MAGNUM HUNTER RESOURCES INC, 10-Q, 1999-11-09

MAGNUM HUNTER RESOURCES INC
10-Q, 1999-11-09
CRUDE PETROLEUM & NATURAL GAS

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United States
Securities and Exchange Commission
Washington, D. C. 20549

Form 10-Q

(Mark one)
[ X ] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended September 30, 1999

[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition Period from .......... to ..........

Commission File Number..........1-12508

MAGNUM HUNTER RESOURCES, INC.
Exact name of registrant as specified in its charter

Nevada 87-0462881
State or other jurisdiction of IRS employer identification No.
incorporation or organization

600 East Las Colinas Blvd., Suite 1100, Irving, Texas 75039
Address of principal executive offices

(972) 401-0752
Registrant's telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]

State the number of shares outstanding of each of the issuer's classes of
common equity, as of September 30, 1999: 20,184,486.

<PAGE>

PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

The condensed consolidated financial statements of Magnum Hunter Resources,
Inc. ("Magnum Hunter"or the "Company") follow "Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations".

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following discussion and analysis should be read in conjunction with
Magnum Hunter's consolidated financial statements and the notes associated with
them contained in its Form 10-K for the year ended December 31, 1998. This
discussion should not be construed to imply that the results discussed herein
will necessarily continue into the future or that any conclusion reached herein
will necessarily be indicative of actual operating results in the future. Such
discussion represents only the best present assessment by management of Magnum
Hunter.

On May 29, 1997, the Company placed, through a Rule 144A private placement
offering, $140 million in Senior Notes due 2007. The Notes have a 10% coupon,
with interest payable on June 1 and December 1, which commenced on December 1,
1997. Except for Bluebird Energy, Inc. ("Bluebird"), the Company's 100% owned
subsidiary formed in December 1998, there is no restriction on the ability of
any consolidated or unconsolidated subsidiary to transfer funds to the Company
in the form of cash dividends, loans or advances.

On January 28, 1998, the Company commenced a cash purchase offer for Units
of TEL Offshore Trust ("TEL"). Previous to the offer, the Company owned 161,500
Units representing 3.4% of the Units outstanding. As amended, the offer was to
purchase between forty percent (40%) and sixty percent (60%) of the Trust's
outstanding Units at $5.50 per Unit. On March 27, 1998, the Company purchased
1,745,353 Units for $10.4 million pursuant to the tender offer and, together
with the Units it previously owned, became the owner of approximately 40% of the
total number of Units outstanding.

On December 31, 1998, the Company through its newly formed 100% owned
subsidiary, Bluebird, acquired from Spirit Energy 76 ("Spirit 76") natural gas
reserves and associated assets in producing fields located in Oklahoma and Texas
producing approximately 12 million cubic feet of natural gas equivalent per day.
The net purchase price was approximately $25 million after certain purchase
price adjustments, including preferential rights exercised by third parties and
other customary adjustments. As part of the capitalization of Bluebird, the
Company contributed 1,840,271 units of TEL Offshore Trust. Bluebird, as an
"unrestricted subsidiary" as defined under certain credit agreements, is neither
a guarantor of the Company's 10% Senior Notes due 2007 nor can it be included in
determining compliance with certain financial covenants under the Company's
credit agreements. To finance the Spirit 76 acquisition, Bluebird borrowed $26
million under a bridge loan facility with several banks. The bridge loan was
replaced on June 7, 1999 with permanent financing from banks providing for a
revolving credit facility of $75 million with an initial borrowing base of $41.5
million, due three years from June 7, 1999 with interest rates based upon either
"LIBOR" or "Base Rate" (Prime). The loan is non-recourse to the Company. In
addition to retiring the bridge loan, a portion of the proceeds from the
permanent financing was used to finance the acquisition of properties from
Vastar Resources, Inc. ("Vastar") discussed below.

On February 3, 1999, the Company sold $50 million of its Convertible
Preferred Stock in a private placement. The Preferred Stock has a liquidation
value of $50 million and is convertible into the Company's common stock at $5.25
per share. Dividends on the preferred stock are payable in cash at the rate of
8% per annum and are cumulative. The Company used the net proceeds from the
transaction, approximately $46.3 million, to repay senior bank indebtedness.

On June 8, 1999, the Company acquired oil and gas reserves and related
assets from Vastar for a total purchase price of $32.5 million after purchase
price adjustments. The effective date of the acquisition was April 1, 1999. The
acquisition included Vastar's interest in 476 wells, a gas processing plant and
two gas gathering systems located in the states of Texas, Oklahoma and Arkansas.

<PAGE>

On August 11, 1999, the Company announced the execution of a purchase and
sale agreement to acquire 50% ownership interest in the Madill Gas Processing
Plant and associated gathering system from Dynegy Midstream Services, L.P., a
wholly-owned subsidiary of Dynegy. This modern cryogenic plant includes 3,350
horsepower of high-speed compression and will have gas-processing capacity of
approximately 18,000 Mcf/d. The facilities are located in Marshall and Bryan
counties, Oklahoma and are being acquired in conjunction with the Company's 50%
industry partner, Carrera Gas Gathering Co., L.L.C. of Tulsa, Oklahoma. The
closing is expected to occur during November of 1999.

The Company uses the full cost method of accounting for its investment in
oil and gas properties. Under the full cost method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
into a "full cost pool" as incurred, and properties in the pool are depleted and
charged to operations using the unit-of-production method based on the ratio of
current production to total proved oil and gas reserves. To the extent that such
capitalized costs (net of accumulated depreciation, depletion and amortization)
less deferred taxes exceed the SEC PV-10 of estimated future net cash flow from
proved reserves of oil and gas, and the lower of cost or fair value of unproved
properties after income tax effects, such excess costs are charged to
operations. Once incurred, a write-down of oil and gas properties is not
reversible at a later date even if oil or gas prices increase. The Company's SEC
PV-10 property valuation at September 30, 1999 exceeded the capitalized costs at
that date. Significant downward revisions of quantity estimates or declines in
oil and gas prices, which are not offset by other factors, could possibly result
in write-down for impairment of oil and gas properties in the future.

Results of Operations for the Three Month Periods Ended September 30, 1999 and
1998

The results of operations for the three month period ended September 30,
1999, included three months of operations for Spirit 76 and Vastar purchased
properties, while the corresponding period in 1998 did not include any results
of operations from these acquisitions. Unless otherwise stated, the increases in
the 1999 interim period over the 1998 period were substantially the result of
these acquisitions as well as the Company's drilling activities since the third
quarter of 1998.

