil and gas properties on a
field-by-field basis whenever events or changes in circumstances indicate an
asset's carrying amount may not be recoverable. Unamortized capital costs are
reduced to fair value if the sum of the expected undiscounted future cash flows
is less than the assets' net book value. Cash flows are determined based upon
proved reserves using prices and costs consistent with those used for internal
decision making.

In the fourth quarter of 1999, the Company determined there would be
performance related downward reserve adjustments associated with certain
properties located on the Gulf of Mexico shelf and in the Permian Basin. As a
result, the Company recognized a pretax impairment charge of $225 million ($140
million after tax) related to those properties.

In the fourth quarter of 1998, the market experienced a weakness in
commodity prices. The Company subjected all properties to impairment testing and
subsequently recognized a pretax impairment charge related to certain Canadian
properties of $706 million ($390 million after tax).

12. DIVESTITURE PROGRAM AND REORGANIZATION

In June 1997, the Company completed its divestiture program of
non-strategic assets which was announced in July 1996. As planned, the Company
sold approximately 27,000 wells and related facilities. Before closing
adjustments, gross proceeds for 1997 from the sales of oil and gas properties
related to this divestiture program were approximately $450 million. During
1997, the Company recorded a pretax gain of approximately $50 million related to
the sales of oil and gas properties. This program allowed the Company to
reorganize and resulted in a reduction of 456 employees. As of December 31,
1997, this program was complete.

13. SEGMENT AND GEOGRAPHIC INFORMATION

The Company's reportable segments are North America and International. Both
segments are engaged principally in the exploration, development, production and
marketing of oil and gas. The North America segment is responsible for the
Company's operations in the USA and Canada and the International segment is

28
<PAGE> 31
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

responsible for all operations outside that geographical region. The accounting
policies for the segments are the same as those described in Note 1 to the
consolidated financial statements. There are no significant intersegment sales
or transfers.

The following tables present information about reported segment operations.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------
NORTH AMERICA INTERNATIONAL TOTAL
------------- ------------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues................................................... $1,934 $131 $2,065
Depreciation, depletion and amortization................... 560 57 617
Impairment of oil and gas properties....................... 225 -- 225
Operating income (loss).................................... 449 (21) 428
Additions to properties.................................... $ 797 $148 $ 945
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------
NORTH AMERICA INTERNATIONAL TOTAL
------------- ------------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues................................................... $1,834 $149 $1,983
Depreciation, depletion and amortization................... 601 67 668
Impairment of oil and gas properties....................... 706 -- 706
Operating income........................................... (259) (38) (297)
Additions to properties.................................... $1,653 $136 $1,789
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------
NORTH AMERICA INTERNATIONAL TOTAL
------------- ------------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues................................................... $2,170 $205 $2,375
Depreciation, depletion and amortization................... 579 75 654
Operating income........................................... 794 53 847
Additions to properties.................................... $1,409 $228 $1,637
</TABLE>

The following is a reconciliation of segment operating income (loss) to
consolidated income (loss) before income taxes.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------ ------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Total operating income (loss) for reportable segments....... $428 $(297) $847
Merger costs................................................ 37 -- 80
Corporate expenses.......................................... 155 142 162
Interest expense............................................ 211 193 174
Other expense (income)-- net................................ 2 (8) (39)
---- ----- ----
Consolidated income (loss) before income taxes.............. $ 23 $(624) $470
==== ===== ====
</TABLE>

29
<PAGE> 32
BURLINGTON RESOURCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a reconciliation of segment additions to properties to
consolidated amounts.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
----- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Total additions to properties for reportable segments....... $945 $1,789 $1,637
Administrative expenditures................................. 44 50 45
---- ------ ------
Consolidated additions to properties........................ $989 $1,839 $1,682
==== ====== ======
</TABLE>

The following table presents revenues by geographic location.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
USA......................................................... $1,527 $1,462 $1,795
Canada...................................................... 407 372 375
Other International......................................... 131 149 205
------ ------ ------
Consolidated revenues....................................... $2,065 $1,983 $2,375
====== ====== ======
</TABLE>

14. RESTATEMENT

The Company discovered an accounting error that resulted in a $26 million
($17 million net of tax) overstatement of revenues for the fourth quarter of
1998. The net effect, after adjusting for income tax of $9 million, is a $17
million increase in net loss from $321 million to $338 million for the year
ended December 31, 1998 and a $17 million reduction in stockholders' equity at
December 31, 1998 and 1999. As a result, the Company has restated its 1998
consolidated financial statements. The following table summarizes the effect of
the restatement.

