GREKA ENERGY CORP, 10KSB/A, 1999-09-22

GREKA ENERGY CORP
10KSB/A, 1999-09-22
CRUDE PETROLEUM & NATURAL GAS

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U.S. Securities and Exchange Commission
Washington, D.C. 20549

Form 10-KSB/A2

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from ___________ to ____________

Commission File No.: 0-20760

GREKA Energy Corporation
(Name of small business issuer in its charter)

Colorado 84-1091986
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification Number)

630 Fifth Avenue, Suite 1501 New York, NY 10111
(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (212) 218-4680

Securities registered under Section 12(b) of the Exchange Act:
None

Securities registered under Section 12(g) of the Exchange Act:
No Par Value Common Stock.

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

The issuer's revenues for 1998 were $145,813.

The aggregate market value of 2,419,342 shares of common stock held by
non-affiliates of the issuer, based on the closing bid price of the common stock
on September 17, 1999 of $10.25 as reported on the Nasdaq SmallCap Market System
and based on a total of 4,311,603 shares being outstanding on that date was
$24,798,871.

(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

<PAGE>

Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [X] No [ ]

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

As of September 17, 1999, the issuer had 4,311,603 shares of common stock
outstanding, which amount does not include 140,886 shares the issuer will issue
to International Publishing Holding s.a. upon the effectiveness of a
registration statement covering the resale of those shares.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Transitional Small Business Disclosure Format (check one).

Yes [ ] No [X]

<PAGE>

TABLE OF CONTENTS
Page
PART I
Item 1. Description of the Business . . . . . . . . . . . . 5
Item 2. Description of Property . . . . . . . . . . . . . . 24
Item 3. Legal Proceedings .. . . . . . . . . . . . . . . . . 56
Item 4. Submission of Matters to a Vote of Security Holders . 59

PART II
Item 5. Market for Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . .. 59
Item 6. Management's Discussion and Analysis . . . . . . . .. 60
Item 7. Financial Statements . . . . . . . . . . . . . . . .. 65
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure . . . . . . 65

PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the
Exchange Act . . . . . .. . . . . . . . . . . 66
Item 10. Executive Compensation . . . . . . . . . . . . . . . . 68
Item 11. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . 72
Item 12. Certain Relationships and Related Transactions . . . . 73
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . 74

Index to Consolidated Financial Statements and Schedules. . . . . F-1

<PAGE>

SEC Definitions

The terms below are used in this document and have specific SEC
definitions as follows:

Proved oil and gas reserves. Proved oil and gas reserves are the
estimated quantities of crude oil, natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions, i.e., prices and costs as of the date the estimate is made. Prices
include consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future conditions.

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

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

PART I

Cautionary Information About Forward-Looking Statements

This document contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act that
include, among others, statements concerning:

* the benefits expected to result from GREKA Energy's recent acquisition of
Saba Petroleum Company ("Saba") discussed below, including

* synergies in the form of increased revenues,

* decreased expenses and avoided expenses and expenditures that are expected
to be realized by GREKA Energy and Saba as a result of the transaction, and

<PAGE>

* the complementary nature of GREKA Energy's horizontal drilling technology
and certain Saba oil reserves, and

* other statements of: * expectations,

* anticipations,

* beliefs,

* estimations,

* projections, and

* other similar matters that are not historical facts, including such matters
as:

* future capital,

* development and exploration expenditures (including the amount and nature
thereof),

* drilling of wells, reserve estimates(including estimates of future net
revenues associated with such reserves and the present value of such future
net revenues),

* future production of oil and gas,

* repayment of debt,

* business strategies, and

* expansion and growth of business operations.

These statements are based on certain assumptions and analyses made by the
management of GREKA Energy in light of:

* past experience and perception of:

* historical trends,

* current conditions,

* expected future developments, and

* other factors that the management of GREKA Energy believes are appropriate
under the circumstances.

GREKA Energy cautions the reader that these forward-looking statements are
subject to risks and uncertainties, including those associated with:

* the financial environment,

* the regulatory environment, and

* trend projections,

that could cause actual events or results to differ materially from those
expressed or implied by the statements. Such risks and uncertainties include
those risks and uncertainties identified in the Description of the Business and
Management's Discussion and Analysis sections of this document.

Significant factors that could prevent GREKA Energy from achieving its
stated goals include:

* the failure by GREKA Energy to integrate the respective operations of GREKA
Energy and Saba or to achieve the synergies expected from the acquisition
of Saba,

* the failure by GREKA Energy to obtain refinancing agreements or arrange for
the payment of Saba obligations,

3
<PAGE>

* declines in the market prices for oil and gas, and

* adverse changes in the regulatory environment affecting GREKA Energy.

GREKA's independent accountants issued a modified report on April 15,
1999 expressing substantial doubt about GREKA Energy's ability to continue as a
going concern. That matter is also discussed in Note 1 of the Notes to
Consolidated Financial Statements of GREKA Energy. On September 9, 1999 GREKA's
independent accountants issued a report which reflects the removal of their
previously modified opinion concerning doubt about GREKA Energy's ability to
continue as a going concern. That matter is discussed in Note 14 of the Notes to
Consolidated Financial Statements of GREKA Energy.

The cautionary statements contained or referred to in this document
should be considered in connection with any subsequent written or oral
forward-looking statements that may be issued by GREKA Energy or persons acting
on its or their behalf. GREKA Energy undertakes no obligation to release
publicly any revisions to any forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

Item 1. Description of Business.

Overview of GREKA Energy Corporation

GREKA Energy Corporation, a Colorado corporation formerly known as
Petro Union, Inc. and then Horizontal Ventures, Inc., is an independent energy
company engaged primarily in the business of exploiting proved oil and gas
reservoirs by utilizing a low cost proprietary short radius horizontal drilling
technology to increase production rates. The horizontal drilling technology was
patented by Amoco and is licensed by Amoco to GREKA Energy.

During 1997 and 1998, GREKA Energy was operationally dormant. During this
period management focused substantially all of its efforts on:

* the reorganization and emergence by Petro Union, Inc. from bankruptcy,
which was concluded on March 26 1998, and which involved the 1997
acquisition of Horizontal Ventures, Inc., an Oklahoma corporation and also
a licensee of the Amoco horizontal drilling technology,

* raising funds to position GREKA Energy to capitalize on its horizontal
drilling technology, which resulted in new equity financing of
approximately $6 million during 1997, and

* the acquisition of an operating oil and gas company with substantial
reserves suited to exploitation by GREKA Energy's horizontal drilling
technology, which culminated with the acquisition of Saba Petroleum Company
effective March 24, 1999.

Business Strategy

GREKA Energy is an independent, integrated energy company committed to
creating shareholder value by capitalizing on consistent cash flow hedged from
oil price fluctuation within integrated operations, exploiting E&P opportunities
and penetrating new niche markets utilizing proprietary technology with emphasis
on low cost short radius horizontal drilling technology patented by BP Amoco and
licensed to GREKA Energy. GREKA Energy has oil and gas production, exploration
and development activities in North America and the Far East, with primary areas
of activity in Alberta,California, Louisiana, Texas, New Mexico, Indonesia and
China. In addition, Greka Energy owns and operates an asphalt refinery in
California.

4
<PAGE>

Upon the closing of the acquisition of Saba, GREKA Energy established a
three-prong strategy that capitalizes on its asset base to enhance shareholder
value as follows:

Integrated Hedged Operations

Hedged operations of GREKA Energy are planned to focus on the
integration of its Santa Maria (California) assets, including an asphalt
refinery and interest in heavy oil fields. Up to the acquisition of Saba, Saba
had only been able to supply to the asphalt refinery 20% of its heavy oil
requirements. The hedged operations are targeted to capitalize on the stable
asphalt market in California by providing the feedstock (heavy oil) into the
refinery at cost. The planned integration of the refinery (100% owned) with the
interests in the heavy oil producing fields (100% working interest) should
provide a stable hedge to GREKA Energy on each equity barrel. GREKA Energy's
strategy in these integrated assets is two-fold:

1. GREKA Energy intends to proceed with acquisitions that enhance the
long-term feedstock supply to the refinery.

2. GREKA Energy intends to implement the proprietary Amoco Horizontal Drilling
Technology to cost-efficiently boost production rates from the 150
potential drilling locations identified in the Santa Maria Valley area of
central California.

The two actions are targeted to increase throughput into the refinery from the
rate at June 30, 1999 of approximately 3,500 barrels per day to 10,000 barrels
per day by yearend 2001. It is anticipated that the profitability from these
integrated operations will not be affected by volatile oil prices. It is also
anticipated that, by using the equity barrels to supply the refinery, working
capital requirements should be lower and cash flow should be enhanced. The
continued stability of the price of asphalt, coupled with reduced costs for
processing and lifting, should create a substantial value for GREKA Energy's
shareholders.

Exploration & Production

GREKA Energy is currently focusing on return to production ("RTP") work
that had been ignored by Saba for over eighteen months. Such RTP is expected to
enhance the current production levels and capitalize on current oil prices.
GREKA Energy plans to capitalize on its existing portfolio of domestic and
international exploration projects that are synergistic with GREKA Energy's
Amoco Horizontal Drilling Technology. GREKA Energy plans to specifically focus
on its existing concessions in locations such as China where GREKA Energy
believes there is a significant demand for energy.

Amoco Horizontal Drilling Technology

GREKA Energy plans to continuously pursue new, emerging opportunities
in the energy business to identify and evaluate niche markets for its
proprietary knowledge. Two specific niche targets are coal bed methane projects
and gas storage. These opportunities should provide significant upside from the
use of short horizontal laterals.

Recent History

<PAGE>

in the Cat Canyon field in California that all were part of its strategy to
capitalize on its experience with horizontal drilling technology. During the
latter part of 1998 and early 1999, management was primarily focused on the
acquisition of Saba, which had substantial reserves suited to exploitation by
GREKA Energy's horizontal drilling technology, and considerable expenses were
incurred in connection with the Saba transactions in the first quarter of 1999.
Due to the significance to GREKA Energy of the Saba acquisition, which was
completed effective March 24, 1999, GREKA Energy's management and staff devoted
a substantial amount of time and effort to the acquisition. Greka Energy has
already executed, and continues to execute, an aggressive rework program to
return to production existing wells on all properties that had wells shut-in
over eighteen months. Subsequent to the reworks, Greka Energy intends during the
third quarter of 1999 to implement its horizontal drilling program using its
proprietary technology on the Santa Maria Valley area assets.

Acquisition of Saba Petroleum Company

During the fourth quarter of 1998 and the first quarter of 1999, GREKA
Energy entered into the following transactions culminating in the acquisition of
Saba Petroleum Company effective March 24, 1999:

On October 6, 1998, GREKA Energy entered into a Preferred Stock
Transfer Agreement with RGC International Investors, LDC ("RGC"), by which GREKA
Energy acquired on October 6, 1998 690 shares of the 8,000 shares of issued and
outstanding Series A Convertible Preferred Stock of Saba held by RGC in exchange
for cash in the amount of $750,000, of which $500,000 was borrowed from
International Publishing Holding s.a. ("IPH"), then a significant shareholder of
GREKA Energy. GREKA Energy executed a Promissory Note to repay the $500,000 to
IPH without interest on or before December 31, 1998, which maturity date
subsequently was extended to September 30, 1999, in the form of cash or shares
of Saba Series A Preferred Stock held by GREKA Energy. The Promissory Note is
secured by a pledge of two-thirds of the Saba Series A Preferred Stock held by
GREKA Energy. Under the Preferred Stock Transfer Agreement, GREKA Energy was
granted the exclusive right until November 6, 1998 to acquire from RGC up to an
additional 6,310 shares of Saba Series A Preferred Stock held by RGC in exchange
for cash in the amount of approximately $6,859,000, with such exclusive right
subject to an extension for an additional thirty days by GREKA Energy's payment
of $500,000. On November 6, 1998, GREKA Energy paid $500,000 to RGC to extend
the term of the exclusive right until December 6, 1998. GREKA Energy did not
exercise its right.

On October 8, 1998 GREKA Energy and Saba entered into a Common Stock
Purchase Agreement by which Saba agreed to issue to GREKA Energy an aggregate of
2,500,000 shares of Saba common stock as follows:

* 333,333 shares of Saba common stock in exchange for $1,000,000 in cash by
November 6, 1998, and

* 2,166,667 shares of Saba common stock in exchange for $6,500,000 in cash by
December 4, 1998.

IPH in conjunction with GREKA Energy made open market purchases of
approximately 5% of the issued and outstanding shares of Saba common stock. By
an Option Agreement dated July 22, 1998 between GREKA Energy and IPH, GREKA
Energy acquired a call option to purchase the approximate 568,000 shares of Saba
common stock purchased by IPH at an exercise price equal to the cost to IPH of
acquiring such shares plus twenty percent, which was approximately $1,020,000.
IPH had a put agreement that became effective April 1, 1999, and was exercised
on such date. GREKA Energy has authorized the issuance of 140,886 shares to IPH
in exchange for the shares of Saba owned directly by IPH.

<PAGE>

Subsequently, GREKA Energy during October and early November 1998
directly acquired 80,000 shares of Saba common stock in open market purchases at
an aggregate cost of approximately $70,130.

On November 6, 1998, GREKA Energy paid Saba $1,000,000 for 333,333
shares of Saba common stock under the Common Stock Purchase Agreement and
$500,000 to RGC to extend the term until December 6, 1998 of GREKA Energy's
exclusive right to acquire the Saba Series A Preferred Stock from RGC pursuant
to the Preferred Stock Transfer Agreement. These payments were financed by GREKA
Energy's issuance to IPH on November 4, 1998 of a Promissory Note payable in the
amount of $1,500,000, with 6% interest, by December 31, 1998. This note has now
been extended to September 30, 1999. The Promissory Note is secured by GREKA
Energy's pledge of all of the issued and outstanding shares of capital stock of
Greka SMV, Inc. formerly know as HVI Cat Canyon, Inc., a wholly owned subsidiary
of GREKA Energy.

On November 23, 1998, as amended at closing on December 18, 1998 GREKA
Energy entered into a Stock Exchange Agreement with Saba Acquisub, Inc., which
owned 2,971,766 shares of Saba common stock. Saba Acquisub was controlled by
Capco Resources Ltd. which is controlled by Ilyas Chaudhary, a former director
and executive officer of Saba. Under the Stock Exchange Agreement, GREKA Energy
was to acquire the Saba common stock owned by Saba Acquisub in exchange for the
issuance by GREKA Energy to the shareholder of Saba Acquisub an aggregate of
1,340,000 shares of GREKA Energy common stock. At closing, Saba Acquisub was
merged with and into GREKA Energy.

On December 18, 1998, GREKA Energy and Saba entered into an Agreement
and Plan of Merger, which was amended February 16, 1999, whereby GREKA Energy
would acquire all of the remaining shares of Saba common stock and the
shareholders of Saba other than GREKA Energy would receive shares of GREKA
Energy common stock based on a contemplated exchange ratio of one share of GREKA
Energy common stock for each six shares of Saba common stock. On March 19, 1999,
the shareholders of GREKA Energy and Saba approved the acquisition transactions
and on March 24, 1999 Saba became a wholly owned subsidiary of GREKA Energy.

GREKA Energy believes that the acquisition of Saba represents a unique
opportunity to capitalize on Saba's substantial oil and gas properties which are
particularly suited to exploitation by GREKA Energy's horizontal drilling
technology.

GREKA Energy believes that its Cat Canyon Field in California is an
ideal field to apply horizontal drilling technology for the following reasons:

* Mature Fields/Extensive Data. Cat Canyon is a mature field, discovered in
1908, that provides numerous abandoned or semi-abandoned wells to re-enter,
and extensive geological information from which to develop an exploitation
plan without much additional cost;

* Hedge Against Oil Prices. GREKA Energy's Asphalt Refinery is fed by its Cat
Canyon properties thus greatly reducing oil price risk from GREKA Energy's
Cat Canyon development strategy. Since 1996, asphalt sales prices from the
Asphalt Refinery have varied between $16.09 and $18.41 per barrel, -- while
oil prices have varied between $7.17 and $17.38 during the same period. The
primary objective will be to apply the proprietary, cost effective
horizontal drilling technology to create additional feedstock for the
refinery and capitalize on the operational hedge per barrel.

<PAGE>

* Heavy Oil. Heavy oil, which is common to California fields, is typically
more difficult to recover because much higher pressure differentials are
necessary to force the oil up the well. Horizontal drilling allows more of
the reservoir to be exposed and more oil to be recovered. Furthermore,
short radius horizontals allow the pump mechanism to be placed much closer
to the reservoir resulting in substantial productivity;

* Abundance of Remaining Reserves. Because of the difficulty in recovering
heavy oil from reservoirs, only about 10% of the original oil has been
recovered. However, just a 1% increase in the oil recovered from the field
would yield large returns for GREKA Energy; and

* California Land Use Laws. Amoco's technology does not require the use of a
full-size drilling rig and the building of a drilling site, which can be
made prohibitively expensive by California land use laws. Amoco's
technology can be applied on a workover rig with no new drilling site,
eliminating the requirement for a drilling permit. The drilling permit
process in California can take over six months to complete while GREKA
Energy's rework permits typically take four days.

GREKA Energy owns an asphalt refinery in Santa Barbara County,
California that is fed by production from the central California region.
Generally, the crude oil produced in these areas is of low gravity and is
ideally suited as feedstock for asphalt. Furthermore, asphalt prices have
historically been less volatile than feedstock prices, providing GREKA Energy
with a hedge against oil price movements. This refinery was acquired from Conoco
Inc. in 1994 and Conoco performs all environmental obligations that arose during
and as a result of its operations of the refinery prior to the acquisition.

Throughput at the asphalt refinery has ranged between 2,000 to 4,500
barrels of oil per day while production capacity is approximately 10,000 Bopd.
Only approximately 1,750 Bopd of the throughput has come from GREKA Energy's
production. GREKA Energy believes that the asphalt refinery's margins will
improve significantly as it increases production from the Cat Canyon field,
providing additional feedstock and spreading the fixed cost of the refinery over
more units produced. Furthermore, GREKA Energy intends to increase the
throughput to 10,000 Bopd by year end 2001. GREKA Energy estimates that each
1,000 Bopd increase in equity throughput could yield approximately $2 million in
additional earnings before interest, taxes, depreciation and
amortization("EBITDA") annually.

In May 1999, GREKA Energy's subsidiary assumed all marketing and
distribution operations at its refinery in Santa Maria, California that were
previously performed by Crown Asphalt Distribution LLC under a processing
agreement terminated by GREKA Energy's subsidiary. Under the terms of this
agreement, each party had been receiving approximately fifty percent of the net
income from the refinery. During 1998, the refinery processed on average 3,850
barrels per day of throughput and generated revenues of approximately $22
million with a net income of approximately $4.7 million. During the term of the
processing agreement with Crown, Saba had only recognized and reported its fifty
percent share of the profits from the refinery operations. GREKA Energy expects
to recognize and report refinery revenues at a similar level, as well as
increased operating cash flows, as a result of assuming such operations.

Business of Saba Petroleum Company as of December 31, 1998

Saba Petroleum Company is an independent energy company engaged in the
acquisition, development and exploration of oil and gas properties in the United
States and internationally. Saba has grown primarily through the acquisition and
exploitation of producing properties in California, Louisiana and Colombia. Saba
has assembled a portfolio of over 200 potential development drilling locations.

<PAGE>

At April 15, 1999, Saba depended on three material customers. Those
customers were Ecopetrol, Crown Energy and Omimex Resources, Inc. See the
discussion elsewhere in this document of the sale of Sabacol's assets.

At December 31, 1998, Saba had estimated proved reserves of 17.7 MMBOE,
consisting of 13.9 MMBbls of oil and 22.99 Bcf of gas (3.8 MMBOE), with a PV-10
value of $23.2 million.

Saba also owns an asphalt refinery in Santa Maria, California, where it
currently processes approximately 4,000 Bopd.

Recent Saba Developments

Substantial Doubt About Saba's Ability to Continue as a Going Concern

Saba's independent public accountants included in their audit report
for Saba's 1998 financial statements an explanatory paragraph which indicates
that there was substantial doubt as to Saba's ability to continue as a going
concern. That was due to the fact that Saba's current assets may not have been
sufficient to satisfy its current liabilities at December 31, 1998. Saba
violated certain of its debt covenants and had negative stockholders' equity at
December 31, 1998. Management's plans in this regard are discussed in Note 1 of
the Notes to Consolidated Financial Statements of Saba appearing elsewhere in
this document.

GREKA Energy acquired Saba effective March 24, 1999. Operations of
GREKA Energy and Saba have been conducted on a combined basis after that
effective date.

Bankruptcy of Sabacol, Inc. and Contract for Sale of Sabacol's Assets

On December 15, 1998, Saba announced that Sabacol, Inc., a wholly-owned
subsidiary of Saba, filed a voluntary petition under Chapter 11 of the United
States Bankruptcy Code in the Central District of California on December 11,
1998. Sabacol's assets, located solely in Colombia, consisted of a 50% interest
in a 118-mile pipeline and varying interests in heavy oil producing properties.
At the time of filing, Sabacol had a net book value of approximately $5.3
million with liabilities of $4.6 million. For the year ended December 31, 1998,
the average daily production of Sabacol's interest in the Colombian properties
was 2,256 Bopd and gross revenues were approximately $7.4 million. Sabacol filed
the bankruptcy petition to protect its asset base and to provide adequate time
to develop a reorganization plan. A new management team was appointed for
Sabacol to protect its assets and develop an effective reorganization plan.
Neither GREKA Energy nor Saba were involved in the bankruptcy proceedings,
guaranteed any of the Sabacol debt, and Sabacol's creditors do not have any
right to proceed against GREKA Energy or Saba. Therefore, the bankruptcy of
Sabacol is not expected to have any material adverse effect on GREKA Energy.

On March 17, 1999, Sabacol entered into an agreement with Omimex, a
privately held oil and gas company which operates a substantial portion of
Saba's producing properties, whereby Sabacol was to sell to Omimex substantially
all of its assets in exchange for:

* the cancellation by Omimex of Saba's $4.2 million promissory note to
Omimex, along with approximately $206,000 in accrued interest, related to
the loan under the terminated business combination agreement discussed
below,

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* the cancellation by Omimex of Sabacol's net indebtedness to Omimex of
approximately $2 million,

* the assumption or payment by Omimex of Sabacol's Colombian tax liability of
approximately $2.3 million, and

* certain Omimex oil and gas properties and related assets located in
California which are valued at approximately $1 million.

The agreement provides for the payment of additional consideration to
Sabacol if the difference between the January 1, 2000 reserve value (using the
average wellhead prices received for production during fourth quarter 1999) for
Sabacol's oil and gas properties and the California properties acquired by
Sabacol is greater than the difference between the January 1, 1999 reserve value
for the same properties. If the differential is $5 million or less, by March 31,
2000 Omimex will pay such amount to Sabacol in cash or, upon non-payment,
reassign to Sabacol the 50% interest in the Velasquez-Galan pipeline in Colombia
sold by Sabacol to Omimex. If the differential is greater than $5 million,
Sabacol will have the option through May 31, 2000 of repurchasing for
approximately $12 million the assets sold to Omimex and reassigning to Omimex
the California assets purchased from Omimex. If this option is not exercised,
Omimex will be obligated to pay Sabacol $5 million in cash or, upon non-payment
reassign to Sabacol the Velasquez-Galan pipeline.

On June 30, 1999, GREKA Energy completed the sale of the assets of
Sabacol pursuant to the terms of the March 17, 1999 agreement concerning the
sale of those assets. The sale was approved by the bankruptcy court on April 26,
1999. An order dismissing the bankruptcy case was entered by the court on August
4, 1999 following Sabacol's request filed with the court in July 1999.

Loan from Omimex Under Terminated Business Combination Agreement

As part of a terminated merger agreement between Omimex and Saba,
Omimex lent to Saba approximately $4.2 million. The proceeds of this loan were
used to redeem $2 million of stated value of Saba's Series A Preferred Stock
(for approximately $2.15 million) and to pay $2 million on Saba's outstanding
bank indebtedness. The loan by Omimex accrued interest at prime to December 14,
1998, and at prime plus 3% thereafter, and was due 90 days after the termination
of the merger agreement in August 1998.

In compliance with procedures for securing the loan from Omimex,
Sabacol's legal representative in Colombia executed, but did not present for
notarial inscription by a Colombian notary public, a public deed or deeds to
transfer to Omimex all of the right, title and interest of Sabacol in and to the
Velasquez-Galan pipeline and delivered the deed(s) to Bank One, Texas, N.A.,
which is acting as the escrow agent. Sabacol also delivered to the escrow agent
an irrevocable letter of authority authorizing the completion of the execution
of the deed(s) before a Colombian notary public. The escrow agent had been
instructed, by terms of an escrow agreement entered into between Sabacol, Omimex
and Bank One, Texas, N.A., that in the event full payment of the Loan was
delivered by December 14, 1998, then the escrow agent shall have immediately
delivered to Omimex the payment and to Sabacol the deeds and the irrevocable
letter of authority relating thereto for cancellation. In the event payment of
the Loan in full was not delivered by December 14, 1998, then the escrow agent
shall have immediately delivered to Omimex the deeds and the irrevocable letter
of authority relating thereto. Thereafter, Omimex shall have delivered the deeds
and the irrevocable letter of authority to Omimex de Colombia, Ltd., a Delaware
corporation and a wholly owned subsidiary of Omimex, for completion of the
execution of the deeds before a Colombian notary public by Sabacol's legal
representative. Full payment of the Loan was not delivered by December 14, 1998
to the escrow agent. On December 11, 1998, Sabacol filed for protection of its
assets under Chapter 11 of the United States Bankruptcy Code. The deeds and the

<PAGE>

irrevocable letter of authority relating thereto were not delivered to Omimex on
December 14, 1998 under the escrow agreement and the requirement to do so was
stayed pursuant to the Sabacol's petition for bankruptcy. All matters associated
with the termination of the merger agreement between Omimex and Saba have been
resolved by sale agreement between Omimex and Sabacol which closed on June 30,
1999 as described above.

Bank Indebtedness

As indicated above, as part of the terminated merger agreement with
Omimex, Omimex lent to Saba $4.2 million, of which $2 million was applied to
Saba's existing bank indebtedness with Bank One, Texas, N.A. The Bank consented
to the borrowing from Omimex described in the preceding section and the
application of the proceeds of the loan, including the redemption of $2 million
stated value of Saba's Series A Preferred Stock. As a result of that payment and
a payment of $300,000 which was made in May 1998 and continued to be payable
each month thereafter by Saba, the Bank and Saba entered into a written
amendment to the existing loan agreement extending the maturities of all three
short term facilities to July 31, 1998. At April 15, 1999, approximately $4.5
million in principal amount of bank debt that matured for payment on July 31,
1998, had not been paid nor extended, and the borrowing base deficit of $3.1
million on the revolving loan at December 31, 1998, had not been satisfied,
either by providing additional collateral to the Bank or reducing the principal
balance that was outstanding at December 31, 1998. Saba's entire principal
indebtedness to the Bank of $20.1 million was classified by Saba as currently
payable at December 31, 1998. Additionally, Saba was not in compliance with the
loan agreement's financial covenants at December 31, 1998.

In May 1999, GREKA Energy's wholly-owned subsidiaries borrowed $6.0
million under the terms of a new credit facility with BNY Financial Corporation
and applied such proceeds to the Bank One, Texas indebtedness, reducing the
outstanding balance to $14.1 million.

In July 1999, GREKA Energy, Saba and Bank One entered into an Amended
and Restated Forbearance Agreement, under which Bank One agreed that it would
forbear from exercising its remedies under the credit facilities through
September 15, 1999, provided that Saba maintain compliance with certain
conditions regarding Events of Default, making timely interest payments and
securing alternative financing to retire the Bank One indebtedness.

In July 1999, GREKA Energy entered into a commitment letter with a
financial institution to lend GREKA Energy a minimum of $14.0 million, secured
by GREKA Energy's interest in certain oil and gas properties and certain
California real estate. Proceeds from this or alternative financing will be used
to pay Saba's indebtedness to Bank One in the amount of $14.1 million.

In connection with various borrowings from Bank One, Ilyas Chaudhary, a
former director and executive officer of Saba, has guaranteed payment of
approximately $3.7 million of Saba's debt to Bank One.

Sale of Certain Assets

Saba had negotiated the sale of certain producing oil and gas assets
and real estate assets, the proceeds of which have been applied to reduce bank
indebtedness and provide working capital. Saba sold its interest in over 150
producing wells in Michigan in July 1998 for a contract price of $3.7 million
and two producing wells in Alabama in September 1998 for a contract price of
$800,000.

<PAGE>

In December 1998, Saba entered into a letter of intent with Capco
Development, Inc. ("Capco") to sell all of the outstanding stock of its
wholly-owned subsidiary, Saba Energy of Texas, Inc. ("SETI") but excluding all
of SETI's oil and gas property interests located in Louisiana, for a contract
price of $5 million to close in December 1998. The parties entered into a
purchase agreement, which was later amended to provide for a closing in January
1999, to sell all of the outstanding stock of SETI but excluding SETI's oil and
gas property interests in the Potash Field located in Louisiana for a contract
price of $6.25 million. In January 1999, the purchase agreement was terminated
concurrently with the execution by SETI and an affiliate of Capco of a purchase
and sale agreement to sell all of SETI's oil and gas property interests
principally located in Louisiana, New Mexico, Texas and Wyoming, excepting
Potash Field located in Louisiana, for a contract price of $6.15 million. The
agreement, which was scheduled to close in March 1999, provided for an interim
closing in February 1999, at which time the buyer was to pay to SETI $1.5
million, In February 1999, the agreement was terminated for buyer's
non-performance.

In April 1999, SETI entered into an agreement to sell all of SETI's oil
and gas property interests at a contract price of $12.5 million to close in June
1999. The agreement terminated in June 1999 for buyer's non-performance.

Saba's Series A Convertible Preferred Stock

On March 15, 1999, GREKA Energy entered into a term sheet with RGC
International Investors LDC, the holder of Saba's Series A Convertible Preferred
Stock, for RGC to exchange the balance of the preferred stock for a secured
convertible note to be negotiated and thereafter issued by GREKA Energy to RGC.

Saba Debentures

In July and August 1999, GREKA Energy entered into a term sheet with a
majority of the holders of the outstanding Saba debentures to exchange the
debentures of Saba for new debentures of GREKA Energy with interest at the rate
of 9%, maturing on December 31, 2005 with a right of GREKA Energy to redeem at
any time for an amount equal to 102% of the principal amount plus any accrued
but unpaid interest, subject to the right of holders of first convert. The
conversion price offered by GREKA Energy is 95% of the average closing bid price
of GREKA Energy's common stock for the 30 consecutive trading days of GREKA
Energy's common stock ending one day prior to the date notice of conversion is
received by GREKA Energy, but in no event less than $8.50 nor greater than
$12.50 per share. The terms further offer that, commencing April 1, 2000, each
holder of GREKA Energy's debentures shall have the right upon written notice to
GREKA Energy to require that it redeem its debentures at an amount equal to the
principal amount plus any accrued but unpaid interest. The Saba debentures were
delisted from the American Stock Exchange in August 1999.

GREKA Energy's Horizontal Drilling Technology

Horizontal drilling has become widely accepted as a standard option for
exploiting oil & gas resources. The principle advantage of horizontal drilling
is that it results in a substantially greater surface area for drainage, and
thus extraction of the oil from the reservoir. In industry terms this is
referred to as communicating zones of permeability. The unique method of
reentering a well and horizontal drilling patented by Amoco and licensed to
GREKA Energy allows for turning while drilling, which can cause a vertical well
to be horizontal in as little as 25 feet. Thus this technology provides
considerable flexibility to the geologists and engineers in designing their well
plans around geological formation and reservoir constraints to achieve maximum
performance. Furthermore, this technique facilitates multi-laterals off an
existing well bore, which avoids costly drilling of new wells, and has
considerable advantages in shallow reservoirs where the traditional horizontal
tools cannot be utilized due to their larger radius requirements and related
economics.

<PAGE>

Drilling horizontal laterals has the potential to:

* tap fresh oil by intersecting fractures, penetrating pay discontinuities
and drain up-dip traps,

* correct production problems such as:

* water coning,

* gas coning, and

* excessive water cuts from hydraulic fractures which extend below the
oil-water contact, and

* supplement enhanced secondary and tertiary oil recovery techniques.

The most common method of drilling a curved borehole utilizes a
mud-motor to rotate the drill bit. This is often too expensive to be economical
for re-entries in mature fields with well bore casings less than 5 1/2 inches.
The lack of a cost-effective method to increase production in mature wells led
Amoco to devote significant resources in research and development in this area.
The result was the development of its patented short radius horizontal drilling
system. The primary advantages of the Amoco drilling system are:

* its short radius of curvature,

* it costs approximately one-fifth of traditional mud motors, and

* it takes only ten days to drill and yet provides all the benefits of a
horizontal well.

The Amoco short radius rotary steerable horizontal drilling system is
capable of drilling a 3.875" inch hole from inside 4.5" inch casing, or a 4.5"
hole from inside 5.5" casing and larger. The radius of curvature ranges from 30
feet and up, with lateral departures up to 1,000 feet. Multiple laterals can be
drilled in opposing directions or in the same direction, with kick-off points
spaced a minimum of eight feet apart. Compatibility with any circulating medium
including mud, foam or air mist allows for a variety of applications.

The system consistently drills a predictable radius of curvature in the
desired direction, resulting in a smoother planar well bore, which facilitates
drilling the lateral and completing the well. Vertical target accuracy is plus
or minus two feet, and azimuth is plus or minus 20 degrees.

The system is rotary steerable, and there are no mud motors, steering
tools or MWD tools. The system is purely mechanical and very simple in design.

The Amoco bit is an anti-whirl, bi-center, low-friction PDC bit.
Consistent and reliable angle build and improved directional control is a result
of stabilizing the PDC bit to continually point along a curved path. The design
of the bit enables it to cut only in the direction it is pointed. The cutters
are positioned so that they direct a lateral force toward a smooth pad on the
gauge of the bit, which contracts the bore hole and acts as a bearing by
transmitting a restoring force to the bit. This force rotates with the bit,
continually pushing a side of the bit that does not have gauge cuter chips
against the bore hole wall. This design minimizes the side cutting action that
is typically observed with PDC bits and results in consistent well bore
diameter.

<PAGE>

The system drills a curved path by continually pointing the bit along a
tangent to the curved path. A contact point on the bit and smooth contact ring
at the flexible knuckle joint establishes two contact points and controls the
bit tilt. Tool design tilt allows the curve assembly to run smoothly, drill a
hole uniform in diameter, and negates the effects of varying lithology changes.
Various radii of curvatures are easily obtained by increasing or decreasing the
distance between the two contact points.

Azimuth or target direction is established by gyro orientation of the
eccentric deflection sleeve. Once oriented in the desired direction, the gyro is
released and orientation is monitored by pump pressures at the surface. These
signals are monitored throughout the curve drilling process, as repositioning of
the sleeve is required to maintain target direction.

Lateral drilling is strictly a rotary process. The lateral drilling
assemblies are not steerable, and there are no deflection sleeves or orientation
signals. At present, there are two lateral drilling assemblies, and both use the
anti-whirl PDC bit to achieve a smooth well bore and obtain fairly consistent
responses. Of the two lateral assemblies, one is engineered for gentle rise wit
angle build rates of 7 to 11 degrees per 100 feet. The second is for maintaining
inclination, and produces near-neutral responses of - -2 to 2 degrees per 100
feet. The assemblies work on the same principle as any directional drilling
assembly. Both have been found to drill with minimal walk, right or left, but
inclination is somewhat sensitive to formation and weight on the bit.

The predominate application of short-radius horizontal drilling is for
re-entries, a procedure that requires the sectional milling of at least 20 feet
of casing. Following sectioning, a cement kick-off plug is set in the vertical
well bore just below the kick-off depth. Cement is brought up through the
sectioned interval, and 60 to 100 feet inside the casing. This multi-purpose
plug must provide zone isolation from the original completion and mechanical
strength for the curve assembly to side track. Open-hole completions, either
from existing wells or new wells, can be kicked off from formation or a squeeze
cement plug. Torque, weight of the bit, drill-off rate, and cuttings are
monitored during the kick-off procedure as the bit makes the transition from
drilling 100 percent cement to 100 percent formation. This transition usually
occurs after drilling a minimum of six feet, and can be greater depending on the
radius of curvature.

With regard to equipment requirements, many types of workover rigs have
been used in conjunction with the system, ranging from small pole units to five
and six axle carriers. Drilling rigs have been used in several instances, but
are not necessary. A top-drive power swivel, the most predominate of which is
the Bowen 2.5, is used to rotate the drill string and bit. A single conductor
wireline unit is used for gyro orientation and to run all electronic and
magnetic surveys. Circulating and solids control equipment vary depending on
formation conditions.

Management of GREKA Energy considers this proprietary technology a
leading edge and a ground floor opportunity as a producer. GREKA Energy
management believes that through the utilization of this system GREKA Energy has
the ability to cost-effectively drill lateral completions and re-entries in
shallow oil and gas producing zones where existing technology has not been
available or affordable. As drilling new wells from the surface is not a
necessity and current production infrastructures can be utilized, GREKA Energy
anticipates that the economics of this system will be improved. Management of
GREKA Energy believes that potential zones such as shale gas and coalbed methane
that contain trillions of cubic feet of untapped reserves in the United States
are candidates for short radius horizontal drilling technology.

<PAGE>

Organizational History of GREKA Energy

GREKA Energy Corporation was formed in 1988 as a Colorado corporation
under the name of Kiwi III, Ltd. On May 13, 1996, GREKA Energy, then known as
Petro Union, Inc., filed a voluntary petition for relief pursuant to Chapter 11
of the United States Bankruptcy Code. On August 28, 1997, the Bankruptcy Court
for the Southern District of Indiana issued an order confirming Petro Union's
First Amended Plan of Reorganization. Under the Plan the unsecured creditors of
Petro Union received an aggregate of 100,000 shares of Petro Union common stock
(for clarity, the no par value common stock as is currently authorized for GREKA
Energy is sometimes referred to herein as the "New Common Stock"). The holders
of Petro Union's $.125 par value common stock ("Old Common Stock") received one
share of New Common Stock for each 220 shares of Old Common Stock held, and the
Old Common Stock was canceled. Accordingly, the 17,537,945 outstanding shares of
Old Common stock were converted into approximately 80,000 shares of New Common
stock.

Petro Union satisfied the claims of its two debtor-in-possession
financiers, Pembrooke Holding Corporation and International Publishing Holding
s.a. as follows: Pembrooke received $100,000 in cash and 49,999 shares of New
Common Stock. IPH received 40,000 shares of New Common Stock and a call option
exercisable for a period of 36 months to acquire ninety percent of Petro Union's
wholly-owned subsidiary, Calox Corporation, which then held as its only asset a
limestone reserve in Monroe County, Indiana. The exercise price to acquire such
ninety percent interest is $3.5 million.

The Plan also provided for a share exchange transaction by which the
shareholders of Horizontal Ventures, Inc., an Oklahoma corporation of which
Randeep S. Grewal was President, acquired 590,000 shares of New Common Stock in
exchange for all of the issued and outstanding capital stock of Horizontal
Ventures. In addition, under the Plan 70,000 shares of New Common Stock were
issued to Mr. Grewal and 70,000 shares of New Common Stock were issued to
Richard D. Wedel, who was an executive officer of Petro Union, for services
performed by each of them during the bankruptcy proceedings. Petro Union
subsequently changed its name to Horizontal Ventures, Inc.

The bankruptcy court approved the final accounting and closed the
bankruptcy proceedings on March 26, 1998.

Effective March 22, 1999, Horizontal Ventures, Inc. changed its name to
GREKA Energy Corporation. Effective March 24, 1999, GREKA Energy acquired Saba
Petroleum Company as a wholly owned subsidiary.

Marketing

Marketing of Asphalt Refinery Production

GREKA Energy's asphalt refinery in Santa Maria, California produces
light naphtha, kerosene distillate, gas oils and numerous cut-back, paving and
emulsion asphalt products. Historically, marketing efforts have been focused on
the asphalt products which are sold to various users, primarily in the Central
and Northern California areas. Distillates are readily marketed to wholesale
purchasers.

GREKA Energy regards the refinery as a valuable adjunct to its
production of crude oil in the Santa Maria Valley and surrounding areas.
Generally, the crude oil produced in these areas is of low gravity and makes an
excellent asphalt. Recent prices for asphalt exceed market prices for crude and
costs of operating the refinery. GREKA Energy believes that as road building and
repair increase in California and surrounding western states, the market for
asphalt will expand significantly.

<PAGE>

Marketing of GREKA Energy's Oil and Gas Production

The prices obtained for oil and gas are dependent on numerous factors
beyond the control of GREKA Energy, including domestic and foreign production
rates of oil and gas, market demand and the effect of governmental regulations
and incentives. Substantially all of GREKA's North American crude oil production
is sold at the wellhead at posted prices under short term contracts, as is
customary in the industry. No one customer accounted for more than ten percent
of the sales of North American production of Saba during 1998 except Crown which
accounted for 47% of such sales. The Colombian oil Production previously
produced by Sabacol, which was, and as a practical matter could only be, sold to
Ecopetrol, accounted for 37% of total oil and gas revenues in 1998.

The market for heavy crude oil produced by GREKA from its Central Coast
Fields in California differs substantially from the remainder of the domestic
crude oil market, due principally to the transportation and refining
requirements associated with California heavy crude oil. The prices realized for
heavy crude oil are generally lower than those realized from the sale of light
crude oil. GREKA Energy's Santa Maria refinery uses essentially all of its
Central Coast Fields' crude oil, in addition to third party crude oil, to
produce asphalt, among other products. Ownership of the refinery gives GREKA
Energy a steady market for its local crude oil which is not enjoyed by producers
generally.

Marketing of GREKA Energy's Non-Saba Exploitation & Production

Significant and lucrative markets exist for the application of the
niche technology for GREKA Energy's short radius horizontal drilling know-how.
Mature fields are in abundance throughout the world where the operators are
faced with declining production, uncertain oil prices and upcoming costs to
abandon and plug the uneconomic wells at their production rates. Such an
environment creates a unique market for GREKA Energy in being able to acquire
through a conservative selection process. Primary acquisition candidates will
have existing production, existing operating infrastructure and facilities,
geological formations conducive to the technology, well bores and pay zones
under ten thousand feet with sufficient recoverable oil in place. As an example,
GREKA Energy has found that California is a unique opportunity due to its
stringent new drilling regulations. GREKA Energy's activities are essentially
"re-work" negating any lengthy approvals through the regulatory authorities.
Such an environment has created "pockets" of opportunity whereby significant
recoverable oil has been left in place by the majors and thereafter operators
rather than attempt a costly endeavor to drill new wells in urban areas. GREKA
Energy intends to pursue such opportunities.