Oil and natural gas sales were $17,575,000, a 51% increase over 1998 sales
of $11,634,000. The Company sold 352,000 barrels of oil, a 14% increase over
1998 sales of 308,000 barrels, and 5,130,000 Mcf of gas, a 36% increase over
1998 sales of 3,778,000 Mcf. The price received for oil was $15.86 per barrel
and for natural gas was $2.34 per Mcf in 1999 versus an oil price of $12.23 per
barrel and a gas price of $2.08 per Mcf in 1998, representing a 30% increase in
oil price and a 13% increase in gas price. Oil and natural gas production
lifting costs increased two percent to $4,235,000 in 1999 versus $4,153,000 in
1998 while production taxes and other costs increased 87% to $2,327,000 in 1999
from $1,243,000 in 1998 principally due to higher production taxes as a result
of higher oil and natural gas sales. The gross operating margin from oil and
natural gas production was $11,013,000 in 1999, a 77% increase over the 1998
operating margin of $6,238,000. On an equivalent unit basis, the gross margin
was $1.54 per Mcfe in 1999 versus $1.11 in 1998, a 39% increase. The sales price
increased 17% to $2.43 per Mcfe in 1999 versus $2.07 per Mcfe in 1998 while
production lifting costs decreased 22% to $0.58 per Mcfe in 1999 from $0.74 per
Mcfe in 1998 due in part to lower repair costs and greater efficiencies of
scale. Production taxes and other costs, including overhead, were $0.31 per Mcfe
in 1999 versus $0.22 per Mcfe in 1998, a 41% increase chiefly due to higher
production taxes. Total Mcfe sold increased 29% to 7,245,000 Mcfe, or 78,700
Mcfe per day in 1999 from 5,626,000 Mcfe, or 61,200 Mcfe per day in 1998.

Gas gathering, marketing, and processing revenues were $2,039,000 in the
1999 period, a 20% increase from 1998 revenues of $1,697,000, principally as a
result of an increase in natural gas and natural gas liquids prices. Costs from
these activities were $1,442,000 in 1999, a six percent decrease from 1998 costs
of $1,535,000. Gross operating margin was $597,000 in 1999 versus $162,000 in
1998, a 269% increase. Gathering system throughput decreased 15% to 17,387 Mcf
per day in 1999 compared to 20,365 Mcf per day in 1998, due to the sale of a
non-strategic gathering system in July of 1999. Natural gas plant processing
throughput was 15,439 Mcf per day in 1999 versus 15,907 Mcf per day in 1998, a
three percent decrease. Gross operating margin from gathering operations was
$0.11 per Mcf in 1999 versus $0.10 per Mcf in 1998. The gross operating margin
from natural gas processing was $0.27 per Mcf in 1999

<PAGE>

versus $0.02 per Mcf in 1998 principally due to a 69% increase in the value
received for natural gas liquids in the 1999 period.

Revenues from oil field services and international sales were $250,000 in
1999 versus $249,000 in 1998. Operating costs decreased to $98,000 in 1999 from
$121,000 in 1998. The gross operating margin was $152,000 in 1999 versus
$128,000 in 1998. Depreciation and depletion expense increased 20% to $5,768,000
in 1999 versus $4,805,000 in 1998 due to higher production volumes. General and
administrative expense was $683,000 in 1999, a 9% decrease from $750,000 in
1998. Operating profit increased 446% to $5,311,000 in 1999 from $973,000 in
1998. The Company booked equity in loss of affiliate of $3,000 in 1999 versus an
$8,000 loss in 1998. Other income was $281,000 in 1999 versus $50,000 in 1998,
including a $200,000 gain from the sale of a gas gathering system. Interest
expense increased 15% to $5,377,000 in 1999 from $4,656,000 in 1998 due to
higher levels of debt in the 1999 period. The Company reported a net loss
applicable to common shares of $1,028,000, or $0.05 per common share in 1999
versus a loss of $2,491,000, or $0.12 per common share in 1998. The Company
accrued $1,241,000 in dividends on its preferred stock in 1999 versus $219,000
in 1998 due to the increase in preferred stock in the first quarter of 1999.

Results of Operations for the Nine Month Periods Ended September 30, 1999 and
1998

As discussed above, the Company acquired its interest in Tel in March 1998,
completed the Spirit 76 acquisition in December 1998, and completed the Vastar
acquisition in June 1999. Unless otherwise stated, the increases in the 1999
interim period over the 1998 interim period were a result of these acquisitions
as well as success from the Company's drilling program during these periods.

Oil and natural gas sales were $42,263,000 in 1999, a 25% increase over the
1998 amount of $33,698,000. The Company sold 937,000 barrels of oil versus
852,000 barrels, a 10% increase, and 14,276,000 Mcf of gas versus 10,535,000
Mcf, a 36% increase, in 1999 as compared to 1998. The price received for oil was
$13.89 per barrel and for gas was $2.05 per Mcf in 1999 compared to $13.23 per
barrel of oil and $2.08 per Mcf of gas in 1998, representing a five percent
increase in oil price and a one percent decrease in gas price in 1999 compared
to 1998. Oil and gas sales for the 1998 period also included $541,000 resulting
from the settlement of gas imbalances with another producer on several of the
Company's gas wells. Oil and natural gas production lifting costs increased two
percent to $11,052,000 while production taxes and other costs increased 20% to
$5,504,000 in 1999 over 1998. The gross operating margin from oil and natural
gas production was $25,707,000 in 1999 versus $18,251,000 in 1998, a 41%
increase. On an equivalent unit basis, the gross margin was $1.29 per Mcfe in
1999, a 13% increase. The sales price was $2.12 per Mcfe in both periods while
production lifting costs decreased 19% to $0.56 per Mcfe in 1999. Production
taxes and other costs including overhead, were $0.27 per Mcfe in 1999, a 7%
decrease from 1998. The overall increase in the gross operating margin in 1999
compared to 1998 was principally due to a 27% increase in Mcfe sold to
19,897,000 Mcfe from 15,645,000 Mcfe.

Gas gathering, marketing, and processing revenues were $5,516,000 in the
1999 period, a six percent increase from 1998, principally due to higher prices
received for natural gas and natural gas liquids. Costs from these activities
were $4,024,000 in 1999, an eight percent decrease. Gross operating margin was
$1,492,000 in 1999, an 85% increase. The increase in gross operating margin was
due to increased marketing margins and more favorable processing economics.
Gathering system throughput decreased nine percent to 18,818 Mcf per day in
1999, due to the sale in July of 1999 of a non-strategic gas gathering system.
Natural gas plant processing throughput was 15,558 Mcf per day in 1999 versus
15,511 in 1998. Gross operating margin from gathering and marketing operations
was $0.14 per Mcf in 1999, a 47% increase. The gross operating margin from
natural gas processing was $0.16 per Mcf in 1999, a 119% increase.