<TABLE>
<CAPTION>
FOURTH QUARTER 1998
(UNAUDITED) 1998
--------------------------- ---------------------------
AS PREVIOUSLY AS PREVIOUSLY
REPORTED AS RESTATED REPORTED AS RESTATED
------------- ----------- ------------- -----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues..................................... $ 499 $ 473 $2,009 $1,983
Loss before income taxes..................... (707) (733) (598) (624)
Net loss..................................... (411) (428) (321) (338)
Basic loss per common share.................. (1.95) (2.03) (1.52) (1.60)
Diluted loss per common share................ $(1.95) $(2.03) $(1.52) $(1.60)
</TABLE>

30
<PAGE> 33

REPORT OF MANAGEMENT

The management of Burlington Resources is responsible for the preparation
and integrity of all information contained in this Annual Report. The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. The financial statements include
amounts that are management's best estimates and judgments.

BR maintains a system of internal control and a program of internal
auditing that provides management with reasonable assurance that BR's assets are
protected and that published financial statements are reliable and free of
material misstatement. Management is responsible for the effectiveness of
internal controls. This is accomplished through established codes of conduct,
accounting and other control systems, policies and procedures, employee
selection and training, appropriate delegation of authority and segregation of
responsibilities.

The Audit Committee of the Board of Directors, composed solely of directors
who are not officers or employees, meets regularly with the independent
certified public accountants, financial management, counsel and corporate audit.
To ensure complete independence, the certified public accountants and corporate
audit have full and free access to the Audit Committee to discuss the results of
their audits, the adequacy of internal controls and the quality of financial
reporting.

Our independent certified public accountants provide an objective
independent review by their audit of the Company's financial statements. Their
audit is conducted in accordance with generally accepted auditing standards and
includes a review of internal accounting controls to the extent deemed necessary
for the purposes of their audit.

<TABLE>
<S> <C>
/s/ JOHN E. HAGALE /s/ PHILIP W. COOK
-------------------------------------------- --------------------------------------------
John E. Hagale Philip W. Cook
Executive Vice President and Vice President, Controller and
Chief Financial Officer Chief Accounting Officer
</TABLE>

31
<PAGE> 34

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Burlington Resources Inc.

In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of income, cash flows and stockholders' equity, after the restatement described
in Note 14, present fairly, in all material respects, the financial position of
Burlington Resources Inc. and its subsidiaries at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. The
consolidated financial statements give retroactive effect to the merger of Poco
Petroleums Ltd. on November 18, 1999 in a transaction accounted for as a pooling
of interests, as described in Note 2 to the consolidated financial statements.
We did not audit the financial statements of Poco Petroleums Ltd., which
statements reflect total assets of $1.3 billion and $1.1 billion as of December
31, 1999 and 1998, respectively, and total revenues of $407 million, $372
million and $375 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Those statements were audited by other auditors whose report
thereon has been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for Poco Petroleums Ltd., is based solely on
the report of the other auditors. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

March 3, 2000, except for

Note 14 as to which the

date is August 7, 2000

Houston, Texas

32
<PAGE> 35

BURLINGTON RESOURCES INC.

SUPPLEMENTARY FINANCIAL INFORMATION

SUPPLEMENTAL OIL AND GAS DISCLOSURES -- UNAUDITED

The supplemental data presented herein reflects information for all of the
Company's oil and gas producing activities. Capitalized costs for oil and gas
producing activities follow.