Competition

Competition in the oil and gas business is intense, particularly with
respect to the acquisition of producing properties, proved undeveloped acreage
and leases. Major and independent oil and gas companies actively bid for
desirable oil and gas properties and for the equipment and labor required for
their operation and development. GREKA Energy believes that the locations of its
leasehold acreage, its exploration, drilling and production capabilities and the
experience of its management and that of its industry partners generally enable
GREKA Energy to compete effectively. Many of GREKA Energy's competitors,
however, have financial resources and exploration, development and acquisition
budgets that are substantially greater than those of GREKA Energy, and these may
adversely affect GREKA Energy's ability to compete, particularly in regions
outside of GREKA Energy's principal producing areas. Because of this
competition, GREKA Energy cannot assure that it will be successful in finding
and acquiring producing properties and development and exploration prospects.

<PAGE>

Management of GREKA Energy believes it has an advantage over its
competition due to its level of field expertise in applying the patented Amoco
Short Radius Horizontal Drilling technology and its ability to provide these
drilling techniques at a fraction of the cost of the competition. Although,
Amoco has provided licenses to others, GREKA Energy feels that its experience
and two prong global approach is sheltered from any of the other licensees who
are concentrating on services within their respective geographical area. The
acquisition criteria is also unique to the application of the niche short radius
horizontal technology and as to the best of management's knowledge, none of the
other licensees are drilling for their own account. GREKA Energy has not felt
any competitive pressure relative to its acquisition strategy to date.

Governmental Regulation

The following discussion of regulation of the oil and gas industry is
necessarily brief and is not intended to constitute a complete discussion of the
various statutes, rules, regulations or governmental orders to which operations
of GREKA Energy may be subject.

Price Controls on Liquid Hydrocarbons

Oil sold by GREKA Energy is no longer subject to the Crude Oil Windfall
Profits Tax Act of 1980, as amended, which was repealed in 1988. As a result,
GREKA Energy sells oil produced from its properties at unregulated market
prices.

Federal Regulation of First Sales and Transportation of Natural Gas

The sale and transportation of natural gas production from properties
owned by GREKA Energy may be subject to regulation under various federal and
state laws including, but not limited to, the Natural Gas Act and the Natural
Gas Policy Act, both of which are administered by the Federal Energy Regulatory
Commission. The provisions of these acts and regulations are complex. Under
these acts, producers and marketers have been required to obtain certificates
from FERC to make sales, as well as obtaining abandonment approval from FERC to
discontinue sales. Additionally, first sales have been subject to maximum lawful
price regulation. However, the NGPA provided for phased-in deregulation of most
new gas production and, as a result of the enactment on July 26, 1989 of the
Natural Gas Wellhead Decontrol Act of 1989, the remaining regulations imposed by
the NGA and the NGPA with respect to "first sales" were terminated by not later
than January 1, 1993. FERC jurisdiction over transportation and sales other than
"first sales" has not been affected.

Because of current market conditions, many producers, including GREKA
Energy, are receiving contract prices substantially below most remaining maximum
lawful prices under the NGPA. Management believes that most of the gas to be
produced from GREKA Energy's properties is already price-deregulated. The price
at which such gas may be sold will continue to be affected by a number of
factors, including the price of alternate fuels such as oil. At present, two
factors affecting prices are gas-to-gas competition among various gas marketers
and storage of natural gas. Moreover, the actual prices realized under GREKA
Energy's current gas sales contracts also may be affected by the nature of the
decontrolled price provisions included therein and whether any indefinite price
escalation clauses in such contracts have been triggered by federal decontrol.

The economic impact on GREKA Energy and gas producers generally of
price decontrol is uncertain, but it currently appears to be resulting in lower
gas prices. Currently, there is a surplus of deliverable gas in most areas of
the United States and, accordingly, it remains possible that gas prices will
continue to remain at relatively depressed levels or decrease further. Moreover,
many gas sales contracts provide for price redetermination upon decontrol, and,
as a result, it is possible that the newly redetermined prices applicable under
such contracts are likely to reflect the lower prices prevalent in today's
market. Producers such as GREKA Energy or resellers may be required to reduce
prices in order to assure continued sales. It is also possible that gas
production from certain properties may be shut-in altogether for lack of an
available market.

<PAGE>

Commencing in the mid-1980's, FERC promulgated several orders designed
to correct market distortions and to make gas markets more competitive by
removing the transportation barriers to market access. These orders have had a
profound influence upon natural gas markets in the United States and have, among
other things, fostered the development of a large spot market for gas. The
following is a brief description of the most significant of those orders and is
not intended to constitute a complete description of those orders or their
impact.

On April 8, 1992, FERC issued Order 636, which is intended to
restructure both the sales and transportation services provided by interstate
natural gas pipelines. The purpose of Order 636 is to improve the competitive
structure of the pipeline industry and maximize consumer benefits from the
competitive wellhead gas market. The major function of Order 636 is to assure
that the services non-pipeline companies can obtain from pipelines is comparable
to the services pipeline companies offer to their gas sales customers. One of
the key features of the Order is the "unbundling" of services that pipelines
offer their customers. This means that pipelines must offer transportation and
other services separately from the sale of gas. The Order is complex, and faces
potential challenges in court. GREKA Energy is not able to predict the effect
the Order might have on its business.

FERC regulates the rates and services of "natural-gas companies", which
the NGA defines as persons engaged in the transportation of gas in interstate
commerce for resale. As previously discussed, the regulation of producers under
the NGA is being gradually phased out. Interstate pipelines, however, continue
to be regulated by FERC under the NGA. Various state commissions also regulate
the rates and services of pipelines whose operations are purely intrastate in
nature, although generally sales to and transportation on behalf of other
pipelines or industrial end-users are not subject to material state regulation.

There are many legislative proposals pending in Congress and in the
legislatures of various states that, if enacted, might significantly affect the
petroleum industry. It is impossible to predict what proposals will be enacted
and what effect, if any, such proposals would have on GREKA Energy.

State and Local Regulation of Drilling and Production

State regulatory authorities have established rules and regulations
requiring permits for drilling, drilling bonds and reports concerning
operations. The states in which GREKA Energy operates also have statutes and
regulations governing a number of environmental and conservation matters,
including the unitization and pooling of oil and gas properties and
establishment of maximum rates of production from oil and gas wells. A few
states also pro-rate production to the market demand for oil and gas.

Environmental Regulations

Operations of GREKA Energy are subject to numerous laws and regulations
governing the discharge of materials into the environment or otherwise relating
to environmental protection. These laws and regulations may require the
acquisition of a permit before drilling commences, prohibit drilling activities
on certain lands lying within wilderness and other protected areas and impose
substantial liabilities for pollution resulting from drilling operations. Such
laws and regulations may also restrict air or other pollution resulting from
GREKA Energy's operations. Moreover, many commentators believe that the state
and federal environmental laws and regulations will become more stringent in the
future. For instance, proposed legislation amending the federal Resource
Conservation and Recovery Act would reclassify oil and gas production wastes as

<PAGE>

"hazardous waste". If such legislation were to pass, it could have a significant
impact on the operating costs of GREKA Energy, as well as the oil and gas
industry in general. State initiatives to further regulate the disposal of oil
and gas wastes are also pending in certain states, including states in which
GREKA Energy has operations, and these various initiative could have a similar
impact on GREKA Energy.

GREKA Energy has not filed any reports with estimates of its reserves
with any federal authority or agency, other than the Securities and Exchange
Commission and the Department of Energy.

Operational Hazards and Insurance

GREKA Energy's operations are subject to the usual hazards incident to
the drilling and production of oil and gas, such as blowouts, cratering,
explosions, uncontrollable flows of oil, gas or well fluids,fires, pollution,
releases of toxic gas and other environmental hazards and risks. These hazards
can cause personal injury and loss of life, severe damage to and destruction of
property and equipment, pollution or environmental damage and suspension of
operations.

GREKA Energy has up to $15,000,000 of general liability insurance.
GREKA Energy's insurance does not cover every potential risk associated with the
drilling and production of oil and gas. In particular, coverage is not
obtainable for certain types of environmental hazards. The occurrence of a
significant adverse event, the risks of which are not fully covered by
insurance, could have a material adverse effect on GREKA Energy's financial
condition and results of operations. Moreover, no assurance can be given that
GREKA Energy will be able to maintain adequate insurance in the future at rates
it considers reasonable.

Employees

As of August 27, 1999, GREKA Energy and its subsidiaries had 105
full-time employees. None of GREKA Energy's employees is subject to a collective
bargaining agreement. GREKA Energy considers its relations with its employees to
be satisfactory.

Item 2. Description of Property.

GREKA Energy's Properties as of December 31, 1998

California Cat Canyon Field

In October 1997, GREKA Energy acquired a 200 acre lease within the
Santa Maria Valley in California. The purchase price was $1.65 million and
included all the formations along with all the infrastructures that includes two
separate gathering systems and 20 well bores of which ten are producing.

Following in-depth evaluations, GREKA Energy believes that significant
enhancements focused primarily on its niche short-radius horizontal drilling
know-how can result in sustained increase of oil production. Based on these
evaluations, a drilling program funded by GREKA Energy's financial resources has
been activated.

In view of the acquisition of Saba's Cat Canyon properties where all
the gathering systems are already in place, management of GREKA Energy has
decided to focus its activities in California, and thus placed GREKA Energy's
program in Illinois on hold until preferable summer weather conditions exist to
facilitate the commencement of drilling and completion programs.

<PAGE>

Limestone Properties

Indiana - Monroe Field. At December 31, 1998, GREKA Energy owned
through its wholly owned subsidiary, Calox Inc, a 355 acre limestone property
located in Monroe County, Indiana. GREKA Energy owned the land, timber and all
the mineral rights associated with the property. The limestone deposits are made
up of Salem limestone, which produces a high industrial grade calcium oxide or
calcium carbonate used in scrubbing machinery that cleans the gaseous emissions
from coal burning generators.

At December 31, 1998, International Publishing Holding s.a., a
significant shareholder of GREKA Energy, held a three year option expiring on
September 9, 2000 to acquire 90% of the shares of Calox for $3.5 million.

In April 1999, GREKA Energy and IPH closed an agreement with Pembrooke
Calox, Inc. for the sale of GREKA Energy's and IPH's interests in a 355-acre
limestone property located in Indiana in exchange for a non-recourse promissory
note, secured by the limestone property. The buyer had the option to pay either
$3.85 million by July 31, 1999 followed by four annual payments of $200,000 each
beginning in 2001, or $5.7 million by November 1, 1999. The buyer had not paid
any funds to GREKA Energy or IPH on or before July 31, 1999. As part of this
transaction, GREKA Energy paid Pembrooke $50,000 and issued 16,736 shares of
common stock following the filing of a registration statement on May 17,1999.
GREKA Energy has not recorded the sales transaction due to the terms of the sale
and pending realization of the note receivable on November 1, 1999.

Oil and Gas Reserves

GREKA Energy's oil and gas properties are primarily based in California
and Illinois though the area of focus since the acquisitions had been primarily
California. GREKA Energy engaged Netherland, Sewell & Associates, Inc. to
evaluate the California properties while the Illinois properties were evaluated
by two individual independent engineers and geologists. Estimates are based on a
review of production histories and geologic reports provided to the independent
engineers by GREKA Energy.

As a part of the decision to acquire Saba, management recently decided
not to continue to pursue the Illinois properties. This effectively eliminates
94,080 bbls of Proved Developed Non-Producing oil and 1,732,305 bbls of Proven
Undeveloped oil from the 1997 reserves set forth below. This has the additional
effect of reducing future net revenues in all categories except Proved Developed
Producing by approximately two-thirds.

The present values of estimated future net revenues as of December 31,
1998 (discounted at 10% per annum) set forth in the table below are not intended
to represent the current market value of the estimated oil and gas reserves
owned by GREKA Energy. For further information concerning the present value of
future net revenue from these proved reserves, see the Notes to the Consolidated
Financial Statements of GREKA Energy located elsewhere herein.

<PAGE>

Future Net
Reserves Revenue $
-------------- -------------------
Oil
(bbls) Total PV-10

Proved Developed
Producing - $ - $ -

Proved Developed
Non-Producing 127,261 $105,700 $ 42,500

Proved
Undeveloped 122,960 $386,100 $218,200

Total Proved 250,221 $491,800 $260,700

There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
producer. The reserve data set forth above represents only estimates. Reserve
engineering is a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact way, and the accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment and the existence of
development plans. As a result, estimates of different engineers often vary. For
example, GREKA Energy has substantially increased its proved undeveloped
reserves from initial reserve estimates made at the time of certain
acquisitions. In addition, results of drilling, testing and production
subsequent to the date of an estimate may justify revision of such estimates.
Accordingly, reserve estimates are often different from the quantities of oil
and gas that are ultimately recovered. Further, the estimated future net
revenues from proved reserves and the present value thereof are based upon
certain assumptions, including geologic success, prices, future production
levels and costs, that may not prove correct over time. Predictions about prices
and future production levels are subject to great uncertainty, and the
meaningfulness of such estimates is highly dependent upon the accuracy of the
assumptions upon which they are based. Oil and gas prices have fluctuated widely
in recent years.

Production

The following table sets forth the average sales price, the average
production cost (lifting costs) and net production to GREKA Energy for each of
the last three fiscal years of oil production in the Illinois Basin (Illinois,
Indiana, and Kentucky)and California per unit of production (oil barrels, Bbl):

Illinois
----------------------------------------
1996 1997 1998
---- ---- ----
Average Sales Price
Per Unit:
Oil $20.42 $19.21 $ -

Lifting Costs Per Unit:
Oil $10.94 $6.80 $ -

Net Production to
GREKA Energy:
Oil (Bbls) 1,252 450 -

<PAGE>

California
-----------------------------------------
1996* 1997* 1998
---- ---- ----
Average Sales Price
Per Unit:
Oil - $10.55 $6.33

Lifting Costs Per Unit:
Oil - $5.31 $7.68

Net Production to
GREKA Energy:
Oil (Bbls) - 1,832 12,935

*There was no activity in California prior to 1997.

Acreage

The following table sets forth the gross and net acres of developed and
undeveloped oil and gas leases held by GREKA Energy as of December 31, 1998, and
includes the 150 net acres owned as of year end. Undeveloped acreage includes
leasehold interests which may already have been classified as containing proved
undeveloped reserves.

Developed Acreage(1) Undeveloped Acreage
-------------------- -------------------

Gross Net Gross Net

California 185 150 - -

<PAGE>

Illinois - - - -

Total 185 150 - -

Drilling Activity

The following table sets forth the wells drilled or re-entered and
horizontally re-drilled and completed by GREKA Energy during the last three
fiscal years:

1996 1997 1998
---- ---- ----
Gross Net Gross Net Gross Net
Development:
Oil 3 .375 2 1.67 1 .795
Gas - - - - - -
Non-Productive - - - - 1 .795

Total 3 .375 2 1.67 2 1.59

(1) Developed acreage is acreage assigned to producing wells for the spacing
unit of the producing formation. Developed acreage in certain of GREKA
Energy's properties that include multiple formations with different well
spacing requirements may be considered undeveloped for certain formations,
but have only been included as developed acreage in the presentation above.

<PAGE>

The following table sets forth information relating to the number of oil wells
in which GREKA Energy owned a working interest at December 31, 1998:

Gross Net
----- ---
Proven Developed Producing - -
Proven Developed Non-Producing 3 2.39
Proven Undeveloped - Re-Entries
of Existing Wells - -
Proven Undeveloped - New Wells 1 .795

At December 31, 1998, GREKA Energy had a 100% working interest in all of the
above wells.

Development, Exploration, and Acquisition Expenditures

The following table sets forth certain information regarding the costs
incurred by GREKA Energy in its development, exploration and acquisition
activities.

1996 1997 1998
----- ---- ----
Development Costs $90,000 $132,564 $667,919

Exploration Costs - - -

Acquisition Costs:
a) Unproved Properties - - -
b) Proved Properties - 1,650,000 -
---------- ---------- ----------
Total Expenditures $90,000 $1,782,564 $667,919

Title to Properties

Substantially all of GREKA Energy's property interests are held by
leases from third parties. A title opinion is typically obtained prior to the
commencement of drilling operations on properties. GREKA Energy has obtained
title opinions on substantially all of its producing properties and believes
that it has satisfactory title to such properties in accordance with standards
generally accepted in the oil and gas industry. GREKA Energy's properties are
subject to customary royalty interests, liens for current taxes and other
burdens which GREKA Energy believes do not materially interfere with the use of
or affect the value of such properties. GREKA Energy performs only a minimal
title investigation before acquiring undeveloped properties.

Offices

GREKA Energy leases approximately 1,000 square feet of office space at
630 Fifth Avenue, Suite 1501, New York, New York, for its executive offices on a
one year lease. GREKA Energy's operational and field offices are located in
Santa Maria, California, Beijing, China, Tulsa and Edmond, Oklahoma, and
Calgary, Alberta.

Saba Petroleum Company's Properties as of December 31, 1998

Saba owned interests in approximately 1,229 wells at December 31, 1998.
The majority of these wells are concentrated along the central cost of
California and in the Middle Magdalena Basin of Colombia. These regions, which
primarily produce a low gravity/high viscosity or "heavy" oil, will be the focus
of near-term development drilling activities. At December 31, 1998, Saba also
operated wells and had exploration and development activities in several states
outside of California and, through a majority-owned subsidiary, in western
Canada. Saba's evaluation of international projects resulted in the acquisition
of exploration projects in Indonesia, Great Britain and China.

<PAGE>

United States

California

Approximately 15.8% of Saba's proved reserves at December 31, 1998 (2.8
MMBOE) were located in four onshore fields in California's central coast region.
Daily production from the Central Coast Fields averaged 1,465 BOE for the year
ended December 31, 1998, representing 24.0% of Saba's total production. Saba
operates all of its wells in the Central Coast Fields. Saba also holds interests
in other California areas, which represented 6.3% (1.1 MMBOE) of Saba's proved
reserves at December 31, 1998. Daily production from these other interests
averaged 654 BOE for the year ended December 31, 1998, representing 10.7% of
Saba's total production.

Louisiana

Approximately 20.1% of Saba's proved reserves at December 31, 1998 (3.6
MMBOE) were located in two fields in Louisiana. An interest in one of these
fields was first acquired during 1996, the other in 1997, with additional
interests in both fields acquired in April 1998. Saba's share of daily
production from the Louisiana fields averaged 572 BOE for the year ended
December 31, 1998, representing 9.4% of the Company's total production.

Other States

In addition to its California and Louisiana properties, Saba owns
producing properties in a number of other states, primarily New Mexico and
Texas, which collectively represented 5.1% of Saba's proved reserves at December
31, 1998 (0.9 MMBOE). Daily production from these properties averaged 695 BOE
for the year ended December 31, 1998, representing 11.4% of Saba's total
production. International

Colombia

Approximately 45.4% of Saba's proved reserves at December 31, 1998 (8.1
MMBOE) were located in several fields in Colombia's Middle Magdalena Basin.
Daily production from these fields averaged 2,256 Bopd for the year ended
December 31, 1998, representing 36.9% of Saba's total production. At December
31, 1998, Saba also held a 50% interest in the 118-mile Velasquez-Galan
Pipeline, which connects the fields to a 250,000 Bopd government-owned refinery
at Barrancabermeja. Saba has sold all of those assets, which were owned by
Saba's subsidiary Sabacol, to Omimex as described under "Item 1. Description of
Business Recent Saba Developments - Bankruptcy of Sabacol, Inc. and Contract for
Sale of Sabacol's Assets."

During 1997, Saba and the operator participated in the drilling or
recompletion of thirteen wells in the Teca and South Nare Fields. All of the
wells drilled were productive and the operator is installing steaming equipment.
Saba and the operator also reentered a suspended well acquired from Texaco and
drilled to an area under the Magdalena River and recompleted the well as
productive of approximately 30 Bopd without artificial stimulation. During the
year ended December 31, 1998, Saba and the operator participated in the drilling
and completion of seven wells in the Teca and South Nare Fields. Three
additional wells were recompleted during the year ended December 31, 1998, and a
second well under the Magdalena River was drilled and completed.

<PAGE>

Canada

Approximately 7.3% of Saba's proved reserves at December 31, 1998 (1.3
MMBOE) were located in Canada. Daily production from these properties, which are
owned through an approximately 74%-owned subsidiary of Saba, averaged 464 BOE
for the year ended December 31, 1998, representing 7.6% of Saba's total
production.

Other International Properties

In July 1997, Saba entered into an agreement to become the operator and
a 75% working interest holder of two exploration licenses which cover a 123,000
acre exploration area in southern Great Britain. On March 31, 1998, Saba
assigned a 3.75% carried working interest in the first well to be drilled on
this concession as payment of a finder's fee. By agreement dated April 14, 1998,
Saba sold one half of its net interest in this concession to Omimex at Saba's
cost. A formal assignment has not been conveyed to Omimex and Saba continues to
hold Omimex's interest in the prospect in trust. Saba had incurred costs, net to
its retained 37.5% interest, of approximately $946,000 as of December 31, 1998,
in connection with the concession acquisition and drilling of an exploratory
well on the concession. The well did not encounter hydrocarbons and has been
abandoned. Results from the initial well did not condemn the entire prospect and
data obtained from the test well is being evaluated for further interpretation.
Saba has not yet executed the joint operating agreement for the prospect. While
holding Omimex's interest in trust, Saba may be liable to Omimex if it were to
execute the joint operating agreement that provides for foreclosure upon a
working interest owner due to non-payment.

In August 1999, GREKA Energy announced its execution of a production
sharing contract with the China United Coalbed Methane Corporation Ltd. to
jointly exploit coalbed methane resources in Fengcheng, East China's Jiangxi
Province. The contract block in which GREKA Energy has a 49% working interest
covers a total area of 380,534 acres. The 30-year contract provides that GREKA
Energy as operator will drill at least ten coalbed methane wells over a three
year term. Implementation of the project is scheduled to begin following the
contract's final approval from the Chinese Ministry of Foreign Trade and
Economic Cooperation.

From January 1, 1992 through December 31, 1998, Saba completed 28
property acquisitions with an aggregate purchase price of approximately $46.4
million. These properties, as improved through Saba's development efforts and
including associated drilling activities, represented approximately 17.7 MMBOE
of proved reserves as of December 31, 1998. Saba's all-in-finding costs for
these acquisitions and related activities have averaged $3.61 per BOE.

Exploration and Development Drilling Activities

Saba has identified a number of drilling locations on its properties
located in the United States, primarily in California, Louisiana and New Mexico.
Saba also pursues the acquisition of high potential exploration prospects to
enhance its inventory of drilling opportunities. Beginning in 1997, Saba
initiated exploration activities in Indonesia, Great Britain and California. It
completed the analysis of a 3-D seismic survey covering some 10,500 acres of
land in which it has interests in the area of the Coalinga oil field in Kern
County, California, resulting in defining a number of drillable prospects; has

<PAGE>

entered into an agreement with a subsidiary of Chevron Corp. by which Saba will
analyze Chevron 3-D seismic data covering lands in Kern County, California, and
if warranted, will drill exploratory wells on Chevron fee lands. See "Property -
California Exploration Ventures" and "Exploration and Development Drilling
Activities - Other International Properties."

GREKA Energy's 1999 capital expenditure budget for properties acquired in
the acquisition of Saba is dependent upon the price for which its oil is sold
and upon the ability of GREKA Energy to obtain external financing. Subject to
these variables, GREKA Energy will incur only absolutely essential capital
expenditures during 1999 on the Saba properties. GREKA Energy currently is
budgeting one year at a time and has deferred any long term capital expenditure
program. GREKA Energy has deferred certain capital expenditures in the following
areas:

* Coalinga exploration project in California,

* other California projects, where farmouts are actively being sought for
some properties and where development work has been delayed,

* Indonesia, where spending has been significantly reduced, and

* Louisiana, where a seismic study and other developmental work has been
delayed.

GREKA Energy may elect to make further deferrals of capital
expenditures if oil prices remain at current levels. Capital expenditures beyond
1999 will depend upon 1999 drilling results, oil price levels and the
availability of external financing.

Beginning in June 1997, Saba initiated use of another enhanced
production technique known as SAGD. This technique involves drilling two
horizontal wells in a parallel configuration, one above, and within a short
distance of, the other. After drilling is complete, steam is injected into the
upper wellbore, which creates a steam chamber and heats the oil so that it may
flow by gravity to the lower producing wellbore for extraction. The SAGD process
has been successfully employed by other companies in Canada in thick reservoirs
containing viscous oils, similar to those found in areas of the Central Coast
Fields. Although this technique is initially more costly than employing a single
horizontal well, Saba anticipates that it will result in increased rates of
production and recovery and lower per-unit production costs. Saba has drilled
one pair of SAGD wells on its Gato Ridge Field and is awaiting local permits
before initiating steaming operations, but does not anticipate commencing such
operations until oil prices improve.

California

Saba's drilling operations in California are focused on the Central
Coast Fields, which consist of four onshore fields that collectively comprise
approximately 4,525 gross (4,487 net) developed acres and 1,139 gross (1,138
net) undeveloped acres. Saba intends to capitalize on the potential of these
properties through a five year multiwell drilling program. The Central Coast
Fields consist of the Cat Canyon, Gato Ridge, Santa Maria Valley and Casmalia
fields. Saba also has producing properties in Ventura, Solano, Kern and Orange
Counties, California. Of these properties, Saba regards the Cat Canyon and Gato
Ridge fields, both heavy oil properties, as the most significant and upon which
it has focused its development drilling efforts. Aggressive development
activities during 1997, in contemplation of significantly increased production,
included the installation of surface facilities for handling much more oil than
Saba presently produces from the properties. The recent decline in oil prices
coupled with the drilling results of the 1997 program render it doubtful that
GREKA Energy will realize its initially projected rates of return. In addition
to the producing properties, Saba has several exploratory projects in
California. See "Property-California Exploration Ventures."

<PAGE>

Overall, Saba during 1998 experienced a 14.5% decrease in annual
production from its California properties (from 904 MBOE in 1997 to 773 MBOE in
1998). Development costs incurred by Saba in California during 1998 were $1.5
million. The economic benefits derived from the program were substantially below
Saba's expectations. Notwithstanding the 1998 results, GREKA Energy believes
that the focus on the Central Coast Fields will ultimately be justified. This
belief is based in part on the established synergy between production from the
Central Coast Fields and the asphalt refinery located in Santa Maria, in that
Saba is able to sell its production to the refinery at a price reflecting a
premium to market. Generally, the crude oil produced in the Santa Maria Basin is
of low gravity and makes an excellent asphalt. Recent prices for asphalt exceed
market prices for crude oil and costs of operating the refinery. Saba believes
that as road building and repair increase in California and surrounding western
states, the market for asphalt will expand significantly.

At April 15, 1999, Saba had drilled and completed 13 horizontal wells
in the Sisquoc sands of the Cat Canyon Field. At April 15, 1999, twelve of these
wells were producing at rates from 40 to 140 Bopd; the thirteenth well had
encountered a sand intrusion problem which Saba is attempting to rectify. Saba
also drilled one pair of SAGD wells in the Gato Ridge Field, which is awaiting
local permits and oil price increases before production will be attempted. Two
horizontal wells drilled to test a different zone in this field have encountered
severe sand production and are presently planned to undergo recompletion
operations during 1999.

Louisiana

Saba acquired an 80% working interest in the Potash Field in September
1997 and the remaining 20% working interest in April 1998. Proved reserves of
Saba's interest in the field were approximately 13.7 Bcf and approximately 1.1
MMBbl at December 31, 1998. Saba's share of daily production from the Potash
Field, including the 1998 acquired interest, averaged 82 Bopd and 1.7 MMcfd for
the year ended December 31, 1998. Increases in productivity and possibly
reserves are expected to be achieved through completion of a number of potential
zones presently behind pipe in existing wells. These potential producing zones
range in depth from 1,500 to 15,000 feet. Further technical programs, including
a possible 3-D seismic shoot, are planned to evaluate the exploration potential
of Saba lands associated with this field. Saba owned a 40.5% working interest in
the Manila Village Field and acquired an additional 10.2% working interest in
April 1998. Saba may be subject to certain environmental liabilities with
respect to its interest in the Manila Village Field. Saba's net proved reserves
at December 31, 1998, including the 1998 acquired interest, were approximately
187 MBbl and 73 MMcf. Saba's share of daily production, including the 1998
acquired interest, averaged 201 BOEPD for the year ended December 31, 1998. A
3-D seismic program is scheduled for 1999 or beyond to determine additional
opportunities to further develop this field.

Colombia

At December 31, 1998, Saba owned interests in two Association Areas
(Cocorna and Nare) and one fee property (Velasquez) all of which are located in
the Middle Magdalena Basin, some 130 miles northwest of Bogota, Colombia. The
Association Areas encompass several fields, some of which are partially
developed and some of which await development. At April 15, 1999, the Teca, Nare
and Velasquez fields were under development. The Association Areas, Nare and
Cocorna, were held under Articles of Association between Empresa Petroleos
Colombiana and Saba's predecessor in interest, a subsidiary of Texaco, Inc. Each
Association Area is large enough to encompass more than one commercial area or
field. Saba has sold all of those assets, which were owned by Saba's subsidiary
Sabacol, to Omimex as described under "Item 1. Description of Business - Recent
Saba Developments - Bankruptcy of Sabacol, Inc. and Contract for Sale of
Sabacol's Assets."

<PAGE>

During 1997, Saba and its operator successfully completed or reworked
fourteen wells of the development program, which wells have met or exceeded
initial production expectations. The 200 well program is a refinement of an
approximate 600 well program originally designed by Texaco. The Texaco program
was not implemented due to what Saba believed was Ecopetrol's concern with
refinery capacity and oil prices. In 1997, approval was obtained for the
drilling of 21 development wells in the Teca and Nare Fields, 13 of which were
completed during the year. Also, a well under the Magdalena River was
recompleted during that year. In the Velasquez Field, the operator recompleted a
behind pipe zone in three gross (0.75 net) wells in 1997. Initial per well
production rates ranged from 142 Bopd to 223 Bopd. Studies through April 15,
1999 indicated up to 23 wells with behind pipe zones suitable for recompletion.
During the year ended December 31, 1998, seven wells were drilled and completed
in the Teca and South Nare Fields, three wells were recompleted in the Velasquez
Field and one well was drilled and completed under the Magdalena River.

Canada

Saba's Canadian properties, which are owned through Beaver Lake
(Alberta Stock Exchange), represented approximately 7.3% of Saba's proved
reserves (BOE) at December 31, 1998. The Canadian properties produced an average
of 464 BOEPD for the year ended December 31, 1998, from 120 wells covering
47,688 gross (11,363.0 net) developed acres, most of which are located in the
province of Alberta. These properties had proved reserves of 1.3 MMBOE at
December 31, 1998. The information presented has not been adjusted for the
approximate 26% minority interest in Beaver Lake held by others at December 31,
1998. See "Business -- Exploration and Development Drilling Activities - --
Other United States and Canadian Properties."

In July 1999, GREKA Energy acquired the remaining common stock of
Beaver Lake Resources Corporation ("BLRC") that it did not hold effective July
31, 1999 whereby GREKA Energy will issue a total of approximately 68,000 shares
resulting in each BLRC shareholder receiving 1 share of GREKA Energy's common
stock in exchange for 74.4 shares of BLRC's common stock. Beaver Lake Resources
Corporation is now a wholly-owned subsidiary of GREKA Energy.

Other International Properties

In September 1997, Saba and Pertamina, the Indonesian state-owned oil
company, signed a production sharing contract covering 1.7 million unexplored
acres on the Island of Java near a number of producing oil and gas fields. Saba
is required to spend approximately $17.0 million over a multi year period on
this project, in addition to the approximate $1.8 million expended as of
December 31, 1998 on bonus payments, data acquisition and geophysical
investigation. Saba expected and GREKA Energy expects to identify drilling
locations based on geologic trends identified through its review of existing
seismic data, satellite images and the results of a potential 3-D seismic
program to be performed in 1998 and 1999. GREKA Energy has held discussions with
several potential joint venture partners with a view to negotiate a
participation agreement. In view of this, GREKA Energy has slowed its pace of
activity; however, the recent political turmoil in Indonesia may affect the
timing and terms of such agreement.

<PAGE>

In July 1997, Saba entered into an agreement to participate in two
exploration licenses which cover a 123,000 acre exploration area in southern
Great Britain in which Saba had a right to acquire a 75% working interest earned
upon drilling and payment of its share of costs. On March 31, 1998, Saba
assigned a 3.75% carried working interest in the first well to be drilled on
this concession as payment of a finder's fee. By agreement dated April 14, 1998,
Saba sold one half of its net interest in this concession to Omimex at Saba's
cost. A formal assignment has not been conveyed to Omimex and the Company
continues to hold Omimex's interest in the prospect in trust. Saba had incurred
costs, net to its retained 37.5% interest, of approximately $946,000 at December
31, 1998 in connection with the concession acquisition and drilling of an
exploratory well on the concession. The well did not encounter hydrocarbons and
has been abandoned. Results from the initial well did not condemn the entire
prospect and data obtained from the test well is being evaluated for further
interpretation. Saba has not yet executed the joint operating agreement for the
prospect. While holding Omimex's interest in trust, Saba may be liable to Omimex
if it were to execute the joint operating agreement that provides for
foreclosure upon a working interest owner due to non-payment.

Other United States Properties

Other than its California and Louisiana properties, Saba had interests
in approximately 200 oil and gas wells at December 31, 1998, located principally
in Texas, Michigan, New Mexico and Oklahoma, with other interests located in
Utah and Wyoming. Saba seeks to acquire domestic and international producing
properties where it can significantly increase reserves through development or
exploitation activities and control costs by serving as operator. Saba believes
that its substantial experience and established relationships in the oil and gas
industry enable it to identify, evaluate and acquire high potential properties
on favorable terms. As the market for acquisitions has become more competitive
in recent years, Saba has taken the initiative in creating acquisition
opportunities, particularly with respect to adjacent properties, by directly
soliciting fee owners, as well as working and royalty interest holders, who have
not placed their properties on the market. Saba also plans to expand its
existing reserve base by acquiring or participating in high potential
exploration prospects in known productive regions. Saba believes these
activities complement its traditional development and exploitation activities.
In pursuing these exploration opportunities, Saba may use advanced technologies,
including 3-D seismic and satellite imaging. In addition, Saba may seek to limit
its direct financial exposure in exploration projects by entering into strategic
partnerships.

Oil and Gas Properties

At December 31, 1998, approximately 22% of Saba's proved reserves (BOE)
were in California, primarily in the Central Coast Fields and approximately 45%
were attributable to Saba's Colombian properties.

<PAGE>

The following table summarizes Saba's estimated proved oil and gas
reserves by geographic area as of December 31, 1998. The following table
includes both proved developed (producing and non-producing) and proved
undeveloped reserves. Approximately 42% of the total reserves reflected in the
following table are proved undeveloped. There can be no assurance that the
timing of drilling, reworking and other operations, volumes, prices and costs
employed by the independent petroleum engineers will prove accurate. Since
December 31, 1998, oil and gas prices have generally increased. At such date,
the price of WTI crude oil as quoted on the New York Mercantile Exchange was
$12.80 per Bbl and the comparable price at March 30, 1999 was $16.80. Quotations
for the comparable periods for natural gas were $1.95 per Mcf and $1.98 per Mcf,
respectively. The proved developed and proved undeveloped oil and gas reserve
figures are estimates based on reserve reports prepared by Saba's independent
petroleum engineers. The estimation of reserves requires substantial judgment on
the part of the petroleum engineers, resulting in imprecise determinations,
particularly with respect to new discoveries. Estimates of reserves and of
future net revenues prepared by different petroleum engineers may vary
substantially, depending, in part, on the assumptions made, and may be subject
to material adjustment. Estimates of proved undeveloped reserves comprise a
substantial portion of Saba's reserves and, by definition, had not been
developed at the time of the engineering estimate. The accuracy of any reserve
estimate depends on the quality of available data as well as engineering and
geological interpretation and judgment. Results of drilling, testing and
production or price changes subsequent to the date of the estimate may result in
changes to such estimates. The estimates of future net revenues in this report
reflect oil and gas prices and production costs as of the date of estimation,
without escalation, except where changes in prices were fixed under existing
contracts. There can be no assurance that such prices will be realized or that
the estimated production volumes will be produced during the periods specified
in such reports. The estimated reserves and future net revenues may be subject
to material downward or upward revision based upon production history, results
of future development, prevailing oil and gas prices and other factors. A
material decrease in estimated reserves or future net revenues could have a
material adverse effect on Saba and its operations.

30
<PAGE>

December 31, 1998

Proved Reserves, net PV-10 Value
Gross Oil Gas
Property Wells (1) (MBbls) (MMcf) MBOE Dollar Value %
-------- --------- ------- ------ ---- ------------ -------
(In thousands)
California:
Cat Canyon 1 2,339 356 2,398 3,712 16.0
REDU 64 158 - 158 67 0.3
Santa Maria 31 252 351 310 315 1.4
Belridge 37 349 186 380 872 3.8
Other 123 629 250 671 705 3.0

Total
California 326 3,727 1,144 3,918 5,671 24.5

Louisiana
Potash Field 42 1,082 13,678 3,362 6,148 26.6
Manila Village 15 187 73 199 562 2.4

Total
Louisiana 57 1,269 13,751 3,561 6,710 29.0

Other United States
Texas 58 212 597 311 805 3.5
New Mexico 27 327 946 485 1,769 7.6
Other 115 29 480 109 255 1.1

Total Other
United States 200 568 2,023 905 2,829 12.2

Total United
States 583 5,564 16,918 8,384 15,211 65.7

Colombia 526 8,060 - 8,060 3,673 16.0
Canada 120 281 6,080 1,294 4,241 18.3

Total
International 646 8,341 6,080 9,354 7,914 34.3
Total 1,229 13,905 22,998 17,738 23,125 100.0
===== ====== ====== ====== ======= =====

- ---------------
(1) Includes locations attributed to proved undeveloped reserves and wells in
which Saba holds royalty interests.

<PAGE>

California

Producing Properties

Saba operates most of its wells in the Central Coast Fields and
maintains an average working interest in these wells of 98.8% and an average net
revenue interest of 89.4%. These fields produced 1,465 net BOEPD for the year
ended December 31, 1998 and had proved reserves at December 31, 1998 of 2.8
MMBOE.

Cat Canyon Field. The Cat Canyon Field is Saba's principal California
producing property, representing approximately 13.5% of Saba's proved reserves
at December 31, 1998. This field, which covers approximately 1,775 acres of land
is located in northern Santa Barbara County and was acquired by Saba in 1993. At
the time of acquisition, there were 89 producing wells and 74 suspended wells,
all of which were vertically drilled to either the Sisquoc or Monterey
Formations (lying between approximately 2,400 feet and 3,400 feet and 4,000 feet
and 6,600 feet, respectively). At the time of acquisition, average production
was 425 Bopd and for the year ended December 31, 1998, average production was
approximately 966 Bopd. Daily production varies depending upon various factors,
including normal decline in production levels, the production of newly drilled
wells and whether remedial work is being done on wells in the field. The field
produces a heavy grade of viscous oil, which is in demand at Saba's Santa Maria
Refinery. The property is considered (as are many heavy oil properties) a high
production cost field and reductions in prices paid for crude generally affect
such properties more dramatically than higher gravity lower production cost
fields.

Saba owns a 100% working interest (99.7% net revenue interest) in
approximately 45 producing wells and a number of non-producing wells located in
this field which consists of two major producing horizons, the Sisquoc and the
Monterey. The Sisquoc formation, which consists of a number of separate zones,
is divided by two major north-south trending faults into three separate and
distinct areas. The area between the faults contains the bulk of the productive
reservoir volume and has the highest cumulative production. A portion of that
area was the subject of a waterflood instituted in 1962 by a previous operator.
The waterflood was not economically successful. Saba believes that the two
faults are sealing faults, thus preventing communication with the portions of
the field lying outside of the fault block, which areas were not the subject of
waterflood operations.

In 1995, Saba drilled its first horizontal well into the Monterey
formation. The well developed mechanical problems and operations were suspended.
Saba has deferred attempts to correct the problem until such time as oil prices
increase sufficiently to justify further efforts. In 1996, Saba initiated its
present horizontal well drilling program in the Cat Canyon Field by drilling
five horizontal wells into the Sisquoc formation S1b sand (which is one of the
multiple separate sand bodies comprising the Sisquoc formation). Of the five
wells, three wells were drilled in the central fault block, on which a
waterflood operation was previously conducted, and one in each of the eastern
and western portions of the field. The well in the western portion of the field
initially produced at rates approaching 400 Bopd and, as expected, has declined
to a present rate of approximately 130 Bopd. Wells drilled into the Sisquoc
formation may be expected to produce varying amounts of formation water as part
of the production process. The well drilled in the eastern portion of the field
has encountered mechanical problems and plans are to rework the well during
1998. The three wells drilled in the central portion, or waterflood area of the
field, developed initial production rates of approximately 150 Bopd per well and
have declined to approximately 40 Bopd per well. In 1997, Saba continued its
horizontal drilling program in the Cat Canyon Field by drilling eight additional
wells into the Sisquoc S1b sand. Of the eight wells, five were drilled into the
waterflood area and the remaining three were drilled into other areas. Year end
average production rates for the wells in the waterflood area were 82 Bopd and
1,100 barrels of water per day per well. Production rates for the other wells
were 88 Bopd and 13 barrels of water per day per well. The wells drilled into
the central waterflood area, as expected, are producing oil with high volumes of
residual water from the prior waterflood operations. Saba believes that by using
high volume pumps and lifting large volumes of fluid, the ratio of oil to total
fluids produced will gradually increase. Production declines have been in line
with Saba's expectations of roughly a 40-50% decline in production during the
first 12 months of the wells' operation, followed by a more moderate 10% annual
decline in production. Results from the horizontal well drilling program have
not met Saba's expectations and continuing study is being given to the field to
determine how to maximize production. In addition, Saba has implemented measures
designed to ensure that operations are conducted with greater efficiency.