<PAGE>

Revenues from oil field services and international sales were $549,000 in
1999 versus $703,000 in 1998. Operating costs decreased to $234,000 in 1999 from
$361,000 in 1998. The gross operating margin from these activities decreased by
eight percent to $315,000 in 1999 versus the 1998 period.

Depreciation and depletion expense increased 20% to $16,383,000 in 1999
primarily due to the increase in production as a result of acquisitions. General
and administrative expense was $2,015,000 in 1999, a 10% decrease over 1998.
Operating profit increased 158% to $9,116,000 in 1999 from 1998. Equity in loss
of affiliate was $100,000 in 1999 versus a loss of $53,000 in 1998. Other income
increased 31% to $569,000 in 1999 versus $433,000 in 1998. Interest expense
increased 24% to $16,588,000 in 1999 due to increased levels of borrowing under
the Company's revolving credit lines with banks. The Company incurred a net loss
before income tax and minority interest of $7,003,000 in 1999, versus a
$9,499,000 loss in 1998, principally due to higher oil prices and higher
production volumes due to acquisitions. The Company did not provide for a
deferred income tax benefit on the 1999 period loss due to its inability to
predict future tax utilization of its net operating loss carryforward. In the
1998 period, the Company provided for a tax loss benefit of $3,589,000.

Minority interest in subsidiary earnings increased to $86,000 in the 1999
period from $25,000 in the 1998 period. The net loss to common shareholders for
the 1999 period was $7,089,000 versus a net loss of $5,935,000 for the 1998
period. The Company accrued dividends of $3,291,000 on its preferred stock in
1999 versus $657,000 in 1998 due to the increase in preferred stock in the first
quarter of 1999. The net loss applicable to common shareholders was $10,380,000
($0.51 per share) in 1999 compared to a net loss of $6,592,000 ($0.31 per share)
in 1998.

Liquidity and Capital Resources

The Company has three principal operating sources of cash: (i) sales of oil
and gas, (ii) revenues from gas gathering, processing, and marketing, and (iii)
revenues from petroleum management and consulting services. The Company's cash
flow is highly dependent upon oil and gas prices. Decreases in the market price
of oil and gas could result in reductions of both cash flow and the borrowing
base under the Company's Credit Facility, which would result in decreased funds
available, including funds for capital expenditures.

In September 1998, the Company announced a stock repurchase program of up
to one million shares at a cost not to exceed $4 million. At December 31, 1998,
the Company had repurchased 625,600 shares for approximately $1.9 million. In
February 1999, the program was revised to remove the share limitation discussed
above. Since December 31, 1998, the Company has purchased an additional 601,472
shares for approximately $1.7 million.

In December 1998, the Company's 100% owned subsidiary, Bluebird, acquired
for approximately $25 million, certain natural gas reserves and related assets
from Spirit 76. Additionally, the Company capitalized Bluebird with 1,840,271
units of TEL Offshore Trust. To finance the Spirit 76 acquisition, Bluebird
borrowed $26 million under a bridge loan facility with several banks. The bridge
loan was replaced on June 7, 1999 with permanent financing from banks providing
for a revolving credit facility of $75 million with an initial borrowing base of
$41.5 million, due three years from the date of closing with interest rates
based upon either "LIBOR" or "Base Rate" (Prime). The loan is non-recourse to
the Company. In addition to retiring the bridge loan, a portion of the proceeds
from the permanent financing was used to finance the acquisition of properties
from Vastar discussed below.

In December 1998, the Company announced a letter of intent for a strategic
alliance with ONEOK Resources Company ("ONEOK"), which included the purchase by
ONEOK of $50 million of the Company's Convertible Preferred Stock. In February
1999, this transaction was consummated. The Preferred Stock has a liquidation
value of $50 million and is convertible into the Company's common stock at $5.25
per share. Dividends on the Preferred Stock are payable in cash at the rate of
8% per annum and are cumulative. The net proceeds of $46.3 million received from
the sale of Preferred Stock was used to repay senior bank indebtedness.

<PAGE>

For the nine months ended September 30, 1999, the Company had a net
decrease in cash of $3.0 million. The Company's operating activities provided
net cash of $8.5 million. The Company used $46.5 million in investing
activities, principally for additions to property and equipment. Financing
activities provided $35.0 million of cash, principally from the aggregate
proceeds from the issuance of preferred stock of $46.3 million. The Company also
paid $3.0 million in cash dividends on preferred stock and accrued an additional
$333,000 for dividends earned through September 1999 but not payable until
November 1999.

Capital Requirements

For fiscal 1999, the Company has budgeted approximately $25 million for
development and exploration activities, including $12 million for participation
in a new drilling program in twelve separate outer continental shelf blocks in
the shallow water area of the Gulf of Mexico. Commencement of the drilling of
the first well in this program was in May 1999. Six prospects have now been
drilled resulting in four natural gas discoveries for a success rate of 67%.
Production equipment is now being installed on two of these discoveries with
first sales expected near year-end 1999. Up to eight additional wells will be
necessary to fully develop these new producing areas.

The Company is not contractually obligated to proceed with any of its
budgeted capital expenditures. The amount and allocation of future capital
expenditures will depend on a number of factors that are not entirely within the
Company's control or ability to forecast, including drilling results and changes
in oil and gas prices. Due to the decline in oil prices experienced over the
past year, the Company redirected a significant portion of its budgeted funds
from oil projects to natural gas. As a result, actual capital expenditures may
vary significantly from current expectations.

On June 8, 1999, the Company purchased from Vastar oil and gas reserves and
related equipment, a gas processing plant and two gas gathering systems, located
in Texas, Oklahoma and Arkansas for approximately $32.5 million after purchase
price adjustments.

On June 8, 1999, the Company's borrowing base under its revolving credit
line was reduced from $65 million to $60 million as a result of the December 31,
1998 reserve engineering report.

Based upon the Company's anticipated level of operations, the Company
believes that cash flow from operations together with the availability under the
Credit Facility (approximately $10.5 million as of September 30, 1999) will be
adequate to meet its anticipated requirements for working capital, capital
expenditures and scheduled interest and dividend payments for the foreseeable
future.