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
(IN MILLIONS)
<S> <C> <C>
Proved properties........................................... $12,516 $11,617
Unproved properties......................................... 318 326
------- -------
12,834 11,943
Accumulated depreciation, depletion and amortization........ 6,765 6,107
------- -------
Net capitalized costs............................. $ 6,069 $ 5,836
======= =======
</TABLE>

Costs incurred for oil and gas property acquisition, exploration and
development activities follow.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------
OTHER
USA CANADA INTERNATIONAL WORLDWIDE
---- ------ ------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Property acquisition
Unproved.......................................... $ 92 $ 16 $ 6 $ 114
Proved............................................ 23 410 4 437
Exploration......................................... 315 95 96 506
Development......................................... 491 150 30 671
---- ---- ---- ------
Total costs incurred...................... $921 $671 $136 $1,728
==== ==== ==== ======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------
OTHER
USA CANADA INTERNATIONAL WORLDWIDE
---- ------ ------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Property acquisition
Unproved.......................................... $ 93 $ 41 $ 5 $ 139
Proved............................................ 54 126 160 340
Exploration......................................... 241 74 48 363
Development......................................... 539 164 15 718
---- ---- ---- ------
Total costs incurred...................... $927 $405 $228 $1,560
==== ==== ==== ======
</TABLE>

33
<PAGE> 36

BURLINGTON RESOURCES INC.

SUPPLEMENTARY FINANCIAL INFORMATION

Results of operations for oil and gas producing activities follow.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------
OTHER
USA CANADA INTERNATIONAL WORLDWIDE
------ ------ ------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues............................................. $1,479 $ 404 $124 $2,007
------ ------ ---- ------
Production costs..................................... 336 102 33 471
Exploration costs.................................... 129 39 46 214
Operating expenses................................... 188 28 27 243
Depreciation, depletion and amortization............. 435 107 54 596
Impairment of oil and gas properties................. 225 -- -- 225
------ ------ ---- ------
1,313 276 160 1,749
------ ------ ---- ------
Operating income (loss).............................. 166 128 (36) 258
Income tax provision (benefit)....................... 63 61 (11) 113
------ ------ ---- ------
Results of operations for oil and gas producing
activities......................................... $ 103 $ 67 $(25) $ 145
====== ====== ==== ======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------
OTHER
USA CANADA INTERNATIONAL WORLDWIDE
------ ------ ------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues............................................. $1,422 $ 367 $149 $1,938
------ ------ ---- ------
Production costs..................................... 343 90 43 476
Exploration costs.................................... 239 30 59 328
Operating expenses................................... 177 18 32 227
Depreciation, depletion and amortization............. 429 157 64 650
Impairment of oil and gas properties................. -- 706 -- 706
------ ------ ---- ------
1,188 1,001 198 2,387
------ ------ ---- ------
Operating income (loss).............................. 234 (634) (49) (449)
Income tax provision (benefit)....................... 55 (259) (11) (215)
------ ------ ---- ------
Results of operations for oil and gas producing
activities......................................... $ 179 $ (375) $(38) $ (234)
====== ====== ==== ======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------
OTHER
USA CANADA INTERNATIONAL WORLDWIDE
------ ------ ------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues............................................. $1,747 $ 372 $205 $2,324
------ ------ ---- ------
Production costs..................................... 363 86 42 491
Exploration costs.................................... 234 25 25 284
Operating expenses................................... 220 18 10 248
Depreciation, depletion and amortization............. 422 143 75 640
------ ------ ---- ------
1,239 272 152 1,663
------ ------ ---- ------
Operating income..................................... 508 100 53 661
Income tax provision................................. 103 43 27 173
------ ------ ---- ------
Results of operations for oil and gas producing
activities......................................... $ 405 $ 57 $ 26 $ 488
====== ====== ==== ======
</TABLE>

34
<PAGE> 37

BURLINGTON RESOURCES INC.

SUPPLEMENTARY FINANCIAL INFORMATION

The following table reflects estimated quantities of proved oil and gas
reserves. These reserves have been reduced for royalty interests owned by
others. These reserves have been estimated by the Company's petroleum engineers.
The Company considers such estimates to be reasonable, however, due to inherent
uncertainties, estimates of underground reserves are imprecise and subject to
change over time as additional information becomes available.