<PAGE>

In addition to the Cat Canyon Field, Saba has interests in a number of
fields in California, none of which had proved reserves equal to five percent or
more of Saba's proved reserves at December 31, 1998. Among such fields are the
following:

Richfield East Dome Unit (REDU). The REDU unit, which represented
approximately 1.3% of Saba's proved reserves at December 31, 1998, is located in
Orange County, California and covers approximately 420 acres. Saba is the
operator of this unit and owns a working interest of 50.6% and a net revenue
interest of 40.8%. The unit is under waterflood in the Kraemer and Chapman
formations and contains approximately 68 producing wells, 39 shut-in wells and
54 water injection wells. Saba conducted remedial operations on this property
during 1997 which resulted in increasing production by approximately 100 Bopd.
Saba owns fee interests in lands in this unit which it believes will be
developable for real estate purposes as oil operations are curtailed.

Other. Saba also owns other producing properties located in Santa
Barbara, Ventura, Solano, Kern and Orange counties, California, which in the
aggregate represented approximately 7.3% of Saba's proved reserves at December
31, 1998.

California Exploration Ventures

Coalinga Exploratory Prospect, Kern County, California. Saba has
acquired leases covering approximately 3,600 acres of land and contractual
rights covering an additional approximate 7,000 acres of land in the region of
the prolific Coalinga oil field in the San Joaquin Valley of California. Saba
has participated in a 16 square mile 3-D seismic survey covering this area and
has partially interpreted the survey. Nineteen anomalies have been identified in
the prospect area, covering five potentially productive zones, ranging in depth
from 6,500 to 12,000 feet. Under the agreement, Saba would bear 100% of the cost
of the wells, which is estimated at approximately $300,000 in the aggregate as a
dry hole and $450,000 as a completed well. Saba would have an 85% working (68%
net revenue) interest in the wells.

Northern California Exploratory Project. In late 1997, Saba entered
into a joint venture with a large independent company and a company in which
Rodney C. Hill, a former director, has a financial interest, to acquire a
multi-thousand acre block of oil and gas leases and drill an exploratory well
for gas on such block. Saba has a 30% initial interest in the exploratory well
to earn a 20% working interest in the well and in the block and any additional
wells that may be drilled by the venture thereon. Saba regards the project as a
high risk venture with possible commensurate returns. The initial objective was
the sands of the Cretaceous Age at a depth of approximately 8,500 feet. Lease
acquisition costs are estimated at approximately $300,000 to the venture and the
cost of the well is estimated at approximately $1,250,000. An exploratory well
was drilled on this prospect during March and April 1998 and has been abandoned.
A technical review of the land block is being performed.

Louisiana

Manila Village is located in Jefferson Parish, Louisiana. Saba operates
this property and at year end 1998, owned a working interest of 50.7% (34.5% net
revenue interest). The property represented approximately 1.1% of Saba's proved
reserves at December 31, 1998. The property covers approximately 450 gross acres
of land covered by shallow waters, and is located approximately forty miles
south of New Orleans. There are six producing wells that produced an average of
approximately 201 BOEPD for the year ended December 31, 1998. Saba is
participating in a 3-D seismic program which includes the field and expects that
the results of the survey will assist Saba in its evaluation of additional
drilling opportunities in the field.

<PAGE>

Potash Field, which is located in Plaquemines Parish, Louisiana, was
acquired by Saba in September 1997. Saba operates all of the wells in the
property that represented approximately 19.0% of Saba's proved reserves at
December 31, 1998. The property is a salt dome feature originally discovered by
Humble Oil and Refining Company and covers approximately 3,600 acres. The
property is located in a shallow marine environment southeast of New Orleans. At
year end 1998, Saba owned a 100% working interest and a 84.5% net revenue
interest in this property, on which are located ten active wells and a number of
shut-in or suspended wells. Average production from the property for the year
ended December 31, 1998, was 371 BOEPD. Saba believes that remedial work on
several of the wells will result in increased production levels. The salt dome
feature in the field has not been fully explored. Saba plans on conducting a 3-D
seismic survey to delineate the field. Production in this field is from
multiplay zones, the deepest of which is 15,000 feet.

The Louisiana properties in which Saba has producing oil and gas fields
were damaged by the 1998 Hurricane Georges. Although portions of the properties
were minimally damaged, others were considerably damaged. Initial assessments
did not indicate environmental problems; however, tanks, piping, living quarters
and other equipment have been heavily damaged, causing delays in resuming
operations. Saba is in the process of processing an insurance claim for that
damage.

Other United States Properties

In addition to its California and Louisiana properties, Saba owns
producing properties in a number of states, primarily New Mexico, Michigan,
Texas and Oklahoma, which collectively represented approximately 5.1% of Saba's
proved reserves at December 31, 1998. Production from the properties
approximated 695 BOEPD for the year ended December 31, 1998. (see "Saba - Recent
Developments - Sale of Certain Assets") The principal producing property is:

Southwest Tatum Field, which is located in Lea County, New Mexico was
acquired by Saba as an exploratory project in late 1996. Saba holds leases
covering approximately 2,000 gross acres of land, in which Saba has a working
interest of 50% (38.75% net revenue interest). During the last part of 1996,
Saba, as operator, commenced the drilling of a 14,000 foot exploratory Devonian
test well. In addition to the deepest zone, the Devonian (which has been
abandoned after having produced in excess of 20,000 barrels of high gravity
oil), the well has three other potential oil producing zones. Saba has
recompleted the well in the shallower Cisco zone. A second reentry well to test
the shallower zones was completed in September 1997. A gas sales line was
completed in February 1998, allowing for gas sales from the two wells. Two
additional wells were drilled on this property in 1998 at an approximate cost of
$350,000 each to Saba's interest. One well was completed in September 1998 in
the Cisco zone, and the other was drilled in August 1998 and is being tested.
The property produced approximately 132 BOEPD for the year ended December 31,
1998.

<PAGE>

Colombian Properties

General

At December 31, 1998, Saba's Colombian operations were conducted on two
Association Areas and one mineral fee property. These properties are located in
the Middle Magdalena Basin of Colombia, some 130 miles northwest of Bogota. Saba
and Omimex acquired their interests in the Middle Magdalena Basin properties
from Texaco in 1994 and 1995 transactions; each had a 25% working (20% net
revenue) interest in Nare and Cocorna Association properties at December 31,
1998, while Ecopetrol, the Colombian state oil company owned the remaining 50%
working interest. The mineral fee property, Velasquez, was owned 75% by Omimex
and 25% by Saba at December 31, 1998. The three areas cover 52,894 gross acres
of land. Saba has sold all of those assets, which were owned by Saba's
subsidiary Sabacol, to Omimex as described under "Item 1. Description of
Business - Recent Saba Developments - Bankruptcy of Sabacol, Inc. and Contract
for Sale of Sabacol's Assets."

The Nare Association is the northernmost area in which Saba had an interest
and covers approximately 37,164 gross (approximately 9,300 net) acres of land.
The exploitation and development of the Teca and Nare Fields, and the adjacent
Nare North, Chicala and Morichi Fields are governed by the association contract
originally entered into between Ecopetrol and Texaco in 1980. Under these
contracts, the cost of exploratory wells was borne solely by Saba and its
partner, who were entitled to all revenues from such wells. Once an area within
an Association was declared to be a commercial area by Ecopetrol, Saba and its
partner would have each received 20% of the crude oil produced at these fields,
while Ecopetrol would have received 40% of production and the Colombian
government would have received the remaining 20% of production in the form of
royalties. A commercial area is roughly equivalent to a field. Each of Saba and
its partner bore 25% of the production costs of commercial areas and Ecopetrol
was responsible for the remaining 50%. The exploitation rights under these
contracts expire in September 2008 and were not renewable by Saba under their
current terms. Saba understands that legislation is being considered by the
Colombian government which would permit such extensions to be obtained. At April
15, 1999, Saba intended to seek an extension of these contracts. Omimex
anticipated that the costs associated with preparing the necessary documentation
for applying to extend the terms of the exploitation rights on the North Nare
Field through 2030 would cost approximately $1 million. On October 2, 1998, Saba
agreed with Omimex that it will pay up to $500,000 to prepare such documentation
if the contract for the North Nare Field is extended. That liability was
cancelled under the agreement between Sabacol and Omimex that closed on June 30,
1999 as described in "Item 1. Description of Business - Recent Saba Developments
- - Bankruptcy of Sabacol, Inc. and Contract for Sale of Sabacol's Assets."

Generally, as in the case of Saba's interests under the Nare and
Cocorna Associations held at December 31, 1998, the Articles require that the
contracting oil company perform various work obligations (including the drilling
of any exploratory wells) at its cost on the lands covered by the Articles, and
allow production of hydrocarbons for a stated period of years. Upon discovery of
a fieldcapable of commercial production and upon commencement of production from
that field, Ecopetrol reimburses the contracting party out of Ecopetrol's share
of production for 50% of the allowable costs. Thereafter, costs of operations
and working interest revenues are shared 50% by Ecopetrol and 50% by the
contracting oil company, which in that case was Omimex and Saba, as successors
to Texaco, the original contracting party. The working interest is subject to a
royalty of 20% which is paid to Ecopetrol on behalf of the Colombian government.
The Cocorna Concession area, located within the Cocorna Association, which was
acquired by Saba from Texaco, reverted to Ecopetrol because of the expiration of
the term of the Articles governing that field.

<PAGE>

Description of the Properties

As of April 15, 1999:

* three fields within the Cocorna Association had been declared commercial by
Ecopetrol:

* Teca (approximately 1938 acres),

* Toche (approximately 150 acres), and

* South Cocorna (approximately 700 acres), and

* four fields within the Nare Association had been declared commercial:

* South Nare (approximately 660 acres),

* North Nare (approximately 1,700 acres),

* Chicala (approximately 830 acres), and

* Moriche (approximately 1085 acres).

The Teca and South Nare Fields that Saba previously owned, which
represented approximately 28.4% of Saba's proved reserves at December 31, 1998,
produced an average of 1.87 MBopd for the year ended December 31, 1998 and 1.75
MBOPD for the year ended December 31, 1997, from 329 wells covering 2,598 gross
(649 net)developed acres and is the primary producing area. Saba owned a 25%
mineralfee interest in the Velasquez Field which covered approximately 3,800
gross(950 net) acres of land, and produced an average of 505 Bopd for the year
ended December 31, 1997 and 487 Bopd for the year ended December 31, 1998.

Saba's Colombian properties in the aggregate represented 8.1 MMBOE at
December 31, 1998 or approximately 45.4% of Saba's total proved reserves and
approximately 16% of Saba's present value (discounted at 10%) of future net
revenues at that date. The following table provides information concerning
Saba's interest in thecommercial areas and fee minerals in Colombia at December
31, 1998.

Average Daily Barrels of
Proved Reserves Number oil produced for the
at Dec. 31, 1998 of year ended
Field Name (MMBbls) Wells December 31, 1998
- - ------------------- ---------------- ------ -----------------------

Velasquez 1.7 196 487

North Nare 3.3 3 0

Magdalena 0.8 2 21

Teca & South Nare 2.3 325 1,748
============== ======= ===============
Total 8.1 526 2,256
============== ======= ===============

Production from all of the fields came from relatively shallow
reservoirs lying at approximate depths of from 1,200 to 3,000 feet. All of the
production (save that produced from the Velasquez field) was of a relatively
heavy grade of crude oil, generally in the area of 10(Degree) to 13(Degree)
gravity API. Wells generally produced small amounts of formation water in
conjunction with oil. Because of the viscosity of the oil, wells were initially
produced without artificial stimulation and thereafter stimulated by cyclic
steam injection. Wells cost approximately $250,000 to $300,000 to the total
working interest, depending upon depth.

36
<PAGE>

During 1997, Saba and the operator participated in the drilling or
recompletion of thirteen wells in the Teca and South Nare Fields. All of the
wells drilled were productive and the operator is in the process of installing
steaming equipment. During 1998, Saba and the operator participated in the
drilling and completion of seven wells in the Teca and South Nare Fields.

In 1997, Saba and Omimex reentered a suspended Texaco drilled well to
an area under the Magdalena River and recompleted the well as productive of
approximately 30 Bopd without artificial stimulation. A second well was drilled
and completed under the Magdalena River in 1998. In the Velasquez field, Saba
and Omimex recompleted three wells in a behind-pipe zone in 1997. Initial per
well production rates rangefrom 142 Bopd to 223 Bopd. Studies through April 15,
1999 indicated up to 23 additional wells with behind pipe reserves suitable for
recompletion.

During 1997, the operator in conjunction with Saba formulated a plan
for the drilling of approximately 200 development wells in the Nare North,
Chicala and Moriche fields.

Crude Oil Sales and Pipeline Ownership

All of Saba's crude oil produced at Saba's properties in Colombia
during 1998 was sold exclusively to Ecopetrol at negotiated prices. See
"Business -Marketing of Production." In conjunction with its purchase of
interests in the Nare Association, Saba also purchased a 50% interest in the
118-mile Velasquez-Galan Pipeline, which connects the fields to the 250,000 Bopd
Colombian government-owned refinery at Barrancabermeja. See "Exploration and
Development Drilling Activities - Colombia." The pipeline transported oil from
Saba's fields, together with a lighter crude oil supplied by Ecopetrol which
acted as a diluent to Saba's heavier crude,and crude oil from other adjacent
fields. The pipeline generated revenues through collection of tariffs for the
use of the pipeline. Throughput on this pipeline in September 1998 averaged
28,900 Bopd of which Saba's share was approximately 2,100 Bopd. In addition to
the operator and Saba, three other companies transported their crude oil through
the pipeline at tariff rates established by Colombian authorities.

Saba has sold its interest in the Valasquez-Galan Pipeline, which was
owned by Saba's subsidiary Sabacol, to Omimex as described under "Item 1.
Description of Business - Recent Saba Developments - Bankruptcy of Sabacol, Inc.
and Contract for Sale of Sabacol's Assets."

Canadian Properties

Saba's Canadian properties, which are owned through Beaver Lake,
represented approximately 7.3% of Saba's proved reserves at December 31, 1998.
The Canadian properties produced an average of 464 BOEPD for the year ended
December 31, 1998, from wells covering 47,688 gross (11,363.0 net) developed
acres, most of which are located in the province of Alberta. These wells had
proved reserves of 1.3 MMBOE at December 31, 1998. The information presented has
not been adjusted for the approximate 26% minority interest in Beaver Lake held
by others at December 31, 1998.

<PAGE>

Other International Properties

Saba has oil and gas projects in Indonesia, China and Great Britain as
described in "Exploration and Development Drilling Activities."

Oil and Gas Reserves

Saba's proved reserves and net the estimated present value of future
revenues from proved developed and undeveloped oil and gas properties in this
document have been estimated by the following independent petroleum engineers.
In 1996, 1997 and 1998, Netherland, Sewell & Associates, Inc. prepared reports
on Saba's reserves in the United States and Colombia and Sproule Associates
Limited prepared a report on Saba's Canadian reserves. The estimates of these
independent petroleum engineers were based upon review of production histories
and other geological, economic, ownership and engineering data provided by Saba.
In accordance with the SEC's guidelines, Saba's estimates of future net revenues
from Saba's proved reserves and the present value thereof are made using oil and
gas sales prices in effect as of the dates of such estimates and are held
constant throughout the life of the properties, except where such guidelines
permit alternate treatment, including, in the case of gas contracts, the use of
fixed and determinable contractual price escalation. Future net revenues at
December 31, 1998, reflect weighted average prices of $8.29 per BOE compared to
$13.13 per BOE and $17.05 per BOE as of December 31, 1997 and 1996,
respectively. There have been no reserve estimates filed with any other United
States federal authority or agency, except that Saba participates in a
Department of Energy annual survey, which includes furnishing reserve estimates
of certain of Saba's properties. The estimates furnished are identical to those
included herein with respect to the properties covered by the survey.

The following tables present total estimated proved developed
producing, proved developed non-producing and proved undeveloped reserve volumes
as of December 31, 1996, 1997 and 1998, and the estimated present value of
future net revenues ("PV 10") (based on current prices and costs at the
respective years end, using a discount factor of 10 percent per annum). As used
herein, the term "proved undeveloped reserves" are those which can be expected
to be recovered from new wells on undrilled acreage, or from existing wells
where a relatively major expenditure is required for recompletion. Reserves on
undrilled acreage shall be limited to those drilling units offsetting productive
units that are reasonably certain of production when drilled. Proved reserves
for other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved undeveloped
reserves be attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the area and in the
same reservoir. There can be no assurance that these estimates are accurate
predictions of reserves or of future net revenues from oil and gas reserves or
their present value. As indicated elsewhere, the prices received for oil and gas
have increased since the preparation of the 1998 year end engineering estimates.

<PAGE>

Estimated Proved Oil and Gas Reserves

At December 31,
---------------------------------
1996 1997 1998
------ ------ ------

Net oil reserves (MBbl)
Proved developed producing........ 12,029 13,977 6,661
Proved developed non-producing.... 1,367 2,639 1,775
Proved undeveloped................ 13,283 7,309 5,469
------ ------ ------
Total proved oil reserves (MBbl).. 26,679 23,925 13,905
====== ====== ======
Net natural gas reserves (MMcf)
Proved developed producing......... 12,659 11,995 5,252
Proved developed non-producing..... 1,516 5,407 5,865
Proved undeveloped................. 9,490 13,894 11,880
------ ------ ------
Total proved natural gas
reserves (MMcf) ................ 23,665 31,296 22,997
====== ====== ======

Total proved reserves (MBOE).......... 30,623 29,141 17,738

Estimates of proved reserves may vary from year to year reflecting
changes in the price of oil and gas and results of drilling activities during
the intervening period. Reserves previously classified as proved undeveloped may
be completely removed from the proved reserves classification in a subsequent
year as a consequence of negative results from additional drilling or product
price declines which make such undeveloped reserves non-economic to develop.
Conversely, successful development and/or increases in product prices may result
in additions to proved undeveloped reserves.

Estimated Present Value of
Future Net Revenue

At December 31,
-------------------------------------
1996 1997 1998
---- ---- ----
PV-10 Value (In thousands)
Proved developed producing.......... $ 84,916 $ 62,215 $ 9,406
Proved developed non-producing...... 9,227 16,097 7,369
Proved undeveloped.................. 61,796 40,317 6,376
-------- -------- --------

Total.......................... $155,939 $118,629 $23,125
======== ======== ========

<PAGE>

As used herein, the terms "proved oil and gas reserves," "proved developed oil
and gas reserves," and "proved undeveloped reserves" have the meanings defined
by the SEC as set forth in the Table of Contents to this document. Reservoir
engineering is a subjective process of estimating the sizes of underground
accumulations of oil and gas that cannot be measured in an exact way. The
accuracy of any reserve estimate is a function of the quality of available data
and of engineering and geological interpretation and judgment. Reserve reports
of other engineers might differ from the reports contained herein. Results of
drilling, testing and production subsequent to the date of the estimate may
justify revision of such estimate. Future prices received for the sale of oil
and gas may be different from those used in preparing these reports. The amounts
and timing of future operating and development costs may also differ from those
used. Accordingly, reserve estimates are often different from the quantities of
oil and gas that are ultimately recovered.

Colombia

Oil produced from Saba's previously owned Middle Magdalena Basin
Fields, after being sold to Ecopetrol, was processed in a 250,000 Bopd
government owned refinery in Barrancabermeja, Colombia. The refinery was
connected to Saba's Colombian fields through the 118-mile Velasquez-Galan
Pipeline which was owned by Saba and its partner. At April 15, 1999, the
pipeline was operating at approximately 12,000 Bopd (together with 18,000 Bbls
of diluent per day) and had the capacity to carry approximately 20,000 Bopd
(together with 30,000 Bbls of diluent per day).

The formula for determining the price paid for oil produced at the
Teca-Nare Fields was based upon the average of two price baskets of fuel: (A) a
crude fuel oil basket (1% sulphur United States Gulf Coast and Ecopetrol fuel
oil for exportation) and (B) an international crude basket (Maya, Mandji and
Isthmus) adjusted for gravity API and sulphur content. The average of Baskets A
and B was then discounted based on the price of West Texas Intermediate ("WTI")
crude oil, an industry posted price generally indicative of prices for sweeter,
lighter crude oil. If WTI was less than $16.00 per Bbl, the average of Baskets A
and B was discounted by $1.65 per Bbl; if WTI was between $16.00 and $20.00 per
Bbl, the average of Baskets A and B was discounted by $2.05 per Bbl; and if WTI
was greater than $20.00 per Bbl, the average of Baskets A and B was discounted
by $2.45 per Bbl. Ecopetrol was required to pay for oil produced at the
Teca-Nare Field in the following denominations: 75% in United States dollars
paid in the United States and 25% in Colombian pesos paid in Colombia.

For production from its Velasquez Field, Saba received a contracted
price of between $6.00 and $7.00 per Bbl for basic production of up to 34 MBbl
per month. For incremental production above such amount, Saba received a price
equal to the average of (a) the prior quarter average of the prices of Baskets A
and B and (b) the average international price of crude oil from the Velasquez
and Tisquirama Fields in Colombia, which average was then discounted by
approximately 47%.

The average sales price of Saba's Colombia production was $8.05 per Bbl
for the year ended December 31, 1998, and $12.04 per Bbl in 1997, representing
approximately 67.6% and 64.6%, respectively, of the average posted price per Bbl
for WTI crude oil during those periods.

The following table summarizes sales volume, sales price and production
cost information for Saba's net oil and gas production for each of the years in
the three-year period ended December 31, 1998.

<PAGE>

Year Ended December 31,
--------------------------------
1996 1997 1998
------ ------ ------

Production Data:
Oil (MBbls) 1,968 2,107 1,855
Gas (MMcf) 1,651 2,408 2,243
Total (MBOE) 2,243 2,508 2,229

Average Sales
Price Data
(Per Unit):
Oil (Bbls) $ 14.43 $ 13.73 $ 8.58
Gas (Mcf) $ 1.88 $ 2.09 $ 1.69
BOE $ 14.05 $ 13.54 $ 8.84

Selected Data
per BOE:
Production costs (1) $ 6.51 $ 6.62 $ 6.11
General and
administrative $ 1.72 $ 1.93 $ 2.69
Depletion,
depreciation and
amortization $ 2.43 $ 2.84 $ 3.07

- ---------------------
(1) Production costs include production taxes.

Drilling Activity

The following tables sets forth certain information for each of the
years in the three-year period ended December 31, 1998, relating to Saba's
participation in the drilling of exploratory and development wells in:

United States

Year Ended December 31,
-------------------------------------------------
1996 1997 1998
--------------- -------------- ---------------
Gross(1) Net(2) Gross(1) Net(2) Gross(1) Net(2)
-------- ------ -------- ------ -------- ------

Exploratory Wells
Oil - - 2 - - -
Gas 3 1.35 - - - -
Dry (3) 3 1.28 - - 1 .20
Development Wells
Oil 10 6.59 10 10.00 2 1.00
Gas 3 .64 - - - -
Dry (3) 1 .35 1 1.00 - -
Total Wells
Oil 10 6.59 12 11.00 2 1.00
Gas 6 1.99 - - - -
Dry (3) 4 1.63 1 1.00 1 .20

<PAGE>

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

(1) A gross well is a well in which a working interest is owned. The number of
gross wells is the total number of wells in which a working interest is
owned.

(2) A net well is deemed to exist when the sum of fractional ownership working
interest in gross wells equals one. The number of net wells is the sum of
fractional working interests owned in gross wells expressed as whole
numbers and fractions thereof.

(3) A dry hole is an exploratory or development well that is not a producing
well.

<PAGE>

Colombia and Great Britain

Exploratory Wells
Oil - - - - - -
Gas - - - - - -
Dry (3) - - - - 1 .38
Development Wells
Oil - - 13 3.25 8 2.25
Gas - - - - - -
Dry (3) - - - - - -
Total Wells
Oil - - 13 3.25 8 2.25
Gas - - - - - -
Dry (3) - - - - 1 .38

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

(1) A gross well is a well in which a working interest is owned. The number of
gross wells is the total number of wells in which a working interest is
owned.

(3) A dry hole is an exploratory or development well that is not a producing
well.

Canada

Exploratory Wells
Oil - - - - - -
Gas - - - - - -
Dry (3) 1 .01 1 1.00 - -
Development Wells
Oil - - - - - -
Gas - - - - - -
Dry (3) - - - - - -
Total Wells
Oil - - - - - -
Gas 1 .01 - - - -
Dry (3) - - 1 1.00 - -

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

<PAGE>

(1) A gross well is a well in which a working interest is owned. The number of
gross wells is the total number of wells in which a working interest is
owned.

(3) A dry hole is an exploratory or development well that is not a producing
well.

Productive Oil and Gas Wells

The following table sets forth information at December 31, 1998,
relating to the number of productive oil and gas wells (producing wells and
wells capable of production, including wells that are shut in) in which Saba
owned a working interest:

Oil Gas Total
Gross Net Gross Net Gross Net
----- ----- ----- ------ ------ -----
United States 258 162.2 35 21.3 293 183.5
Canada (1) 57 25.7 63 14.9 120 40.6
Colombia 575 143.9 - - 575 143.9
--------- --------- -------- ------- ------ -------
890 331.8 98 36.2 988 368.0
========= ========== ======== ======= ====== =======

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

(1) No reduction is made for the minority interest in Beaver Lake that existed
at December 31, 1998.

In addition to its working interests, Saba held royalty interests in
approximately 82 productive wells in the United States and Canada at December
31, 1998. Saba does not own any royalty interests in Colombia.

Oil and Gas Acreage

The following table sets forth certain information at December 31, 1998
relating to oil and gas acreage in which Saba owned a working interest:

Developed (1) Undeveloped
----------------------- -------------------
Gross Net Gross Net

United States 27,347 10,774.0 28,778 22,382.0
Canada (2) 47,688 11,363.0 38,954 12,243.0
Colombia 6,398 1,599.0 46,496 11,624.0
------------ ----------- ---------- ----------
Total 81,433 23,736.0 114,228 46,249.0
============ =========== ========== ==========

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

(1) Developed acreage is acreage assigned to productive wells.

(2) No reduction is made for the minority interest in Beaver Lake that existed
at December 31, 1998.
44

<PAGE>

Title to Properties

Many of Saba's oil and gas properties are held in the form of mineral
leases, licenses, reservations, concession agreements and similar agreements. In
general, these agreements do not convey a fee simple title to Saba, but rather,
depending upon the jurisdiction in which the apposite property is situated,
create lesser interests, varying from a profit a prendre to a determinable
interest in the minerals. In some jurisdictions, notably non-U.S. jurisdictions,
Saba's interest is only a contractual relationship and bestows no interest in
the oil or gas in place. As is customary in the oil and gas industry, a
preliminary investigation of title is made at the time of acquisition of
undeveloped properties. Title investigations are generally completed, however,
before commencement of drilling operations or the acquisition of producing
properties. Saba believes that its methods of investigating title to, and
acquisition of, its oil and gas properties are consistent with practices
customary in the industry and that it has generally satisfactory title to the
leases covering its proved reserves. Because most of Saba's oil and gas leases
require continuous production beyond the primary term, it is always possible
that a cessation of producing or operating activities could result in the loss
of a lease. Assignments of interest to and/or from Saba may not be publicly
recorded.

Substantially all of Saba's properties, including its stock in its
subsidiaries are hypothecated to secure Saba's current and future indebtedness
to its bank. Saba's working interest in properties may be subject to lienholders
by non-payment. Saba expects liens to be filed against its assets and to be
subject to lawsuits arising out of Saba's non-payment or untimely payment of its
obligations. The Santa Maria Refinery and the associated real property owned by
Saba is encumbered by a first trust deed in the amount of $1.0 million in favor
of the seller of the refinery and is in place to secure Saba's performance of
obligations as provided under the terms of the purchase and sale agreement. Oil
and gas leases in which Saba has an interest may be deficient and subject to
action by Saba.

Saba may require ratifications for various leases for Vacca Tar Sand in
California. Maintenance of Saba's interest is subject to fulfillment of drilling
and other obligations contained in its agreements with the operator of the
property. Maintenance of the leases is dependent upon fulfillment of various
drilling and producing operations over which Saba has little if any control.
Consequently, it is possible for Saba to lose its interests in such leases
through action or inaction of the operator. Saba understands that the leases
have been essentially non-productive for various periods of time, which fact may
result in termination of the leases. Saba does not follow operations on the
leases and consequently is not aware of whether the leases are in good standing
or may be subject to termination.

Average Sales Price and Production Cost

The following table sets forth information concerning average per unit
sales price and production cost for Saba's oil and gas production for the
periods indicated:

<PAGE>

Year Ended December 31,
-----------------------------
1996 1997 1998
---- ---- ----
Average sales
price per BOE
California $ 15.10 $ 13.49 $ 7.90
Colombia 12.49 11.96 8.05
Canada 13.26 10.52 8.09
Other 17.39 17.68 12.10
Combined 14.05 13.54 8.84

Average production
cost per BOE
California $ 8.50 $ 7.48 $ 7.19
Colombia 5.11 5.71 4.70
Canada 5.15 4.87 5.16
Other 7.88 7.47 7.14
Combined 6.51 6.62 6.11

Asphalt Refinery

In June 1994, in an effort to increase margins on the heavy crude oil
produced from Saba's oil and gas properties in Santa Barbara County, California,
Saba acquired from Conoco Inc. and Douglas Oil Company of California an asphalt
refinery in Santa Maria, California, which had been inoperative since 1992. Saba
refurbished the refinery and, in May 1995, completed a re-permitting
environmental impact review process with Santa Barbara County, receiving a
Conditional Use Permit to operate the refinery.

Pursuant to the refinery purchase agreement, Conoco is required to
perform certain remediation and other environmental activities on the refinery
property. Recently, evidence of current contamination of ground water by
hydrocarbons has been brought to the attention of Saba.

Prior to the acquisition of the refinery, Saba had an independent
consultant perform an environmental compliance survey for the refinery. The
survey did not disclose required remediation in areas other than those where the
seller is responsible for remediation, but did disclose that it was possible
that all of the required remediation may not be completed in the five-year
period. Conoco performs all environmental obligations that arose during and as a
part of its operations of the refinery prior to the acquisition. The extent of
such remediation is ongoing.

During June 1998, Saba was advised by the seller's consulting engineers
that groundwater monitoring conducted in May 1998 had revealed levels of benzene
in all four monitoring wells which exceeds allowable limits. Prior to that time,
groundwater monitoring wells have not shown evidence of groundwater
contamination. In addition, detectable amounts of toluene, ethylbenzene and
xylenes were reported. Historically, BTEX compounds have not been detected in
groundwater samples obtained since 1992. At the request of the Regional Water
Quality Control Board, the wells were resampled in July 1998. Consistent with
the historical analytical results, petroleum hydrocarbons were not detected in
the July 1998 samples. The environmental contractor, who has used the same
sampling protocol since 1992, could not identify any specific reason for the
apparent inconsistency found in the May 1998 samples. The RWQCB has requested
additional monitoring wells to be placed on site and on property directly west
of the refinery perimeter. Four additional monitoring wells were installed in
October 1998 within or immediately downgradient of areas of known soil
contamination on and adjacent to the refinery. Preliminary sampling results
indicate the presence of heavy hydrocarbons in the groundwater samples from two
of the wells, at concentrations 2 to 4 times above typical regulatory action

<PAGE>

levels. Benzene was also detected in these same wells at concentrations equal to
or slightly above drinking water limits. At the hydrocarbon concentrations
detected in the two groundwater samples, Saba expects that continued monitoring
will be required but that active groundwater remediation will not be necessary.
Additional groundwater sampling to confirm the preliminary results were
conducted in December 1998. Saba believes that the contamination is attributable
to the previous refinery owner's operations, since contaminates at the refinery
were produced by the previous owner of the refinery and were identified prior to
purchase. Appropriate authorities have been notified of this condition. In
November 1998, the RWQCB advised Saba that it is preparing a Cleanup or
Abandonment Order to establish soil and groundwater investigation, cleanup,
monitoring and a time schedule at the refinery required to address pollution
resulting from post refinery operations. In its notification, the RWQCB stated
that its perspective of the site has changed and its water quality concerns are
increased since the groundwater table elevation has risen to be proximate to the
base of the hydrocarbon contaminated soil.

Further, the owner of land adjoining the refinery, and the seller in
August 1998 of said adjoining property to an affiliate of Saba, had advised Saba
that his adjoining property had been contaminated by underground emissions from
the refinery. Saba asserts remediation is the responsibility of Conoco. Should
the foregoing matters not be resolved satisfactorily, they may result in
litigation. It is also possible that a failure to resolve the matters could
result in significant liability to Saba. While the seller of the adjoining
property retains a mortgaged interest in the adjoining property, Saba's
subsidiary that operates the refinery has agreed to toll the statute of
limitations for any claims by the seller against the subsidiary and to obtain
the seller's consent prior to entering into any agreement with respect to
hazardous materials on the adjoining property.

Saba entered into a processing agreement PetroSource in May 1995, and
commenced operations of the refinery in June 1995. Under the processing
agreement, PetroSource purchases crude oil (including crude oil produced by
Saba), delivers it to the refinery, reimburses Saba's out-of-pocket refining
costs, markets the asphalt and other products and generally shares any profits
equally with Saba. The processing agreement was renewed with Crown Asphalt
Distribution LLC (successor to PetroSource) for an additional year through
December 31, 1999 with a ninety day termination provision. Saba terminated the
agreement in January 1999 and announced on February 9, 1999 that it will be
taking over the marketing and sale of its refinery products on April 30, 1999.

The refinery is a fully self-contained plant with steam generation,
mechanical shops, control rooms, office, laboratory, emulsion plant and related
facilities, and is staffed with a total of 23 operating, maintenance, laboratory
and administrative personnel. Crude oil is delivered to the refinery by truck to
crude oil storage consisting of one 27,000 Bbl tank and two 40,000 Bbl tanks.
Crude oil processing equipment consists of a conventional pre-flash tower, an
atmospheric distillation tower, strippers and a vacuum fractionation tower. The
refinery has truck and rail loading facilities, including some capability of
tank car unloading. Throughput at the refinery has ranged between 2,000 to 6,000
Bopd, while production capacity is approximately 8,000 Bopd. Permitted capacity
for the refinery is 10,000 Bopd.

<PAGE>

Real Estate Activities

Saba from time to time purchased real estate in conjunction with its
acquisition of oil and gas and refining properties in California and plans to
continue this practice. In connection with the acquisition of oil and gas
producing properties in Santa Maria, California in June 1993, Saba purchased
approximately 1,707 acres in Santa Barbara County for an aggregate purchase
price of $465,000. In addition, Saba acquired approximately 370 acres in Santa
Maria, California in June 1994 in connection with the acquisition of its Santa
Maria refinery. In addition, Saba entered into an agreement to acquire
approximately 385 acres in Santa Barbara County in connection with an
acquisition of producing oil and gas properties at a contract purchase price of
$400,000, the closing of which took place in June 1995. In addition, Saba
acquired approximately 1 acre in October 1997 for $50,000 and approximately 4
acres in February 1998, for $500,000 located in Yorba Linda, Orange County,
California. Saba has used a portion of its real estate holdings for agricultural
purposes. Saba plans to retain some of these real estate holdings for asset
appreciation which may include developmental activities at a future date.

Item 3. Legal Proceedings.

In re Sabacol, Inc., Debtor (BK Case No. ND 98-15858-RR United States
Bankruptcy Court, Central District of California, Northern Division, December
1998) On December 11, 1998, Sabacol, Inc., a wholly-owned subsidiary of the
Company ("Sabacol"), filed a voluntary petition under Chapter 11 of the United
States Bankruptcy Code in the Central District of California. On April 26, 1999,
following Sabacol's motion, it was announced that Sabacol had successfully
obtained the Bankruptcy Court's approval of the sale of substantially all its
assets and the authorized dismissal of its bankruptcy case, upon consummation of
the sale. Following Sabacol's request filed in July 1999 with the bankruptcy
court an order dismissing the bankruptcy case was entered on August 4, 1999.

Gitte-Ten v. Saba Petroleum Company (Case No. CV 980202 Superior and
Municipal Courts of the State of California, County of San Luis Obispo, March
1998). In December 1997, Saba contracted with Gitte-Ten, Inc. ("GTI") to
purchase from GTI all of its surface fee and leasehold interests in certain
property located in Santa Barbara County, California. A portion of the purchase
price was paid at closing on December 31, 1997, at which time GTI's interests
were conveyed to Saba. The remaining purchase price of $350,000 was to be paid
through overriding royalty payments of Saba's gross income from the leases until
the balance was retired but no later than January 1, 2003, on which date any
unpaid balance was to be immediately due and payable. To provide GTI with an
assurance of Saba's payment obligation, Saba executed a promissory note in the
principal amount of $350,000 which provided that said amount (less the total
amount of overriding royalties paid to GTI) was all due and payable on February
27, 1998, unless Saba replaced the note by February 24, 1998, with an
irrevocable and non-cancelable surety bond or letter of credit in the amount of
the then unpaid balance. Saba was unable to procure either instrument and the
note became all due and payable on February 27, 1998. Notwithstanding attempted
settlement conferences by Saba with GTI, GTI filed a claim against Saba in March
1998, for breach of contract, seeking damages of $350,000 plus interest at the
rate of 13.5% per annum and attorney fees. The court has granted but not entered
summary judgement in favor of GTI. Saba appealed that judgment. In July 1999,
the court vacated its summary judgment previously granted to Gitte-Ten, Inc. The
matter was settled in September 1999 which included a dismissal with prejudice
as to the action.

Orleans Levee Board v. Saba Energy of Texas, Inc., et al. (Docket No.
98-14233 Civil District Court, Parish of Orleans, State of Louisiana, August
1998). With respect to its interest in the Potash Field, Louisiana, Saba's
subsidiary had suspended approximately $380,000 through January 1998 of
royalties for unknown royalty owners who have since been identified. One of the
parties, Orleans Levee Board, had instituted legal proceedings against Saba for
all of the royalties suspended and double said amount for damages and for the
dissolution of the subject leases. The Levee Board has agreed to an extension
for Saba to respond pending a resolution with all identified royalty owners

<PAGE>

and/or their geologists in an attempt to reach an agreement regarding their
respective allocations of said suspended royalties and to create a voluntary
unit. The approximate amount of the suspended royalties upon Saba's acquisition
of the subject property was approximately $372,000 which Saba had applied as an
adjustment to the purchase price. Saba and/or its subsidiary bears the
obligation to pay the royalties upon resolution. Failure to pay timely or a
judgement for the Levee Board may result in Saba losing its interest in the
leases and incurring a payment obligation for the royalties, interest,
attorney's fees, and damages sought at double the amount of royalties.

Chase v. Saba Petroleum, Inc. (Case No. SM108977, Superior Court of the
State of California, County of Santa Barbara-Cook Division, July 1998). In July,
1998, Saba was served with a lawsuit filed by an individual alleging personal
injury in the amount of $515,000 resulting from general negligence premises
liability on one of the oil leases that Saba operates and which he claims
occurred while supervising the installation of a pump into a well operated by
Saba and on a drilling rig owned by a co-defendant. Saba was represented by
counsel appointed by Saba's insurance carrier by a claim submitted under Saba's
general liability policy. In July 1999, the matter was settled by Saba's
insurance carrier, which included a release of all claims and dismissal with
prejudice as to Saba.

Saba Energy of Texas, Inc. v. Marks & Garner Production Ltd. Co., et al.
(Case No. CV-97-106 FR District Court Lea County, State of New Mexico, March
1997). Saba instituted an action for declaratory judgment for the validity of
Saba's oil, gas and mineral lease as being superior to the prior lease covering
the subject lands, said prior lease, as Saba asserts, having expired by
cessation of production. If Saba prevails, it will be obligated to pay
consideration of approximately $55,000 to the lessors. Saba's motion for summary
judgment was denied on April 6, 1999 and the matter is in the pre-trial stage.

Wellspring Partners, LLC v. Saba Energy of Texas, Inc., et al. (Case
No.1999-24729, 125th Judicial District Court of Harris County, Texas, May
1999)Wellspring brought suit for damages alleging breach of contract and
conspiracy for Saba's non-payment of fees claimed pursuant to a brokerage
agreement between Wellspring and Saba. Wellspring moved for a Temporary
Restraining Order and Temporary Injunction to restrain Saba from allegedly
breaching the brokerage agreement and from closing the pending sale of Saba's
properties to Enervest Energy LP without first providing Wellspring with certain
information regarding the sale and depositing with the court the alleged broker
fee due Wellspring. The court denied Wellspring's motion, and in June 1999 Saba
filed a counterclaim against Wellspring for damages incurred as a result of
Wellspring's tortious interference with Saba's contractual and prospective
business relationships with Enervest Energy LP.

Enervest Energy LP v. Saba Energy of Texas, Inc. (Case No. 1999-30673,
152nd Judicial District Court of Harris County, Texas, June 1999) Enervest filed
an action claiming that Saba breached the agreement between the parties for
failing to close the sale of Saba's interests in certain oil and gas properties
for $12.5 million. In accordance with the agreement, Enervest deposited earnest
money in the amount of $1.25 million to a jointly controlled account to assure
Enervest's performance of the agreement. Enervest further seeks the court's
declaration that it is entitled to the deposit. In July 1999, Saba filed a
counterclaim against Enervest for damages incurred as a result of Enervest's
breach of the agreement by failing to close the sale. This matter is in its
discovery stage.

<PAGE>

Crown Asphalt Distribution LLC, et al. v. Santa Maria Refining Company,
et al. (Case No. CV99-895 DOC (Anx), United States District Court, Central
District of California, Southern Division, July 1999) Crown brought suit for
damages alleging breach of contract, breach of covenant of good faith and fair
dealing, conversion, fraud, claim and delivery, unjust enrichment and
constructive trust, unfair competition, declaratory relief, and specific
performance pursuant to Santa Maria's termination of the processing agreement
with Crown. Crown moved for a Preliminary Injunction or Writ of Possession to
compel Santa Maria, amongst other things, to continue doing business with Crown
beyond the termination date of the processing agreement. The court denied
Crown's motion, and the matter is in its preliminary, pre-discovery stage.

Statutory Liens. Statutory liens have been recorded against the
Louisiana and New Mexico properties owned by Saba for Saba's failure to pay
trade payables. Actions have been taken to proceed with foreclosure on some of
these liens. Further, lawsuits have been filed and served upon Saba's
subsidiaries for the payment of trade payables. Saba has contacted certain of
these claims with respect to Louisiana and New Mexico known by it to propose and
agree upon a payment plan with the vendors in exchange for their forbearance on
any further action. Saba has entered, is entering or plans to enter into payment
plans agreed upon with such vendors and any additional vendors so required.