In addition, the Company's wholly-owned subsidiary, Bluebird, has
availability under its own credit facility (non-recourse to the Company) of
approximately $1.8 million at September 30, 1999. The Company expects that it
will acquire an interest in the Madill Gas Processing Plant from Dynegy through
Bluebird. The Company anticipates that Bluebird's lenders will increase
Bluebird's availability under its credit line to allow Bluebird to consummate
the transaction. The Company believes such availability, after the anticipated
increase, will be adequate for Bluebird to meet its anticipated requirements for
working capital, capital expenditures and debt service for the foreseeable
future.

In the normal course of business, the Company reviews opportunities for the
possible acquisition of oil and gas reserves and activities related thereto.
When potential acquisition opportunities are deemed consistent with the
Company's growth strategy, bids or offers in amounts and with terms acceptable
to the Company may be submitted. It is uncertain whether any such bids or offers
which may be submitted by the Company from time to time will be acceptable to
the sellers. In the event of a future significant acquisition, the Company may
require additional financing in connection therewith.

<PAGE>

Inflation and Changes in Prices

During 1998, the Company experienced a significant erosion in prices for
oil (a decline of 28%) and for natural gas (a decline of 10%). Due to the
severity of the decrease in commodity prices, the Company experienced a loss due
primarily from the write-down of its full cost pool in December 1998. Oil and
gas prices recovered dramatically during the third quarter of 1999, rising 68%
and 31%, respectively (before hedging activity) from the same period in 1998.
Oil and gas prices for the first nine months of 1999 were 25% and 4% higher
(before hedging activity) than the comparable 1998 period. The results of
operations and cash flow of the Company have been, and will continue to be,
affected by the volatility in oil and gas prices. Should the Company experience
a significant increase in oil and gas prices that is sustained over a prolonged
period, it would expect that there would also be a corresponding increase in oil
and gas finding costs, lease acquisition costs, and operating expenses.
Periodically the Company enters into futures, options, and swap contracts to
reduce the effects of fluctuations in crude oil and gas prices. It is the policy
of the Company not to enter into any such arrangements which exceed 75% of the
Company's oil and gas production during the next 12 months.

The Company markets oil and gas for its own account, which exposes the
Company to the attendant commodities risk. A substantial portion of the
Company's gas production is currently sold to NGTS, LLC (a gas marketing company
owned 30% by the Company) or end-users either on the spot market on a
month-to-month basis at prevailing spot market prices or under long-term
contracts based on current spot market prices. The Company normally sells its
oil under month-to-month contracts to a variety of purchasers.

Market Risk Disclosures

Fixed and Variable Debt

The Company has fixed rate bond debt and variable bank debt in its debt
portfolio. On June 30, 1999, the Company entered into two interest rate swaps in
order to shift a portion of the fixed rate bond debt to a floating rate debt
over the next three years and to effectively lower interest expense over the
next twelve months. The effect of these transactions, which are discussed under
Interest Rate Swaps below, will be to save approximately $316,000 in interest
expense over the next nine months. Thereafter, the economic impact depends on
whether or not variable (LIBOR) rates increase significantly.

[REST OF PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

Hedging Activity

Crude Oil and Natural Gas Hedges

Periodically, the Company enters into futures, options, and swap contracts
to mitigate the effects of significant fluctuations in crude oil and natural gas
prices. At September 30, 1999, the Company had the following open contracts:

Type Volume/Month Duration Avg. Price
Oil
Collar........... 15,000 Bbl Oct 99 - Dec 99 Floor - $15.00
Cap - $19.20
Option........... 15,000 Bbl Oct 99 - Dec 99 $19.20
Swap............. 15,000 Bbl Oct 99 - Dec 99 $15.12
Collar........... 15,000 Bbl July 99 - Dec 99 Floor - $15.00
Cap - $17.12
Swap (1)......... 30,000 Bbl Oct 99 - Dec 00 $17.60
Collar........... 30,000 Bbl Jan 00 - Mar 00 Floor - $18.00
Cap - $22.65
Collar........... 30,000 Bbl Jan 00 - Mar 00 Floor - $18.00
Cap - $23.87
Gas
Swap............. 600,000 MMBtu Oct 99 $ 2.04
Collar (2)....... 300,000 MMBtu Oct 99 Floor - $ 1.70
Cap - $ 2.50
Collar .......... 300,000 MMBtu Apr 00 - Oct 00 Floor - $ 1.80
Cap - $ 2.25

(1) The swap includes an option granted to the counterparty for any
month between October 1999 and December 1999 in which oil prices average below
$16.50/Bbl whereby the hedge would not be effective for that period. In
addition, the counterparty was granted an option exercisable on December 30,
1999 to cancel the swap for calendar year 2000.

(2) The counterparty was granted an option, which it exercised on
October 22, 1999, to continue the hedge for the period November 1999 through
March 2000 for 300,000 MMBtu's per month with a floor price of $2.00/MMBtu and a
ceiling price of $2.32/MMBtu.

Net gains or losses related to derivative transactions for the three month
periods ended September 30, 1999 and 1998 were a loss of $2,087,000 and a gain
of $838,000, respectively. For the nine month periods ending September 30, 1999
and 1998, the gains or losses were a loss of $1,022,000 and a gain of
$2,079,000, respectively. At September 30, 1999, the unrealized loss from
derivative transactions was $6,361,000.

<PAGE>

Interest Rate Swaps

On June 30, 1999, the Company entered into two interest rate swaps in order
to shift a portion of the fixed rate bond debt to floating rate debt, to
capitalize on what was perceived as a market overreaction to pending interest
rate increases by the Federal Reserve and to effectively lower interest rate
expense over the next twelve months.

Type Notional Amount Termination Date Pay Rate Receive Rate
- -------------------------- --------------- ---------------- -------------- ------------
Pay Variable/Receive Fixed $50,000,000 06/01/02 LIBOR + 3.34% 10% fixed
through 05/31/00

LIBOR + 3.69%
from 06/01/00 to
06/01/02

Pay Fixed/Receive Variable $50,000,000 06/01/00 9.16% fixed LIBOR + 3.34%
</TABLE>

The pay variable/receive fixed swap has an early termination provision
granting the counterparty the right to terminate the swap on June 1, 2000, in
exchange for a fee payment to the Company of $125,000. As a result of these two
swaps, the Company saved approximately $104,000 in interest expense during the
three months ended September 30, 1999. The unrealized savings in interest
expense at September 30, 1999 calculated through May 31, 2000 was approximately
$316,000. Thereafter, the economic impact depends on whether or not LIBOR rates
increase significantly.