<TABLE>
<CAPTION>
OIL (MMBBLS) GAS (BCF)
------------------------------------------ ------------------------------------------
OTHER OTHER
USA CANADA INTERNATIONAL WORLDWIDE USA CANADA INTERNATIONAL WORLDWIDE
----- ------ ------------- --------- ----- ------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROVED DEVELOPED AND
UNDEVELOPED RESERVES
December 31, 1996.......... 275.0 61.4 30.8 367.2 5,908 892 323 7,123
Revisions of previous
estimates................ (15.6) 3.2 (2.6) (15.0) 68 (15) (4) 49
Extensions, discoveries and
other additions.......... 44.9 9.9 .3 55.1 913 231 1 1,145
Production................. (24.6) (7.7) (7.2) (39.5) (583) (140) (26) (749)
Purchases of reserves in
place.................... 1.4 2.0 -- 3.4 116 178 240 534
Sales of reserves in
place.................... (48.7) (0.5) -- (49.2) (538) (18) -- (556)
----- ---- ---- ----- ----- ----- --- -----
December 31, 1997............ 232.4 68.3 21.3 322.0 5,884 1,128 534 7,546
Revisions of previous
estimates................ (8.4) (.4) 1.6 (7.2) (94) (66) (6) (166)
Extensions, discoveries and
other additions.......... 26.7 11.6 29.7 68.0 636 235 35 906
Production................. (24.2) (7.9) (6.0) (38.1) (577) (157) (24) (758)
Purchases of reserves in
place.................... .1 3.7 -- 3.8 81 338 8 427
Sales of reserves in
place.................... -- (2.9) -- (2.9) (72) (57) (25) (154)
----- ---- ---- ----- ----- ----- --- -----
December 31, 1998............ 226.6 72.4 46.6 345.6 5,858 1,421 522 7,801
Revisions of previous
estimates................ (9.0) (1.9) 0.3 (10.6) (52) (20) (2) (74)
Extensions, discoveries and
other additions.......... 19.0 4.7 2.0 25.7 554 164 384 1,102
Production................. (20.9) (7.1) (4.8) (32.8) (543) (156) (32) (731)
Purchases of reserves in
place.................... .5 1.0 -- 1.5 138 53 -- 191
Sales of reserves in
place.................... -- -- -- -- -- (9) -- (9)
----- ---- ---- ----- ----- ----- --- -----
December 31, 1999............ 216.2 69.1 44.1 329.4 5,955 1,453 872 8,280
===== ==== ==== ===== ===== ===== === =====
PROVED DEVELOPED RESERVES
December 31, 1996.......... 242.0 57.7 25.4 325.1 4,870 837 265 5,972
December 31, 1997.......... 203.9 62.8 15.6 282.3 4,641 1,053 233 5,927
December 31, 1998.......... 199.2 61.2 14.5 274.9 4,564 1,134 258 5,956
December 31, 1999.......... 168.3 57.5 13.5 239.3 4,715 1,180 314 6,209
</TABLE>

35
<PAGE> 38

BURLINGTON RESOURCES, INC.

SUPPLEMENTARY FINANCIAL INFORMATION

A summary of the standardized measure of discounted future net cash flows
relating to proved oil and gas reserves is shown below. Future net cash flows
are computed using year end sales prices, costs and statutory tax rates
(adjusted for tax credits and other items) that relate to the Company's existing
proved oil and gas reserves.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------
OTHER
USA CANADA INTERNATIONAL WORLDWIDE
------- ------ ------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Future cash inflows................................. $17,568 $4,184 $2,840 $24,592
Less related future
Production costs............................... 4,778 1,140 778 6,696
Development costs.............................. 661 279 604 1,544
Income taxes................................... 3,281 685 423 4,389
------- ------ ------ -------
Future net cash flows............................... 8,848 2,080 1,035 11,963
10% annual discount for estimated timing of cash
flows............................................. 4,374 788 508 5,670
------- ------ ------ -------
Standardized measure of discounted future net cash
flows............................................. $ 4,474 $1,292 $ 527 $ 6,293
======= ====== ====== =======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------
OTHER
USA CANADA INTERNATIONAL WORLDWIDE
------- ------ ------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Future cash inflows................................. $13,840 $3,363 $1,912 $19,115
Less related future
Production costs............................... 3,761 1,076 773 5,610
Development costs.............................. 617 282 296 1,195
Income taxes................................... 2,113 287 190 2,590
------- ------ ------ -------
Future net cash flows............................... 7,349 1,718 653 9,720
10% annual discount for estimated timing of cash
flows............................................. 3,643 632 301 4,576
------- ------ ------ -------
Standardized measure of discounted future net cash
flows............................................. $ 3,706 $1,086 $ 352 $ 5,144
======= ====== ====== =======
</TABLE>

36
<PAGE> 39

BURLINGTON RESOURCES INC.