Capco Resources, Ltd. v. GREKA Energy Corporation and Randeep S. Grewal
(Case No. 99-8521-K, U.S. District Court, Central District of California). In
August 1999, Capco Resources, Ltd. ("Capco") filed an action against GREKA and
Randeep S. Grewal, President of GREKA, alleging that GREKA breached and GREKA
and Mr. Grewal made misrepresentations in connection with a Stock Exchange
Agreement entered into between GREKA and Capco and Capco's affiliates (the
"Exchange"). Capco claims that it is entitled to $12.25 million, in damages plus
interest and costs, and requests that the court require GREKA to file a
registration statement for the resale of 1 million shares of GREKA common stock
that Capco received pursuant to the Exchange. Shortly after filing this suit
Capco threatened to exert control over and sell the GREKA shares in a brokerage
account that was to have been transferred to GREKA as part of the Exchange.
GREKA filed the case of GREKA vs. Capco and Service Asset Management Company
d/b/a Penson Financial Services, Inc. d/b/a Global Hanna Trading in the Denver
Colorado District Court and obtained a temporary restraining order temporarily
restraining this conduct by Capco (Case No. 99-CV-6006). Prior to the
preliminary injunction hearing Capco removed the case to the U.S. Federal
District Court in Denver, Colorado (Civil Action No. 99-K-1814). On September
17, 1999 GREKA received a new temporary restraining order from the federal
district court. A motion for preliminary injunction has been set for hearing on
September 27, 1999. While GREKA and Mr. Grewal plan to vigorously defend all
claims asserted by Capco and to aggressively pursue all counter and third party
claims, the litigation is in its preliminary, pre-discovery stages.

Saba may be subject to resolving property matters, including claims
related to mineral interests, working interests, and/or surface use and rights,
including without limitation relocations of gas transfer lines, abandonment of
wells or failure to abandon giving rise to claims of lost profits from surface
owners and/or a third parties in interest, and errors in disclosure of location,
production and/or rights may have occurred by Saba with respect to its operating
activities.

Internal Revenue Service. In its review of Saba's payroll tax and
information returns for the years ended 1993-1995, the Internal Revenue Service
proposed adjustments based upon the assertions that Saba misclassified as
independent contractors various persons who were employees of Saba, that Saba
did not withhold income taxes from payments made to such persons, and that Saba
failed to file its information returns timely. This matter was settled in 1998
through payments and audits resulting in an associated liability of $10,000
recorded by Saba at December 31, 1998.

From time to time, Saba is a party to certain litigation that has
arisen in the normal course of its business and that of its subsidiaries. In the
opinion of management, none of this litigation is likely to have a material
adverse effect on Saba's financial condition or results of operations. Saba may
be subject to legal actions that have been threatened without Saba's knowledge.

<PAGE>

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

No matters were submitted to a vote of security holders of GREKA Energy
during the quarter ended December 31, 1998.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

GREKA Energy common stock is listed for trading on the Nasdaq SmallCap
Market under the symbol "GRKA". Prior to March 25, 1999, the trading symbol was
"HVNV". Except for a period from August to December of 1997, GREKA Energy's
common stock has been quoted on NASDAQ since February 19, 1993. The following
table sets forth, for the periods indicated, the high and low closing bid
quotations per share of GREKA Energy common stock as reported on the Nasdaq
SmallCap Market. GREKA Energy common stock quotations represent inter-dealer
quotations, without retail markup, markdown or commissions, and may not
represent actual transactions. There can be no assurance that a public market
for GREKA Energy's common stock will be sustained in the future.

51
<PAGE>

Bid*
Quarter Ended Low High

March 31, 1996 . . . . . . . . . $ .19 $ .22
June 30, 1996 . . . . . . . . . . .13 .13
September 30, 1996 . . . . . . . . .25 .31
December 31, 1996 . . . . . . . . .19 .25
March 31, 1997 . . . . . . . . . . .19 .25
June 30, 1997 . . . . . . . . . . .03 .09
September 30, 1997 . . . . . . . . .03 .03
December 31, 1997 . . . . . . . . 6.82 19.00
March 31, 1998 . . . . . . . . . . 12.00 14.75
June 30, 1998 . . . . . . . . . . 8.0625 10.00
September 30, 1998 . . . . . . . . 7.25 9.25
December 31, 1998 . . . . . . . . 8.813 14.938
March 31, 1999 . . . . . . . . . 5.875 10.50
June 30, 1999 . . . . . . . . 6.375 9.125

*Effective November 8, 1997, a 1 share for 220 share reverse split approved by
the U.S. Bankruptcy court was effected thus dramatically affecting the per share
price of GREKA Energy's stock.

On March 31, 1999, there were approximately 3,275 registered holders of
GREKA Energy's common stock. Based on a broker count, GREKA Energy believes at
least an additional 5,861 persons are shareholders with street name positions.

Holders of GREKA Energy common stock are entitled to receive such
dividends as may be declared by GREKA Energy board of directors. GREKA Energy
has not yet paid any dividends, and the board of directors of GREKA Energy
presently intends to pursue a policy of retaining earnings, if any, for use in
GREKA Energy's operations and to finance expansion of its business. With respect
to GREKA Energy common stock, the declaration and payment of dividends in the
future, of which there can be no assurance, will be determined by the GREKA
Energy board of directors in light of conditions then existing, including GREKA
Energy's earnings, financial condition, capital requirements and other factors.

Item 6. Management's Discussion and Analysis.

GREKA's independent accountants issued a modified report on April 15, 1999
expressing substantial doubt about GREKA Energy's ability to continue as a going
concern. That matter is also discussed in Note 1 of the Notes to Consolidated
Financial Statements of GREKA Energy. On September 16, 1999 GREKA's independent
accountants issued a report which reflects the removal of their previously
modified opinion concerning their doubt about GREKA Energy's ability to continue
as a going concern. That matter is discussed in Note 14 of the Notes to
Consolidated Financial Statements of GREKA Energy.

<PAGE>

Overview

In view of significant material changes to GREKA Energy during 1998 and
the acquisition of Saba in March 1999, management believes that the financial
condition and results of operations of GREKA Energy reported herein are not
indicative of the future financial condition and results of operations of GREKA
Energy. Saba's 1998 financial statements, which appear separately in this
document, are not consolidated with GREKA Energy's 1998 financial statements
since the acquisition had not been consummated by December 31, 1998.
Furthermore, in accordance with the accounting rules for reverse mergers, the
GREKA Energy statements of operations are not reflective of the combined
revenues from the September 1997 merger of Petro Union and Horizontal Ventures
on an annualized basis but rather reflect the combined income from the merger
date.

Current management was appointed during the latter part of the third
quarter of 1997 and spent the balance of the year re-structuring,
re-capitalizing, and completing mergers and acquisitions that all were part of a
specific and focused strategy. Management has established a clear directive to
focus on capitalizing on its experience with the low cost horizontal drilling
technology developed and patented by Amoco and thereafter licensed to GREKA
Energy. It is the intent of management to become a leader in applying this
horizontal drilling technology and exploiting declining production wells on
properties such as Saba's which have been acquired by GREKA Energy or on a
service basis for major oil and gas companies.

During the first part of 1998, management of GREKA Energy focused
substantially all of its efforts on corporate restructuring, recapitalization
and acquisition efforts and an investment in a horizontal drilling pilot program
in the Cat Canyon field in California that all were part of its strategy to
capitalize on its experience with horizontal drilling technology. During the
first nine months of 1998, GREKA Energy drilled three horizontal wells in the
Cat Canyon field, namely UCB-09, UCB-38 and UCB-28. Each well was drilled
utilizing GREKA Energy's Short Radius horizontal drilling technology, and
resulted in a 47 foot radius with a 435 foot lateral on UCB-09, a 60 foot radius
with a 414 foot lateral on UCB-38 and a 50 foot radius with a 252 foot lateral
on UCB-28. In view of GREKA Energy's long-term strategy and the known sand
problem in the Cat Canyon basin, GREKA Energy's completed each well with a
different technique to establish a standard. UCB-09 was completed with a
standard Ace down-hole pump and a KD system, UCB-38 was completed with a KUDU
pump, and UCB-28 was completed with a Ace Teflon-Luber Plunger down-hole pump.
The kick-off point for each well was at a depth of 2,940-3,000 feet.

The variances in the completions allowed GREKA Energy to obtain direct
experience on the production capability from each of the techniques. UCB-09 net
production stabilized at 20 barrels of oil per day, UCB-38 sanded up following a
few weeks of production, while UCB-28 has net production of 65 barrels of oil
per day. Each of these wells were re-entries into an abandoned well bore in the
Sisquoc formation, which is one of the two pay zones within GREKA Energy's lease
in the Cat Canyon basin. Following this drilling operation and completion
technique definition, GREKA Energy proceeded with its discussions with Saba with
the intent of applying this technique on Saba's reserves.

During the latter of part of 1998 and early 1999, management of GREKA
Energy was primarily focused on the acquisition of Saba and considerable
expenses were incurred in connection with the Saba transactions in the fourth
quarter of 1998 and the first quarter of 1999. Due to the significance to GREKA
Energy of the Saba acquisition, GREKA Energy's management and staff devoted a
substantial amount of time and effort to the acquisition. GREKA Energy has
already executed, and continues to execute, an aggressive rework program to
return to production existing wells on all properties that had wells shut-in
over eighteen months. Subsequent to the reworks, GREKA Energy intends during the
third quarter of 1999 to implement its horizontal drilling program using its
proprietary technology on the Santa Maria Valley area assets.

<PAGE>

In view of the significant differences between GREKA Energy's corporate
structure before the March 1999 acquisition of Saba and during 1997 and 1998,
comparisons of GREKA Energy's results of operations for those periods are
considered by management not to be either relevant or representative of GREKA
Energy's long-term potential.

Results of Operations

Revenues decreased from $211,696 for 1997 to $145,813 for 1998.
Revenues for 1998 were from oil production at the Cat Canyon field. The decline
in oil prices of over 50% coupled with the El Nino storms in California that
essentially shut the field down during February 1998 caused revenues to be lower
than initially expected.

Operating costs decreased from $247,979 for 1997 to $121,016 for 1998.
Planned pilot program drilling operations in the Cat Canyon field account for
most of the expenses during 1998, and such expenses are not proportional to
revenues since the three wells drilled in the Cat Canyon field were not in
production during the entire period. In addition, GREKA Energy incurred
significant repair expenses resulting from the El Nino storms in California
during February 1998.

Salaries and wages increased from $213,213 for 1997 to $455,510 for
1998.

Depreciation, depletion and amortization increased from $24,016 for
1997 to $333,468 for 1998.

The writedown of oil and gas properties of $3,171,485 in 1998 was
primarily attributable to the dramatic decrease in oil prices during the fourth
quarter of 1998.

Other administrative expenses increased from $495,823 for 1997 to
$933,244 for 1998. The increase was primarily attributable to legal and
consulting fees resulting from GREKA Energy's acquisition and financing efforts
related to the 1998 Saba transactions, the completion of GREKA Energy's
bankruptcy reorganization, and related SEC reporting requirements.

The equity in loss of Saba of $586,020 for 1998 was a result of
applying the equity method of accounting for the investment in Saba beginning in
the fourth quarter of 1998.

Interest income increased from $11,873 for 1997 to $83,242 for 1998.
The increase was primarily attributable to the significant amount of cash which
GREKA Energy had at the beginning of 1998 as a result of the private placements
of its common stock in the fourth quarter of 1997.

Liquidity and Capital Resources

Working capital decreased approximately $5.1 million from $3.1 million
at December 31, 1997 to a deficit of $2.0 million at December 31, 1998. Current
liabilities increased from $820,327 as of December 31, 1997 to $2,249,661 as of
December 31, 1998. The $1,429,334 increase in current liabilities was primarily
due to the issuance of a total of $2 million in short-term notes to a
shareholder in connection with the Saba acquisition, which was partially offset
by the decrease in accounts payable and accrued expenses from December 31, 1997
to December 31, 1998.

During the fourth quarter of 1997, GREKA Energy successfully concluded
three private placements to re-capitalize the reorganized company. The first two
placements were done at $10 per share while the third was concluded at $13 7/8
per share. GREKA Energy issued a total of 552,470 shares with gross proceeds of
approximately $5,801,518 that resulted in net proceeds of approximately
$5,946,681.

<PAGE>

On December 31, 1998 GREKA Energy's cash and cash equivalents totaled
$250,212. The decrease in cash and cash equivalents from December 31, 1997 to
December 31, 1998 was primarily attributable to GREKA Energy's final payment on
the Cat Canyon field and the drilling program expenditures related thereto, and
legal and consulting fees resulting from GREKA Energy's acquisition and
financing efforts during 1998. The $2 million in proceeds from the issuance of
short-term notes in 1998 were immediately used for the acquisition of Saba
capital stock.

On February 26,1999, GREKA Energy obtained bridge financing for the
Saba business in the form of a $1 million 15% debenture secured by GREKA
Energy's limestone reserves.

GREKA Energy's net cash used in operating activities increased from
$449,052 for 1997 to $2,293,744 for 1998. This increase was primarily
attributable to the larger operating loss of GREKA Energy during 1998.

GREKA Energy's net cash used in investing activities decreased from
$3,059,690 for 1997 to $1,826,546 for 1998. This decrease was primarily
attributable to the decrease in investments in time deposits and funds held in
escrow from 1997 to 1998, which was partially offset by the cash used to invest
in shares of Saba common and preferred stock during 1998.

GREKA Energy's net cash provided by financing activities decreased from
$5,821,236 for 1997 to $2,051,550 for 1998. Net cash provided by financing
activities for 1997 included the issuance of common stock for cash in the net
amount of $5.9 million, while the only significant financing activity during
1998 was the issuance of short-term notes in the amount of $2 million.

Liquidity

Under the direction of GREKA Energy's management and strategy, GREKA
Energy has significantly improved its liquidity and expects to have low capital
requirements. Specifically, GREKA Energy expects to have an annual capex of $5
million funded by its cash flow. The Company is current on all its interest
payments, and has sufficient cash flow for all its operating and foreseen
capital requirements. Further, GREKA Energy intends to achieve the following:

* Obtain long term financing of at least $14 million to pay currently due
Bank One debt, reducing current liabilities from $36,591,543 to $22,591,543
as of June 30, 1999.

* Utilize the in-house proprietary and cost effective horizontal drilling
technology to enhance production in the Santa Maria Valley area.

* Continue integration of GREKA Energy-operated oil and gas properties and
the wholly-owned and operated asphalt refinery that collectively provide
for low cost operating expenses and high cash flow.

The acquisition of Saba gives GREKA Energy a stronger consolidated asset
base upon which it can rely in securing future financings, both equity and debt.
however, there is no assurance that any specific level of cost savings or other
synergies will be achieved within the time periods contemplated, or that GREKA
Energy will be able to secure future financings. GREKA Energy disposed of its
non-core Colombian oil and gas assets for at least $10 million during 1999. The
proceeds of the sale were used largely to reduce GREKA Energy's current
liabilities, thus strengthening GREKA Energy's working capital.

<PAGE>

Recent Accounting Pronouncements

The following new accounting pronouncements have been issued which may
affect GREKA Energy upon their adoption in future accounting periods.

Statement Of Position Number 98 - 5, issued by the Accounting Standards
Executive Committee of the American Institute of CPAs, entitled Reporting On The
Cost Of Start-Up Activities, became effective January 1, 1999. This
pronouncement requires that costs of start-up activities, including organization
costs, be expensed as incurred. Initial application of this SOP will be reported
by GREKA Energy as the cumulative effect of a change in accounting principle, as
described in Accounting Principles Board Opinion No. 20, Accounting Changes.
When adopting this SOP, entities are not required to report the pro forma
effects of retroactive application. GREKA Energy will expense approximately
$25,000 in 1999 as a result of the implementation of this pronouncement.

Statement of Financial Accounting Standards No. 132, Employers
Disclosures about Pensions and Other Postretirement Benefits, becomes effective
in 1999 and revises employers' disclosures about pension and other
postretirement benefit plans, but does not change the measurement or recognition
of those plans. Because GREKA Energy does not currently have in effect any
pension or postretirement plans, this pronouncement is not expected to affect
GREKA Energy.

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
becomes effective on January 1, 2001, and prescribes accounting and disclosure
requirements for derivative instruments and hedging activities. This
pronouncement is not expected to affect GREKA Energy because it has no such
investments.

Year 2000

Computer programs or other embedded technology that have been written
using two digits (rather than four) to define the applicable year and that have
time-sensitive logic may recognize a date using "00" as the Year 1900 rather
than the Year 2000, which could result in widespread miscalculations or system
failures. Both information technology ("IT") systems and non-IT systems using
embedded technology may be affected by the Year 2000. GREKA Energy's drilling
and other equipment does not make use of embedded chips, and GREKA Energy
believes that its equipment will not be affected by the Year 2000.

GREKA Energy has not completed an assessment of Year 2000 compliance
issues, but management currently believes that since GREKA Energy's drilling
equipment does not make use of embedded computer chips and its other operating
equipment is not heavily automated with technology systems, the costs of
becoming ready for the Year 2000 will not have a material adverse effect on
GREKA Energy's financial condition, results of operations or cash flows.

<PAGE>

GREKA Energy currently believes that its existing technology systems
and software will not need to be upgraded to become Year 2000 compliant, except
that GREKA Energy must replace its current integrated accounting software in
order to accurately process Year 2000 data. Should it not do so, GREKA Energy
would be unable to properly process and report on its own operating data, as
well as information provided to it by outside sources that are Year 2000
compliant. GREKA Energy's third-party accounting software vendor has modified
the current operating system utilized by GREKA Energy and provided the modified
system to GREKA Energy in the first quarter of 1999. The cost of this
modification was included in the vendor's system support contract and did not
result in a significant additional expense for GREKA Energy.

GREKA Energy is in the process of verifying whether vendors, suppliers
and significant customers with which GREKA Energy has material relationships are
Year 2000 compliant. GREKA Energy believes that some of these third parties will
not be materially affected by the Year 2000 since those third parties are
relatively small entities which do not rely heavily on technology systems for
their operations. GREKA Energy does not know whether the other third parties
will be Year 2000 compliant. Under a worst-case scenario, if GREKA Energy and
such third parties are not Year 2000 compliant on a timely basis, there could be
financial risk to GREKA Energy, including supplier and service customer delays
resulting in short-term delay of revenue and substantial unanticipated costs.
Accordingly, GREKA Energy plans to devote all resources necessary to resolve
significant Year 2000 issues in a timely manner. GREKA Energy's current Year
2000 contingency plan is essentially to have all necessary tasks performed
manually in the event of material Year 2000 problems affecting GREKA Energy.
Management of GREKA Energy believes that GREKA Energy has adequate personnel to
perform those functions manually until any Year 2000 problems are resolved.
Inflation

GREKA Energy does not believe that inflation will have a material
impact on GREKA Energy's future operations.

Item 7. Financial Statements.

Please see accompanying Index to Financial Statements commencing on
page F-1.

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

On February 18, 1999, GREKA Energy engaged Arthur Andersen LLP to
replace Bateman & Co., Inc., P.C. as GREKA Energy's independent accountant to
audit GREKA Energy's consolidated financial statements for the year ended
December 31, 1998. Bateman & Co., Inc., P.C. was dismissed as GREKA Energy's
independent accountant on the same date. GREKA Energy's Board of Directors
approved the change in GREKA Energy's independent accountant.

The independent auditor's report of Bateman & Co., Inc., P.C. for GREKA
Energy's financial statements for the year ended December 31, 1997 did not
contain an adverse opinion or a disclaimer of opinion, and was not modified as
to uncertainty, audit scope, or accounting principles.

<PAGE>

During GREKA Energy's two most recent fiscal years and through the date
of the dismissal of Bateman & Co., Inc., P.C., GREKA Energy did not have any
disagreements with Bateman & Co., Inc., P.C. on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.

PART III

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

The directors and executive officer of GREKA Energy are as follows:

Name Age Positions
---- --- ---------

Randeep S. Grewal (A) 33 Chairman, President and Chief
Executive Officer
and a Director(1)
Dr. Jan F. Holtrop (B) 62 Director(1)
George G. Andrews (B) 72 Director(1)
Dirk Van Keulen(C) 39 Director(1)
Dai Vaughan (C) 60 Director(1)

(1) The directors are divided into three classes, Class A, Class B, and
Class C, with each director serving for three years and rotating the
class up for election at each annual meeting.

(A) Class A Director.
(B) Class B Director.
(C) Class C Director.

Randeep S. Grewal - Chairman, President and Chief Executive Officer and
Director. Mr. Grewal most recently served as Chairman and CEO for Horizontal
Ventures, Inc. He assumed this responsibility in April 1997 and established the
Company's strategies and business plan resulting in consistent growth year after
year. He has been involved in various joint ventures, acquisitions, mergers and
reorganizations since 1986 in the United States, Europe and the Far East within
diversified businesses. Mr. Grewal has a Bachelor of Science degree in
Mechanical Engineering from Northrop University.

Dr. Jan Fokke Holtrop - Director. Mr. Holtrop has been a senior Production
Technology professor at the Delft University of Technology within the Faculty of
Petroleum Engineering and Mining in The Hague, Netherlands since 1989. Prior to
the Delft University, he served in various positions within the Shell Oil
Company where he started his career in 1962. Mr. Holtrop has almost forty (40)
years of experience within the oil and gas exploration, drilling and production
industry with a global hands-on background. In January 1999, Mr. Holtrop was
appointed to the Board of directors of Saba. Mr. Holtrop has a Ph.D. and a MSC
in Mining Engineering from the Delft University of Technology.

George G. Andrews - Director. Mr. Andrews has been a consultant and
private investor since his retirement from the oil and gas industry in 1987.
From 1982 until 1987 he was employed as corporate Vice President of
Intercontinental Energy Corporation of Englewood, Colorado directing the
company's land acquisition, lease and management operations. Between June 1981
and November 1982 Mr. Andrews was Vice President of Shelter Hydrocarbons, Inc.
of Denver, Colorado where he directed all land management and operation
procedures including contract systems and negotiations of acquisition
agreements. From 1979 to June of 1981 Mr. Andrews was Senior Landman for the
National Cooperative Refinery Association in Denver, Colorado where he was
responsible for negotiation and acquisition of oil and gas leases, certifying
title requirements and ongoing daily operations in his office. Mr. Andrews
obtained his B.S. degree from the University of Tulsa, Tulsa, Oklahoma in 1947
where he majored in Economics.

<PAGE>

Dirk Van Keulen - Director. Mr. Van Keulen has served since January
1996 as a Director of Horizontal Ventures, Inc., which was one of the first
licensees of the Amoco technology and is currently GREKA Energy's core business.
He served as a tax official in the Dutch Ministry of Finance from 1979 through
1987 and then as a tax consultant with Koolman & Co., until 1989. Since 1984 Mr.
Van Keulen has been actively involved in various investment activities. He
studied higher education in fiscal law and accounting under the Dutch Ministry
of Finance.

Dai Vaughan - Director. A director since March 1999, Mr. Vaughan has been
an independent airline consultant since he left Continental Airlines in 1984.
His last position with Continental Airlines was Manager of Aircraft Acquisition.
Mr. Vaughan has served in numerous positions in his 44 year career in the
airline industry with British Airlines, El Al and finally Continental Airlines,
including Systems Engineering, Aircraft Maintenance and Aircraft Acquisition.
Mr. Vaughan received a HNC degree (B.S. equivalent) in Electrical Engineering at
an El Al sponsored program.

There are no family relationships among the directors. There are no
arrangements or understandings between any director and any other person by
which that director was elected.

During the past five years, there have been no petitions under the
Bankruptcy Act or any state insolvency law filed by or against, nor have there
been any receivers, fiscal agents, or similar officers appointed by any court
for the business or property of any of GREKA Energy's directors or executive
officers, or any partnership in which any such person was a general partner
within two years before the time of such filing, or any corporation or business
association of which any such director or executive officer was an executive
officer within two years before the time of such filing. During the past five
years, no incumbent director or executive officer of GREKA Energy has been
convicted of any criminal proceeding (excluding traffic violations and other
minor offenses) and no such person is the subject of a criminal prosecution
which is presently pending.

Item 10. Executive Compensation

The following summary compensation table sets forth in summary form the
compensation received during each of GREKA Energy's last two completed fiscal
years by GREKA Energy's Executive Officers.

<PAGE>

(a) Summary Compensation Table

Annual Long Term
Compensation Compensation
------------------------- ---------------------------
Awards
Name/Position Year Salary Bonus(1) Stock Awards Options
- ---------------- ---- -------- ------- ------------ -------
Randeep S. Grewal 1998 $120,000 0 30,000(2) 110,000
Chairman and Chief 1997 $120,000 0 70,000(3) 150,000
Executive Officer 1996 - - - -

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

(1) During the period covered by the Table, GREKA Energy did not pay its
executive officers any bonuses or other compensation.

(2) The Board of Directors of GREKA Energy granted 30,000 shares of GREKA
Energy common stock to Mr. Grewal on October 18, 1998 subject to the
consummation of the merger between GREKA Energy and Saba.

(3) Stock grants approved as part of GREKA Energy's bankruptcy reorganization
plan.

No other officer, director or employee of Horizontal Ventures or its
subsidiaries received total compensation in excess of $100,000 during the last
two fiscal years. The Company has an employment agreement with Randeep S.
Grewal. No other form of compensation was paid during 1998.

(b) Option and Long-Term Compensation Tables

Long Term Compensation

Awards Payouts
------ -------

Restricted Securities LTIP
Stock award(s) Underlying Payouts
($) Options/SARS (#) ($)
------------- ---------------- ------

Name/Position
- - -------------
Randeep S. Grewal 1998 $367,500 110,000 -0-
Chairman and Chief
Executive Officer

Option/SAR Grants in Last Fiscal Year

(Individual Grants)
Number of Securities Percent of total Exercise
Underlying options/SARS granted or base
Options/SARS granted(#) to employees price Expiration
Name granted # in fiscal year ($/Sh) date
- ----- ---------------------- ----------------------- ------ ----------

Randeep S. 110,000 52.4% $8.25 9/16/07
Grewal

<PAGE>

Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values

Value of
Number of unexercised in-the
unexercised options money options/SARS
Shares SARS at FY-end (#) at FY-end
acquired on Value exercisable/ exercisable/
Name exercise (#) realized ($) un-exercisable un-exercisable
- ------ ------------ ------------ ----------------- ------------------
Randeep S.
Grewal -0- -0- 60,000/200,000 $232,500/$840,000

GREKA Energy has not granted any other options or stock appreciation
rights to any of its directors or executive officers.

(d) Employment Contracts and Termination Agreements

On September 9, 1997, GREKA Energy entered into a five-year employment
agreement with Randeep S. Grewal. This agreement was amended on October 14, 1998
as discussed below. His salary under the original agreement was $120,000 per
year. Compensation is reviewed annually. Mr. Grewal participates in GREKA
Energy's benefit plans and is entitled to bonuses and incentive compensation as
determined by the board of directors of GREKA Energy. The agreement is
terminable for cause or by the death or disability of Mr. Grewal. In addition,
the agreement may be terminated by Mr. Grewal in the event of any diminution by
the Company in Mr. Grewal's position, authority, duties or responsibilities.
Upon termination of the agreement by the Company for any reason other than for
cause, death or disability, or upon termination of the agreement by Mr. Grewal
in the event of any diminution by the Company in Mr. Grewal's position,
authority, duties or responsibilities, the Company is obligated to pay within 30
days after the date of termination (1) Mr. Grewal's Base Salary through the date
of the Severance Period, (2) Mr. Grewal's base salary for the balance of the
term of the agreement if the Date of Termination is within the first three years
of the Employment Agreement (Base Salary is the rate in effect at the Date of
Termination), (3) the Annual Bonus paid to Mr. Grewal for the last full fiscal
year during the Employment Period and (4) all amounts of deferred compensation,
if any. The agreement allows Mr. Grewal to receive an assignment of 2%
overriding royalty of all oil and gas production received by Horizontal
Ventures.

On October 14, 1998, GREKA Energy amended Mr. Grewal's employment
agreement contingent upon the closing of the acquisition of Saba Petroleum
Company by GREKA Energy. Under the amendments, on March 24, 1999, the effective
date of the merger of Saba with and into a subsidiary of GREKA Energy, (i) Mr.
Grewal's annual salary was increased to $250,000, (ii) 30,000 shares of GREKA
Energy common stock were issued to Mr. Grewal, (iii) Mr. Grewal's fringe
benefits were increased to included an automobile allowance of $1,000 per month
and (iv) the employment agreement was extended through the fifth anniversary of
March 24, 1999.

On March 12, 1998, GREKA Energy entered into a Confidential Termination
and Settlement Agreement and Complete Release with Richard Wedel relating to his
resignation as an executive of GREKA Energy and as a member of the Board of
Directors. Under the agreement, Mr. Wedel received a $50,000 severance payment.
In addition, GREKA Energy agreed to maintain Mr. Wedel's medical insurance
coverage as currently in effect through July 31, 1998. In exchange for the above
consideration, Mr. Wedel agreed not to compete with GREKA Energy and
specifically with GREKA Energy's horizontal drilling business for a period of
three years after his date of termination. Mr. Wedel also agreed not to disclose
any confidential information of GREKA Energy which he acquired as a result of
his employment. GREKA Energy and Mr. Wedel agreed to mutually release the other
from any claim or action arising from Mr. Wedel's Executive Employment Agreement
with GREKA Energy.

(e) Director Compensation

Each director who is not an employee of GREKA Energy (the "Outside
Directors") will be reimbursed for expenses incurred in attending meetings of
the board of directors and related committees. As of the date of this report,
GREKA Energy has three Outside Directors. No compensation was paid to any
Outside Director during fiscal 1998 and is none is planned for the immediate
future.

GREKA Energy has no knowledge of any arrangement or understanding in
existence between any executive officer named above and any other person by
which any such executive officer was or is to be elected to such office or
offices. All officers of GREKA Energy serve at the pleasure of the board of
directors. No family relationship exists among the directors or executive
officers of GREKA Energy. All officers of GREKA Energy will hold office until
the next annual meeting of the shareholders of GREKA Energy. There is no person

<PAGE>

who is not a designated Officer who is expected to make any significant
contribution to the business of GREKA Energy. The executive officers of GREKA
Energy serve at the pleasure of the board of directors and do not have fixed
terms. Any officer or agent elected or appointed by the board of directors may
be removed by the board whenever in its judgment the best interests of GREKA
Energy will be served thereby without prejudice, however, to contractual rights,
if any, of the person so removed.

Working Interests

There are no agreements in which any employee of Horizontal Ventures
receives a working interest in GREKA Energy's oil and gas properties.

Overriding Royalty Income

GREKA Energy has historically assigned overriding royalty interests to
certain of its employees. Employees own overriding royalty interests on oil and
gas wells invested in by GREKA Energy. Conflicts of interest may arise between
employees owning overriding royalty interests in GREKA Energy-operated locations
and GREKA Energy.

As part of Mr. Grewal's employment agreement, he is to receive a two
percent (2%) overriding royalty of all oil and gas production received by GREKA
Energy.

Future Transactions

All transactions between GREKA Energy and an officer, director,
principal stockholder or affiliate of GREKA Energy will be approved by a
majority of the uninterested directors, only if they have determined that the
transaction is fair to GREKA Energy and its stockholders and that the terms of
such transaction are no less favorable to GREKA Energy than could be obtained
from unaffiliated parties.

Section 16(a) Beneficial Ownership Reporting Compliance

Under U.S. securities laws, directors, certain executive officers and
persons holding more than 10% of GREKA Energy common stock must report their
initial ownership of the common stock and any changes in that ownership to the
SEC. The SEC has designated specific due dates for these reports and GREKA
Energy must identify in this document those persons who did not file these
reports when due. Based solely on its review of copies of the reports filed with
the SEC and written representations of its directors and executive officers,
GREKA Energy believes that all persons subject to reporting filed the required
reports on time in 1998.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, as of September 17, 1999, the common
stock ownership of each person known by GREKA Energy to be the beneficial owner
of 5% or more of GREKA Energy common stock, all directors and the executive
officer individually and all directors and the executive officer of GREKA Energy
as a group. Except as noted, each person has sole voting and investment power
with respect to the shares shown. There are no contractual arrangements or
pledges of the Company's securities, known to GREKA Energy, which may at a
subsequent date result in a change of control of GREKA Energy. As of September
17, 1999, there were 4,311,603 shares of GREKA Energy common stock issued and
outstanding, which amount does not include 140,886 shares GREKA Energy will
issue to International Publishing Holding s.a. upon the effectiveness of a
registration statement covering the resale of those shares.

<PAGE>

Amount of Beneficial
Ownership
-----------------------------
Name and Address Common Percent of
of Beneficial Owner Stock(1) Class
------------------- -------- --------
International Publishing 416,979 (4) 9.4%
Holding s.a.
Postbus 84019
2508 AA The Hague
The Netherlands

Capco Resources Ltd.(2) 1,340,000 31.1%
3201 Airpark Drive, Suite 201
Santa Maria, CA 93455

Randeep S. Grewal 1,610,000 (3) 35.9%
Chairman and
Chief Executive Officer
10815 Briar Forest Drive
Houston, TX 77042/
630 Fifth Avenue, Suite 1501
New York, NY 10111

Dr. Jan F. Holtrop 6,108 < 1%
Director
Van Alkemadelaan
2596 AS The Hague
The Netherlands

Dirk Van Keulen -0- -0-%
Director
Heemraadslag 14
2805 DP Gauda
The Netherlands

George G. Andrews -0- -0-%
Director
7899 West Frost Drive
Littleton, CO 80123

Dai Vaughan -0- -0-%
900 Powers Ferry Road #101
Mariettta, GA 30067

All directors and the
executive officer 1,616,108 36.1%
as a group (5 persons)

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

(1) Rule 13d-3 under the Securities Exchange Act of 1934, as amended,
involving the determination of beneficial owners of securities,
includes as beneficial owners of securities, among others, any person
who directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has, or shares, voting power
and/or investment power with respect to such securities; and, any
person who has the right to acquire beneficial ownership of such
security within sixty days through means, including but not limited to,
the exercise of any option, warrant or conversion of a security.

(2) Capco Resources Ltd. is controlled by Ilyas Chaudhary, a former
executive officer, director and principal shareholder of Saba. By a
Stock Exchange Agreement dated November 23, 1998, among Horizontal
Ventures and the former shareholders of Saba Aquisub, Inc., including
Capco, Capco has delivered a proxy to Randeep S. Grewal conferring on
Mr. Grewal voting power with respect to the GREKA Energy common stock
owned by Capco.

(3) Includes options presently exercisable or exercisable within the next
60 days to acquire 170,000 shares of GREKA Energy common stock, 100,000
shares of GREKA Energy common stock held individually by Mr. Grewal and
1,340,000 shares of GREKA Energy as to which Mr. Grewal has voting
power under a proxy from Capco.

<PAGE>

(4) Includes 140,886 shares of GREKA Energy common stock that
International Publishing Holding may be issued within the next 60 days
upon the effectiveness of a registration statement covering the resale
of those shares.

Item 12. Certain Relationships and Related Transactions

During the last two fiscal years, there have been no transactions
between GREKA Energy and any officer, director, nominee for election as
director, or any shareholder owning greater than five percent (5%) of GREKA
Energy's outstanding shares, nor any member of the above referenced individuals'
immediate family, except as set forth below.

Randeep S. Grewal, GREKA Energy's Chairman and Chief Executive Officer,
also receives an overriding royalty of 2 percent of all oil and gas production
received by GREKA Energy during the term of his employment. GREKA Energy issued
previously quoted 30,000 shares of GREKA Energy common stock to Mr. Grewal upon
the effective date of the acquisition of Saba.

On March 12, 1998, Richard Wedel, then an executive officer and
director of GREKA Energy, resigned and entered into an agreement providing for
certain severance benefits and mutual covenants.

It is GREKA Energy's policy that any future material transactions
between it and members of its management or their affiliates shall be on terms
no less favorable than those available from unaffiliated third parties.

Item 13. Exhibits and Reports on Form 8-K.

(a) Exhibits. The following exhibits are furnished as part of this
report:

Exhibit No. Exhibit Description

3.1 Restated Articles of Incorporation of Horizontal Ventures (filed as
Exhibit 3A to Horizontal Ventures' Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1998 (File No. 0-20760) and incorporated
herein by reference)

3.2 Articles of Amendment to Articles of Incorporation effective March 22,
1999 (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K
dated March 15, 1999 and incorporated herein by reference)

3.3 By-Laws of Horizontal Ventures (incorporated by reference to Exhibit
No. 3 to the Horizontal Ventures' Registration Statement
(#33-24265-LA)

10.1 Post-Petition Loan Agreement (incorporated by reference to Exhibit 10E
to Horizontal Ventures' Annual Report on Form 10-KSB for the year
ended December 31, 1996).

10.2 Amended Post-Petition Loan Agreement (incorporated by reference to
Exhibit 10-F to Horizontal Ventures' Annual Report on Form 10-KSB for
the year ended December 31, 1996).

10.3 Horizontal Drilling Services Letter Agreement (incorporated by
reference to Exhibit 10-G to Horizontal Ventures' Annual Report on
Form 10-KSB for the year ended December 31, 1996).

10.4 Agreement and Plan of Acquisition (incorporated by reference to
Exhibit 10.1 to Horizontal Ventures' Current Report on Form 8-K for
event dated August 11, 1997).

10.5 Randeep S. Grewal Employment Agreement (incorporated by reference to
Exhibit 10.1 to Horizontal Ventures' Current Report on Form 8-K for
event dated August 28, 1997).

10.6 Post Petition Loan Agreement (incorporated by reference to Exhibit
10.1 to Horizontal Ventures' Current Report on Form 8-K for event
dated August 28, 1997.

10.7 Cat Canyon Lease Purchase Agreement (filed as Exhibit 10K to
Horizontal Ventures' Annual Report on Form 10-KSB for the year ended
December 31, 1997 (File No. 0-20760) and incorporated herein by
reference).