Year 2000 Compliance

Year 2000 issues relate to the ability of computer programs or equipment to
accurately calculate, store or use dates after December 31, 1999. These dates
can be handled or interpreted in a number of different ways, but the most common
errors are for the system to contain a two digit year which may cause the system
to interpret the year 2000 as 1900 or 1980, and the system will not recognize
the year 2000 as a leap year. Errors such as these can result in system
failures, miscalculations and the disruption of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities. In response to the Year 2000
issues, the Company has developed a strategic plan divided into the following
phases: inventory, product compliance based on vendor representations and
in-house testing, third party integration and development of a contingency plan.

All of the Company's processing needs are handled by third party systems,
none of which have been substantially modified and all of which have been
purchased or upgraded within the last few years. Therefore, the Company's
initial review of its in-house systems with regard to Year 2000 issues required
an inventory of its systems and a review of the vendor representations. The
Company has completed this initial review of its information systems.
Non-information technology has also been thoroughly reviewed. Based on vendor
representations, all systems are either compliant, will be compliant prior to
December 31, 1999 or are not date specific.

The Company's non-information technology consists primarily of various oil
and gas exploration and production equipment. The initial review has established
that the primary non-information technology systems functions are either not
date sensitive or are Year 2000 compliant based on vendor representations, and
are therefore predicted to operate in customary manners when faced with Year
2000 issues. However, the Company has determined that in the event such systems
are unable to address the Year 2000, employees can manually perform most, if not
all, functions.

In anticipation of Year 2000 issues, the Company is also evaluating the
Year 2000 readiness status of its third party service suppliers. In addition to
reviewing Year 2000 readiness statements issued by the third parties handling
the Company's processing needs, to date the Company has received and is relying
upon, Year 2000 readiness reports periodically issued by its financial services
and electrical service providers, vendors and purchasers of the Company's oil
and natural gas products. The Company is continuing to review Year 2000
readiness of third party service suppliers

<PAGE>

and based on their representations, does not currently foresee material
disruptions in the Company's business as a result of Year 2000 issues.
Unanticipated prolonged losses of certain services, such as electrical power,
could cause material disruptions for which no economically feasible contingency
plan has been developed.

The Company has completed in-house testing of the core systems and
non-information technology. The vast majority of all systems tested adequately
address possible Year 2000 scenarios. The Company has remedied the systems which
did not adequately address the Year 2000 issues. All systems are fully Year 2000
compliant at the end of the third quarter of 1999.

Although the effects of Year 2000 issues cannot be predicted with
certainty, the Company believes that the potential impact, if any, of such
events will, at most, require employees to manually complete otherwise automated
tasks or calculations, other than those which might occur in a "worst case"
scenario as described below, which the Company does not anticipate will occur.

After considering Year 2000 effects on in-house operations, the company
expects a minimal level of additional training would be required to perform
these tasks on a manual basis due to the level of experience of its personnel
and the routine nature of the tasks being performed. If, based on the results of
its in-house testing, the Company should determine that certain systems are not
Year 2000 compliant and it appears as though the system is not likely to be
compliant within a reasonable time period, the Company will either elect to
perform the task manually or will attempt to purchase a different system for
that particular task and convert before December 31, 1999. The Company does not
believe that either option would impact the Company's ability to continue
exploration drilling, production or sales activities, although the tasks may
require additional time and personnel to complete the same functions or may
require incremental time and personnel during 1999 for a conversion to a new
system.

The Company's core business consists primarily of oil and gas acquisitions,
development and exploration activities. The equipment that is deemed "mission
critical" to the Company's activities requires external power sources such as
electricity supplied by third parties. Although the Company maintains limited
on-site secondary power sources such as generators, it is not economically
feasible to maintain secondary power supplies for any major component of its
"mission critical" equipment. Therefore, the most reasonable likely worst case
Year 2000 scenario for the Company would involve a disruption of third party
supplied electrical power, which would result in a substantial decrease in the
Company's oil production. Such event could result in a business interruption
that could materially affect the Company's operations, liquidity or capital
resources.

The Company has initiated the third party integration phase and will
continue to have formal communications with its significant suppliers, business
partners and key customers to determine the extent to which the Company is
vulnerable to either the third parties or its own failure to correct their Year
2000 issues. The Company has been communicating with such third parties to keep
them informed of the Company's internal assessment of its Year 2000 review and
plans. This portion of the review and discussions with third parties have
provided certain favorable representations as to their Year 2000 readiness and
received similar representations from the Company. There can be no guarantee
that the systems of the other companies on which the Company relies will be
timely converted or that the conversion will be compatible with the Company's
systems. However, after reviewing and estimating the effects of such events, the
Company's contingency plan involves identifying and arranging for other vendors,
purchasers and third party contractors to provide such services, if necessary,
in order to maintain its normal operations.

The Company has, and will continue to, utilize both internal and external
resources to complete tasks and perform testing necessary to address the Year
2000 issue. The Company has not incurred, and does not anticipate that it will
incur, any significant costs relating to the assessment and remediation of Year
2000 issues.

<PAGE>

Recently Issued Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established a new model for accounting
for derivatives and hedging activities. SFAS No. 133, which will be effective
for the Company's fiscal year 2001, requires that all derivatives be recognized
in the balance sheet as either assets or liabilities and measured at fair value.
The Statement also requires that changes in fair value be reported in earnings
unless specific hedge accounting criteria are met. The Company is currently
evaluating the effect of the adoption of the Statement on its consolidated
financial position and results of operations.