SUPPLEMENTARY FINANCIAL INFORMATION

A summary of the changes in the standardized measure of discounted future
net cash flows applicable to proved oil and gas reserves follows.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
January 1................................................... $ 5,144 $ 5,789 $ 8,593
------- ------- -------
Revisions of previous estimates
Changes in prices and costs............................... 1,844 (1,017) (4,723)
Changes in quantities..................................... (83) (135) 16
Changes in rate of production............................. (92) (274) (422)
Additions to proved reserves resulting from extensions,
discoveries and improved recovery, less related costs..... 723 547 741
Purchases of reserves in place.............................. 168 183 396
Sales of reserves in place.................................. (6) (102) (691)
Accretion of discount....................................... 628 737 1,206
Sales of oil and gas, net of production costs............... (1,536) (1,488) (1,833)
Net change in income taxes.................................. (815) 435 1,888
Other....................................................... 318 469 618
------- ------- -------
Net change.................................................. 1,149 (645) (2,804)
------- ------- -------
December 31................................................. $ 6,293 $ 5,144 $ 5,789
======= ======= =======
</TABLE>

QUARTERLY FINANCIAL DATA -- UNAUDITED

<TABLE>
<CAPTION>
1999(C)
--------------------------------------------------------

4TH 3RD 2ND 1ST
----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues......................... $ 627 $ 547 $ 455 $ 436
Operating Income (Loss)(a)(b).... (59) 155 86 54
Net Income (Loss)(a)(b).......... (84) 61 24 --
Basic Earnings
(Loss) per Common Share........ (.38) .28 .11 --
Diluted Earnings (Loss) per
Common Share................... (.38) .27 .11 --
Cash Dividends Declared per
Common Share................... .12 .11 .12 .11
Common Stock Price Range
High........................... 39 1/4 46 3/4 47 5/8 42 5/16
Low............................ $ 29 1/2 $ 35 5/8 $ 38 3/8 $ 29 1/2

<CAPTION>
1998(C)
----------------------------------------------------------
4TH
(RESTATED)(D) 3RD 2ND 1ST
------------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues......................... $ 473 $ 478 $ 492 $ 540
Operating Income (Loss)(a)(b).... (697) 58 73 127
Net Income (Loss)(a)(b).......... (428) 13 16 61
Basic Earnings
(Loss) per Common Share........ (2.03) .07 .07 .29
Diluted Earnings (Loss) per
Common Share................... (2.03) .07 .07 .29
Cash Dividends Declared per
Common Share................... .11 .12 .11 .12
Common Stock Price Range
High........................... 43 1/8 44 1/2 49 5/8 49 1/2
Low............................ $ 32 $ 29 7/16 $ 38 3/16 $ 38 15/16
</TABLE>

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

(a) During the fourth quarter of 1999, as a result of the Acquisition, the
Company recorded a pretax charge of $37 million for severance and
transaction costs ($26 million after tax).

(b) During the fourth quarter of 1999, as a result of a downward adjustment
associated with the performance of certain properties, the Company
recognized a non-cash, pretax charge of $225 million ($140 million after
tax). During the fourth quarter of 1998, as a result of a weak market for
oil and gas, the Company recognized a non-cash, pretax charge of $706
million ($390 million after tax).

(d) See Note 14 of the Notes to Consolidated Financial Statements.

37
<PAGE> 40

PART IV

ITEM FOURTEEN

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
Consolidated Statement of Income.......................... 8
Consolidated Balance Sheet................................ 9
Consolidated Statement of Cash Flows...................... 10
Consolidated Statement of Stockholders' Equity............ 11
Notes to Consolidated Financial Statements................ 12
Report of Independent Accountants......................... 32
Supplemental Oil and Gas Disclosures -- Unaudited......... 33
Quarterly Financial Data -- Unaudited..................... 37
AMENDED EXHIBIT INDEX....................................... A-1
</TABLE>