10.8 Employment Agreement with Ilyas Chaudhary (filed as Exhibit 10.3 to
Saba's Registration Statement on Form SB-2 (File No. 33-94678) and
incorporated herein by reference)

10.9 Employment Agreement with Walton C. Vance (filed as Exhibit 10.31 to
Saba's annual report on Form 10-KSB for the year ended December
31,1996 (File No. 001-13880) and incorporated herein by reference)

<PAGE>

10.10 First Amendment, Letter Agreement with Bradley T. Katzung (filed as
Exhibit 10.33 to Saba's annual report on Form 10-KSB for the year
ended December 31, 1996 (File No. 001-13880) and incorporated herein
by reference)

10.11 Second Amendment to Employment Agreement with Bradley T. Katzung
(Filed as Exhibit 10.5 to Saba's annual report on Form 10-K for the
year ended December 31, 1997 (File No. 001-13880) and incorporated
herein by reference)

10.12 Employment Agreement with Burt Cormany (filed as Exhibit 10.1 to
Saba's quarterly report on Form 10-QSB for the quarter ending March
31, 1997 (File No. 001-13880) and incorporated herein by reference)

10.13 Employment Agreement with Alex Cathcart, dated March 1, 1997, (filed
as Exhibit 10.38 to Saba's Quarterly Report Form 10-Q for the quarter
ended June 30, 1997 (file No.001-13880) and incorporated herein by
reference)

10.14 Retainer Agreement with Rodney C. Hill, A Professional Corporation,
dated March 16, 1997 (filed as Exhibit 10.39 to Saba's Quarterly
Report Form 10-Q for the quarter ended June 30, 1997(File No.
001-13880) and incorporated herein by reference)

10.15 Amendment to Retainer Agreement with Rodney C. Hill, A Professional
Corporation dated March 13, 1998 (Filed as Exhibit 10.9 to Saba's
annual report on Form 10-K for the year ended December 31, 1997 (File
No. 001-13880) and incorporated herein by reference)

10.16 Saba Petroleum Company 1996 Equity Incentive Plan (filed as Exhibit
4.4 to Saba's Registration Statement on Form S-8, dated August 21,
1997 (File No. 333-34035) and incorporated herein by reference)

10.17 Saba Petroleum Company 1997 Stock Option Plan for Non-Employee
Directors (filed as Exhibit 4.5 to Saba's Registration Statement on
Form S-8, dated August 21, 1997 (File No. 333-34035) and incorporated
herein by reference)

10.18 First Amended and Restated Loan Agreement between Saba and Bank One,
Texas, N.A. (filed as Exhibit 10.1 to Saba's quarterly report on Form
10-QSB for the quarter ended September 30, 1996 (File No. 001-13880)
and incorporated herein by reference)

10.19 Amendment Number One to First Amended and Restated Loan Agreement
between Saba and Bank One, Texas, N.A. (filed as Exhibit 10.20 to
Saba's annual report on Form 10-KSB for the year ended December 31,
1996 (File No. 1-12322) and incorporated herein by reference)

10.20 Amendment Number Two to First Amended and Restated Loan Agreement
between Saba and Bank One, Texas, N.A. (filed as Exhibit 10.1 to
Saba's quarterly report on Form 10-Q for the quarter ended September
30, 1997 (File No. 001-13880) and incorporated herein by reference)

10.21 Amendment Number Three to First Amended and Restated Loan Agreement
between Saba and Bank One, Texas, N.A. (filed as Exhibit 10.2 to
Saba's quarterly report on Form 10-Q for the quarter ended September
30, 1997 (File No. 001-13880) and incorporated herein by reference)

10.22 Amendment Number Four to First Amended and Restated Loan Agreement
between Saba and Bank One, Texas, N.A. (filed as Exhibit 10 to Saba's
Current Report on Form 8-K filed September 24, 1997 (File No.
001-13880) and incorporated herein by reference)

10.23 Corrections relating to Second Amendment dated August 28, 1997, and
Fourth Amendment dated September 9, 1997 to the First Amended and
Restated Loan Agreement between Saba and Bank One, Texas, N.A. (filed
as Exhibit 10.4 to Saba's quarterly report on Form 10-Q for the
quarter ended September 30, 1997 (File No.001-13880) and incorporated
herein by reference)

10.24 Amendment Number Five to First Amended and Restated Loan Agreement
between Saba and Bank One, Texas, N.A. (filed as Exhibit 10.4 to
Saba's Current Report on Form 8-K filed January 15, 1998 (File No.
001-13880) and incorporated herein by reference)

10.25 Consent Letter to Preferred Stock Transaction by Bank One, Texas,
N.A. dated December 31, 1997 (filed as Exhibit 10.2 to Saba's Current
Report on Form 8-K filed January 15, 1998 (File No. 001-13880) and
incorporated herein by reference)

10.26 Amendment of the First Amended and Restated Loan Agreement between
Saba and Bank One, Texas, N.A., dated December 31, 1997 (filed as
Exhibit 10.3 to Saba's Report Form 8-K filed January 15, 1998 (File
No. 001-13880) and incorporated herein by reference)

10.27 Amendment Number Seven to First Amended and Restated Loan Agreement
between Saba and Bank One, Texas, N.A. (Filed as Exhibit 10.21 to
Saba's annual report on Form 10-K for the year ended December 31, 1997
(File No. 001-13880) and incorporated herein by reference)

10.28 Stock Purchase Agreement (filed as an exhibit to Saba's Current
Report on Form 8-K dated January 10, 1995 (File No. 1-12322) and
incorporated herein by reference)

<PAGE>

10.29 Processing Agreement between Santa Maria Refining Company and Petro
Source Refining Corporation (filed as Exhibit 10.6 to Saba's
Registration Statement on Form SB-2 (File No. 33-94678) and
incorporated herein by reference)

10.30 Agreement among Saba Petroleum Company, Omimex de Colombia, Ltd. and
Texas Petroleum Company to acquire Teca and Nare fields (filed as
Exhibit 10.7 to Saba's Registration Statement on Form SB-2 (File
No.33-94678) and incorporated herein by reference)

10.31 Agreement among Saba Petroleum Company, Omimex de Colombia, Ltd. and
Texas Petroleum Company to acquire Cocorna Field (filed as Exhibit
10.8 to Saba's Registration Statement on Form SB-2 (File No. 33-94678)
and incorporated herein by reference)

10.32 Agreement among Saba Petroleum Company and Cabot Oil and Gas
Corporation to acquire Cabot Properties (filed as Exhibit 10.9 to
Saba's Registration Statement on Form SB-2 (File No. 33-94678) and
incorporated herein by reference)

10.33 Agreement among Saba Petroleum Company, Beaver Lake Resources
Corporation and Capco Resource Properties Ltd. (filed as Exhibit 10.10
to Saba's Registration Statement on Form SB-2 (File No. 33-94678) and
incorporated herein by reference)

10.34 Amendment to Agreement among Saba, Omimex de Colombia, Ltd. and Texas
Petroleum Company to acquire the Teca and Nare fields (filed as
Exhibit 2.2 to Saba's Current Report on Form 8-K dated September 14,
1995 (File No. 1-12322) and incorporated herein by reference)

10.35 Promissory Notes of Saba (filed as Exhibit 10.13 to Saba's
Registration Statement on Form SB-2 (File No. 33-94678) and
incorporated herein by reference)

10.36CRI Stock Purchase Termination Agreement (filed as Exhibit 10.14 to
Saba's Registration Statement on Form SB-2 (File No. 33-94678) and
incorporated herein by reference)

10.37 Form of Common Stock Conversion Agreement between Capco and Saba
(filed as Exhibit 10.15 to Saba's Registration Statement on Form SB-2
(File No. 33-94678) and incorporated herein by reference)

10.38 Form of Agreement regarding exercise of preemptive rights between
Capco and Saba (filed as Exhibit 10.16 to Saba's Registration
Statement on Form SB-2 (File No. 33-94678) and incorporated herein by
reference)

10.39 Letter Agreement, as amended, between Omimex de Colombia, Ltd. and
Saba (filed as Exhibit 10.17 to Saba's Registration Statement on Form
SB-2 (File No. 33-94678) and incorporated herein by reference)

10.40 Promissory Note of Mr. Chaudhary (filed as Exhibit 10.2 to Saba's
quarterly report on Form 10-QSB for the quarter ended June 30, 1996
(File No. 001-13880) and incorporated herein by reference)

10.41 Form of Stock Option Agreements between Mr Chaudhary and Messrs.
Hickey and Barker (filed as Exhibit 10.3 to Saba's quarterly report on
Form 10-QSB for the quarter ended June 30, 1996 (File No. 001-13880)
and incorporated herein by reference)

10.42 Form of Stock Option Termination Agreements between Saba and Messrs.
Hagler and Richards (filed as Exhibit 10.4 to Saba's quarterly report
on Form 10-QSB for the quarter ended June 30, 1996 (File No.001-13880)
and incorporated by reference)

10.43 Agreement Minutes concerning Colombia oil sales contract between
Omimex as operator and Ecopetrol (filed as Exhibit 10.21to Saba's
annual report on Form 10-KSB for the year ended December 31, 1996
(File No. 001-13880) and incorporated herein by reference)

10.44 Operating Agreement between Omimex and Sabacol-Velasquez property
(filed as Exhibit 10.22 to Saba's annual report on Form 10-KSB for the
year ended December 31, 1996 (File No. 001-13880) and incorporated
herein by reference)

10.45 Operating Agreement between Omimex and Sabacol-Cocorna and Nare
properties (filed as Exhibit 10.23 to Saba's annual report on
Form10-KSB for the year ended December 31, 1996 (File No. 001-13880)
and incorporated herein by reference)

10.46 Operating Agreement between Omimex and Sabacol-Velasquez-Galan
Pipeline (filed as Exhibit 10.24 to Saba's annual report on Form
10-KSB for the year ended December 31, 1996 (File No. 001-13880) and
incorporated herein by reference)

10.47 Operating Agreement between Omimex and Sabacol-Cocorna Concession
property (filed as Exhibit 10.25 to Saba's annual report on Form
10-KSB for the year ended December 31, 1996 (File No. 001-13880) and
incorporated herein by reference)

10.48 Life insurance contract on life of Ilyas Chaudhary (filed as Exhibit
10.26 to Saba's annual report on Form 10-KSB for the year ended
December 31, 1996 (File No. 001-13880) and incorporated herein by
reference)

<PAGE>

10.49 Life insurance contract on life of Ilyas Chaudhary (filed as Exhibit
10.27 to Saba's annual report on Form 10-KSB for the year ended
December 31, 1996 (File No. 001-13880) and incorporated herein by
reference)

10.50 Agreement for Assignment of Leases between Saba and Geo Petroleum,
Inc. (filed as an exhibit to Saba's amended annual report on Form
10-KSB/A for the year ended December 31, 1996 (File No. 001-13880) and
incorporated herein by reference)

10.51 Amendment to Agreement for Assignment of Leases between Saba and Geo
Petroleum, Inc. (Filed as Exhibit 10.45 to Saba's annual report on
Form 10-K for the year ended December 31, 1997 (File No. 001-13880)
and incorporated herein by reference)

10.52 Agreement to Provide Collateral between Capco and Saba Petroleum
Company (filed as Exhibit 10.29 to Saba's annual report on Form 10-KSB
for the year ended December 31, 1996 (File No. 001-13880) and
incorporated herein by reference)

10.53 Purchase and Sale Agreement between DuBose Ventures, Inc., Rockbridge
Oil & Gas, Inc., Saba Energy of Texas, Incorporated and Energy Asset
Management Corporation to acquire properties in Jefferson Parish, LA
(filed as Exhibit 10.30 to Saba's annual report on Form 10-KSB for the
year ended December 31, 1996 (File No. 001-13880) and incorporated
herein by reference)

10.54 Beaver Lake Resources Corporation March 1997 Re-Financing Agreement
(filed as Exhibit 10.3 to Saba's quarterly report on Form 10-QSB for
the quarter ending March 31, 1997 (File No. 001-13880) and
incorporated herein by reference)

10.55 Production Sharing Contract between Perusahaan Pertambangan Minyak
Dan Gas Bumi Nagara (Pertamina) and Saba Jatiluhur Limited (filed as
Exhibit 10.5 to Saba's quarterly report on Form 10-Q for the quarter
ended September 30, 1997 (File No. 001-13880) and incorporated herein
by reference)

10.56 Agreements among Saba, Amerada Hess Corporation and Hamar Associates
II, LLC dated November 1, 1997 (Filed as Exhibit 10.50 to Saba's
annual report on Form 10-K for the year ended December 31,1997 (File
No. 001-13880) and incorporated herein by reference)

10.57 Agreements among Saba, Chevron U.S.A. Production Company and Nahama
Natural Gas (Filed as Exhibit 10.51 to Saba's annual report on Form
10-K for the year ended December 31, 1997 (File No. 001-13880) and
incorporated herein by reference)

10.58 Exchange Agreement between Saba and Energy Asset Management Company,
L.L.C. dated March 6, 1998 (Filed as Exhibit 10.52 to Saba's annual
report on Form 10-K for the year ended December 31, 1997 (File No.
001-13880) and incorporated herein by reference)

10.59 Office Lease Agreement, 3201 Airpark Drive, Santa Maria, California
(filed as Exhibit 10.2 to Saba's quarterly report on Form 10-QSB for
the quarter ending March 31, 1997 (File No. 001-13880) and
incorporated herein by reference)

10.60 Office Lease Agreement, 17526 Von Karman Avenue, Irvine, California
(Filed as Exhibit 10.54 to Saba's annual report on Form 10-K for the
year ended December 31, 1997 (File No. 001-13880) and incorporated
herein by reference)

10.61 Purchase and Sale Agreement between Saba and Statoil Exploration (US)
Inc. dated August 19, 1997 (filed as an exhibit to Saba's Current
Report on Form 8-K dated September 24,1997 (File No. 001-13880) and
incorporated herein by reference)

10.62 Securities Purchase Agreement dated December 31, 1997 (filed as
Exhibit 10.1 to Saba's Report Form 8-K filed January 15, 1998 (File
No. 001-13880) and incorporated herein by reference)

10.63 Registration Rights Agreement dated as of December 31,1997 (filed as
Exhibit 3(I).1(a) to Saba's Registration Statement on Form S-1, dated
January 27, 1998 (File No. 333-45023) and incorporated herein by
reference)

10.64 Stock Purchase Warrant (Closing Warrant) dated December 31,1997(filed
as Exhibit 3(I).1(a)to Saba's Registration Statement on Form S-1,
dated January 27, 1998 (File No. 333-45023) and incorporated herein by
reference)

10.65 Stock Purchase Warrant (Redemption Warrant) dated December 31, 1997
(filed as Exhibit 3(I).1(a) to Saba's Registration Statement on Form
S-1, dated January 27, 1998 (File No. 333-45023) and incorporated
herein by reference)

10.66 Finder Agreement dated as of December 31, 1997 (Filed as Exhibit
10.60 to Saba's annual report on Form 10-K for the year ended December
31, 1997 (File No. 001-13880) and incorporated herein by reference)

10.67 Stock Purchase Warrant (Finder Warrant) dated as of December 31, 1997
(Filed as Exhibit 10.61 to Saba's annual report on Form 10-K for the
year ended December 31, 1997 (File No. 001-13880) and incorporated
herein by reference)

<PAGE>

10.68 Preliminary Agreement To Enter Into A Business Combination dated
March 18, 1998 by and among Saba and Omimex Resources, Inc. (filed as
Exhibit 10.1 to Saba's Current Report on Form 8-K dated March 30, 1998
(File No. 001-13880) and incorporated herein by reference)

10.69 Press Release announcing the Proposed Combination between Saba and
Omimex Resources, Inc. dated March 18, 1998 (filed as Exhibit 10.2 to
Saba's Current Report on Form 8-K dated March 30, 1998 (File No.
001-13880) and incorporated herein by reference) 10.70 Preferred Stock
Transfer Agreementdated October 7, 1998 between Horizontal Ventures
and RGC (filed as Exhibit 10.1 to Horizontal Ventures' Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1998 and
incorporated herein by reference).

10.71 Common stock Purchase Agreement dated October 8, 1998 between
Horizontal Ventures and Saba (filed as Exhibit 10.2 to Horizontal
Ventures' Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1998 and incorporated herein by reference).

10.72 Option Agreement dated July 22, 1998 between Horizontal Ventures and
IPH (filed as Exhibit 10.3 to Horizontal Ventures' Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1998 and incorporated
herein by reference).

10.73 Promissory Note dated October 6, 1998 payable by Horizontal Ventures
to IPH (filed as Exhibit 10.4 to Horizontal Ventures' Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1998 and
incorporated herein by reference).

10.74 Pledge Agreement dated October 6, 1998 between Horizontal Ventures
and IPH (filed as Exhibit 10.5 to Horizontal Ventures' Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1998 and
incorporated herein by reference).

10.75 Promissory Note dated November 4, 1998 payable by Horizontal Ventures
to IPH (filed as Exhibit 10.6 to Horizontal Ventures' Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1998 and
incorporated herein by reference).

10.76 Pledge Agreement dated November 4, 1998 between Horizontal Ventures
and IPH (filed as Exhibit 10.7 to Horizontal Ventures' Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1998 and
incorporated herein by reference).

10.77 Agreement and Plan of Reorganization dated as of June 1, 1998 by and
among Saba and Ominex Resources, Inc. et al. (filed as Exhibit 10.1 to
Saba's Current Report on Form 8-K dated June 16, 1998 (File No.
001-13880) and incorporated herein by reference).

10.78 Consent letter to provisions of Section 1.7 of the Agreement and Plan
of Reorganization by Bank One, Texas, NA, dated June 2, 1998 (filed as
Exhibit 10.2 to Saba's Current Report on Form 8-K dated June 16, 1998
(File No. 001-13880) and incorporated herein by reference).

10.79 Amendment to First Amended and Restated Loan Agreement dated
September 23, 1996, as amended among Saba et al. And Bank One, Texas,
NA dated June 9,(filed as Exhibit 10.3 to Saba's Current Report on
Form 8-K dated June 16, 1998 (File No. 001-13880) and incorporated
herein by reference).

10.80 Mutual Termination and Release Agreement dated September 15, 1998 by
and among Saba, Saba Acquisition, Inc., Omimex Resources, Inc., the
Omimex Resources, Inc. stockholders and Ilyas Chaudhary (filed as
Exhibit 10.67 to Amendment No. 2 to Saba's Registration Statement on
Form S-1 dated December 22, 1998 (File No. 333-45023) and incorporated
herein by reference).

10.81 Letter Agreement dated October 8, 1998 between Saba and Horizontal
Ventures (filed as Exhibit 10.3 to Saba's Current Report on Form 8-K
dated October 6, 1998 (File No. 001-138807) and incorporated herein by
reference).

10.82 Employment Agreement with Imran Jattala dated July 23, 1998 (filed as
Exhibit 10.71 to Amendment No. 2 to Saba's Registration Statement on
Form S-1 dated December 22, 1998 (File No. 333-45023) and incorporated
herein by reference).

10.83 Stock Exchange Agreement dated November 23, 1998 among Horizontal
Ventures and the Shareholders of Saba Acquisub, Inc.*

10.84 Agreement to Amend Common stock Purchase Agreement dated December 3,
1998 between Saba and Horizontal Ventures (filed as Exhibit 10.85
Amendment No. 1 dated December 15, 1998 to Stock Exchange Agreement
dated November 23, 1998 among Horizontal Ventures and the shareholders
of Saba Acquisub, Inc. 10.1 to Saba's Current Report on Form 8-K dated
December 18, 1998 File No. 001-13880) and incorporated herein by
reference).

10.86 Amendment to $1,500,000 Promissory Note (filed as Exhibit 10.86 to
the Amendment No. 2 to the Company's Registration Statement filed on
Form S-4 dated February 19, 1999 and incorporated herein by reference)

10.87 Exchange Agreement between GREKA Energy and RGC International
Investors*

<PAGE>

10.88 Secured Convertible Promissory Note*

10.89A sset Purchase Agreement entered into March 17, 1999 among Sabacol,
Inc. and the Omimex Group*

10.90 First Amendment to Employment Agreement of Randeep S. Grewal
effective October 14, 1998*

16.1 Letter by PricewaterhouseCoopers, LLP dated February 15, 1999
regarding change in accountants (filed as Exhibit 16.1 to Amendment
No. 2 to the Company's Registration Statement on Form S-4 dated
February 16, 1999 and incorporated herein by reference)

16.2 Letter by Bateman & Co., Inc., P.C., dated February 19, 1999 regarding
change in accountants.

21.1 Subsidiaries of Horizontal Ventures Acquisition Corporation (filed as
Exhibit 21.1 to Horizontal Ventures' Registration Statement on Form
S-4 dated December 22, 1998 and incorporated herein by reference).

21.2 Subsidiaries of Saba (filed as Exhibit 21.1 to Saba's Registration
Statement on Form S-1 dated January 21, 1998 and incorporated herein
by reference).

23.1 Consent of Arthur Andersen LLP **

23.2 Consent of Bateman & Co., Inc., P.C., Independent Certified Public
Accountants, related to the financial statements for GREKA Energy
Corporation**

23.3 Consent of Netherland, Sewell & Associates, Inc.**

23.4 Consent of Sproule Associates Limited **

23.5 Consent of PricewaterhouseCoopers LLP related to the financial
statements of Saba Petroleum Company.**

27.1 Financial Data Schedule*

99.1 Consolidated Financial Statements of Saba Petroleum Company*

* Filed with the previously filed Form 10-K of GREKA Energy for the year
ended December 31, 1998.

** Filed herewith.

(b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth
quarter of 1998.

69
<PAGE>

GREKA ENERGY CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
REQUIRED BY ITEM 8 AND ITEM 14

Page
Financial Statements of GREKA Energy Corporation

Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . F-3
Report of Independent Public Accountants . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet as of December 31, 1998 . . . . . . . . . . . F-4
Consolidated Statements of Operations for each of the
two years ended December 31, 1998 . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Owners' Equity for each
of the two years ended December 31, 1998 . . . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows for each of the two
years ended December 31, 1997 . . . . . . . . . . . . . . . . . . . . F-9
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . F-11

Financial Statements of Saba Petroleum Company

Reports of Independent Public Accountants . . . . . . . . . . . . . . . . F-30
Consolidated Balance Sheets as of December 31, 1998 and 1997 . . . . . . F-32
Consolidated Statements of Operations for each of the
three years ended December 31, 1998 . . . . . . . . . . . . . . . . . F-34
Consolidated Statements of Stockholders' Equity (deficit) for each
of the three years ended December 31, 1998 . . . . . . . . . . . . . . F-35
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 1998 . . . . . . . . . . . . . . . . . . . . .F-37
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . .F-39
Supplemental Information About Oil and Gas Producing Activities . . . . . F-70

Financial statement schedules have been omitted since they are either not
required, are not applicable or the required information is included in the
consolidated financial statements or the notes thereto.

F-1

<PAGE>

Bateman & Co., Inc. P.C. 5 Briardale Court
Certified Public Accountants Houston, TX 77027-2904
(713) 552-9800
Fax (713) 552-9700
www.batemanhouston.com

INDEPENDENT AUDITORS' REPORT

To The Stockholders and Board of Directors
GREKA Energy Corporation, Inc.

We have audited the consolidated balance sheet of GREKA Energy
Corporation formerly known as Petro Union, Inc. (a Colorado corporation), dba
Horizontal Ventures, Inc., as of December 31, 1997, and the related consolidated
statements of operations, owners' equity, and cash flows for the years ended
December 31, 1997 and 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of GREKA Energy
Corporation, as of December 31, 1997, and the results of its operations and its
cash flows for the years ended December 31, 1997 and 1996 in conformity with
generally accepted accounting principles.

/S/ BATEMAN & CO., INC., P.C.
Houston, Texas
April 14, 1998

F-2

<PAGE>

Report of Independent Public Accountants

To the Shareholders of GREKA Energy Corporation:

We have audited the accompanying consolidated balance sheet of GREKA Energy
Corporation (a Colorado corporation) and subsidiaries as of December 31, 1998,
and the related consolidated statements of operations, owners' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GREKA Energy
Corporation and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

Arthur Andersen LLP

New York, New York
April 15, 1999 (except for the matters discussed in Note 14 for which the date
is September 16, 1999)

F-3

<PAGE>

GREKA ENERGY CORPORATION (Note 2)
Consolidated Balance Sheet
December 31, 1998

ASSETS

Current assets:
Cash and cash equivalents $ 250,212

Accounts Receivable
Trade, net of allowance for doubtful accounts of $74,092 20,807
Other 150,788
---------------
Total Current Assets 421,807

Investment in Saba Petroleum Company 15,804,110
Investment in limestone property, at cost 3,500,000
Properties and Equipment, at cost, net of accumulated
depreciation and depletion of $4,081,340 925,951
Deposits, prepayments and deferred charges 154,937
---------------

Total Assets $20,806,805
===============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Current maturities of long term notes and notes payable $ 2,013,338
Accounts payable and accrued expenses 236,323
---------------
Total Current Liabilities 2,249,661

Long term notes payable 52,634

Commitments and contingencies

Stockholders' equity
Common Stock, no par value, 50,000,000 shares authorized,
2,910,988 shares issued and outstanding 25,735,019
Accumulated deficit (7,230,509)
---------------

Total Stockholders' Equity 18,504,510
---------------

Total Liabilities And Stockholders' Equity $20,806,805
===============

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

F-4
<PAGE>

GREKA ENERGY CORPORATION (Note 2)
Consolidated Statements of Operations
For The Years Ended December 31, 1998 and 1997

1998 1997
------------------ ------------------
Revenues $ 145,813 $ 211,696
------------------ ------------------

Costs and Expenses
Operating costs 121,016 247,979
Salaries and wages 455,510 213,213
Depreciation, depletion and
amortization 333,468 24,016
Writedown of oil and gas properties 3,171,485 -
Rentals 94,828 31,262
Taxes, other than on income 58,207 16,059
Other administrative expenses 933,244 495,823
------------------ ------------------
Total costs and expenses 5,167,758 1,028,352
------------------ ------------------
Loss from operations (5,021,945) (816,656)

Other income (expense)
Equity in loss of Saba (586,020) -
Gain (loss) on sale of assets 9,223 (21,062)
Interest income 83,242 11,873
Interest expense (32,145) (25,271)
------------------ ------------------
Net other income (expense) (525,700) (34,460)
------------------ ------------------

Loss before income taxes (5,547,645) (851,116)
Provision for income tax - -
------------------ ------------------
Net loss $ (5,547,645) $ (851,116)
================== ==================
Loss per share of common stock $ (3.42) $ (1.44)
================== ==================
Weighted average number of shares
outstanding 1,621,483 591,053
================== ==================

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

F-5

<PAGE>

GREKA ENERGY CORPORATION (Note 2)
Consolidated Statements of Owners' Equity
For The Years Ended December 31, 1998 and 1997

Common Stock Series A Preferred Stock
-------------------- -------------------------
Shares Amount Shares Amount
------ ------ ------ ------

Balance, December 31, 1996 3,690 $ 37 - $ -

Stock issued for services 30,000 300 - -

Stock issued in exchange
for subordinated
convertible debentures,
and net assets of
limited partnership 725,770 7,258 - -

Stock issued for cash - - 3,000,000 30,000
-------- --------- ---------- ----------

Balance prior to reverse
merger with Petro
Union, Inc. 759,460 7,595 3,000,000 30,000

Effect of reverse merger
with Petro Union, Inc. 240,805 6,174,675 (3,000,000) (30,000)

Stock issued for cash in
Reg "S" offerings 552,470 5,801,518 - -

Less, related offering
costs - (454,837) - -

Issuance of stock to
retire note payable to
related party 6,108 59,122 - -

Net loss - - - -
-------- --------- ---------- ----------

Balance, December 31,
1997 1,558,843 11,588,073 - -
-------- --------- ---------- ----------

Stock issued for cash
in Reg. "S" offering,
net 12,145 84,446 - -

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

F-6
<PAGE>

GREKA ENERGY CORPORATION (Note 2)
Consolidated Statements of Owners' Equity
For The Years Ended December 31, 1998 and 1997
(Continued)

Capital
Capital In Contributed
Excess of Par Accumulated by Limited
Value Deficit Partners Total
---------- ------------ ----------- ------------

Issuance of stock to
purchase shares of
Saba Petroleum
Company 1,340,000 14,062,500 - -

Net loss - - - -
---------- ------------ ----------- ------------

Balance, December 31,
1998 2,910,988 $25,735,019 - $ -
========== ============ =========== ============

Balance, December 31,
1996 $ 3,445 $ (831,748) $ 818,000 $ (10,266)

Stock issued for services - - - 300

Stock issued in exchange
for subordinated
convertible debentures,
and net assets of
limited partnership 1,398,831 - (818,000) 588,089

Stock issued for cash 570,000 - - 600,000
---------- ------------ ----------- ------------

Balance prior to reverse
merger with Petro
Union, Inc. 1,972,276 (831,748) - 1,178,123

Effect of reverse merger
with Petro Union, Inc. (1,972,276) - - 4,172,399

Stock issued for cash in
Reg "S" offerings - - - 5,801,518

Less, related offering
costs - - - (454,837)

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

F-7
<PAGE>

GREKA ENERGY CORPORATION (Note 2)
Consolidated Statements of Owners' Equity
For The Years Ended December 31, 1998 and 1997
(Continued)

Capital
Capital In Contributed
Excess of Par Accumulated by Limited
Value Deficit Partners Total
---------- ------------ ----------- ------------
Issuance of stock to
retire note payable to
related party - - - 59,122

Net loss - (851,116) - (851,116)
---------- ------------ ----------- ------------

Balance, December 31,
1997 - (1,682,864) - 9,905,209
---------- ------------ ----------- ------------

Stock issued for cash
in Reg. "S" offering,
net - - - 84,446

Issuance of stock to
purchase shares of
Saba Petroleum
Company - - - 14,062,500

Net loss - (5,547,645) - (5,547,645)
---------- ------------ ----------- ------------

Balance, December 31,
1998 $ - $(7,230,509) $ - $18,504,510

========== ============ =========== ============

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

F-8
<PAGE>

GREKA ENERGY CORPORATION (Note 2)
Consolidated Statements of Cash Flows
For The Years Ended December 31, 1998 and 1997

1998 1997
----------------- ------------------
Cash flow operating activities:
Net loss $ (5,547,645) $ (851,116)
Adjustments to reconcile net loss
to net cash used in operations:
Depreciation, depletion, and
amortization 333,468 177,426
Writedown of oil and gas properties 3,171,485 -
(Gain) loss on sale of assets (9,223) 21,062
Equity in net loss of Saba 586,020 -
Stock and partners' capital issued
for services - 300
(Increase) decrease in accounts
receivable (3,626) 66,040
(Increase) in accounts receivable,
other (147,355) 520
(Increase) in net other assets (114,646) -
Increase (decrease) in accounts
payable and accrued expenses (562,222) 136,716
------------------ ------------------
Net cash used in operating activities (2,293,744) (449,052)
------------------ ------------------

Cash flow from investing activities:
Decrease (increase) in time deposits
and funds held in escrow 1,613,695 (1,613,695)
Purchases of property and equipment (1,168,519) (1,502,462)
Proceeds from sale of property and
equipment 55,908 55,181
(Increase) decrease in deposits and
prepayments - 1,286
Acquisition of Saba common and
preferred shares (2,327,630) -
------------------ ------------------
Net cash (used) in investing activities (1,826,546) (3,059,690)
Cash flows from financing activities:
Repayments of Notes Payable (32,896) (206,084)
Proceeds of loans from affiliates 2,000,000 59,122
Decrease in customer payments
received in advance - (30,000)

Proceeds from sale of stock, net of
expenses 84,446 5,946,681
Other - 51,517
------------------ ------------------

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

F-9
<PAGE>

GREKA ENERGY CORPORATION (Note 2)
Consolidated Statements of Cash Flows
For The Years Ended December 31, 1998 and 1997
(Continued)

Net cash provided by financing
activities 2,051,550 5,821,236
------------------ ------------------

Net increase (decrease) in cash and
cash equivalents (2,068,740) 2,312,494
Cash and cash equivalents:
Beginning of period 2,318,952 6,458
------------------ ------------------
End of period $ 250,212 $ 2,318,952
================== ==================

Non-cash financing and investing activities:
Stock issued for services $ - $ 300
Stock issued for subordinated
convertible debentures - 433,231
Stock issued for net assets of
limited partnership - 972,858
Stock issued in satisfaction of
note payable - 59,122
Stock issued for investment in
Saba Petroleum Co. 14,062,500 -
Property and equipment acquired by
issuance of notes payable - 500,000
Property and equipment acquired in
reverse merger with Petro Union,
Inc., net of debt assumed - 4,120,882

Supplementary cash flow data:
Interest paid 20,562 26,324
Income taxes paid - -

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

F-10

<PAGE>

GREKA Energy Corporation (Note 2)
Notes to Consolidated Financial Statements
December 31, 1998

NOTE 1 - FINANCIAL CONDITION AND MANAGEMENT'S PLANS

The accompanying consolidated financial statements represent the financial
position and results of operations of Horizontal Ventures, Inc., which
subsequent to December 31, 1998 changed its name to GREKA Energy Corporation
(see Note 2). The Company's financial statements have been prepared on a
going-concern basis which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business.

During 1998, due to decreased prices for natural gas and crude oil in all
locations in which the Company does business (including the locations of its
equity method investment), the Company incurred significant losses, due
primarily to reduced production and related oil and gas sales and a $3.2 million
non-cash ceiling writedown of its oil and gas assets without any reduction for
tax benefits. As a result of these factors, the reported net loss was $5.5
million, or $3.42 per share. The Company has also not made payments on two loans
from one of its primary stockholders, but has requested extensions in the due
dates for such repayments. In addition, the Company made a substantial
investment in Saba Petroleum Company ("Saba") during the year and subsequently
merged with such company in March 1999. Saba is not in compliance with certain
requirements, restrictions and other covenants in its 9% convertible senior
subordinated debentures ($3.6 million), its revolving ($15.6 million) and term
($4.5 million) bank loan agreements, its loan from the operator of properties
owned by the Company in Colombia ($4.2 million) and its Series A Convertible
Preferred Stock (with a stated value of $8.0 million). As a consequence, it
cannot borrow under its revolving bank loan agreement. In addition, Saba's
exploratory prospect in Indonesia requires a multi-year commitment of $17.0
million, which period began in October, 1997. Saba also received a notice of
default from the Colombian tax authorities for the payment of income taxes for
1997 and 1998. In addition, the Company's independent public accountants issued
a modified report with respect to the ability of the Company to continue as a
going concern, which also constitutes a default under the revolving bank credit
agreements. Due to the Company and Saba not being in compliance with the above
mentioned requirements, restrictions and other covenants, combined with other
normal maturities of long term debt, approximately $2.0 and $28.8 million, of
such long term debt is classified as currently payable by the Company and Saba,
respectively, and, as a result, the Company and Saba have working capital
deficiencies of approximately $1.8 million and $35.4 million, respectively.

To improve its financial situation, management is in the process of
renegotiating the terms of Saba's 9% convertible senior subordinated debentures
and Saba's Series A Convertible Preferred Stock and is negotiating a term and
revolving credit agreement with a new bank. In addition, the Company is
negotiating to sell certain non-core assets, including its Colombian subsidiary.
In addition, the Company will begin operating Saba's refinery in California on a
100% basis beginning May 1, 1999, which is expected to significantly increase
operating cash flows from this asset. The above mentioned transactions are in
various stages of completion, and management believes that they will all be
closed by June 30, 1999. As a result of the above factors and the pending nature
of negotiations, there is substantial doubt about the Company's ability to
continue as a going concern if management is not successful in its
recapitalization plan. Management believes that the completion of the
refinancing and sale transactions discussed above will remove any uncertainty as
to its ability to continue as a going concern. The accompanying financial
statements do not include any adjustments relating to the recoverability and
classification of the asset carrying amounts or the amounts and classifications
of liabilities that might result should the Company be unable to continue as a
going concern. See Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources. See Note 14 for
Subsequent Events' Note discussing the status of the Company's recapitalization
plan and the independent accountants' decision to remove the modification to
their report on the 1998 financial statements of GREKA Energy.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Nature of business and organization - GREKA Energy Corporation
("GREKA"), which was named Horizontal Ventures, Inc. prior to changing its name
in March 1999, was engaged in contract drilling of oil and gas wells and in
development of oil and gas properties for its own account. All of the Company's
operations are in one industry segment. Its executive offices are located in New
York, New York, and a field office in Tulsa, Oklahoma. It offers its services
primarily in the western, Midwestern, and southwestern United States. It has oil
and gas properties in California and oil, gas, and limestone properties in the
Midwestern United States. As of December 31, 1998, GREKA Energy Corporation also

F-11

<PAGE>

held an approximate 30% ownership interest in Saba Petroleum Company ("Saba").
Subsequent to year end, the company acquired all of the remaining common shares
of Saba through the issuance of 1.3 million shares of GREKA common stock. The
merged company changed its name to GREKA Energy Corporation. Saba is an
international oil and gas producer with principal producing properties in the
continental United States, Canada, and Columbia and an asphalt refinery in
California.

Petro Union was a debtor in possession under Chapter 11 of the U.S.
Bankruptcy Code until August 28, 1997, at which time the Bankruptcy Court
approved its plan of reorganization. As a part of its plan of reorganization,
PUI agreed to acquire all the outstanding stock of Horizontal Ventures, Inc.
("HVI"). The acquisition of HVI was completed on September 9, 1997, and after
the acquisition, HVI shareholders owned more than 50% of the outstanding shares
of PUI. Therefore, pursuant to the rules of the Securities and Exchange
Commission, the transaction has been accounted for as a "reverse merger."
Accordingly, the accompanying consolidated statements of operations and
consolidated statements of cash flows reflect the historical operations and cash
flows HVI (including those of PUI after September 9, 1997, the effective date of
the merger), whereas previous reports filed by the Company reflected operations
and cash flows of PUI. HVI and Petro Union, Inc. completed a statutory merger
under the laws of the State of Colorado effective December 31, 1997.

Basis of presentation - The consolidated financial statements include
the accounts of the company and wholly owned subsidiaries. The investment in
Saba was acquired through share purchases during the 1998 fourth quarter. As of
December 31, 1998, GREKA owns approximately 30% of Saba's common shares and,
accordingly, has accounted for this investment using the equity method of
accounting.

The consolidated financial statements also include the accounts and
transactions of Calox, Inc. a subsidiary of GREKA , whose principal asset is
nonproducing limestone reserves, and HVI Cat Canyon, Inc. All significant
intercompany accounts and transactions have been eliminated in the accompanying
consolidated financial statements.

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

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

Fair value of financial instruments - The carrying amounts of cash and
cash equivalents, accounts receivable, accounts payable and accrued expenses,
other current liabilities and notes payable, approximate fair value because of
the short maturity of these items. These fair value estimates are subjective in
nature and involve uncertainties and matters of significant judgment, and,
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect these estimates.

Accounts receivable - The Company provides an allowance for
uncollectible receivables when it is determined that collection is doubtful.
Substantially all of the Company's trade receivables are from its directional
drilling services.

Concentrations of credit risk - Substantially all of the Company's
accounts receivable are from companies engaged in the oil and gas business, and
concentrated in the Southwestern United States. Generally, the Company does not
require collateral for its accounts receivable. The Company has performed
services for only a limited number of customers each period; therefore, each
customer may be considered a major customer.

F-12

<PAGE>

Properties and equipment - Properties and equipment are stated at cost.
The Company follows the "full-cost" method of accounting for oil and gas
property and equipment costs. Under this method, all productive and
nonproductive costs incurred in the acquisition, exploration, and development of
oil and gas reserves are capitalized. Such costs include lease acquisitions,
geological and geophysical services, drilling, completion, equipment, and
certain general and administrative costs directly associated with acquisition,
exploration, and development activities. General and administrative costs
related to production and general overhead are expensed as incurred. No gains or
losses are recognized upon the sale or disposition of oil and gas properties,
except in transactions that involve a significant amount of reserves. The
proceeds from the sale of oil and gas properties are generally treated as a
reduction of oil and gas property costs. Fees from associated oil and gas
exploration and development partnerships, if any, will be credited to oil and
gas property costs to the extent they do not represent reimbursement of general
and administrative expenses currently charged to expense. Internal costs
capitalized as intangible development costs include direct wages paid to
drilling crews, related payroll taxes, and travel expenses while on drilling
sites; such costs approximated $0 and $10,900 in 1998 and 1997, respectively.
Such costs can be directly identified with acquisition, exploration and
development activities and do not include any costs related to production,
general corporate overhead, or similar activities.

Future development, site restoration, and dismantlement and abandonment
costs, net of salvage values, are estimated on a property-by-property basis
based on current economic conditions and are amortized to expense as the
Company's capitalized oil and gas property costs are amortized. The Company's
properties are all onshore, and the Company expects that the salvage value of
the tangible equipment offsets any site restoration and dismantlement and
abandonment costs.

The provision for depreciation, depletion, and amortization of oil and
gas properties is computed on the unit-of-production method. Under this method,
the Company computes the provision by multiplying the total unamortized costs of
oil and gas properties including future development, site restoration, and
dismantlement and abandonment costs, but excluding costs of unproved properties
by an overall rate determined by dividing the physical units of oil and gas
produced during the period by the total estimated units of proved oil and gas
reserves. This calculation is done on a country by country basis for those
countries with oil and gas production. Excluding the operations of the company's
equity investment in Saba, it currently has production in the United States
only. The cost of unevaluated properties not being amortized, to the extent
there is such a cost, is assessed quarterly to determine whether the value has
been impaired below the capitalized cost. Any impairment assessed is added to
the cost of proved properties being amortized. The costs associated with
unevaluated properties relate to projects which were undergoing exploration or
development activities or in which the company intends to commence such
activities in the future. The Company will begin to amortize these costs when
proved reserves are established or impairment is determined.

At the end of each quarterly reporting period, the unamortized cost of
oil and gas properties, net of related deferred income taxes, is limited to the
sum of the estimated future net revenues from proved properties using current
prices, discounted at 10%, and the lower of cost or fair value of unproved
properties, adjusted for related income tax effects ("Ceiling Limitation").

The calculation of the ceiling limitation and provision for
depreciation, depletion, and amortization is based on estimates of proved
reserves. There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting the future rates of production, timing, and
plan of development. The accuracy of any reserves estimate is a function of the
quality of available data and of engineering and geological interpretation and
judgment. Results of drilling, testing, and production subsequent to the date of
the estimate may justify revision of such estimate. Accordingly, reserve
estimates are often different from the quantities of oil and gas that are
ultimately recovered.

During the fourth quarter of 1998, the Company recorded a $3,059,119
non-cash ceiling writedown of its oil and gas properties.

Depreciation for all other property and equipment is provided over
estimated useful lives using the straight line method of depreciation for
financial reporting purposes and the accelerated cost recovery system for income
tax purposes. Renewals and betterments are capitalized when incurred. Costs of
maintenance and repairs that do not improve or extend asset lives are charged to
expense.

The Company's investment in limestone reserves will be amortized on a
unit-of-production basis as the reserves are mined and produced. Since the
acquisition of the limestone reserves in 1993, there has been no development or
production of these properties. Management has determined that there is no
impairment in value of the reserves at December 31, 1998.

License agreements and organization expenses - The Company has acquired
certain licenses for the use of horizontal drilling technology developed by
Amoco Corporation. License agreements and organization expenses are amortized
over a fifteen and five year life, respectively, using the straight line method
of amortization. Amortization charged to operations was $16,593 and $16,510 in
1997 and 1998, respectively.

Environmental expenditures - If and when remediation of a property is
probable and the related costs can be reasonably estimated, the
environmentally-related remediation costs will be expensed and recorded as
liabilities. If recoveries of environmental costs from third parties are
probable, a receivable will be recorded. Management is not currently aware of
any required remediation.

F-13

<PAGE>

Revenue recognition - For financial reporting purposes, revenues from
drilling operations are recognized in the accounting period which corresponds
with the performance of the service to the customer. Revenue from oil and gas
production is recognized in the period in which the product is sold. The related
costs and expenses are recognized when incurred.

Federal and State income taxes - The Company follows SFAS No. 109,
"Accounting for Income Taxes", which accounts for income taxes using the
liability method. Under SFAS No. 109, deferred tax liabilities and assets are
determined based on differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates expected to be in effect for the
year in which the differences are expected to reverse. The net change in
deferred tax assets and liabilities is reflected in the statement of operations.
The primary differences between financial reporting and tax reporting relate to
the availability of net operating loss carryforwards, and the use of accelerated
methods of depreciation for income tax purposes.

Earnings per share - Basic (loss) per share has been computed using the
weighted average number of common shares outstanding during the respective
periods. In computing average outstanding shares during 1997, the Company has
converted Horizontal Ventures shares outstanding prior to the merger to
equivalent Petro Union shares on a pro rata basis. Diluted earnings per share is
computed by considering the effect of outstanding options and warrants. However,
diluted earnings per share is the same as basic earnings per share in instances
where a loss has been incurred. Accordingly, diluted earnings per share has not
been presented.

Accounting Pronouncement Issued, but Not Yet Adopted - The Company has
not yet adopted AICPA Statement of Position 98-5 "Reporting on the Costs of
Start-Up Activities." Such pronouncement will require that the Company expense
the balance of its unamortized organization costs in the first quarter of 1999.
At December 31, 1998, the balance of unamortized organization costs is $16,542.

NOTE 3 - MERGER OF PETRO UNION, INC. AND HORIZONTAL VENTURES, INC.:

On June 13, 1997, Horizontal Ventures, Inc. and Petro Union, Inc.
entered into an agreement under which all of the outstanding common and
preferred shares HVI would be acquired by Petro Union. Petro Union was also
engaged in performing contract drilling services using the licensed Amoco
technology. Petro Union was subject to supervision in the U.S. Bankruptcy Court
for the Southern District of Indiana under Chapter 11 of the U.S. Bankruptcy
Code, and the agreement with HVI was part of Petro Union's Plan of
Reorganization. On August 28, 1997, the Bankruptcy Court approved the Plan, the
principal points of which are as follows:

* The par value of Petro Union stock was converted from $.125 par value
to no par value.

* All secured debt was paid according to the terms previously contracted
for.

* Unsecured creditors in class C-1 received 20,000 shares of new Petro
Union no par value stock in satisfaction of their claims, and
unsecured creditors in class C-2 received 80,000 shares of new HVI no
par value stock in satisfaction of their claims.

* The priority post-petition promissory note of Pembrooke Holdings
Corporation (Pembrooke) in the amount of $150,000 was paid with
$100,000 in cash and the issuance of 49,999 shares of new HVI no par
value stock valued at $50,000.

* Existing shareholders of Petro Union received new HVI no par value
stock in the ratio of 1 new share for each 220 shares of old stock.

* Randeep C. Grewal, CEO of HVI and Richard D. Wedel, President of Petro
Union received 70,000 shares each of new Petro Union no par value
stock valued at $20,000 each, or $40,000 in total.