[REST OF PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

Magnum Hunter Resources, Inc. And Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands of dollars)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1999 1998
----------------------------------------------------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents..............................................$ 1,894 $ 4,853
Restricted cash ....................................................... 1,422 459
Accounts receivable
Trade, net of allowance of $166 for 1999 and 1998................. 11,447 5,686
Due from affiliates............................................... 122 310
Notes receivable from affiliate........................................ 687 747
Current portion of long-term notes receivable, net of allowance of $790
for 1999 and 1998.................................................... 57 57
Prepaid and other...................................................... 991 1,577
----------------------------------------------------
Total Current Assets............................................. 16,620 13,689
----------------------------------------------------
Property, Plant, and Equipment
Oil and gas properties, full cost method
Unproved......................................................... 3,572 1,655
Proved........................................................... 341,266 296,545
Pipelines.............................................................. 8,281 9,131
Other property......................................................... 1,790 1,554
----------------------------------------------------
Total Property, Plant and Equipment.................................... 354,909 308,885
Accumulated depreciation, depletion, amortization and impairment. (96,619) (80,449)
----------------------------------------------------
Net Property, Plant and Equipment...................................... 258,290 228,436
----------------------------------------------------
Other Assets
Deposits and other assets.............................................. 6,150 6,644
Investment in unconsolidated affiliate................................. 4,166 4,266
Deferred tax asset .................................................... 13,351 13,351
Long-term notes receivable, net of imputed interest.................... 1,279 756
----------------------------------------------------
Total Assets $ 299,856 $ 267,142
----------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade payables and accrued liabilities.................................$ 13,493 $ 11,821
Dividends payable...................................................... 552 219
Suspended revenue payable.............................................. 1,150 359
Current maturities of long-term debt................................... 9 13
Notes payable.......................................................... - 2,000
----------------------------------------------------
Total Current Liabilities........................................ 15,204 14,412
----------------------------------------------------
Long-Term Liabilities
Long-term debt -with recourse, less current maturities................ 189,500 231,007
Long-term debt - nonrecourse........................................... 39,700 -
Production payment liability........................................... 558 633
Minority interest...................................................... 184 98
Commitments and Contingencies
Stockholders' Equity
Preferred stock - $.001 par value; 10,000,000 shares authorized,
216,000 designated as Series A; 80,000 issued and outstanding,
liquidation amount $0................................................ - -
1,000,000 designated as 1996 Series A Convertible; 1,000,000
issued and outstanding, liquidation amount $10,000,000............... 1 1
50,000 designated as 1999 Series A 8% Convertible; 50,000 issued
and outstanding, liquidation amount $50,000,000...................... - -
Common Stock - $.002 par value; 100,000,000 shares authorized,
21,738,320 shares issued............................................. 43 43
Additional paid-in capital............................................. 123,043 80,000
Accumulated other comprehensive loss................................... (1,943) (1,429)
Accumulated deficit.................................................... (62,803) (55,714)
----------------------------------------------------
58,341 22,901
Treasury stock, at cost (1,553,834 and 1,054,507 shares of common stock,
respectively) (3,631) (1,909)
----------------------------------------------------
Total Stockholders' Equity...................................................... 54,710 20,992
----------------------------------------------------
Total Liabilities and Stockholders' Equity......................................$ 299,856 $ 267,142
----------------------------------------------------
</TABLE>

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

<PAGE>

Magnum Hunter Resources, Inc. And Subsidiaries
Condensed Consolidated Statements Of Operations And Comprehensive Loss
(Unaudited)
(in thousands, except for per share amounts)

Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------
Operating Revenues:
Oil and gas sales......................................... $ 17,575 $ 11,634 $ 42,263 $ 33,698
Gas gathering, marketing and processing................... 2,039 1,697 5,516 5,193
Oil field services and international sales................ 250 249 549 703
----------------------------------------------------
Total Operating Revenues............................. 19,864 13,580 48,328 39,594
----------------------------------------------------
Operating Costs and Expenses:
Oil and gas production lifting costs...................... 4,235 4,153 11,052 10,854
Production taxes and other costs.......................... 2,327 1,243 5,504 4,593
Gas gathering, marketing and processing................... 1,442 1,535 4,024 4,387
Oil field services and international sales................ 98 121 234 361
Depreciation and depletion................................ 5,768 4,805 16,383 13,621
General and administrative................................ 683 750 2,015 2,250
----------------------------------------------------
Total Operating Costs and Expenses................... 14,553 12,607 39,212 36,066
----------------------------------------------------
Operating Profit ............................................ 5,311 973 9,116 3,528
Equity in loss of affiliate, net of income tax............ (3) (8) (100) (53)
Other income.............................................. 281 50 569 433
Interest expense.......................................... (5,377) (4,656) (16,588) (13,407)
----------------------------------------------------
Net Income (Loss) before income tax and minority interest.... 212 (3,641) (7,003) (9,499)
Benefit for deferred income tax........................... - 1,381 - 3,589
----------------------------------------------------
Net Income (Loss) before minority interest................... 212 (2,260) (7,003) (5,910)
Minority interest in subsidiary earnings ................. 1 (12) (86) (25)
----------------------------------------------------
Net Income (Loss)............................................ 213 (2,272) (7,089) (5,935)
Dividends Applicable to Preferred Stock................... (1,241) (219) (3,291) (657)
----------------------------------------------------
Loss Applicable to Common Shares............................. $ (1,028) $ (2,491) $ (10,380) $ (6,592)
----------------------------------------------------
Net Income (Loss)............................................ $ 213 $ (2,272) $ (7,089) $ (5,935)
Other Comprehensive Loss, net of tax
Unrealized Loss on Investments............................ (258) - (514) (883)
----------------------------------------------------
Comprehensive Loss........................................... $ (45) $ (2,272) $ (7,603) $ (6,818)
----------------------------------------------------
Loss per Common Share - Basic and Diluted $ (0.05) $ (0.12) $ (0.51) $ (0.31)
----------------------------------------------------
Common Shares Used in Per Share Calculation..................
Basic and Diluted ........................................ 20,114,261 21,259,867 20,165,315 21,226,367
----------------------------------------------------

</TABLE>

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

<PAGE>

Magnum Hunter Resources, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
For the Period Ended September 30, 1999
(Unaudited)
(dollars in thousands)

Preferred Stock Common Stock Treasury Stock
Shares Amount Shares Amount Shares Amount
--------------------------------------------------------------------------------
Balance at December 31, 1998........................ 1,080,000 $ 1 21,738,320 $ 43 (1,054,507) $ (1,909)

Issuance of 1999 Series A 8% Convertible
Preferred Stock, net of offering costs......... 50,000 -
Exercise of employees' common stock options...... 102,145 -
Purchase of treasury stock....................... (601,472) (1,722)
Dividends declared or accrued on preferred
stock..........................................
Net income (loss)................................
Unrealized (loss) on investment..................
--------------------------------------------------------------------------------
Balance at September 30, 1999....................... 1,130,000 $ 1 21,738,320 $ 43 (1,553,834) $ (3,631)
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Additional Accumulated Other
Paid-In Comprehensive Accumulated
Capital Loss Deficit
--------------------------------------------------------------------------------
Balance at December 31, 1998........................ $ 80,000 $ (1,429) $ (55,714)