* International Publishing Holding s.a. ("IPH"), a Luxembourg society
anonyme, loaned $200,000 to Petro Union secured by 50% interest in its
nonproducing limestone reserves; the loan was then converted into
40,000 shares of new HVI no par value stock.

* Petro Union issued 590,000 shares of new HVI no par value stock for
all the outstanding common and preferred stock of HVI.

F-14

<PAGE>

After the Plan was consummated on September 9, 1997, HVI shareholders owned
approximately 63% of the new HVI no par value stock.

Pro-forma summary statements of operations, combining Petro Union, Inc.,
and HVI, are as follows, assuming the merger had occurred January 1, 1997:

Year Ended December 31, 1997

Petro Union, Inc. Petro Union, Inc.,
(January 1 through d/b/a
September 9, 1997) HVI Pro-Forma
------------------ ------------- -------------

Revenues $ 311,798 $ 211,696 $ 523,494
Cost of revenues 237,801 247,979 485,780
------------- ------------- -------------
Gross profit (loss) 73,997 (36,283) 37,714

General and administrative
expenses 264,550 780,373 1,044,923
------------- ------------- -------------

(Loss) from operations (190,553) (816,656) (1,007,209)
Other income (expense) (7,933) (34,460) (42,393)
------------- ------------- -------------

(Loss) before tax (198,486) (851,116) (1,049,602)
Provision for taxes - - -
------------- ------------- -------------

Net (loss) $ (198,486) $ (851,116) $ (1,049,602)
============= ============= =============

NOTE 4 - PURCHASE OF EQUITY INTEREST IN AND SUBSEQUENT MERGER WITH SABA
PETROLEUM COMPANY

During 1998, GREKA entered into the following transactions to purchase its
interests in Saba Petroleum Company (Saba).

Date Consideration Common Stock Preferred Stock Cost
- ---- ------------- ------------ --------------- ------------

October Cash 80,000 $ 70,130
October Cash 690 750,000
November Cash 333,333 1,500,000
December 1.34 million
shares of
GREKA 2,971,766 14,070,000
---------- ----------- ------------
Total 3,385,099 690 $16,390,130
========== =========== ============

F-15

<PAGE>

In November, 1998, the Company paid $500,000 to the holder of Saba's Series A
Preferred Stock to extend the term of an option to purchase 6,910 shares of Saba
Series A Preferred Stock for an additional 30 days. The cash payment is
reflected in the above table as part of the November purchases of shares. Such
option expired unexercised. Therefore, as of December 31, 1998, GREKA held
3,385,099 common shares (29.8% of total outstanding) and 690 shares of
convertible preferred stock of Saba. As of December 31 1998, GREKA accounts for
its investment using the equity method.

GREKA 's $16.4 million equity method investment has been allocated to the fair
value of each of Saba's assets and liabilities, as of December 31, 1998 in the
following table. The amounts presented represent 29.8% of the estimated fair
value of Saba's assets and liabilities (dollars in thousands).

Refinery $12,218.0
Oil and Gas Properties 10,581.8
Land 3,580.5
Other Assets 5,994.2
Liabilities and minority interest (13,675.2)
Preferred stock (2,309.2)
-----------
Total investment $16,390.1
===========

The summarized audited financial information of Saba is shown below as of
December 31, 1998 and for the years ended December 31, 1998 and 1997:

Balance Sheet Data ................ 1998 1997
----------- -----------
Oil and gas properties, net ....... $32,904,810 $54,844,840
Other assets, net ................. 16,783,602 22,812,106
Current liabilities ............... 40,003,281 39,075,063
Other liabilities and
preferred stock ................... 13,176,220 28,984,304
----------- -----------
Net assets ........................ $ (3,491,089) $ 9,597,579
=========== ===========
GREKA 's equity in net assets ..... $ (1,040,344) $ N/A
=========== ===========

Earnings Data 1998 1997
------------ ------------
Revenues ...................... $ 23,331,331 $ 35,995,762
Operating (loss) income ....... (24,024,215) 6,744,071
Net (loss) earnings ........... $(28,650,823) $ 2,397,447
============ ============
GREKA's equity in loss ........ $ (586,020) N/A
============ ============

GREKA's equity in loss of Saba represents GREKA's share of Saba's losses since
the acquisition dates of Saba's shares during the fourth quarter of 1998.

F-16
<PAGE>

In addition to the shares owned directly by GREKA, 568,000 Saba shares were
owned by IPH, an GREKA shareholder. Such shares were subject to a call agreement
by GREKA at an exercise price equal to 120% of the cost of such shares to IPH,
payable in cash or common shares of GREKA. IPH had a put agreement that became
effective April 1, 1999 and was exercised on such date. GREKA will issue 140,886
shares following the filing of a registration statement.

In December, 1998, GREKA's Board of Directors approved the acquisition of all
the remaining outstanding shares of Saba common stock through a proposed merger
with GREKA based on an exchange ratio of one share of GREKA common stock for
each six shares of Saba common stock. In March 1999, the Company, through a
wholly owned subsidiary, merged with Saba in a transaction accounted for as a
purchase with a cost of approximately $9.0 million based upon the issuance of
1,332,500 shares of GREKA stock. The results of operations for Saba will be
included in the Company's consolidated results of operations as of the
acquisition date.

Saba's principal assets are an asphalt refinery, proved oil and gas reserves of
21.4 MBOE, with a standardized measure value of $38.4 million (using prices as
of April 1, 1999) and various real estate holdings.

The following are the unaudited pro forma revenue, net loss and loss per share
of the Company giving effect to the acquisition of Saba, as if such acquisition
had occurred at the beginning of 1998. The unaudited pro forma financial data do
not purport to be indicative of the financial position or results of operations
that would actually have occurred if the acquisition had occurred as presented
or that may be obtained in the future.

Year Ended
December 31,
1998
------------
Dollars in thousands, except share amounts
Revenue .......................................................... $ 23,477
Net loss ......................................................... (34,273)
Loss per common share ............................................ (8.08)

NOTE 5 - NON PRODUCING LIMESTONE PROPERTY

The Company owns, through a wholly owned subsidiary, a limestone property,
including the land, timber and all the mineral rights associated with the
property. International Publishing Holding s.a. (IPH), the Company's largest
shareholder, holds an option that expires on September 9, 2000 to acquire 90% of
such company for $3.5 million.

Subsequent to year-end, the Company entered into an agreement with IPH and
Pembrooke Holdings Corporation (Pembrooke). Under the terms of such agreement,
Pembrooke has the following options to acquire 100% of the shares of such
subsidiary of GREKA:

- Pay $3.5 million by March 31, 1999 and four $200,000 annual
installments beginning March 31, 2001

- Pay $3.85 million by May 30, 1999 and four $200,000 annual
installments beginning March 31, 2001

- Issue a non-recourse note for $5.7 million due on or before November
1,1999, the terms of which would require Pembrooke to pay $3.85
million to GREKA by May 31, 1999 or to pay GREKA $5.7 million on
November 1, 1999.

In connection with the above, GREKA shall pay Pembrooke $50,000 and issue shares
of GREKA common stock having a value equal to $150,000 based upon the average of
the closing prices for the last 30 days prior to February 16, 1999 and GREKA
will file a registration statement to register such shares by April 15, 1999 or,
if the filing of such registration statement is not done by May 15, 1999, due to
the negligence of GREKA, then GREKA will pay Pembrooke $150,000.

F-17

<PAGE>

NOTE 6 - PROPERTY AND EQUIPMENT:

A summary of the Company's property and equipment as of December 31,
1998 is as follows:

Oil and gas properties:
Leasehold Costs $ 2,058,177
Intangible development
costs 910,270
Lease and well equipment 289,717
Storage facilities and
gathering systems 187,652
----------------
Total 3,445,816
Land and buildings 85,814
Drilling equipment 1,242,189
Transportation equipment 163,632
Office computer equipment 69,840
----------------
Total cost 5,007,291
Accumulated depletion and
depreciation 4,081,340
----------------
$ 925,951
================

Depreciation, depletion and amortization (including an impairment charge of
$3,171,485) charged against income was $3,504,953 and $160,833 in 1998 and 1997,
respectively.

Useful lives are as follows:

Buildings ............................................. 20 to 40 years
Drilling equipment .................................... 5 to 10 years
Transportation equipment .............................. 5 to 6 years
Office and computer equipment ......................... 3 to 10 years

NOTE 7 - COMMITMENTS AND CONTINGENCIES:

The Company leases office space, automobiles, computers, and other
equipment under various operating leases. The Company has options to renew these
leases. Aggregate commitments under these leases at December 31, 1998 were as
follows:

Year Ending December 31: Amount
----------------------- ----------
1999 $ 29,418
2000 20,570
2001 16,146
2002 16,146
2003 16,146

Rent expense included in the accompanying statements of operations was
$76,778 and $31,262 in 1998 and 1997, respectively.

F-18

<PAGE>

In October 1994, the Company licensed certain directional drilling
technology from Amoco Corporation, a major oil corporation. The license
currently requires minimum annual payments of $15,000 per year or $1,639 per
well drilled under the license, whichever is greater, and the amounts are
adjusted periodically for inflation. The Company incurred license payments
approximating $15,000 and $20,000 for the year ended December 31, 1998 and 1997,
respectively. Quarterly settlements are required under the license, and Amoco
has the right to terminate the license for non-payment. If Amoco were to
terminate the Company's license, it could have an adverse affect on the
Company's operations.

NOTE 8 - FEDERAL AND STATE INCOME TAXES:

Due to the losses incurred in 1998 and 1997, the Company has not
recorded any provision or benefit for Federal and State income taxes.

The Company follows SFAS No. 109, "Accounting for Income Taxes" in
accounting for deferred Federal income taxes. The Company has recorded deferred
tax assets and liabilities, using an expected tax rate of 35%, as follows:

December 31,
1998
------------
Deferred tax asset (liability) attributable to:
Net operating loss carryover ............................ 14,996,540
Accumulated depreciation ................................ 974,692
------------

Subtotal .................................................. 15,971,232
Less, Valuation allowance ................................. (15,971,232)
------------

Net deferred tax asset .................................... $ --
============

As indicated above, a significant net operating loss carryover has been incurred
in prior years, primarily by Petro Union. Management has not yet determined the
extent to which the net operating loss will be limited under Section 382 of the
Internal Revenue Code, if any, as a result of the merger with HVI. The net
operating loss expires, if unused, as follows:

Expires in Amount
---------- -------------
2007 $ 214,000
2008 7,236,400
2009 4,551,900
2010 510,700
2011 24,437,600
2012 1,103,400
2013 4,847,300
-------------
Total $ 42,901,300
=============

F-19

<PAGE>

NOTE 9 - NOTES PAYABLE:

Details of long term notes payable are as follows:

Note payable to International Publishing
Holding, S.A. (IPH) dated November 2, 1998,
with interest at 6% ....................... $ 1,500,000
Note payable to IPH dated October 8, 1998,
without interest .......................... 500,000
Other Notes ................................. 65,972
-----------
Total ....................................... 2,065,972
Less, amount due within one year ............ (2,013,338)
-----------
Net long term portion ....................... $ 52,634
===========

Current maturities of long term notes are as follows:

1999 2,013,338
2000 18,660
2001 13,719
2002 12,072
2003 8,183
------------
Total $ 2,065,972
============

The notes payable to IPH are due on May 31, 1999.

NOTE 10 - LITIGATION:

At December 31, 1998, the Company had trade accounts receivable approximating
$94,899 from several debtors, some of whom have refused to pay. Although no
lawsuits have been filed to collect these debts, management is currently
continuing to have discussions with the debtors in an effort to resolve any
disputes and collect the amounts due. In one case, the Company has a lien
against an oil and gas property, and in another it has received a written
promise to pay the amount due. If continuing efforts are unsuccessful, the
Company intends to pursue its claims through other legal actions, and believes
it will be successful. An allowance for doubtful accounts of $74,092 has been
provided for any uncollectible amounts, and management believes it will be
adequate to absorb any losses.

NOTE 11 - RELATED PARTY TRANSACTIONS:

The Company has an agreement with Grupo de Creacion, Ltd. ("GDC"), a Gibraltar
corporation and a shareholder of the Company, for financial consulting services.
Under the agreement, GDC assisted the Company in arranging three "Reg S"
securities offerings during 1997, resulting in proceeds of approximately
$5,800,000 for the sale of Company stock. As compensation, GDC receives a
negotiated commission of not less than 7% of any financing up to $10 million,
and reduced percentages over that amount; in addition, it receives an overriding
royalty of 2% of all oil and gas production received by the Company during the
term of the agreement. The agreement expires December 31, 2004. GDC was paid
commissions of approximately $337,400 for completed financings in 1997, and an
overriding royalty of approximately $500.

F-20

<PAGE>

On September 9, 1997, the Company entered into an employment agreement with
Randeep S. Grewal for a five-year term. Mr. Grewal is the Chairman and Chief
Executive Officer and a director of the Company. His current salary is $120,000
per year. Compensation is reviewed annually. Mr. Grewal participates in the
Company's benefit plans and is entitled to bonuses and incentive compensation as
determined by the Board of Directors of the Company. The agreement is terminable
for Cause or by the death or disability of Mr. Grewal. Upon termination of the
agreement by the Company for any reason other than for Cause, death or
disability, the Company is obligated to pay within 30 days after the date of
termination (1) Mr. Grewal's Base Salary through the date of the Severance
Period, (2) Mr. Grewal's base salary for the balance of the term of the
agreement if the Date of Termination is within the first three years of the
Employment Agreement (Base Salary is the rate in effect at the Date of
Termination), (3) the Annual Bonus paid to Mr. Grewal for the last full fiscal
year during the Employment Period and (4) all amounts of deferred compensation,
if any. The agreement allows Mr. Grewal to receive an assignment of 2%
overriding royalty of all oil and gas production received by the Company.
Effective as of the Saba merger date of March 24, 1999, Mr. Grewal's employment
agreement has been amended. See Item 10 in Form 10-KSB.

On March 12, 1998, an officer of the Company resigned and entered into an
agreement providing for certain severance benefits and mutual covenants. The
Company agreed to pay the former officer a severance payment of $50,000.

NOTE 12- STOCK OPTIONS AND WARRANTS:

On September 9, 1997, the Company's Chairman and CEO was granted options to
purchase an aggregate of 150,000 shares of the Company's no par value common
stock at an option price of $5 per share, exercisable at the rate of 30,000
shares per year, with the first such installment becoming exercisable September
9, 1998, and an additional 30,000 shares on each succeeding September 9
thereafter. A similar option was granted to the Company's President, but the
option lapsed upon his resignation in 1998. No compensation expense was recorded
in connection with the granting of these options as the option price equaled the
market price on the date of grant.

On October 14, 1998, the Company's Chairman and CEO was granted options to
purchase an additional 110,000 shares of the Company's no par value common stock
at an option price of $8.25 per share (which equaled the market price on this
date). In addition, other employees, directors and consultants were granted
options to purchase an additional 140,000 shares of the Company's no par value
common stock at an option price of $8.25 per share.

A summary of the outstanding options follows:

1998 1997
------- -------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------- ------- -------- -------------
Options outstanding,
January 1 300,000 $ 5.00 - $ -
Options granted 250,000 8.25 300,000 5.00
Options terminated 150,000 5.00 - -
-------- ------- -------- -------------
Options outstanding,
December 31 400,000 7.03 300,000 5.00
Exercisable at year end 30,000 5.00 - -
Weighted average fair
value of options granted 3.30 7.88

F-21

<PAGE>

The Company also granted warrants to purchase common stock to the purchasers of
shares from one of the 1997 "Reg S" offerings. A summary is as follows:

Number of
Date Granted Shares Option Price Effective Date Expiration Date
- ------------ ------ ------------ -------------- ---------------
September 29,
1997 127,750 $15.00 January 1, December 31,
1998 1999

Such warrants expired unused on December 31, 1998.

As permitted under SFAS 123, the Company has elected to continue to account for
stock-based compensation under the provisions of APB Opinion No. 25. Had
compensation cost been determined consistent with SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the following pro
forma amounts:

December 31, December 31,
1998 1997
------------- ------------

Net loss: As reported $ (5,547,645) $ (851,116)
Pro forma $ (6,139,691) $(1,245,162)

Basic and diluted EPS As reported $ (3.42) $ (1.44)
Pro forma $ (3.78) $ (2.11)

The fair value of each option granted in 1998 and 1997 is estimated on the date
of grant using the Black-Scholes option pricing model with the following
assumptions: (a) risk free interest rates ranging from 5.2% to 6.4% (b) expected
volatility of 59.2% (c) average time to exercise of 7 years and (d) expected
dividend yield of zero.

NOTE 13 - SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)

The following data is presented pursuant to FASB Statement No. 69 with respect
to oil and gas acquisition, exploration, development and producing activities,
which is based on estimates of year-end oil and gas reserve quantities and
forecasts of future development costs and production schedules. These estimates
and forecasts are inherently imprecise and subject to substantial revision as a
result of changes in estimates of remaining volumes, prices, costs and
production rates.

Future cash inflows are estimated using year-end prices. Oil and gas prices at
December 31, 1998 are not necessarily reflective of the prices the Company
expects to receive in the future.

F-22

<PAGE>

Production Revenues and Costs

For the year ended December 31,
--------------------------------------
1998 1997
------------ -------------

Revenue $ 145,813 $ 211,696
Production Costs 121,016 247,979
Depreciation, depletion,
amortization 333,468 24,016
Writedown of oil and gas properties 3,171,485 -
------------- --------------
Pretax (loss) from producing
activities $ (3,480,156) $ (60,299)

1998 1997
------------ -------------
Capitalized costs at year end:
Proved reserves $ 3,445,816 $ 1,963,337
Unproved reserves - 400,000
------------- --------------
3,445,816 2,363,337

Less, Accumulated depreciation,
depletion and amortization (3,242,711) (57,598)
------------- --------------

Net investment in oil and gas
properties $ 203,105 $ 2,305,739
============= ==============

1998 1997
------------ -------------
Capitalized
Costs Incurred:
Acquisition of properties:
Proved $ - $ 1,679,131
Unproved - 400,000
Exploration costs - -
Development costs 1,082,479 284,206
------------- --------------
Total Capitalized Cost, Incurred $ 1,082,479 $ 2,363,337
============= ==============

Discounted Future Net Cash Flows (unaudited)

The following information relating to discounted future net cash flows has been
prepared on the basis of the Company's estimated net proved oil and gas reserves
in accordance with FASB Statement No. 69.

F-23
<PAGE>

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

1998 1997
------------ -------------
Future cash flows $ 1,725,500 $ 40,103,600

Future costs:
Development (440,000) (5,281,800)
Production (793,700) (23,805,600)
------------- --------------

Future net cash flows before income
taxes 491,800 11,016,200
Future income taxes - (3,304,800)
------------- --------------

Future net cash flow after income
taxes 491,800 7,711,400
Discount at 10% per annum (231,100) (3,101,100)
------------- --------------

Standardized measure of discounted
future net cash flows $ 260,700 $ 4,610,300
============= ==============

Changes in Discounted Future Net Cash Flow, from Proved Reserve Quantities:

1998 1997
------------ -------------
Balance, beginning of year
$ 4,610,300 $ -
Sales and transfers of oil and gas
produced, net of production costs (17,443) (13,578)
Net changes in prices and production
costs (3,721,007) -
Purchases of minerals in place - 4,623,878
Sales of minerals in place - -
Changes in estimated future
development costs 4,841,800 -
Revisions of previous quantity
estimates (4,771,053) -
Accretion of discounts 861,000 -
Net change in income taxes 1,751,000 -
Change in production rates (timing)
and other (3,293,897) -
------------- --------------
Standardized measure of discounted
future net cash flows $ 260,700 $ 4,610,300
============= ==============

F-24

<PAGE>

Reserve Information (Unaudited):

The following information with respect to the Company's 1998 and 1997 net proved
oil and gas reserves are estimates based on reports prepared by Netherland,
Sewell & Associates, Inc. for the California properties and evaluations by two
individual independent engineers and geologists pursuant to principles set forth
by the Standards Pertaining to the Estimating and Auditing of Oil and Gas
Reserve Information promulgated by the Society of Petroleum Engineers. Proved
developed reserves represent only those reserves expected to be recovered
through existing wells using equipment currently in place. Proved undeveloped
reserves represent proved reserves expected to be recovered from new wells or
from existing well after material recompletion expenditures. All of the
Company's reserves, excluding those of its equity method investment are located
in the United States.

1998 1997
Oil bbls Oil bbls
------------ -------------
Proved developed and
undeveloped reserves
Balance, beginning of year 2,553,007 1,826,385
Production (12,935) (2,112)
Discoveries, extensions, etc.

Acquisition of reserves in
place 728,734
Revisions of estimates (2,289,851)
------------ ------------
Balance, end of year 250,221 2,553,007
============ ============

Equity Share of Saba Oil and Gas Information:

As of December 31, 1998, the Company has a 30% equity interest in Saba Petroleum
Company (See Note 4). Accordingly, the following information represents the
Company's equity share of Saba's oil and gas reserves and standardized measure
of discounted future net cash flows as of December 31, 1998.

Gas Oil
MMcf Mbbl
----------- ---------
Proved reserves 6,853,334 4,144
----------- ---------

(Dollars in
Thousands)

Future cash inflows ......................... $ 43,815

Future costs

Production ............................. (24,243)

Development ............................ (7864)

Future income tax expense ................... (93)
--------

Net future cash flows ....................... 11,615

Discount - 10% ......................... (4,724)

Standardized measure of
discounted future net cash flows ............ $ 6,891
========
F-25

<PAGE>

Acquisition of Saba in March 1999:

As discussed in Note 4, subsequent to year end, the Company completed its
acquisition of Saba. The following information with respect to the Company's
estimated net proved oil and gas reserves are estimates based upon reports
prepared by independent petroleum engineers (Netherland, Sewell & Associates,
Inc. for the U.S. properties and Sproule Associates Limited for the Canadian
properties) If this acquisition had been recorded in 1998, it would have
increased the Company's proved reserves as of December 31, 1998 as follows:

Acquired Properties Company Pro Forma
------------------- -----------------
Gas Oil Gas Oil
MMcf Mbbl MMcf Mbbl
----------- --------- ----------- ---------
Proved Reserves 22,997,765 13,905 22,997,765 14,155
=========== ========= =========== =========

Discounted future cash flows at December 31, 1998 related to Saba and on a
Company pro forma basis as if the acquisition had occurred in 1998 are as
follows (in thousands):

Company Pro
Saba Forma
----------- -----------
Future cash inflows $ 147,033 $ 148,758
Future costs
Production (81,354) (81,754)
Development (26,389) (27,183)
Future income tax expense (312) (312)
------------ ------------
Future net cash flows 38,978 39,509
Discount - - 10% annually (15,853) (16,084)
------------ ------------
Standardized measure of discounted future
net cash flows $ 23,125 $ 23,425
============ ============

NOTE 14 - SUBSEQUENT EVENTS, FINANCIAL CONDITION, AND MANAGEMENT'S PLANS:

As discussed in Note 1, the Company's financial statements have been prepared on
a going-concern basis which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business.

The Company's independent public accountants issued a modified report on April
15, 1999 expressing substantial doubt as to the Company's ability to continue as
a going concern.

To improve its financial situation, the Company has entered into, and executed,
transactions that conform to the Company's strategy to capitalize on its asset
base, including the following events:

* The Company, effective on May 1, 1999, began direct and full
management of all of the operational and financial affairs of its
wholly-owned asphalt refinery in California. Assumption of the
refinery's management by the Company has increased cash flow from
operations,

* The Company negotiated and executed a new $11.0 million financing
facility ($6 million term Loan and $5 million revolving loan) with BNY
Financial Corporation, a new bank, in May, 1999,

* The Company repaid $6.0 million of Saba's existing Bank One, Texas
note payable in May , 1999,

F-26

<PAGE>

* The Company, Saba, and Bank One, Texas executed in July, 1999 an
amended and restated forbearance agreement under which Bank One, Texas
has agreed to forbear from exercising its remedies to collect the
indebtedness owed by Saba through September 15, 1999 under the
condition that the Company obtain a financing commitment from another
financial institution which will fund the Company's retirement of all
liabilities owed to Bank One, Texas on, or before, September 15, 1999.

* The Company executed a commitment with a financial institution to lend
the Company $14 million. The proceeds of this or other new loan, to be
closed prior to September 30, 1999, will be used by the Company to
retire all liabilities owed to Bank One, Texas,

* The Company executed a term sheet to restructure Saba's Series A
Convertible Preferred Stock, * The Company executed a term sheet to
restructure Saba's 9% Convertible Senior Subordinated Debentures,

* The Company executed on June 30, 1999 the $10 million sale of its
Colombian oil and gas assets. As part of the transaction, the
Company's note payable was cancelled to the operator of the Company's
Colombian oil and gas properties and the purchaser of the Company's
oil and gas properties assumed the Company's liability for 1997 and
1998 Colombian income taxes. As part of this transaction, the Company
acquired interests in two producing oil and gas properties in
California valued at $790,000. The Company may receive an additional
payment of up to $5 million from the purchaser of the Colombian assets
if certain conditions are met by May 31, 2000,

* The Company acquired on July 31, 1999 the remaining common stock of
Beaver Lake Resources Corporation that it did not previously own.
Beaver Lake Resources Corporation and its valuable assets are now
wholly-owned by the Company,

* The Company executed an extension of the maturity date to September
30, 1999 on notes payable to primary stockholders,

* The Company executed on August 17, 1999 a production sharing contract
with the China United Coalbed Methane Corporation Ltd. to jointly
exploit coalbed methane resources in Fengcheng, East China's Jiangxi
Province. The thirty-year contract provides that the Company, as
operator, will drill at least ten coalbed methane wells over a
three-year term.

The Company reported net income in the amount of $1,250,000 for the three-month
quarterly period ended June 30, 1999 and generated cash flow from operations of
nearly $4,000,000 for the same period. Management attributes the improved
results to the conclusion of the transactions discussed above, the improved oil
and gas market selling prices, and the full operation of the Company's
California asphalt refinery. With the improved operating results and the related
improvement in cash flows and refinancings, the Company's financial position has
improved.

The Company's Independent Public Accountants, after consideration of the
refinancing transactions and the improvements in the operations and financial
position as a whole, on September 16, 1999 revised its Report, first issued on
April 15, 1999, deleting the fourth paragraph of the previously issued report in
its entirety. The deleted paragraph expressed the Independent Public
Accountants' substantial doubt as to the ability of the Company to continue as a
going concern.

F-27

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Saba Petroleum Company:

We have audited the accompanying consolidated balance sheet of Saba Petroleum
Company and subsidiaries as of December 31, 1998, and the related consolidated
statements of operations, stockholders' (deficit) equity and cash flows for the
year ended December 31, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly in all
material respects, the consolidated financial position of Saba Petroleum Company
and subsidiaries, as of December 31, 1998, and the consolidated results of their
operations and cash flows for the year ended December 31, 1998, in conformity
with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company incurred a significant noncash ceiling
writedown, has violated certain of its debt covenants and has negative
stockholders' equity all of which raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.

/s/ Arthur Andersen LLP
New York, New York
April 15, 1999

F-28

<PAGE>

To the Board of Directors and Stockholders
Saba Petroleum Company

We have audited the accompanying consolidated balance sheet of Saba Petroleum
Company and subsidiaries as of December 31, 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Saba Petroleum
Company and subsidiaries as of December 31, 1997, and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's near term liquidity may not be sufficient to
satisfy their short term obligations, which raises substantial doubt about their
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
April 15, 1998

F-29
<PAGE>
<TABLE>

SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997

ASSETS

1998 1997
------------ ------------
<S> <C> <C>

Current Assets ........................................................ $ 999,132
Cash and cash equivalents .................................... $ 1,507,641
Accounts receivable, net of allowance for doubtful accounts of
$81,000 (1990) and $69,000 (1997) ............................ 4,178,756 6,459,074
Other current assets ......................................... 2,509,819 4,589,501
------------ ------------
Total Current Assets ......................................... 7,687,707 12,556,216
------------ ------------
Property and Equipment
Oil and gas properties (full cost method) .................... 79,077,124 76,562,279
Land ......................................................... 3,191,616 2,685,605
Plant and equipment
6,086,056 5,682,800
------------ ------------
88,354,796 84,930,684
Less accumulated depletion, depreciation and impairment
(47,781,369) (22,325,276
------------ ------------
Total Property and Equipment ................................. 40,573,427 62,605,408
------------ ------------
Other Assets
Notes receivable, less current portion ....................... 522,888 1,385,092
Deferred financing costs ..................................... 440,943 553,030
Due from related parties ..................................... 31,919 235,608
Deposits and other ........................................... 431,528 321,592
------------ ------------
Total Other Assets .................................. 1,427,278 2,495,322
------------ ------------
$ 49,688,412 $ 77,656,946
============ ------------
</TABLE>

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

F-30

SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

1998 1997
------------ ------------
<S> <C> <C>
Current Liabilities
Accounts payable and accrued liabilities ..................... $ 12,671,215 $ 10,104,519
Income taxes payable ......................................... 2,156,321 733,887
Current portion of long-term debt ............................ 28,750,743 13,441,542
------------ ------------

Total Current Liabilities .................................... 43,578,279 24,279,948
------------ ------------

Long-term Debt, net of current portion ................................ 1,627,835 19,609,855
Other Liabilities ..................................................... 98,923 78,069
Deferred Taxes ........................................................ -- 784,930
Minority Interest in Consolidated Subsidiary .......................... 585,292 752,570
Convertible Preferred Stock, $.001 par value, authorized 50,000,000
shares; issued and outstanding 8,000 (1998) and 10,000 (1997) shares
7,289,170 8,511,450

Commitments and contingencies

Stockholders' (Deficit) Equity
Common Stock, $.001 par value, authorized 150,000,000 shares;
issued and outstanding 11,385,726 (1998) and 10,883,908 (1997)
shares ....................................................... 11,386 10,884
Capital in excess of par value ............................... 18,720,797 17,321,680
(Accumulated deficit) Retained earnings ...................... (21,981,818 7,200,292
Deferred compensation ........................................ -- (803,000)
Accumulated other comprehensive loss ......................... (241,452) (89,732)
------------ ------------

Total Stockholders' (Deficit) Equity ................ (3,491,087)
23,640,124

$ 49,688,412 $ 77,656,946
============ ============
</TABLE>

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

F-31

SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Oil and gas sales ................................... $ 19,706,232 $ 33,969,151 $ 31,520,757
Other ............................................... 3,625,099 2,016,611 1,681,587
------------ ------------ ------------

Total Revenues ...................................... 23,331,331 35,995,762 33,202,344
------------ ------------ ------------

Expenses
Production costs .................................... 13,608,466 16,607,027 14,604,291
General and administrative .......................... 6,529,961 5,124,771 3,919,435
Depletion, depreciation and amortization
7,124,269 7,264,956 5,527,418
Write down of oil and gas properties ................ 20,092,850 254,937 -
------------ ------------ ------------

Total Expenses ...................................... 47,355,546 29,251,691 24,051,144
------------ ------------ ------------

Operating (Loss) Income ...................................... (24,024,215) 6,744,071 9,151,200
------------ ------------ ------------
Other Income (Expense)
Interest income ..................................... 137,842 165,949 114,302
Other ............................................... (402,495) (280,489) 92,149
Interest expense .................................... (3,589,332) (2,304,517) (2,401,856)
Gain on issuance of shares of subsidiary ............ - 4,036 8,305
------------ ------------ ------------

Other Income (Expense), net ......................... (3,853,985) (2,415,021) (2,187,100)
------------ ------------ ------------
(Loss) Income Before Income Taxes ................... (27,878,200) 4,329,050 6,964,100

Provision for Taxes on Income ................................ (887,050) (1,875,720) (2,957,983)
Minority Interest in Loss (Earnings of Consolidated Subsidiary
114,427 (55,883) (241,401)
------------ ------------ ------------

Net (Loss) Income ................................... (28,650,823) 2,397,447 3,764,716

Other Comprehensive Loss - net of tax
Foreign currency translation adjustments ............ (151,720) (101,014) (11,198)
------------ ------------ ------------
Comprehensive (Loss) Income ......................... $(28,954,263) $ 2,296,433 $ 3,753,518
============ ============ ============

Net (Loss) Earnings per Common Share
Basic ............................................... $ (2.60) $ 0.23 $ 0.43
Diluted ............................................. $ (2.60) $ 0.22 $ 0.37

Weighted Average Common Shares Outstanding
Basic ............................................... 11,031,193 10,649,766 8,803,941
Diluted ............................................. 11,031,193 12,000,940 11,825,453

</TABLE>

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

F-32

SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

Common Stock

Accumulated Regained Total
Capital in Other Unearned Earnings Stock-holders'
Excess of Par Comprehen-sive Compensa Accumulated Equity
Shares Amount Value Income (Loss) -tion (Deficit) (Deficit)
------ ------ ----- ------------- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>

Balance at December 31, 1995 8,529,180 $ 8,529 $ 6,787,611 $ 22,480 $ (8,500) $ 1,038,129 $ 7,848,249

Issuance and exercise of
options ..................... 118,000 118 646,982 -- -- -- 647,100

Issuance of common stock .... 14,000 14 41,986 -- -- -- 42,000

Foreign currency translation
adjustment .......... -- -- -- (11,198) -- -- (11,198)

Unearned compensation ....... -- -- -- -- 8,500 -- 8,500

Debenture conversions ....... 1,419,846 1,420 5,414,423 -- -- -- 5,415,843

Net income .................. -- -- -- -- -- 3,764,716 3,764,716
---------- ------- ------------ --------- --------- ------------ ------------

Balance at December 31, 1996 10,081,026 10,081 12,891,002 11,282 -- 4,802,845 17,715,210

Issuance and exercise of
options ..................... 154,000 154 1,409,842 -- (803,000) -- 606,996

Issuance of warrants ........ -- -- 622,000 -- -- -- 622,000

Foreign currency translation
adjustment .......... -- -- -- (101,014) -- -- (101,014)

Debenture conversions ....... 648,882 649 2,398,836 -- -- -- 2,399,485

Net income .................. -- -- -- -- -- 2,397,447 2,397,447
---------- ------- ------------ --------- --------- ------------ ------------

Balance at December 31, 1997 10,883,908 10,884 17,321,680 (89,732) (803,000) 7,200,292 23,640,124

Issuance and exercise of
options ..................... 58,000 58 105,042 -- -- -- 105,100

Issuance of common stock .... 438,333 439 1,288,311 -- -- -- 1,288,750

Foreign currency translation
adjustment .......... -- -- -- (151,720) -- -- (151,720)

Debenture conversions ....... 5,485 5 20,887 -- -- -- 20,892

Amortization of deferred
compensation ........ -- -- -- -- 37,877 -- 37,877

F-33
<PAGE>

Cancellation of stock options -- -- (765,123) -- 765,123 -- --

Preferred Stock dividends ... -- -- -- -- -- (531,287) (531,287)

Stockholder contribution .... -- -- 750,000 -- -- -- 750,000

Net loss .................... -- -- -- -- -- (28,650,823) (28,650,823)
------------ --------- --------- ------------ ------------

Balance at December 31, 1998 11,385,726 $11,386 $ 18,720,797 $(241,452) $ -- $(21,981,818) $ (3,491,087)
========== ======= ============ ========= ========= ============ ============

</TABLE>

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

F-34
<PAGE>

SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net (loss) income ................................... $(28,650,823) $ 2,397,447 $ 3,764,716
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:

Depletion, depreciation and amortization .......... 7,124,269 7,264,956 5,527,418
Writedown of oil and gas properties ............... 20,092,850 254,937 --
Amortization of unearned compensation ............. 37,877 -- 8,500
Deferred tax provision ............................ (784,930) 248,645 366,389
Compensation expense attributable to
the issuance of non-employee options ............. 311,350 106,000 91,600
Minority interest in (losses) earnings of
consolidated subsidiary .......................... (114,427) 55,883 241,401
Gain on issuance of shares of subsidiary .......... -- (4,036) (8,305)
Changes in:

Accounts receivable .............................. 1,718,418 859,286 (2,919,285)
Other assets ..................................... 519,578 (24,304) (572,233)
Accounts payable and accrued liabilities ......... 2,679,787 4,768,747 (237,328)
Income taxes payable and other liabilities ....... 1,523,953 (973,681) 650,644
------------ ------------ ------------
Net Cash Provided by Operating Activities ....... 4,457,902 14,953,880 6,913,517
------------ ------------ ------------
Cash Flows from Investing Activities

Deposit of restricted certificate of deposit ........ -- -- 1,750,000
Expenditures for oil and gas properties ............. (6,571,573) (32,874,800) (12,171,392)
Expenditures for equipment, net ..................... (543,973) (2,039,234) (585,893)
Proceeds from sale of oil and gas properties ........ 5,254,066 234,141 256,646
Increase in notes receivable ........................ (36,000) (2,114,953) (1,172,639)
Proceeds from notes receivable ...................... 366,111 629,109 67,384
------------ ------------ ------------
Net Cash Used in Investing Activities ........... (1,531,369) (36,165,737) (11,855,894)
------------ ------------ ------------

Cash Flows from Financing Activities
Proceeds from notes payable and long-term debt ....... 4,151,288 28,725,454 17,085,315
Principal payments on notes ......................... (7,110,941) (15,972,780) (12,296,839)
payable and long-term debt
Preferred stock dividends paid ...................... (51,288) -- --
Redemption of preferred stock ....................... (1,702,280) -- --
Increase in deferred financing costs ................ -- -- (165,777)
Net change in accounts with related parties ......... 203,689 (131,562) (21,251)
Net proceeds from exercise of options and issuance of
common stock .................................... 1,082,500 227,500 422,500
Proceeds from issuance of preferred stock, net ...... -- 8,511,450 --
Issuance of warrants ................................ -- 622,000 --
Capital subscription of minority interest ........... -- 8,535 12,805
------------ ------------ ------------
Net Cash (Used in) Provided by Financing Activities . (3,427,032) 21,990,597 5,036,753
------------ ------------ ------------
Effect of Exchange Rate Changes on Cash and

Cash Equivalents .................................... (8,010) (5,135) (627)
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents . (508,509) 773,605 93,749
Cash and Cash Equivalents at Beginning of Year ....... 1,507,641 734,036 640,287
------------ ------------ ------------
Cash and Cash Equivalents at End of Year ............. $ 999,132 $ 1,507,641 $ 734,036
============ ============ ============
</TABLE>

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

F-35
<PAGE>

SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Saba Petroleum Company ("Saba" or "the Company") is a Delaware corporation
formed in 1979 as a natural resources company. Saba is an international oil and
gas producer with principal producing properties located in the continental
United States, Canada and Colombia. Until 1994, all of the Company's principal
assets were located in the United States. In 1994 and 1995, the Company acquired
interests in producing properties in Canada and Colombia. In March 1999, the
Company entered into an agreement to sell substantially all of its Colombian
assets (see Note 16). For the years ended December 31, 1998 and 1997,
approximately 40.6% and 38.3% of the Company's gross revenues from oil and gas
production were derived from its international operations. The Company's
principal United States oil and gas producing properties are located in
California, Louisiana, New Mexico and Wyoming.

Acquisition of Saba by Horizontal Ventures, Inc.

On October 8, 1998, Horizontal Ventures, Inc. ("HVI") disclosed that, acting in
concert with International Publishing Holding, S.A., its largest shareholder, it
had acquired over five percent of the Company's outstanding Common Stock, with
the intent to gain control of Saba. On October 14, 1998, a Schedule 13D was
filed by HVI. On October 8, 1998, Saba and HVI entered into a Common Stock
Purchase Agreement by which HVI agreed to purchase by December 4, 1998, 2.5
million shares of Saba's Common Stock in exchange for cash in the amount of $7.5
million. On December 3, 1998, the Company and HVI agreed to extend the closing
date of the Common Stock Purchase Agreement to January 31, 1999.

In December 1998, the Company issued 333,333 shares of Common Stock to HVI in
exchange for $1.0 million paid by HVI in connection with an interim closing of
the Common Stock Purchase Agreement.

On December 7, 1998, HVI and the Company disclosed that the Board of Directors
of the Company approved HVI's proposal to merge with the Company. Under the
merger proposal, the Company's stockholders will receive one share of HVI's
common stock for each six shares of the Company's Common Stock outstanding. That
exchange ratio is based upon (i) a total of 11,385,726 shares of Saba Common
Stock outstanding (11,052,393 shares outstanding as of December 2, 1998 plus
333,333 shares issued to HVI on December 7, 1998), (ii) a price of $2.02 for the
Company's Common Stock based on a 55 percent premium over the average closing
price of the Company's Common Stock from November 2, 1998 through December 2,
1998, and (iii) the average closing price of HVI's common stock of $12.14 during
the same period.

As of December 31, 1998, approximately 35% of the Company's outstanding common
stock is owned directly, or indirectly, by Horizontal Ventures, Inc. ("HVI"). In
March 1999, the Company was purchased by and merged into a subsidiary of HVI,
which has subsequently been renamed Greka Energy Corporation.

F-36

<PAGE>

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Management's Plans

The Company's financial statements have been prepared on a going-concern basis
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business.

During 1998, due to decreased prices for natural gas and crude oil in all
locations in which the Company does business, the Company incurred significant
losses, due primarily to reduced production and related oil and gas sales and a
total of $20.1 million of non-cash ceiling writedowns of its oil and gas assets,
without any reduction for tax benefits. As a result of these factors, the
reported net loss was $28.7 million, or $2.60 per share. Also as a result of
these adjustments, the Company has negative stockholders' equity of
approximately $3.5 million as of December 31, 1998. In addition, the Company is
not in compliance with certain requirements, restrictions and other covenants in
its 9% convertible senior subordinated debentures ($3.6 million), its revolving
($15.6 million) and term ($4.5 million) bank loan agreements, its loan from the
operator of properties owned by the Company in Colombia ($4.2 million) and its
Series A Convertible Preferred Stock (with a stated value of $8.0 million). As a
consequence, the Company cannot borrow under its revolving bank loan agreement.
In addition, the Company's exploratory prospect in Indonesia requires a
multi-year work commitment of $17.0 million, which period began October , 1997.
The Company has also received a notice of default from the Colombian tax
authorities for the payment of income taxes for 1997. Due to the Company not
being in compliance with the above mentioned requirements, restrictions and
other covenants, combined with other normal maturities of long term debt, $28.8
million of such long term debt is classified as currently payable and, as a
result, the Company has a working capital deficit of $35.9 million.

In March 1999, the Company was acquired by Horizontal Ventures, Inc. (HVI), a
publicly traded company in the oil and gas industry, through the issuance of HVI
common shares for Saba common shares (see Note 16). Prior to and after the
merger, HVI and Saba management have been pursuing steps to improve the
financial condition of the Company. The Company is in the process of
renegotiating the terms of its 9% convertible senior subordinated debentures and
its Series A Convertible Preferred Stock and is negotiating a term and revolving
credit agreement with a new bank. In addition, the Company is negotiating to
sell certain non-core assets, including its Colombian assets. In addition, the
Company will begin operating its refinery in California on a 100% basis
beginning May 1, 1999, which is expected to significantly improve its operating
cash flows. The above mentioned transactions are in various stages of completion
and management believes that they will all be closed by June 30, 1999. As a
result of the above factors and the pending nature of negotiations, there is
substantial doubt about the Company's ability to continue as a going concern if
management is not successful on its recapitalization plan. Management believes
that the completion of the refinancing, and the sale transactions discussed
above will remove any uncertainty as to its ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of the asset carrying amounts
or the amounts and classifications of liabilities that might result should the
Company be unable to continue as a going concern.

F-37

<PAGE>

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Reclassifications and Use of Estimates

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The Company's most significant financial estimates are based
on remaining proved natural gas and oil reserves. See Supplemental Information
About Oil and Gas Producing Activities. Because there are numerous uncertainties
inherent in the estimation process, actual results could differ from the
estimates.

Certain reclassifications for prior years have been made to conform with current
year presentation.

Consolidation

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

Fair Value of Financial Instruments

Cash and Cash Equivalents - The Company considers all liquid investments with an
original maturity of three months or less to be cash equivalents. The carrying
amount approximates fair value because of the short maturity of those
instruments.

Other Financial Instruments - The Company does not hold or issue financial
instruments for trading purposes. The Company's financial instruments consist of
notes receivable and long-term debt. The fair value of the Company's notes
receivable and long-term debt, excluding the Debentures, is estimated based on
current rates offered to the Company for similar issues of the same remaining
maturities. The fair value of the Debentures is based on market prices.

Derivative Instruments - The Company does not utilize derivative instruments in
the management of its foreign exchange, commodity price or interest rate market
risks.

The fair value of the Company's notes receivable and long-term debt, excluding
the Debentures, at December 31, 1998 and 1997, approximates carrying value. The
carrying value and fair value of the Debentures at December 31, 1998 and 1997
are as follows:

1998 1997
----------------------- -----------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- ---------- ---------- ----------
9% convertible senior
subordinated Debentures,
due 2005 .................... $3,575,000 $3,289,000 $3,599,000 $6,298,250

F-38

<PAGE>

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

No bid or ask price was available to determine the fair value of the Debentures
at March 31, 1999.

Oil and Gas Properties

The Company's oil and gas producing activities are accounted for using the full
cost method of accounting. Accordingly, the Company capitalizes all costs, in
separate cost centers for each country, incurred in connection with the
acquisition of oil and gas properties and with the exploration for and
development of oil and gas reserves. Such costs include lease acquisition costs,
geological and geophysical expenditures, costs of drilling both productive and
non-productive wells, and overhead expenses directly related to land acquisition
and exploration and development activities. Proceeds from the disposition of oil
and gas properties are accounted for as a reduction in capitalized costs, with
no gain or loss recognized unless such disposition involves a significant change
in reserves in which case the gain or loss is recognized.

Depletion of the capitalized costs of oil and gas properties, including
estimated future development, site restoration, dismantlement and abandonment
costs, net of estimated salvage values, is provided using the equivalent
unit-production method based upon estimates of proved oil and gas reserves and
production which are converted to a common unit of measure based upon their
relative energy content. Unproved oil and gas properties and associated costs
are not amortized but are individually assessed for impairment. The cost of any
impaired property is transferred to the balance of oil and gas properties being
depleted. Such costs relate to projects which were undergoing exploration or
development activities, or in which the Company intends to commence such
activities in the future. The Company will begin to amortize these costs when
proved reserves are established or impairment is determined.

In accordance with the full cost method of accounting, the net capitalized costs
of oil and gas properties are not to exceed their related estimated future net
revenues discounted at 10 percent, net of tax considerations, plus the lower of
cost or estimated fair market value of unproved properties.

A significant portion of the Company's exploration, development and production
activities are conducted jointly with others and, accordingly, the financial
statements reflect only the Company's proportionate interest in such activities.

In connection with its efforts to increase proved oil and gas reserves through
acquisition, exploration and development activities, the Company charges to its
full cost pools certain costs related to those activities, including allocated
payroll attributable to personnel directly involved in efforts to increase
proved reserves. Such charges do not include costs related to production,
general corporate overhead, or similar activities.

The total amounts of cumulative capitalized charges for internal expenses are as
follows for the listed periods:

December 31, 1998 $1,909,850
December 31, 1997 $1,652,200
December 31, 1996 $1,005,950

F-39

<PAGE>

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

The amounts are gross charges to the property accounts and do not reflect
subsequent adjustments for abandoned projects, dispositions or ceiling test
writedowns.

Plant and Equipment

Plant, consisting of an asphalt refining facility, is stated at the acquisition
price of $500,000 plus the cost to refurbish the equipment. Depreciation is
calculated using the straight-line method over its estimated useful life.
Equipment is stated at cost. Depreciation, which includes amortization of assets
under capital leases, is calculated using the straight-line method over the
estimated useful lives of the equipment, ranging from three to fifteen years.
Depreciation expense in the years ended December 31, 1998, 1997 and 1996, was
$607,840, $477,239 and $293,245, respectively. Normal repairs and maintenance
are charged to expense as incurred. Upon disposition of plant and equipment, any
resultant gain or loss is recognized in current operations.

Interest is capitalized in connection with the construction of major facilities.
The capitalized interest is recorded as part of the asset to which it relates
and is amortized over the assets estimated useful life.

Deferred Financing Costs

The costs related to the issuance of debt are capitalized and amortized using
the effective interest method over the original terms of the related debt. At
December 31, 1998, the Company had unamortized costs in the amount of $440,943
net of accumulated amortization of $1,561,349 relating to its Debentures.
Amortization expense in 1998, 1997 and 1996 was $105,991, $134,598 and $241,827,
respectively.

Stock-Based Compensation

In 1996, the Company implemented the disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation." This statement sets forth-alternative
standards for recognition of the cost of stock-based compensation and requires
that a company's financial statements include certain disclosures about
stock-based employee compensation arrangements regardless of the method used to
account for them. As allowed in this statement, the Company continues to apply
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in recording compensation related to
its plans.

Income Taxes

The Company accounts for income taxes by the asset and liability method of
computing deferred income taxes. Deferred tax assets and liabilities are
established for the temporary differences between the financial reporting bases
and the tax bases of the Company's assets and liabilities at enacted tax rates
expected to be in effect when such amounts are realized or settled. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.

F-40
<PAGE>

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Foreign Currency Translation

Assets and liabilities of foreign subsidiaries are translated into United
States' dollars using the exchange rate at each balance sheet date; income and
expenses are translated at the weighted average rates of exchange during the
year. The resultant cumulative translation adjustments are included as a
component of other comprehensive income in stockholders' equity. Foreign
currency transaction gains and losses are included in net income (loss). Such
gains (losses) in 1998, 1997 and 1996 were $(112,000), $(230,000) and $41,000,
respectively.

Comprehensive (Loss) Income

Effective January 1, 1998, Saba adopted the provisions of SFAS 130, "Reporting
Comprehensive Income." This statement establishes standards for reporting and
display of comprehensive income and its components in a full set of financial
statements.

The prior years' financial statements have been restated to conform to the new
presentation. Saba's comprehensive (loss) income represents net (loss) income
adjusted for after tax foreign currency translation gains (losses).

1998 1997 1996
--------- ----------- ----------
Foreign Currency Translation Adjustments:
Before and after tax amount $(151,720) $(101,014) $(11,198)

The balance of accumulated foreign currency translation (loss) gain as of
December 31 of each year is as follows:

1998 1997 1996
---------- --------- --------
$(241,452) $ (89,732) $ 11,282

Earnings per Common Share

Basic earnings per common share are based on the weighted average number of
common shares outstanding during each year. SFAS 128, "Earnings per Share",
requires dual presentation of basic and diluted earnings per share for companies
with complex capital structures. The calculation of diluted earnings per common
share includes, when their effect is dilutive, the incremental shares that would
have been outstanding assuming the exercise of stock options and conversion of
the Debentures.

Sale of Subsidiary Stock

The Company accounts for a change in its proportionate share of a subsidiary's
equity resulting from the issuance by the subsidiary of its stock in current
operations in the consolidated financial statements.

F-41
<PAGE>

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Two-For-One Forward Stock Split

On November 21, 1996, the Company's Board of Directors approved a two-for-one
forward stock split effected as a stock dividend on all outstanding shares of
Common Stock. The Company's outstanding stock option awards and Debentures were
also adjusted accordingly. All share and per share amounts have been adjusted to
give retroactive effect to this split for all periods presented.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
broadens the definition of a derivative instrument and establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair market
value. Derivatives that are not hedges must be adjusted to fair value currently
in earnings. If a derivative is a hedge, depending on the nature of the hedge,
special accounting allows changes in fair value of the derivative to be either
offset against the change in fair value of the hedged asset or liability in the
income statement or to be recognized as comprehensive income (a component of
stockholders' equity) until the hedged item is recognized in earnings. The
Company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.

The Company will adopt SFAS 133 in fiscal year 1999, but since it does not have
derivatives currently, there will be no impact on the financial statements or
disclosures.

NOTE 2 - NOTES RECEIVABLE

Notes receivable are comprised of the following at December 31, 1998 and 1997:

1998 1997
---- ----

Canadian prime plus 0.75% (6.75% at
December 31, 1997) production notes
receivable, with interest paid currently,
collateralized by producing oil and gas
properties. $ - $65,012

Prime plus 0.75% (8.5% at December 31, 1998)
promissory note from the former Chief
Executive Officer of the Company with
quarterly interest only installments,
due October 31, 1998, collateralized by
vested, but unexercised, stock options
to purchase the Common Stock of the Company. 283,742 283,742

Prime plus 0.75% (9.25% at December 31,
1997) note receivable from joint venture
partner with principal payments through
October 2000 and interest payments at
the end of twenty-four and forty-eight
months, collateralized by producing oil
and gas properties - 414,205

F-42
<PAGE>

NOTE 2 - NOTES RECEIVABLE (Continued)

9% note receivable from a related party,
with principal and interest due in full
on December 31, 1998, collateralized by
the former Chief Executive Officer's
vested, but unexercised, options to purchase
the Common Stock of the Company.
96,021 101,667

11.5% note receivable from a joint venture
partner, with principal and interest
payments through June 2002 collateralized
by producing oil and gas properties. - 1,737,554

10% notes receivable from unaffiliated
companies due on demand and
collateralized by personal guarantees
from the borrower's Chief Executive Officers. 75,000 175,000

12% unsecured note receivable from a related
party due on demand. 36,000 -

Other 44,228 43,940
------ ------

534,991 2,821,120
Less: current portion 12,103 1,436,028
(included in other current assets) ______ _________

$522,888 $1,385,092

NOTE 3 - OIL AND GAS PROPERTIES, LAND, PLANT AND EQUIPMENT

Oil and gas properties, land, plant and equipment at December 31, 1998 and 1997
are as follows:

December 31, 1998

Other
United Foreign
States Canada Columbia Countries Total
----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>

Oil and Gas Properties

Unevaluated oil and gas properties $ 2,319,548 $ -- $ -- $1,975,503 $ 4,295,051

Proved oil and gas properties .... 56,899,341 6,278,455 11,604,277 -- 74,782,073
----------- ---------- ----------- ---------- -----------

Total capitalized costs .......... 59,218,889 6,278,455 11,604,277 1,975,503 79,077,124

Less accumulated depletion,
depreciation and impairment .... 39,352,417 1,500,979 5,318,919 -- 46,172,315
----------- ---------- ----------- ---------- -----------

Capitalized Costs, net ........... $19,841,472 $4,802,476 $ 6,285,358 $1,975,503 $32,904,809
=========== ========== =========== ========== ===========

Other Property and Equipment

Land ............................. $ 2,886,382 $ -- $ 305,234 $ -- $ 3,191,616

Plant and equipment .............. 4,166,591 71,353 1,835,876 12,236 6,086,056
----------- ---------- ----------- ---------- -----------

7,052,973 71,353 2,141,110 12,236 9,277,672

Less accumulated depreciation .... 1,048,207 44,958 511,586 4,303 1,609,054
----------- ---------- ----------- ---------- -----------

$ 6,004,766 $ 26,395 $ 1,629,524 $ 7,933 $ 7,668,618
=========== ========== =========== ========== ===========

</TABLE>

F-43
<PAGE>

NOTE 3 - OIL AND GAS PROPERTIES, LAND, PLANT AND EQUIPMENT (Continued)

December 31, 1997
<TABLE>

Other
United Foreign
States Canada Columbia Countries Total
----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>

Oil and Gas Properties

Unevaluated oil and gas properties $ 3,453,408 $ -- $ -- $2,101,942 $ 5,555,350

Proved oil and gas properties .... 53,107,650 7,770,588 10,128,691 -- 71,006,929
----------- ---------- ----------- ---------- -----------

Total capitalized costs .......... 56,561,058 7,770,588 10,128,691 2,101,942 76,562,279

Less accumulated depletion,
depreciation and impairment .... 15,489,222 1,265,331 4,550,919 -- 21,305,472
----------- ---------- ----------- ---------- -----------

Capitalized Costs, net ........... $41,071,836 $6,505,257 $ 5,577,772 $2,101,942 $55,256,807
=========== ========== =========== ========== ===========

Other Property and Equipment

Land ............................. $ 2,380,371 $ -- $ 305,234 $ -- $ 2,685,605

Plant and equipment .............. 3,769,138 81,200 1,802,085 30,377 5,682,800
----------- ---------- ----------- ---------- -----------

6,149,509 81,200 2,107,319 30,377 8,368,405

Less accumulated depreciation .... 631,742 43,416 342,163 2,483 1,019,804
----------- ---------- ----------- ---------- -----------

$ 5,517,767 $ 37,784 $ 1,765,156 $ 27,894 $ 7,348,601
=========== ========== =========== ========== ===========

</TABLE>

At December 31, 1998 and 1997, plant and equipment included $724,705 and
$620,248, respectively, for assets acquired under capital leases. Related
accumulated depreciation included $238,465 and $73,972 at December 31, 1998 and
1997, respectively.

Costs incurred in oil and gas property acquisition, exploration, and development
activities are as follows:

December 31, 1998

<TABLE>

Other
United Foreign
States Canada Columbia Countries Total
----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>

Exploration ................................................ $ 830,428 $ 103,201 $ -- $1,172,581 $ 2,106,210

Development ................................................ 2,631,620 48,115 1,386,480 -- 4,066,215

Acquisition of proved properties ........................... 3,382,163 -- 89,106 -- 3,471,269
- ------------------------------------------------------------ ----------- ---------- ---------- ---------- -----------
Total Costs Incurred ....................................... $ 6,844,211 $ 151,316 $1,475,586 $1,172,581 $ 9,643,694
=========== ========== =========== =========== ===========

December 31, 1997

Exploration ................................................ $ 3,466,718 $2,082,419 $ -- $2,114,919 $ 7,664,056

Development ................................................ 13,680,108 277,991 1,411,198 -- 15,369,297

Acquisition of proved properties ........................... 9,035,274 488,345 -- -- 9,523,619
----------- ---------- ---------- ---------- -----------
Total Costs Incurred ....................................... $26,182,100 $2,848,755 $1,411,198 $2,114,919 $32,556,972
=========== ========== ========== ========== ===========

</TABLE>

F-44

<PAGE>

NOTE 3 - OIL AND GAS PROPERTIES, LAND, PLANT AND EQUIPMENT (Continued)

Oil and gas depletion expense in the years ended December 31, 1998, 1997 and
1996 was $6,406,805, $6,610,554 and $4,979,361 or $2.88, $2.64 and $2.22 per
produced barrel of oil equivalent, respectively.

Saba periodically reviews the carrying value of its oil and gas properties in
accordance with requirements of the full cost method of accounting. Under these
rules, capitalized costs of oil and gas properties may not exceed the present
value of estimated future net revenues from proved reserves, discounted at 10%,
plus the lower of cost or fair market value of unproved properties ("ceiling").
Application of this ceiling test generally requires pricing future revenue at
the prices in effect as of the end of each reporting period and requires a
writedown for accounting purposes if the ceiling is exceeded.

As of December 31, 1998, the Company estimated, using end-of-year prices for
natural gas and oil that, in the aggregate, actual capitalized costs of natural
gas and oil properties for the Company's three full cost pools exceeded the
ceiling limitations imposed under full cost accounting rules by approximately
$9.5 million. Subsequent to December 31, 1998, oil prices increased and natural
gas prices decreased, such that the Company estimated, using April 1, 1999,
prices that, in the aggregate, the ceiling limitation exceeded actual
capitalized costs of natural gas and oil properties by approximately $2.9
million. As a result, the Company was required to record a writedown
attributable to its United States full cost pool at December 31, 1998, in the
amount of $1.4 million. (see Note 16).

The weighted average prices for oil and natural gas based on actual prices in
effect for each of the Company's properties, actual capitalized costs and
ceiling limitation amounts for each full cost pools utilizing December 31, 1998,
and April 1, 1999, prices are as follows (in thousands, except for price
information):

<TABLE>

Weighted Avg. Price

Excess/
Oil Natural Capitalized Ceiling (Deficit) of
Gas Costs Limitation Limitation
------- ------- --------- -------- -------
<S> <C> <C> <C> <C>

December 31, 1998:

United States $ 8.33 $1.80 $20,931 $14,084 $(6,847)

Canada 10.92 1.47 4,802 4,527 (257)

Colombia 7.05 - 6,066 $3,700 $(2,366)
----- ------ --------

$31,799 $22,311 $(9,488)
======= ======= ========

April 1, 1999:

United States $10.99 $1.55 $21,227 $19,845 $(1,382)

Canada 14.71 1.44 4,802 4,816 14

Colombia 8.55 - 6,285 10,566 4,281
----- ------ -----

$32,314 $35,227 $ 2,913
======= ======= =======
</TABLE>

F-45
<PAGE>

NOTE 3 - OIL AND GAS PROPERTIES, LAND, PLANT AND EQUIPMENT (Continued)

Capitalized costs attributable to other foreign operations in the amount of $1.5
million were also charged to operations as ceiling writedowns during the year
ended December 31, 1998.

NOTE 4 - STATEMENT OF CASH FLOWS

The following is certain supplemental information regarding cash flows for the
years ended December 31, 1998, 1997 and 1996:

1998 1997 1996
---- ---- ----

Interest paid $2,790,840 $2,088,252 $2,309,475
Income taxes paid $ 253,863 $2,531,157 $1,150,029

Non-cash investing and financing transactions:

In February 1996, the Company issued 14,000 shares of Common Stock to a director
of the Company in settlement of an obligation in the amount of $42,000.

Debentures in the principal amount of $6,212,000, less related costs of
$796,157, were converted into 1,419,846 shares of Common Stock during the year
ended December 31, 1996.

The Company credited Stockholders' Equity in the amount of $91,600 resulting
from the issuance of stock options to a consultant during the year ended
December 31, 1996.

The Company credited Stockholders' Equity in the amount of $133,000 attributable
to the income tax effect of stock options exercised during the year ended
December 31, 1996.

Cumulative foreign currency translation gains (losses), before adjustment for
minority interest, of $(196,562), $(131,050) and $(15,655) were recorded during
the years ended December 31, 1998, 1997 and 1996, respectively.

The Company realized gains in 1997 and 1996 of $4,036 and $8,305, respectively,
as a result of the issuance of common stock by a subsidiary. No gains were
realized in 1998.

The Company incurred capital lease obligations in the amount of $598,827 to
acquire equipment during the year ended December 31, 1997.

Debentures in the principal amount of $2,839,000, less related costs of
$439,515, were converted into 648,882 shares of Common Stock during the year
ended December 31, 1997. The Company credited Stockholders' Equity in the amount
of $273,496 attributable to the income tax effect of stock options exercised
during the year ended December 31, 1997.

The Company credited to Stockholders' Equity in the amount of $909,000 resulting
from the granting of stock options to a consultant during the year ended
December 31, 1997. Of this amount $106,000 was reported as compensation expense
during the year ended December 31, 1997. The options were canceled in March
1998, resulting in a reduction of deferred compensation expense in the amount of
$803,000 during the year ended December 31, 1998.

F-46

<PAGE>

NOTE 4 - STATEMENT OF CASH FLOWS (Continued)

Debentures in the principal amount of $24,000, less related costs of $3,108,
were converted into 5,485 shares of Common Stock during the year ended December
31, 1998.

The Company incurred credits to Stockholders' Equity in the amounts of $22,600
and $288,750 resulting from the issuance of fully vested stock options and
performance shares of Common Stock, respectively, during the year ended December
31, 1998.

Quarterly dividend obligations on the Series A Preferred Stock ("Preferred
Stock") that were due and payable on March 31, June 30, September 30, and
December 31, 1998, in the total amount of $480,000 were settled by an increase
to that issue's Conversion Amount.

The acquisition of two producing oil and gas properties in April 1998, at a
total cost of $3,239,835, was partially funded by the assumption of accounts and
notes receivable due to the Company in the amount of $2,390,354, and the
issuance of a stock subscription payable recorded at a cost of $750,000.

The Company incurred a capital lease obligation in the amount of $90,637 to
acquire equipment during the year ended December 31, 1998.

Fee interest in an oil property owned by the Company was acquired in February
1998 by seller-provided financing in the amount of $375,000.

NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities at December 31, 1998 and 1997 are as
follows:

1998 1997
---- ----

Trade accounts payable $ 8,944,683 $ 6,705,897
Undistributed revenue payable 736,717 780,475
Insurance and tax assessments payable 657,792 760,177
Other accrued expenses 2,332,023 1,857,970
--------- ---------

$12,671,215 $10,104,519
========== ==========

NOTE 6 - INCOME TAXES

The components of (loss) income before income taxes and after minority interest
in (losses) earnings of consolidated subsidiary for the years ended December 31,
1998, 1997 and 1996 are as follows:

1998 1997 1996
------------ ---------- ----------

United States $(28,972,142) $ 457,166 $ 383,453

Canada ...... (310,977) 262,852 693,439

Colombia .... 1,519,346 3,553,149 5,645,807
------------ ---------- ----------

Total $(27,763,773) $4,273,167 $6,722,699
============ ========== ==========

F-47

<PAGE>

NOTE 6 - INCOME TAXES (Continued)

Components of income tax expense for the years ended December 31, 1998, 1997 and
1996 are as follows:

1998 1997 1996
----------- ---------- ----------

Current

Federal $ -0- $ 291,581 $ 149,600

State 40,000 21,201 259,994

Foreign 1,631,980 1,310,987 2,182,000
----------- ---------- ----------

$ 1,671,980 $1,623,769 $2,591,594
----------- ---------- ----------

Deferred

Federal (784,930) 114,114 207,787

State -0- 35,265 158,602

Foreign -0- 102,572 --
----------- ---------- ----------

(784,930) 251,951 366,389
----------- ---------- ----------

$ 887,050 $1,875,720 $2,957,983
=========== ========== ==========

The provision for income taxes differs from the amount that would result from
applying the federal statutory rate for the years ended December 31, 1998, 1997
and 1996 as follows:

1998 1997 1996
------ ------ ------

Expected tax provision (benefit) ......... (34.0)% 34.0% 34.0%

State income taxes, net of federal benefit 0.1 1.3 4.1

Effect of foreign earnings ............... 3.2 7.6 5.6

Other .................................... 0.9 1.0 .3

Valuation allowance ...................... 33.1
------ ------ ------

Total ............................ 3.3% 43.9% 44.0%
====== ====== ======

The components of the tax effected deferred income tax asset (liability) as of
December 31, 1998 and 1997 are as follows:

F-48

<PAGE>

NOTE 6 - INCOME TAXES (Continued)

1998 1997
----------- -----------

Property and equipment ........ $ 4,895,941 $(1,365,800)

Foreign tax credits ........... 3,475,450 2,249,200

Alternative minimum tax credits 194,100 194,100

Other ......................... 230,978 73,500
----------- -----------

8,796,469 1,151,000

Valuation allowance ........... (8,796,469) (1,870,200)
----------- -----------

Net Deferred Income Tax Liability $ -0- $(719,200)
=========== ===========

At December 31, 1998 and 1997, $-0- and $69,000 of current deferred taxes are
included in other current assets, respectively.

At December 31, 1998, the Company had approximately $3,475,450 of foreign tax
credit carryovers, which will begin to expire in the year 2000. A $3,475,450
valuation allowance has been provided for the foreign tax credits which are not
likely to be realized during the carryforward period. Saba also has alternative
minimum tax credit carryforwards for federal and state purposes of approximately
$194,100. The credits carry over indefinitely and can be used to offset future
regular tax.

The Company is in receipt of a notice of default from the Colombian tax
authorities for the outstanding payment of income taxes for the year 1997 in the
approximate amount of $1.1 million and for prepayment of income taxes for the
year 1998 in the approximate amount of $572,000. The outstanding amounts may
accrue interest until paid at the current rate of approximately 33% and
increasing to 55% on April 1, 1999.

In general, Section 382 of the Internal Revenue Code includes provisions which
limit the amount of net operating loss carryforwards and other tax attributes
that may be used annually in the event that a greater than 50% ownership change
(as defined) takes place in any three year period.

NOTE 7 - LONG-TERM DEBT

Long-term debt at December 31, 1998 and 1997 consists of the following:

<TABLE>

1998 1997
----------- -----------
<S> <C> <C>

9% convertible senior subordinated Debentures due 2005(a) $ 3,575,000 $ 3,599,000
Revolving loan agreement with a bank (b) ................ 15,600,000 17,410,000
Term loan agreements with a bank (c) .................... 4,501,769 8,803,769
Demand loan agreement with a bank (d) ................... 1,363,073 2,362,809
Capital lease obligations (e) ........................... 474,591 525,819
Promissory note (f) ..................................... 345,290 350,000
Term loan with a bank (g) ............................... 367,567 --
Promissory note - Omimex (h) ............................ 4,151,288 --
----------- -----------
30,378,578 33,051,397
Less current portion .................................... 28,750,743 13,441,542
----------- -----------
$ 1,627,835 $19,609,855
=========== ===========

</TABLE>

F-49
<PAGE>

NOTE 7 - LONG-TERM DEBT - continued

(a) On December 26, 1995, Saba issued $11,000,000 of 9% convertible senior
subordinated debentures ("Debentures") due December 15, 2005. The Debentures are
convertible into Common Stock of Saba, at the option of the holders of the
Debentures, at any time prior to maturity at a conversion price of $4.38 per
share, subject to adjustment in certain events. Saba has reserved 3,000,000
shares of its Common Stock for the conversion of the Debentures. The Debentures
have been redeemable by Saba since December 15, 1997. Mandatory sinking fund
payments of 15% of the original principal, adjusted for conversion prior to the
date of payments, are required annually commencing December 15, 2000. The
Debentures are uncollateralized and subordinated to all present and future
senior debt, as defined, of Saba and are effectively subordinated to all
liabilities of subsidiaries of Saba. The principal use of proceeds from the sale
of the Debentures was to retire short term indebtedness incurred by Saba in
connection with its acquisitions of producing oil and gas properties in
Colombia. A portion of the proceeds was used to reduce the balance outstanding
under Saba's revolving credit agreement. On February 7, 1996, Saba issued an
additional $1,650,000 of Debentures by the exercise of an allotment option by
the underwriting group. Net proceeds to Saba were approximately $1.5 million and
a portion was utilized to reduce the outstanding balance under Saba's revolving
line of credit.

Certain terms of the Debentures contain requirements and restrictions on Saba
with regard to the following limitations on Restricted Payments (as defined in
the Indenture), on transactions with affiliates, and on oil and gas property
divestitures; Change of Control (as defined), which will require immediate
redemption; maintenance of life insurance coverage of $5,000,000 on the life of
Saba's former Chief Executive Officer, Ilyas Chaudhary; and the limitations of
fundamental changes and certain trading activities, on Mergers and
Consolidations (as defined) of Saba, and on ranking of future indebtedness.
Debentures in the amount of $6,212,000 were converted into 1,419,846 shares of
Common Stock during the year ended December 31, 1996, and $2,839,000 of
Debentures were converted into 648,882 shares of Common Stock during the year
ended December 31, 1997. An additional $24,000 of Debentures were converted into
5,485 shares of Common Stock during the year ended December 31, 1998.

The Company is not in compliance with certain of the restrictions and
accordingly, such debt is classified as currently payable at December 31, 1998.

(b) The revolving loan ("Agreement") is subject to semi-annual redetermination
and is presently scheduled to convert to a three-year term loan on July 1, 1999.
Funds advanced under the facility are collateralized by substantially all of
Saba's U.S. oil and gas producing properties and the common stock of its
principal subsidiaries. The Agreement also provides for a second borrowing base
term loan of which $3.4 million was borrowed for the purpose of development of
oil and gas properties in California, with the outstanding balance ($814,000) at
December 31, 1998, due July 31, 1998. At December 31, 1998, the borrowing base
for the revolving loan was $12.5 million. The borrowing base reduces at the rate
of $300,000 per month. Interest on the two loans is payable at the prime rate
plus 0.25%, or LIBOR rate pricing options plus 2.25%. The weighted average
interest rate for borrowings outstanding under the two loans at December 31,
1998, was 7.73%.

The Agreement requires, among other things, that Saba maintain at least a 1 to 1
working capital ratio (exclusive of the current maturities if any, of the
outstanding loans), stockholders' equity of $18.0 million, a ratio of cash flow
to debt service of not less than 1.25 to 1.0 and general and administrative
expenses at a level not greater than 20% of revenue, all as

F-50

<PAGE>

NOTE 7 - LONG-TERM DEBT (Continued)

defined in the Agreement. Additionally, Saba is restricted from paying dividends
and advancing funds in excess of specified limits to affiliates. Saba was not in
compliance with financial covenants at December 31, 1998.

(c) In September 1997, Saba borrowed $9.7 million from its principal commercial
lender to finance the acquisition cost of a producing oil and gas property.
Interest is payable at the prime rate (7.75% at December 31, 1998) plus 3.0%.
Principal payments of $7.0 million on December 31, 1997, and $2.0 million on
June 5, 1998, reduced the outstanding balance to $688,000 due July 31, 1998.
Payment of this loan is personally guaranteed by Saba's former Chief Executive
Officer.

In November, 1997 Saba established a term loan ($3.0 million) with its principal
commercial lender. Interest is payable at the prime rate (7.75% at December 31,
1998) plus 3.0% with the outstanding balance of $3.0 million due July 31, 1998.
Payment of this loan is personally guaranteed by Saba's former Chief Executive
Officer.

These two loans, plus the borrowing base term loan with an outstanding balance
of $814,000, discussed in (b) above, in the aggregate principal amount of $4.5
million matured on July 31, 1998, and were not paid nor extended, and the
borrowing base deficit of $3.1 million on the revolving loan has not been
satisfied, either by providing additional collateral to the bank, or reducing
the outstanding principal balance. Based on the events described above, the
entire principal indebtedness to the bank ($20.1 million) has been classified as
currently payable at December 31, 1998.

(d) Saba's Canadian subsidiary has a demand revolving reducing loan with a
borrowing base of $1.4 million. Interest is payable at variable rate equal to
the Canadian prime rate plus 0.75% per annum (7.5% at December 31, 1998). The
loan is collateralized by the subsidiary's oil and gas producing properties, and
a first and fixed floating charge debenture in the principal amount of $3.6
million over all assets of the Company. The borrowing base reduces at the rate
of $32,600 per month. In accordance with the terms of the loan agreement,
$391,000 of the total loan balance of $1.4 million is classified as currently
payable at December 31, 1998. Although the bank can demand payment in full of
the loan at any time, it has provided a written commitment not to do so except
in the event of default.

(e) Saba leases certain equipment under agreements that are classified as
capital leases. Lease payments vary from three to five years. The effective
interest rate on the total amount of capitalized leases at December 31, 1998 was
8.21%.

(f) The promissory note ($345,290) is due to the seller of an oil and gas
property, which was acquired by Saba in December 1997. The note bears interest
at the rate of 13.5%, and is classified as a current liability.

(g) The term loan with a bank ($367,567) is due to the seller of a fee interest
in property in which Saba owns mineral interests. The note bears interest at the
rate of 13.5%, and a portion of such indebtedness is classified as a current
liability.

(h) In June 1998, Saba borrowed $4.2 million from Omimex Resources, Inc.
(Omimex), of which $2.0 million was paid to Saba's principal commercial lender
to reduce indebtedness under one of Saba's short-term loans, and the balance was
used for a partial redemption of Preferred Stock in the face amount of $2.0
million, plus accrued dividends. Interest is payable at the prime rate

F-51

<PAGE>

NOTE 7 - LONG-TERM DEBT (Continued)

(7.75% at December 31, 1998) plus 3%. The loan is collateralized by Saba's 50%
interest in the Velasquez-Galan pipeline in Colombia, ownership of which is
titled in the name of Sabacol, Inc., a wholly-owned subsidiary of the Company.
The loan was due to be repaid no later than December 14, 1998. On December 11,
1998, Sabacol, Inc. filed a voluntary petition under Chapter 11 of the United
States Bankruptcy Code in the Central District of California. Sabacol filed the
bankruptcy petition to protect its asset base and to provide adequate time to
develop a reorganization plan.

On March 30,1999, it was announced that Sabacol had entered into an agreement to
sell substantially all of its real and personal assets to Omimex. A portion of
the total consideration for the sale consists of cancellation of the note
payable to Omimex.

Maturities of long term debt at December 31, 1998, are as follows:

Year Ended
December 31,
1999 $28,750,743
2000 574,925
2001 832,643
2002 208,515
2003 11,752
Thereafter -
$30,378,578

NOTE 8 - RELATED PARTY TRANSACTIONS

Related party transactions are described as follows:

In 1998, 1997 and 1996, Saba charged related parties $12,190, $18,600 and
$26,300, respectively, for reimbursement of certain general and administrative
expenses.

In 1995, Saba loaned $101,700 to a company controlled by Saba's Chief Executive
Officer at an interest rate of 9% per annum. The loan is collateralized by the
officer's vested, but unexercised, Common Stock options. Also see footnote 2.

In 1995, related parties loaned a total of $2,221,900 to Saba, at an interest
rate of 9% per annum, in connection with the acquisition of producing oil and
gas properties in Colombia. Of this amount, $600,000 was converted to equity by
the issuance of 150,000 shares of Common Stock of Saba. The debt was repaid in
1997. Saba incurred interest expense in the amount of $67,600 in 1995 as a
result of this indebtedness.

In 1996, Saba provided a short-term advance to a related party in the amount of
$10,000.

In 1996, Saba received remittances in the amount of $120,200 from related
parties and made payments in the amount of $90,900 to related parties for
reimbursement of prior period account balances.

In 1996, Saba charged related parties $19,400 and was charged $152,300 by
related parties for interest on promissory notes.

F-52

<PAGE>

NOTE 8 - RELATED PARTY TRANSACTIONS (Continued)

In 1996, Saba loaned $30,000 to a former director of Saba, on an unsecured
basis, at an interest rate of 9% per annum. At December 31, 1998 the loan was
unpaid.

In 1996, Saba loaned $300,000 to the Chief Executive Officer of Saba at an
interest rate of prime plus 0.75% due in quarterly installments. The loan is
collateralized by the officer's vested, but unexercised, Common Stock options.
Also see footnote 2.

In 1997, Saba charged interest in the amount of $45,343 to related parties and
was charged interest in the amount of $60,220 by related parties. Saba paid the
related parties a total of $142,000 for such interest charges, which included
amounts charged, but unpaid, at the end of the previous year.

In 1997, Saba received $10,000 in repayment of a short-term advance to a related
party, and $61,193 from the Chief Executive Officer for accrued interest and
principal on his loan from Saba.

In 1997, Saba charged a related party $23,335 for charges incurred in connection
with a potential property acquisition, and $93,642 for an advance and related
expenses against an indemnification provided by the related party.

During the year 1997, Saba billed a related party a total of $18,814 and
received payments of $91,983 which included amounts billed in the prior year, in
connection with the related party's participation in drilling and production
activities in one of Saba's oil properties.

In 1997, Saba incurred airplane charter expenses in the amount of $72,774 from
non-affiliated airplane leasing services, for the use of an airplane owned by
Saba's Chief Executive Officer.

In 1998, Saba advanced $36,000 to a related party, evidenced by an unsecured
promissory note.

In 1998, Saba charged interest in the amount of $40,774 to a related party on
outstanding, interest-bearing, indebtedness to the Company. Saba received
$37,264 for accrued interest and $5,646 for principal repayment from related
parties during the year 1998.

In 1998, Saba provided short-term cash advances to related parties in the amount
of $38,932, and received reimbursements in the amount of $243,534 from related
parties for prior advances.

In 1998, Saba billed a related party a total of $141,978 and received payments
of $88,605 in connection with the related party's participation in drilling and
production activities on one of the Company's oil properties.

NOTE 9 - CONVERTIBLE PREFERRED STOCK

On December 31, 1997, Saba sold 10,000 shares of Series A 6% Convertible
Preferred Stock ("Preferred Stock") for $10 million. The Preferred Stock bears a
cumulative dividend of 6% per annum, payable quarterly, and, at the option of
Saba, can be paid either in cash or through the issuance of shares of Saba's
Common Stock. The Preferred Stock is senior to all other classes of

Saba's equity securities. The conversion price of the Preferred Stock is based
on the future price of Saba's Common Stock, without discount, but will be no
greater than $9.345 per share. Conversion of the Preferred Stock could not

F-53

<PAGE>

NOTE 9 - CONVERTIBLE PREFERRED STOCK (Continued)

begin until May 1, 1998. Three years from date of issuance, any remaining
Preferred Stock will automatically convert into Saba's Common Stock. The
Preferred Stock is redeemable, at the option of Saba, at various prices
commencing at 115% of the issue price plus any accrued, but unpaid, dividends.
Under certain circumstances, the holders of the Preferred Stock may require that
Saba redeem the Preferred Stock at an amount per share equal to the greater of
(i) 115% of the stated value of the shares plus any accrued, but unpaid,
dividends and (ii) the market value of the shares of Saba's Common Stock
underlying the Preferred Stock on the date of redemption. Those circumstances
include Saba's failure to issue and transfer shares of Common Stock to the
Preferred Stockholder upon conversion of the Preferred Stock; Saba's failure to
remove a restrictive legend from the Common Stock when required to do so; Saba's
failure to obtain effectiveness with the Securities and Exchange Commission of a
registration statement covering the shares of Common Stock underlying the
Preferred Stock prior to May 15, 1998; Saba's assignment for the benefit of
creditors, or consent to the appointment of a receiver for Saba or for all or
substantially all of its property; the institution by or against Saba or any of
Saba's subsidiaries of a bankruptcy or insolvency proceeding, which continues
undismissed for 45 days; and Saba's failure to maintain a listing on AMEX.
Should Saba choose to redeem the issue, the Preferred Stock holder will be
entitled to receive 200,000 warrants to purchase Saba's Common Stock. Upon the
liquidation of Saba, the holders of the Preferred Stock are entitled to receive
an amount equal to the stated value per share of the Preferred Stock ($1,000)
plus all accrued and unpaid dividends. In connection with the sale of the
Preferred Stock, warrants to purchase 224,719 shares of Common Stock were issued
to the purchaser of the Preferred Stock and warrants to purchase 44,944 shares
of Common Stock were issued as a fee for the placement of the issue. The
warrants are exercisable over a three year period at a price of $10.68. The fair
value of the warrants at December 31, 1997, was estimated at $622,000 using the
Black-Scholes pricing model.

In June 1998, Saba redeemed 2,000 shares of Preferred Stock in the face amount
of $2.0 million at a total cost of $2.15 million, which included a 5% redemption
premium of $100,000 and accrued dividends of $51,000. Saba incurred a charge to
operations in the amount of $398,000 in connection with the redemption. Accrued
dividends for the year ended December 31, 1998, in the amount of $480,000 on the
remaining outstanding issue were deemed settled by an increase to the Preferred
Stock's conversion amount.

On October 6, 1998, HVI acquired 690 shares of Preferred Stock from the holders
of the Preferred Stock in exchange for $750,000 in cash with the exclusive right
until November 5, 1998, to acquire a minimum of 6,310 shares of the remaining
7,310 shares of Preferred Stock still outstanding. The exclusive right was
extended for 30 days pursuant to HVI's payment to the Preferred Stock holders of
an additional $500,000. HVI did not exercise its right to acquire the additional
6,310 shares of Series A Preferred Stock prior to the expiration of the
extension period. The 690 shares of Series A Preferred Stock acquired by HVI,
along with the accrued but unpaid dividends thereon, is currently convertible
into an aggregate of 300,012 shares of Saba's

Common Stock based on a conversion price negotiated by HVI and Saba. HVI
currently is negotiating with the holders of the Preferred Stock to extend and
amend the Preferred Stock Transfer Agreement to enable HVI to acquire the
additional 6,310 shares of Series A Preferred Stock (see Subsequent Events).

F-54

<PAGE>

NOTE 9 - CONVERTIBLE PREFERRED STOCK (Continued)

Under the terms of the Preferred Stock offering (as amended) Saba was required
to register with the Securities and Exchange Commission the Common Stock
underlying the issue no later than May 15, 1998. Failure to do so would result
in a penalty of $20,000 per month for each $1 million of Preferred Stock that
remained outstanding. At December 31, 1998, a registration statement covering
the shares of Common Stock underlying the Preferred Stock had not been declared
effective. (HVI's current negotiations with the holders of the Preferred Stock
include provisions to waive the penalty (see Subsequent Events).

NOTE 10 - COMMON STOCK AND STOCK OPTIONS

In April 1996 and June 1996, Saba's Board of Directors and shareholders,
respectively, approved Saba's 1996 Incentive Equity Plan ("Plan"). The purpose
of the Plan is to enable Saba to provide officers, other key employees and
consultants with appropriate incentives and rewards for superior performance.
Subject to certain adjustments, the maximum aggregate number of shares of Saba's
Common Stock that may be issued by the Plan, and the maximum number of shares of
Common Stock granted to any individual in any calendar year, shall not in the
aggregate exceed 1,000,000 and 200,000, respectively.