Issuance of 1999 Series A 8% Convertible
Preferred Stock, net of offering costs......... 46,260
Exercise of employees' common stock options...... 74
Purchase of treasury stock.......................
Dividends declared or accrued on preferred
stock.......................................... (3,291)
Net income (loss)................................ (7,089)
Unrealized (loss) on investment.................. (514)

--------------------------------------------------------------------------------
Balance at September 30, 1999....................... $ 123,043 $ (1,943) $ (62,803)
--------------------------------------------------------------------------------
</TABLE>

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

<PAGE>

Magnum Hunter Resources, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended
September 30,
----------------------------------------------------
1999 1998
----------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss.....................................................................$ (7,089) $ (5,935)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation and depletion.............................................. 16,383 13,621
Amortization of financing fees.......................................... 1,852 538
Deferred income taxes................................................... - (3,636)
Equity in unconsolidated affiliate...................................... 100 86
Minority interest....................................................... 86 39
(Gain) Loss on sale of assets........................................... (228) 82
Changes in certain assets and liabilities
Accounts and notes receivable..................................... (5,763) 4,739
Other current assets.............................................. 586 435
Accounts payable and accrued liabilities.......................... 2,564 1,533
----------------------------------------------------
Net Cash Provided By Operating Activities.................................... 8,491 11,502
----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets................................................. 1,125 318
Additions to property and equipment.......................................... (47,066) (36,537)
Increase in deposits and other assets........................................ - (3,567)
Increase in long-term note receivable........................................ (523) (543)
Investment in unconsolidated affiliate....................................... - (83)
----------------------------------------------------
Net Cash Used In Investing Activities........................................ (46,464) (40,412)
----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt and production payment.......... 86,000 36,500
Fees paid related to financing activities.................................... (1,791) -
Payments of principal on long-term debt and production payment............... (87,886) (8,480)
Payment of short-term notes payable ......................................... (2,000) -
Proceeds from issuance of common and preferred stock, net of offering costs.. 46,334 79
Purchase of treasury stock .................................................. (1,722) -
Increase in segregated funds for payment of notes payable ................... (963) -
Cash dividends paid.......................................................... (2,958) (656)
----------------------------------------------------
Net Cash Provided By Financing Activities.................................... 35,014 27,443
----------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS....................................... (2,959) (1,467)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................ 4,853 3,030
----------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......................................$ 1,894 $ 1,563
----------------------------------------------------
</TABLE>

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

<PAGE>

Magnum Hunter Resources, Inc. And Subsidiaries
Notes To Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited)

NOTE 1 - MANAGEMENT'S REPRESENTATION

The condensed consolidated balance sheet as of September 30, 1999, the
condensed consolidated statements of operations and comprehensive loss for the
three and nine months ended September 30, 1999 and 1998, the condnesed
consolidated statement of stockholders' equity for the period ended September
30, 1999 and the condensed consolidated statements of cash flows for the nine
months ended September 30, 1999 and 1998 are unaudited. In the opinion of
management, all necessary adjustments (which include only normal recurring
adjustments) have been made to present fairly the financial position, results of
operations, changes in stockholders' equity and changes in cash flows for the
three and nine month periods.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in the December 31, 1998 annual report on Form 10-K for the
Company. The results of operations for the three and nine month periods ended
September 30, 1999, are not necessarily indicative of the operating results for
the full year.

The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. Certain items have been
reclassified to conform with the current presentation.

The Company is a holding company with no significant assets or operations
other than its investments in its subsidiaries. The wholly-owned subsidiaries of
the Company, except for Bluebird Energy, Inc. ("Bluebird"), are direct
Guarantors of the Company's 10% Senior Notes and have fully and unconditionally
guaranteed the Notes on a joint and several basis. The Guarantors comprise all
of the direct and indirect subsidiaries of the Company (other than Bluebird and
inconsequential subsidiaries), and the Company has not presented separate
financial statements and other disclosures concerning each Guarantor because
management has determined that such information is not material to investors.
Except for Bluebird, there is no restriction on the ability of consolidated or
unconsolidated subsidiaries to transfer funds to the Company in the form of cash
dividends, loans, or advances.

NOTE 2 - RECENT EVENTS

On February 17, 1999, the Company revised its previously announced stock
repurchase program to spend up to $4 million without a share limitation.
Subsequent to December 31, 1998, the Company repurchased 601,472 shares of its
common stock for approximately $1.7 million.

On June 8, 1999, Bluebird entered into a $75 million Senior Secured
Revolving Credit Facility with certain banks. The revolving line of credit has
an initial borrowing base of $41.5 million, is for a term of three years,
provides for both "LIBOR" and "Base Rate" (Prime) interest rate options and is
non-recourse to the Company and its other subsidiaries. The new facility
refinanced a bridge loan facility used to acquire properties in December 1998.

On June 9, 1999, the Company executed an agreement with an April 1, 1999
effective date to purchase oil and gas reserves and related equipment, a gas
processing plant and two gas gathering systems, located in Texas, Oklahoma and
Arkansas for approximately $32.5 million after purchase price adjustments.

<PAGE>

Magnum Hunter Resources, Inc.
Notes To Condensed Consolidated Financial Statements (continued)
September 30, 1999
(Unaudited)

On July 16, 1999, the Company issued a total of 10,512,150 warrants on the
basis of one warrant for every three common shares owned, .63492 warrants for
every share of 1996 Series A Convertible Preferred Stock owned and 63.492
warrants for every share of 1999 Series A 8% Convertible Preferred Stock owned.
The warrants have an exercise price of $6.50 per share, expire on June 30, 2002
and are redeemable by the Company at any time at $.01 per share. The warrants
are publicly traded on the American Stock Exchange.

NOTE 3 - SEGMENT DATA

The Company has three reportable segments. The Exploration and Production
segment is engaged in exploratory and development drilling, acquisition,
production, and sale of crude oil, condensate, and natural gas. The Gas
Gathering, Marketing and Processing segment is engaged in the gathering and
compression of natural gas from the wellhead, the purchase and resale of natural
gas which it gathers, and the processing of natural gas liquids. The Oil Field
Services segment is engaged in the managing and operation of producing oil and
gas properties for interest owners.

The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies. The Exploration
and Production segment has six geographic areas that are aggregated. The Gas
Gathering, Marketing and Processing segment includes the activities of the
Company's gathering systems and two natural gas liquids processing plants
located in two geographic areas that are aggregated. The Oil Field Services
segment has seven geographic areas that are aggregated. The reason for
aggregating the segments, in each case, was due to the similarity in nature of
the products, the production processes, the type of customers, the method of
distribution, and the regulatory environments.