During the year 1996, Saba issued options to acquire 100,000 shares of Saba's
Common Stock to a consultant. The options had an exercise price of $4.00 and
were exercisable over a period of 180 days, beginning May 21, 1996. The options
were fully exercised during the year 1996. Saba also issued options to acquire
20,000 shares of Saba's Common Stock to an employee under the terms of an
employment agreement; options to acquire 10,000 shares of Common Stock were
subsequently canceled.

On May 30, 1997, Saba issued options to acquire 470,000 and 125,000 shares of
Common Stock to certain employees and a consultant, respectively, in accordance
with the provisions of the 1996 Incentive Equity Plan. Options to acquire
202,000 shares of Common Stock granted to certain employees were subsequently
canceled. On August 28, 1998, Saba issued an option to acquire 15,000 shares of
Common Stock to an employee. The options have exercise prices equal to the
market value at date of grant and become exercisable over various periods
ranging from two to five years from the date of grant. No options were exercised
as of December 31, 1998. Options to acquire 104,000 shares of Common Stock were
exercisable at December 31, 1998. Saba recognized deferred compensation expense
of $909,000 in the year ended December 31, 1997, resulting from the grant to the
consultant. Of this amount, $106,000 was reported as compensation expense during
the year ended December 31, 1997, and an additional $37,877 was reported as
compensation expense during the year ended December 31, 1998. The option grant
was canceled in March 1998, and the unamortized portion of deferred compensation
expense was reversed from the applicable accounts.

In March 1998, Saba issued options to acquire 30,000 shares of Common Stock to a
consultant. The options have an exercise price equal to the market value at date
of grant and are fully vested. Saba recognized compensation expense of $22,600
in the year ended December 31, 1998, attributable to the option grant.

F-55

<PAGE>

NOTE 10 - COMMON STOCK AND STOCK OPTIONS (Continued)

In May 1997, Saba's stockholders approved Saba's 1997 Stock Option Plan for
Non-Employee Directors (the "Directors Plan"), which provided that each
non-employee director shall be granted, as of the date such person first becomes
a director and automatically on the first day of each year thereafter for so
long as he continues to serve as a non-employee director, an option to acquire
3,000 shares of Saba's Common Stock at fair market value at the date of grant.
For as long as the director continues to serve, the option shall vest over five
years at the rate of 20% per year on the first anniversary of the date of grant.
On August 28, 1998, Saba's stockholders approved an increase in the number of
shares of Saba's Common Stock subject to option from 3,000 to 15,000 vesting 20%
per year. Subject to certain adjustments, a maximum of 250,000 options to
purchase shares (or shares transferred upon exercise of options received) may be
outstanding under the Directors Plan. At December 31, 1998, options to acquire a
total of 90,000 shares of Common Stock had been granted under the Directors
Plan. Options to acquire 42,000 shares of Common Stock were subsequently
canceled due to the resignations of directors. Options to acquire 6,000 shares
of Common Stock were exercisable at December 31, 1998.

As of December 31, 1998 and 1997, Saba had outstanding options to acquire
400,000 and 548,000 shares, respectively, of Common Stock to certain employees
of Saba. These options, which are not covered by the Incentive Equity Plan,
become exercisable ratably over a period of five years from the date of issue.
The exercise price of the options, which ranges from $1.25 to $4.38, is the fair
market value of the Common Stock at the date of grant. There is no contractual
expiration date for exercise of a portion of these options. Options to acquire
58,000 and 154,000 shares of Common Stock were exercised in 1998 and 1997,
respectively, and options to acquire 90,000 and 40,000 shares of Common Stock
were canceled in 1998 and 1997, respectively. Options to acquire 400,000 and
344,000 shares of Common Stock were exercisable at December 31, 1998 and 1997,
respectively.

Information regarding the shares under option and weighted average exercise
price for the years ended December 31, 1998, 1997 and 1996 is as follows:

<TABLE>

1998 1997 1996
-------------------------- --------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ------ ---------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>

Beginning of year 1,173,000 $ 8.95 742,000 $ 1.49 740,000 $1.40
Granted 90,000 $ 1.50 640,000 $15.50 120,000 $4.06
Exercised (58,000) $ 1.42 (154,000) $ 1.47 (118,000) $3.58
Canceled (444,000) $12.25 (55,000) $ 5.31 - $0.00
-------- ------ ------- ------ ------- -----
End of Year 761,000 $6.72 1,173,000 $8.95 742,000 $1.49
======= ===== ========= ===== ======= =====
Options exercisable at 540,000 $ 9.47 344,000 $ 1.38 306,000 $ 1.37
======= ====== ======= ====== ======= ======
end of year

</TABLE>

F-56

<PAGE>

NOTE 10 - COMMON STOCK AND STOCK OPTIONS (Continued)

Weighted average
fair value of options
granted during the
year $ 1.33 $ 6.99 $ 1.17
========== ========== =========

The fair value of each option granted during 1998, 1997 and 1996 is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions: (a) risk-free interest rates ranging from 4.9% to 7.9%,
(b) expected volatility ranging from 43.2% to 58.4%, (c) average time to
exercise ranging from six months to five years, and (d) expected dividend yield
of 0.0%.

The following table summarizes information about stock options outstanding at
December 31, 1998:

<TABLE>

Options Outstanding Options Exercisable
---------------------------------------- -------------------------------------------
Number Average Weighted Number
Range of Outstanding at Remaining Average Exercisable at Weighted
Exercise December 31, Contractual Exercise December 31, Average
Prices 1998 Life Price 1998 Exercise
------- ------- --------- ------ ------- --------
<S> <C> <C> <C> <C> <C>
$ 1.25 - 290,000 (1) $1.29 290,000 $1.29
$ 1.38

$ 1.50 175,000 (2) $1.50 130,000 $1.50

$ 4.38 10,000 Not stated $4.38 10,000 $4.38

$15.50 286,000 8.4 years $15.50 110,000 $15.50
------- -------
$ 1.25 - $ 761,000 540,000
15.50 ======= =======

</TABLE>

(1) No contractual expiration date for 145,000 options; balance of 145,000
options expire one year following termination of option holder's
employment.

(2) No contractual expiration date for 100,000 options; 30,000 options expire
in 2.75 years and 45,000 options expire in 9.67 years.

The Company accounts for stock based compensation to employees under the rules
of Accounting Principles Board Opinion No 25. The compensation cost for options
granted in 1998, 1997 and 1996 was $60,308, $482,793 and $30,136, respectively.
If the compensation cost for the Company's 1998, 1997 and 1996 grants to
employees had been determined consistent with SFAS No. 123, the Company's net
(loss) income and net (loss) earnings per common share (basic) for 1998, 1997
and 1996 would approximate the proforma amounts set forth below:

F-57
<PAGE>

NOTE 10 - COMMON STOCK AND STOCK OPTIONS (Continued)

<TABLE>

1998 1997 1996
-------------------------- ------------------------- ------------------------
As Reported Pro Forms As Reported Pro Forma As Reported Pro Forma
---------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>

Net (loss) income $(28,650,823) $(28,745,690) $2,397,447 $2,094,736 $3,764,716 $3,745,218

Net (loss) earnings per
common share (basic) $ (2.60) $ (2.61) $ 0.23 $ 0.20 $ 0.43 $0.43

</TABLE>

On May 30, 1997, the Company's Board of Directors authorized, on a deferred
basis, the issuance of 200,000 shares of Common Stock to the Company's
President, the issuance of such shares being contingent upon the officer
remaining in the employ of the Company for a period of two years succeeding the
expiration of his existing employment contract at December 31, 1999, with such
shares to be issued in two equal installments at the end of each of the two
succeeding years. Additionally, the Board of Directors authorized the issuance
of 100,000 shares of performance shares to the Company's President, issuable at
the end of calendar year 1998 provided that certain operating results were
reported by the Company at the end of that year. In November 1998, due to the
resignation of the officer, both of the grants were canceled.

In March 1998, Saba issued 20,000 performance shares of Common Stock to a
consultant and recognized compensation expense of $61,250 in the year ended
December 31, 1998.

In May 1998, Saba issued 85,000 performance shares to employees and consultants
and recognized compensation expense of $227,500 in the year ended December 31,
1998.

NOTE 11 - EARNINGS PER SHARE
(In thousands, except per share data)

<TABLE>

1998 1997 1996
-------------------------------- ------------------------------ ---------------------------------
Income Per Per Per
(Loss) Shares Share Income Shares Share Income Shares Share
--------- --------- -------- --------- --------- ------ -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Share
Income (loss)
available to
common $(28,650) 11,031 $(2.60) $ 2,397 10,650 $ 0.23 $ 3,765 8,804 $ 0.43
stockholders -
basic EPS
Effect of
dilutive
securities: - - - _ 350 371
Contingently
issuable shares
Convertible - - - 203 1,001 - 559 2,650
debentures
Income available
to common
stockholders and
assumed $(28,650) 11,031 $(2.60) $2,600 12,001 $ 0.22 $4,324 11,825 $ 0.37
conversions -
diluted EPS

</TABLE>

F-58

<PAGE>

NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a tabulation of unaudited quarterly operating results for 1998
and 1997:

Basic Net Diluted Net
Total Operating Net Income Income (Loss) Income (Loss)
1998 Revenues Income (Loss) Per Share Per Share
---------- ------------ ------------- ------- -------
<S> <C> <C> <C> <C> <C>
First Quarter $6,473,469 $(11,573,619) $(12,016,500) $(1.12) $(1.12)

Second Quarter 6,405,776 (7,908,209) (9,577,165) (0.88) (0.88)

Third Quarter 5,803,917 (301,509) (1,904,552) (0.18) (0.18)

Fourth Quarter 4,648,169 (4,240,878) (5,152,606) (0.42) (0.42)
--------- ----------- ----------- ------ ------

$23,331,331 $(24,024,215) $(28,650,823) $ (2.60) $ (2.60)
=========== ============= ============= ======== ========

Basic Net Diluted Net
Total Operating Net Income Income (Loss) Income (Loss)
1997 Revenues Income (Loss) Per Share Per Share
---------- ------------ ------------- ------- -------
<S> <C> <C> <C> <C> <C>
First Quarter $9,563,474 $2,804,882 $1,441,582 $0.14 $0.12

Second Quarter 8,271,953 1,265,636 507,300 0.05 0.05

Third Quarter 8,942,773 1,978,235 598,618 0.06 0.05

Fourth Quarter 9,217,562 950,255 (150,053) (0.01) (0.01)
--------- ------- -------- ------ ------

$35,995,762 $6,999,008 $2,397,447 $ 0.23 $ 0.22
=========== ========== ========== ====== ======

</TABLE>

NOTE 13 - RETIREMENT PLAN

The Company sponsors a defined contribution retirement savings plan ( 401(k)
Plan") to assist all eligible U.S. employees in providing for retirement or
other future financial needs. The Company currently provides matching
contributions equal to 50% of each employee's contribution, subject to a maximum
of 4% of employee earnings. The Company's contributions to the 401(k) Plan were
$54,616, $41,762 and $44,014 in 1998, 1997 and 1996, respectively.

NOTE 14 - COMMITMENTS AND CONTINGENCIES

The Company is a defendant in various legal proceedings, which arise in the
normal course of business. Based on discussions with legal counsel, management
does not believe that the ultimate resolution of such actions will have a
significant effect on the Company's financial statements or results of
operations.

Leases

The Company leases office space, vehicles and office equipment under
non-cancelable operating leases expiring in the years 1999 through 2002. Future
minimum lease payments under all operating leases are as follows:

F-59

<PAGE>

NOTE 14 - COMMITMENTS AND CONTINGENCIES - continued

Year Ending
December 31,

1999 $229,611
2000 141,711
2001 108,951
2002 8,133
2003 -
-------
$488,406

Rent expense amounted to $206,003, $248,596 and $246,013 for the years ended
December 31, 1998, 1997 and 1996, respectively.

Concentration of Credit Risk and Major Customers

The Company invests its cash primarily in deposits with major banks. Certain
deposits may, at times, be in excess of federally insured limits ($975,828 and
$3,951,106 at December 31, 1998 and 1997, respectively, according to bank
records). Saba has not incurred losses related to such cash balances.

The Company's accounts receivable result from its activities in the oil and gas
industry. Concentrations of credit risk with respect to trade receivables are
limited due to the large number of joint interest partners comprising the
Company's customer base. Ongoing credit evaluations of the financial condition
of joint interest partners are performed and generally, no collateral is
required. The Company maintains reserves for potential credit losses and such
losses have not exceeded management's expectations. Included in accounts
receivable at December 31, 1998 and 1997 are the following amounts due from
unaffiliated parties (each accounting for 10% or more of accounts receivable):

1998 1997
---- ----

Customer A $583,879 $1,482,600
======= ==========
Customer B $791,571 $ 931,965
======= ==========
Customer C $ - $ 745,567
======= ==========

Sales to major unaffiliated customers (customers accounting for 10 percent or
more of gross revenue), all representing purchasers of oil and gas and related
transportation tariffs and the applicable geographic area for each customer, for
each of the years ended December 31, 1998, 1997 and 1996 are as follows:

Geographic Area 1998 1997 1996

Customer A Colombia $7,374,751 $10,769,000 $13,594,000
========= ========== ==========
Customer B United States $5,821,445 $ 7,738,280 $ 4,117,000
========= ========== ==========

All sales to the geographic area of Colombia are to the government owned oil
company.

F-60
<PAGE>

NOTE 14 - COMMITMENTS AND CONTINGENCIES - continued

Contingencies

The Company is subject to extensive Federal, state, and local environmental laws
and regulations. These requirements, which change frequently, regulate the
discharge of materials into the environment. The Company believes that it is in
compliance with existing laws and regulations.

Environmental Contingencies

Pursuant to the purchase and sale agreement of an asphalt refinery in Santa
Maria, California, the sellers agreed to perform certain remediation and other
environmental activities on portions of the refinery property through June 1999.
Because the purchase and sale agreement contemplates that the Company might also
incur remediation obligations with respect to the refinery, the Company engaged
an independent consultant to perform an environmental compliance survey for the
refinery. The survey did not disclose required remediation in areas other than
those where the seller is responsible for remediation, but did disclose that it
was possible that all of the required remediation may not be completed in the
five-year period. The Company, however, believes that all required remediation
will be completed by the seller within the five year period. Environmental
compliance surveys such as those the Company has had performed are limited in
their scope and may not disclose all environmental contamination as may exist.

In accordance with the Articles of Association for the Cocorna Concession, the
Concession expired in February 1997 and the property interest reverted to
Ecopetrol. The property is presently under operation by Ecopetrol. Under the
terms of the acquisition of the Concession, the Company and the operator were
required to perform various environmental remedial operations, which the
operator advises have been substantially, if not wholly, completed. The Company
and the operator are awaiting an inspection of the Concession area by Colombian
officials to determine whether the government concurs in the operator's
conclusions. Based upon the advice of the operator, the Company does not
anticipate any significant future expenditures associated with the environmental
requirements for the Cocorna Concession.

In 1993, the Company acquired a producing mineral interest from a major oil
company ( Seller"). At the time of acquisition, the Company's investigation
revealed that the Seller had suffered a discharge of diluent (a light oil based
fluid which is often mixed with heavier grade crudes). The purchase agreement
required the Seller to remediate the area of the diluent spill. After the
Company assumed operation of the property, the Company became aware of the fact
that diluent was seeping into a drainage area, which traverses the property. The
Company took action to eliminate the fluvial contamination and requested that
the Seller bear the cost of remediation. The Seller has taken the position that
its obligation is limited to the specified contaminated area and that the source
of the contamination is not within the area that the Seller agreed to remediate.
The Company has commenced an investigation into the source of the contamination
to ascertain whether it is physically part of the area which the Seller agreed
to remediate or is a separate spill area. Investigation and discussions with the
Seller are ongoing. Should the Company be required to remediate the area itself,
the cost to the Company could be significant. The Company has spent
approximately $240,000 to date in remediation activities, and present estimates
are that the cost of complete remediation could approach $1 million. Since the
investigation is not complete, an accurate estimate of cost cannot be made.

F-61
<PAGE>

NOTE 14 - COMMITMENTS AND CONTINGENCIES - continued

Environmental Contingencies (Continued)

In 1995, the Company agreed to acquire, for less than $50,000, an oil and gas
interest on which a number of oil wells had been drilled by the seller. None of
the wells were in production at the time of acquisition. The acquisition
agreement required that the Company assume the obligation to abandon any wells
that the Company did not return to production, irrespective of whether certain
consents of third parties necessary to transfer the property to the Company were
obtained. The Company has been unable to secure all of the requisite consents to
transfer the property but nevertheless may have the obligation to abandon the
wells. The leases have expired and the Company is presently considering whether
to attempt to secure new leases. A preliminary estimate of the cost of
abandoning the wells and restoring the well sites is approximately $800,000. The
Company is currently unable to assess its exposure to third parties if the
Company elects to plug such wells without first obtaining necessary consent.

The Company, as is customary in the industry, is required to plug and abandon
wells and remediate facility sites on its properties after production operations
are completed. The cost of such operation will be significant and will occur,
from time to time, as properties are abandoned.

There can be no assurance that material costs for remediation or other
environmental compliance will not be incurred in the future. The occurrence of
such environmental compliance costs could be materially adverse to the Company.
No assurance can be given that the costs of closure of any of the Company's
other oil and gas properties would not have a material adverse effect on the
Company.

NOTE 15 - BUSINESS SEGMENTS

Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information." The
Company considers that its operations are principally in one industry segment
that of acquisition, exploration, development and production of oil and gas
reserves. The factors for determining reportable segments are based on the
distinct nature of their operations. Another criteria for determining reportable
segments is that they are managed as separate business units because each
requires and is responsible for executing a unique business strategy.

Earnings of industry segments and geographic areas exclude interest income,
interest expense and unallocated corporate expenses.

Foreign income and other taxes and certain state taxes are included in segment
earnings on the basis of operating results. U.S. Federal income taxes are
allocated to segments except for amounts in lieu thereof that represent the tax
effect of operating charges resulting from purchase accounting adjustments.

Identifiable assets are those assets used in the operations of the segments.
Corporate assets consist of cash, short-term investments, certain corporate
receivables, and other assets.

F-62

<PAGE>

NOTE 15 - BUSINESS SEGMENTS - continued

A summary of the Company's operations by geographic area for the years ended
December 31, 1998, 1997 and 1996 is as follows: (Dollars
in thousands).

<TABLE>

Other
Foreign
Year Ended United States Canada Colombia Countries and Other Total
------------- ------ -------- ----------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998

Total revenues $12,044 $1,546 $7,375 $ - $ 2,366 $ 23,331

Production costs 8,867 874 3,867 - - 13,608

Other operating expenses 1,177 604 253 130 4,366 6,530

Depreciation, depletion
and amortization 5,370 366 938 6 444 7,124

Writedown of oil and gas
properties 18,583 - - 1,510 - 20,093

Income tax expense
(benefit) (182) (93) 1,226 (13) (51) 887

Results of operations
from oil and gas $ (21,771) $ (205) $ 1,091 $ (1,633)
---------- ------- ------- ---------
producing activities

Interest and other
expenses (net) 3,741 3,741
----- -----

Net (loss) income $ (6,024) $ (28,650)
========= ==========

Identifiable assets at
December 31, 1998 $ 23,744 $ 5,225 $11,056 $ 2,068 $ 7,595 $ 49,688
======== ======= ======= ======= ======= ========

</TABLE>

F-63

<PAGE>

NOTE 15 - BUSINESS SEGMENTS (Continued)

<TABLE>

Other
Foreign
Year Ended United States Canada Colombia Countries and Other Total
------------- ------ -------- ----------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997

Total revenues $21,359 $2,582 $10,769 $ - $ 1,286 $ 35,996

Production costs 10,461 1,080 5,066 - - 16,607

Other operating expenses 1,130 472 246 63 3,214 5,125

Depreciation, depletion
and amortization 4,540 543 1,797 2 383 7,265

Income tax expense
(benefit) 752 158 1,495 - (529) 1,876

Results of operations
from oil and gas $ 4,476 $ 329 $ 2,165 $ (65)
------- ----- ------- ------
producing activities

Interest and other
expenses (net) 2,726 2,726
----- -----

Net (loss) income $(4,508) $2,397
======== ======

Identifiable assets at
December 31, 1997 $ 44,713 $ 7,460 $11,047 $ 2,174 $12,263 $ 77,657
======== ======= ======= ======= ======= ========

Other
Foreign
Year Ended United States Canada Colombia Countries and Other Total
------------- ------ -------- ----------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996

Total revenues $15,907 $3,105 $13,594 $ - $ 596 $ 33,202

Production costs 8,160 1,172 5,272 - - 14,604

Other operating expenses 1,209 536 213 58 1,904 3,920

Depreciation, depletion
and amortization 2,564 353 2,275 1 334 5,527

Income tax expense
(benefit) 1,561 - 2,917 - (1,520) 2,958

Results of operations
from oil and gas $2,413 $ 1,044 $ 2,917 $ (59)
------ ------- ------- ------
producing activities

Interest and other
expenses (net) 2,428 2,428
----- -----

Net income (loss) $ (2,550) $3,765
========= ======

Identifiable assets at
December 31, 1996 $ 28,466 $ 5,346 $ 12,473 $ 264 $ 2,568 $ 49,117
======== ======= ======== ===== ======= ========

</TABLE>

F-64

<PAGE>

NOTE 16 - SUBSEQUENT EVENTS (UNAUDITED)

Writedown of Natural Gas and Oil Properties

As of December 31, 1998, the Company estimated, using end-of-year prices for
natural gas and oil that, in the aggregate, actual capitalized costs of natural
gas and oil properties for the Company's three full cost pools exceeded the
ceiling limitations imposed under full cost accounting rules by approximately
$9.5 million. Subsequent to December 31, 1998, oil prices increased and natural
gas prices decreased, such that the Company estimated, using April 1, 1999,
prices that, in the aggregate, the ceiling limitation exceeded actual
capitalized costs of natural gas and oil properties by approximately $2.9
million. The Company was required to record a writedown attributable to its
United States full cost pool at December 31, 1998, in the amount of $1.4
million.

The weighted average prices for oil and natural gas based on actual prices in
effect for each of the Company's properties, actual capitalized costs and
ceiling limitation amounts for each full cost pool utilizing December 31, 1998,
and April 1, 1999, prices are as follows (in thousands, except for price
information):

<TABLE>

Weighted Avg. Price
Excess/
(Deficit)
Ceiling of
Oil Natural Gas Capitalized Costs Limitation Limitation
--------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1998:

United States $8.33 $ 1.80 $20,931 $14,084 $ (6,847)

Canada $10.92 $ 1.47 $ 4,802 $ 4,527 $(275)

Colombia $ 7.05 - $ 6,066 $ 3,700 $ (2,366)
------- ------- ---------

$31,779 $22,311 $ (9,488)
======= ======= =========

April 1, 1999:

United States $10.99 $ 1.55 $21,227 $19,845 $ (1,382)

Canada $14.71 $ 1.44 $ 4,802 $ 4,816 $ 14

Colombia $ 8.55 - $ 6,285 $10,566 $ 4,281
------- ------- -------

$32,314 $35,227 $ 2,913
======= ======= =======
</TABLE>

Approximately $4.5 million in principal amount of bank debt that matured for
payment on July 31, 1998, has not been paid nor extended, and the borrowing base
deficit of $3.1 million on the revolving loan at December 31, 1998, has not been
satisfied either by providing additional collateral to The Company's bank or
reducing the principal balance that was outstanding at December 31, 1998.
Additionally, the Company was not in compliance with the loan agreements
financial covenants at December 31, 1998. In February 1999, Bank One, Texas
notified the Company that as a result of continuing defaults under the Company's
principal credit facilities with Bank One the entire amount of $20.1 million
then outstanding under the facilities was accelerated and declared immediately
due and payable. The Company and its bank are in discussions to address such
non-compliance.

F-65
<PAGE>

NOTE 16 - SUBSEQUENT EVENTS (UNAUDITED) (Continued)

The Company has negotiated, and continues to pursue, the sale of certain
producing oil and gas assets and real estate assets. In September 1998, Saba
listed certain of its California real estate properties with a broker, and in
October 1998, Saba listed its domestic non-California producing oil and gas
properties with a broker. Proceeds from the sale of such properties will be used
to reduce bank indebtedness and provide working capital.

In October 1998, Saba executed a letter presented by the operator of the North
Nare Association in Colombia whereby Saba confirmed its agreement to pay up to
$500,000 in January 1999 if the operator is successful in procuring an extension
from Ecopetrol of the North Nare contract for twenty-two years beyond the year
2008, the time at which the areas under the terms of the Association Agreement
revert back to Ecopetrol.

The Company's obligation to repay the principal sum of approximately $4.2
million, plus interest, as evidenced by a promissory note secured by its 50%
interest in a 118-mile pipeline in Colombia owned by Sabacol, Inc., a
wholly-owned subsidiary of the Company ( Sabacol"), became due and payable in
its entirety on December 14, 1998. The promissory note was not paid in full by
December 14, 1998. However, on December 15, 1998, the Company disclosed that
Sabacol filed a voluntary petition under Chapter 11 of the United States
Bankruptcy Code in the Central District of California on December 11, 1998.
Sabacol's assets, located solely in Colombia, consist of a 50% interest in a
118-mile pipeline and varying interests in heavy oil producing properties.
Sabacol had filed the bankruptcy petition to protect its asset base and to
provide adequate time to develop a re-organization plan. On March 30, 1999, it
was announced that Sabacol had entered into an agreement to sell substantially
all of its real and personal assets. A portion of the total consideration for
the sale consists of cancellation of the promissory note, including accrued
interest. Sabacol has filed a motion for an order authorizing the sale of the
assets and, upon consummation of the sale, dismissing the bankruptcy case.

On March 22, 1999, the Company and HVI announced that the shareholders of both
companies approved the merger between the Company and HVI at a special meeting
of each company held in March 19,1999. Under the terms of the merger, HVI will
be the surviving entity following its acquisition of 100% of the issued and
outstanding Common Stock of Saba. At the HVI meeting, shareholders also approved
a name change to Greka Energy Corporation.

The Company deferred the semi-annual interest payment of $162,000 due in
December 1998 on the Debentures. The interest payment was made in January of
1999.

On March 15, 1999 HVI and RGC International Investors LDC entered into a term
sheet that provided for the conversion of Saba's Series A Convertible Preferred
Stock to a Secured Convertible Note obligation of HVI. Negotiations relating to
the final documentation of this agreement are ongoing.

F-66

<PAGE>

SABA PETROLEUM COMPANY AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

Estimated Proved Reserves

Estimates of the Company's proved developed and undeveloped oil and gas reserves
for its working and royalty interest wells were prepared by independent
engineers. The estimates are based upon engineering principles generally
accepted in the petroleum industry and take into account the effect of past
performance and existing economic conditions. Reserve estimates vary from year
to year because they are based upon judgmental factors involved in interpreting
and analyzing production performance, geological and engineering data and
changes in prices, operating costs and other economic, regulatory, and operating
conditions. Changes in such factors can have a significant impact on the
estimated future recoverable reserves and estimated future net revenue by
changing the economic lives of the properties. Proved undeveloped oil and gas
reserves include only those reserves which are expected to be recovered on
undrilled acreage from new wells which are reasonably certain of production when
drilled, or from presently existing wells which could require relatively major
expenditures to effect recompletion. Presented below is a summary of proved
reserves of the Company's oil and gas properties:

<TABLE>

United States Canada (1) Colombia Total
------------- ---------- -------- -----
<S> <C> <C> <C> <C>
Year Ended December 31, 1998

Oil (Barrels)
Proved Reserves:

Beginning of year 10,550,203 806,700 12,568,182 23,925,085

Acquisition, exploration and
development of minerals in place 278,429 - - 278,429

Revisions of previous estimates (3,825,390) (210,793) (3,685,077) (7,721,260)

Production (964,613) (67,007) (823,361) (1,854,981)

Sales of minerals in place (474,195) (248,300) - (722,495)
--------- --------- ---------- ---------

End of year 5,564,434 280,600 8,059,744 13,904,778
========= ======= ========= ==========

Proved developed reserves, end of year 3,756,848 177,600 4,501,423 8,435,871
========= ======= ========= =========

Gas (thousands of cubic feet) Proved Reserves:

Beginning of year 20,310,456 10,984,000 - 31,294,456

Acquisition, exploration and
development of minerals in place 1,298,845 - - 1,298,845

Revisions of previous estimates 610,050 (4,132,701) - (3,522,651)

F-67
<PAGE>

Production (1,628,495) (614,399) - (2,242,894)

Sales of minerals in place (3,673,391 (156,600) - (3,829,991)
---------- --------- ---------- -----------

End of Year 16,917,465 6,080,300 - 22,997,765
========== ========= ========== ==========

Proved developed reserves, end of year 8,863,795 2,254,500 - 11,118,295
========= ========= ========== ==========

(1) see reference (1) on page F-70

United States Canada (1) Colombia Total
------------- ---------- -------- -----
<S> <C> <C> <C> <C>
Year Ended December 31, 1997

Oil (Barrels)
Proved Reserves:

Beginning of year 16,151,058 920,800 9,607,067 26,678,925

Acquisition, exploration and
development of minerals in place 4,200,193 9,640 1,600,225 5,810,058

Revisions of previous estimates (6,139,246) (24,055) 2,247,541 (3,915,760)

Production (1,120,645) (99,685) (886,651) (2,106,981)

Sales of minerals in place (2,541,157) - - (2,541,157)
----------- --------- --------- -----------

End of year 10,550,203 806,700 12,568,182 23,925,085
========== ======= ========== ==========

Proved developed reserves, end of year 8,048,356 603,600 7,964,016 16,615,972
========= ======= ========= ==========

Gas (thousands of cubic feet) Proved Reserves:

Beginning of year 13,113,965 10,551,000 - 23,664,965

Acquisition, exploration and
development of minerals in place 13,337,886 1,190,546 - 14,528,432

Revisions of previous estimates (4,477,286) (23,832) - (4,501,118)

Production (1,673,914) (733,714) - (2,407,628)

Sales of minerals in place 9,805 - - 9,805
----------- ---------- --------- -----------

End of Year 20,310,456 10,984,000 - 31,294,456
========== ========== ========= ===========

Proved developed reserves, end of year 13,988,220 3,412,000 - 17,400,220
========== ========= ========= ===========
F-68
<PAGE>

United States Canada (1) Colombia Total
------------- ---------- -------- -----
<S> <C> <C> <C> <C>
Oil (Barrels)
Proved Reserves:

Beginning of year 6,562,595 926,200 5,042,502 12,531,297

Acquisition, exploration and
development of minerals in place 4,501,828 103,837 - 4,605,665

Revisions of previous estimates 5,950,525 24,771 5,595,772 11,571,068

Production (803,070) (134,008) (1,031,207) (1,968,285)

Sales of minerals in place (60,820) - - (60,820)
-------- -------- ---------- --------

End of year 16,151,058 920,800 9,607,067 26,678,925
========== ======= ========= ==========

Proved developed reserves, end of year 7,993,854 710,000 4,692,140 13,395,994
========= ======= ========= ==========

Gas (thousands of cubic feet) Proved Reserves:

Beginning of year 9,103,049 10,376,000 - 19,479,049

Acquisition, exploration and
development of minerals in place 4,186,184 924,033 - 5,110,217

Revisions of previous estimates 1,046,326 48,213 - 1,094,539

Production (1,089,576) (561,042) - (1,650,618)

Sales of minerals in place (132,018) (236,204) - (368,222)
--------- --------- ---------- ---------

End of Year 13,113,965 10,551,000 - 23,664,965
========== ========== ========== ==========

Proved developed reserves, end of year 11,520,707 2,654,000 - 14,174,707
========== ========= ========== ==========

</TABLE>

F-69
<PAGE>

(1) see reference (1) on page F-68

(1) The proved reserve information on December 31, 1998, 1997 and 1996
includes the following proved reserve amounts attributable to the
approximately 26% minority interest ownership by unrelated parties in
Beaver Lake Resources Corporation.

1998 1997 1996
---------- ---------- ----------

Oil (Bbls) ........................... 72,495 208,417 236,911

Gas (Mcf) ............................ 1,570,888 2,837,793 2,714,646

Barrels of oil equivalent (BOE) ...... 334,310 681,382 689,352

Standardized measure of
discounted future net cash flows $1,095,738 $2,351,565 $2,840,628

Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserve

The following information at December 31, 1998, 1997 and 1996 has been prepared
in accordance with Statement of Financial Accounting Standards No. 69, which
requires the standardized measure of discounted future net cash flows to be
based on sales prices in effect at year-end, costs and statutory income tax
rates in effect at the time the projections are made and a 10 percent per year
discount rate. The projections should not be viewed as estimates of future cash
flows nor should the standardized measure" be interpreted as representing
current value to the Company (dollars in thousands).

F-70
<PAGE>

<TABLE>

December 31, 1998 United States Canada (1) Colombia Total
- ----------------- ------------- ---------- -------- -----
<S> <C> <C> <C> <C>
Future cash inflows $ 76,773 $ 13,407 $ 56,853 $ 147,033
Future production costs (35,593) (5,144) (40,617) (81,354)
Future development costs (16,826) (1,307) (8,256) (26,389)
Future income tax expenses - (312) - (312)
------ ----- ------ -----

Future net cash flows 24,354 6,644 7,980 38,978
10 percent annual discount for
estimated timing of cash flows (9,143) (2,403) (4,307) (15,853)
------ ------ ------ -------

Standardized measure of discounted
future net cash flows $ 15,211 $ 4,241 $ 3,673 $ 23,125
======= ======= ======= ========

December 31, 1997

Future cash inflows $184,240 $ 30,826 $167,418 $382,484
Future production costs (87,803) (11,639) (71,327) (170,769)
Future development costs (18,263) (1,604) (8,269) (28,136)
Future income tax expenses (15,773) (4,307) (36,022) (56,102)
-------- ------ ------- -------

Future net cash flows 62,401 13,276 51,800 127,477
10 percent annual discount for
estimated timing of cash flows (16,572) (4,174) (16,878) (37,624)
-------- -------- ------- -------

Standardized measure of discounted
future net cash flows $ 45,829 $ 9,102 $34,922 $89,853
======== ====== ====== ======

(1) see reference (1) on page F-68

December 31, 1996 United States Canada (1) Colombia Total
- ----------------- ------------- ---------- -------- -----
<S> <C> <C> <C> <C>
Future cash inflows $ 324,206 $ 39,985 $157,552 $521,743
Future production costs (143,964) (13,247) (63,458) (220,669)
Future development costs (24,432) (587) (22,153) (47,172)
Future income tax expenses (36,539) (9,529) (22,172) (68,240)
------- ------ ------- -------

Future net cash flows 119,271 16,622 49,769 185,662
10 percent annual discount for
estimated timing of cash flows (45,942) (5,581) (17,650) (69,173)
------- ------ ------- -------

Standardized measure of discounted
future net cash flows $ 73,329 $ 11,041 $ 32,119 $116,489
======== ======= ======= =======

The following are the principal sources of changes in the standardized measure
of discounted future net cash flows during 1998, 1997 and 1996 (dollars in
thousands).

F-71
<PAGE>

December 31, 1998 United States Canada (1) Colombia Total
- ----------------- ------------- ---------- --------- --------
<S> <C> <C> <C> <C>
Balance at beginning of year $45,829 $ 9,102 $34,923 $89,854
Acquisitions, discoveries
and extensions 1,263 - - 1,263
Sales and transfers of oil
and gas produced, net of
production costs (2,841) (479) (2,761) (6,081)
Changes in estimated future
development costs (5,805) 228 (412) (5,989)
Net changes in prices, net of
production costs (20,970) (2,077) (45,030) (68,077)
Sales of reserves in place (4,391) (1,540) - (5,931)
Development costs incurred
during the period 330 - 1,216 1,546
Changes in production rates
and other 4,586 (236) (7,360) (3,010)
Revisions of previous
quantity estimates (13,550) (3,280) (4,830) (21,660)
Accretion of discount 5,144 1,640 5,714 12,498
Net change in income taxes 5,616 883 22,213 28,712
-------- ---- ------ ------
Balance at end of year $ 15,211 $ 4,241 $ 3,673 $ 23,125
======= ======= ======= ======

(1) see reference (1) on page F-68

December 31, 1997 United States Canada (1) Colombia Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 73,329 $ 11,041 $ 32,119 $ 116,489
Acquisitions, discoveries
and extensions ............. 31,593 726 8,368 40,687
Sales and transfers of oil
and gas produced, net of
production costs ........... (10,497) (1,254) (5,611) (17,362)
Changes in estimated future
development costs .......... 9,920 (1,108) 9,231 18,043
Net changes in prices, net of
production costs ........... (51,463) (4,739) (15,151) (71,353)
Sales of reserves in place .. (4,314) -- -- (4,314)
Development costs incurred
during the period .......... 1,601 70 (719) 952
Changes in production rates
and other .................. (9,298) (927) 2,076 (8,149)
Revisions of previous
quantity estimates ......... (20,764) (126) 9,761 (11,129)
Accretion of discount ....... 9,515 1,540 4,471 15,526
Net change in income taxes .. 16,207 3,879 (9,622) 10,464
--------- --------- --------- ---------
Balance at end of year ...... $ 45,829 $ 9,102 $ 34,923 $ 89,854
========= ========= ========= =========
</TABLE>

F-72
<PAGE>

December 31, 1996

Balance at beginning of year $ 19,234 $ 7,393 $ 12,438 $ 39,065
Acquisitions, discoveries
and extensions ............. 43,988 1,604 -- 45,592
Sales and transfers of oil
and gas produced, net of
production costs ........... (7,590) (1,845) (7,605) (17,040)
Changes in estimated future
development costs .......... (15,038) 2,430 (16,233) (28,841)
Net changes in prices, net of
production costs ........... 14,951 5,680 20,390 41,021
Sales of reserves in place .. (667) (77) -- (744)
Development costs incurred
during the period .......... 330 120 -- 450
Changes in production rates
and other .................. 16 (490) (2,236) (2,710)
Revisions of previous
quantity estimates ......... 32,023 436 32,781 65,240
Accretion of discount ....... 2,467 748 1,601 4,816
Net change in income taxes .. (16,385) (4,958) (9,017) (30,360)
--------- --------- --------- ---------
Balance at end of yea ....... $ 73,329 $ 11,041 $ 32,119 $ 116,489
========= ========= ========= =========

(1) see reference (1) on page F-68

F-73

<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

GREKA ENERGY CORPORATION

Dated: September 17, 1999 By:/s/ Randeep S. Grewal
----------------------------------------
Randeep S. Grewal, Chairman of the Board
and Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

Signature Title Date

/s/ Randeep S. Grewal
---------------------
Randeep S. Grewal Chairman of the Board of September 17, 1999

Directors and Chief
Executive Officer
(Principal Executive
Officer, Financial Officer
and Accounting Officer)

/s/ Dr. Jan F. Holtrop
----------------------
Dr. Jan F. Holtrop Director September 17, 1999

/s/ Dirk Van Keulen
----------------------
Dirk Van Keulen Director September 17, 1999

/s/ George C. Andrews
----------------------
George C. Andrews Director September 17, 1999

/s/ Dai Vaughan
----------------------
Dai Vaughan Director September 17, 1999

<PAGE>
Exhibit 23.1

Arthur Andersen LLP

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K into Greka Energy
Corporation's previously filed registration statements (File Nos. 333-60621
and 333-78673).

/s/ Arthur Andersen LLP

New York, New York
September 16, 1999

<PAGE>

Exhibit 23.2

Bateman & Co., P.C.

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the inclusion in this amended Annual Report on Form 10-K
for the year ended December 31, 1998, which report will upon its filing be
incorporated by reference into Greka Energy Corporation's registration
statements on Form S-3 (File Nos. 333-60621 and 333-78673), of our report
dated April 14, 1998, on our audits of the consolidated financial statements
of Greka Energy Corporation, formerly known as Petro Union, Inc. doing
business as Horizontal Ventures Inc. as of December 31, 1997 and for each of
the two years in the period ended December 31, 1997.

/s/Bateman & Co., P.C.
-------------------
Bateman & Co., P.C.

Houston, Texas
September 16, 1999

<PAGE>

Exhibit 23.3

Netherland, Sewell & Associates, Inc.

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS

We hereby consent to references to our firm in the form and context in
which they appear in the amended Annual Report on Form 10-K of GREKA Energy
Corporation for the year ended December 31, 1998. We hereby further consent to
the use of information contained in our reports, as of January 1, 1997, 1998 and
1999 setting forth the Saba Petroleum Company oil and gas reserves and revenue
estimates for the United States and Colombia and to the use of information from
our report dated April 5, 1999, setting forth the Horizontal Ventures, Inc. oil
and gas reserves and revenue estimates, as of January 1, 1999, for Cat Canyon
Field in California. We understand the oil and gass assets owned by Saba
Petroleum Company and Horizontal Ventures, Inc. were merged on March 24, 1999,
to form GREKA Energy Corporation. We further consent to the incorporation by
reference thereof into GREKA Energy Corporation's registration statements on
Form S-3 (File Nos. 333-60621 and 333-78673).

Netherland, Sewell & Associates, Inc.

By: /s/ Frederic D. Sewell
-----------------------
Frederic D. Sewell
President

Dallas, Texas
September 20, 1999

<PAGE>
Exhibit 23.4

Sproule Associates Limited

September 16, 1999

Greka Energy Corporation
630 Fifth Avenue, Suite 1501
New York, New York 10111

Re: Evaluation of the P&NG Reserves of Beaver Lake
Reserves Corporation, as of January 1, 1999

Dear Sirs:

Sproule Associates Limited hereby consents to being named in the amended
Annual Report on Form 10-K of Greka Energy Corporation, which upon its filing
will be incorporated by reference into Greka Energy Corporation's registration
statements on Form S-3, File Nos. 333-60621 and 333-78673.

We confirm that we have read excerpts from the draft document and that we
have no reason to believe that there are any misrepresentations in the
information contained therein that is derived from our Report.

Sincerely,

/s/R.K. MacLeod
--------------------------
R. K. MacLeod, Eng.
Vice-President, Engineering
U.S. and International

<PAGE>

Exhibit 23.5
PricewaterhouseCoopers LLP

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration
statements of Greka Energy Corporation's on Form S-3 (File Nos. 333-60621 and
333-78673) of our report, which contained an explanatory paragraph regarding
Saba Petroleum Company's ability to continue as a going concern, dated April
15, 1998, on our audits of the consolidated financial statements of Saba
Petroleum Company as of December 31, 1997 and for the years ended December 31,
1997 and 1996, which report is included in this amended Annual Report on Form
10-K.

/s/PricewaterhouseCoopers LLP
---------------------------

Los Angeles, California
September 21, 1999