The accounting policies of the segments are the same as those for the
Company as a whole. The Company evaluates performance based on profit or loss
from operations before income taxes. The accounting for intersegment sales and
transfers is done as if the sales or transfers were to third parties, that is,
at current market prices.

[REST OF PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

Magnum Hunter Resources, Inc.
Notes To Condensed Consolidated Financial Statements (continued)
September 30, 1999
(Unaudited)

Segment data for the periods ended September 30, 1999 and 1998 follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>

Gas Gathering,
Exploration & Marketing & Oil Field
Three Months Ended September 30, 1999: Production Processing Services All Other Elimination Consolidated
-------------------------------------- ---------- ---------- --------- --------- ----------- -----------------
Revenue from external customers........ $ 17,575 $ 2,039 $ 250 $ - $ - $ 19,864
Intersegment revenues................... - 4,041 1,762 - (5,803) -
Depreciation, depletion, amortization and
impairment .......................... 5,563 148 51 6 5,768

Segment profit (loss)................. 4,128 408 799 (24) 5,311
Equity earnings (losses) of affiliates.. (3) (3)
Interest expense........................ (5,377) (5,377)
Other income............................ 281 281
-----------------
Loss before income taxes................ 212
Benefit for deferred income tax......... - -
Minority interest....................... 1 1
-----------------
Net income.............................. $ 213
-----------------

Capital expenditures (net of asset sales $ 5,930 $ (880) $ 104 $ - $ 5,154
</TABLE>

Gas Gathering,
Exploration & Marketing & Oil Field
Three Months Ended September 30, 1998: Production Processing Services All Other Elimination Consolidated
-------------------------------------- ---------- ---------- --------- --------- ----------- -----------------
Revenue from external customers........ $ 11,634 $ 1,697 $ 249 $ - $ - $ 13,580
Intersegment revenues................... - 3,353 1,150 - (4,503) -
Depreciation, depletion, amortization and
impairment........................... 4,592 163 43 7 4,805

Segment profit (loss)................. 1,017 32 209 (285) 973
Equity earnings (losses) of affiliates.. (8) (8)
Interest expense........................ (4,656) (4,656)
Other income............................ 50 50
-----------------
Loss before income taxes................ (3,641)
Benefit for deferred income tax ........ 1,381 1,381
Minority interest....................... (12) (12)
-----------------
Net loss................................ $ (2,272)
-----------------

Capital expenditures (net of asset sales $ 10,115 $ 16 $ 32 $ - $ 10,163
</TABLE>

<PAGE>

Magnum Hunter Resources, Inc.
Notes To Condensed Consolidated Financial Statements (continued)
September 30, 1999
(Unaudited)

Gas Gathering,
Exploration & Marketing & Oil Field
Nine Months Ended September 30, 1999: Production Processing Services All Other Elimination Consolidated
------------------------------------- ---------- ---------- --------- --------- ----------- -----------------
Revenue from external customers........ $ 42,263 $ 5,516 $ 549 $ - $ - $ 48,328
Intersegment revenues................... - 10,212 4,485 - (14,697) -
Depreciation, depletion, amortization and
impairment........................... 15,748 474 147 14 16,383

Segment profit (loss)................. 7,209 879 2,541 (1,513) 9,116
Equity earnings (losses) of affiliates.. (100) (100)
Interest expense........................ (16,588) (16,588)
Other income............................ 569 569
-----------------
Loss before income taxes................ (7,003)
Benefit for deferred income tax ........ -
Minority interest....................... (86) (86)
-----------------
Net loss................................ $ (7,089)
-----------------

Capital expenditures (net of asset sales $ 46,638 $ (850) $ 236 $ - $ 46,024
</TABLE>

Gas Gathering,
Exploration & Marketing & Oil Field
Nine Months Ended September 30, 1998: Production Processing Services All Other Elimination Consolidated
------------------------------------- ---------- ---------- --------- --------- ----------- -----------------
Revenue from external customers........ $ 33,698 $ 5,193 $ 703 $ - $ - $ 39,594
Intersegment revenues................... - 9,551 3,333 - (12,884) -
Depreciation, depletion, amortization and
impairment........................... 12,998 490 118 15 13,621

Segment profit (loss)................. 3,594 319 642 (1,027) 3,528
Equity earnings (losses) of affiliates.. (53) (53)
Interest expense........................ (13,407) (13,407)
Other income............................ 433 433
-----------------
Loss before income taxes................ (9,499)
Benefit for deferred income tax ........ 3,589 3,589
Minority interest....................... (25) (25)
-----------------
Net loss................................ $ (5,935)
-----------------

Capital expenditures (net of asset sales $ 37,307 $ 45 $ 182 $ - $ 37,534

</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>

Gas Gathering,
Exploration & Marketing & Oil Field
As of September 30, 1999: Production Processing Services All Other Elimination Consolidated
------------------------- ---------- ---------- --------- --------- ----------- -----------------
Segment assets.......................... $ 271,374 $ 12,980 $ 7,114 $ 8,388 $ 299,856
Equity subsidiary investments........... 4,166 4,166

As of December 31, 1998:
Segment assets.......................... $ 233,824 $ 13,729 $ 7,230 $ 12,359 $ 267,142
Equity subsidiary investments........... 4,266 4,266

</TABLE>

<PAGE>
PART II -- OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

Number Description of Exhibit

3.1 & 4.1 Articles of Incorporation (Incorporated by reference to
Registration Statement on Form S-18, File No. 33-30298-D)
3.2 & 4.2 Articles of Amendment to Articles of Incorporation (Incorporated
by reference to Form 10-K for the year ended December 31, 1990)
3.3 & 4.3 Articles of Amendment to Articles of Incorporation (Incorporated
by reference to Registration Statement on Form SB-2, File No.
33-66190)
3.4 & 4.4 Articles of Amendment to Articles of Incorporation (Incorporated
by reference to Registration Statement on Form S-3, File No.
333-30453)
3.5 & 4.5 By-Laws, as Amended (Incorporated by reference to Registration
Statement on Form SB-2, File No. 33-66190)
3.6 & 4.6 Certificate of Designation of 1996 Series A Preferred Stock
(Incorporated by reference to Form 8-K dated December 26, 1996,
filed January 3, 1997)
3.7 & 4.7 Amendment to Certificate of Designations for 1996 Series A
Convertible Preferred Stock (Incorporated by reference to
Registration Statement on Form S-3, File No. 333-30453)
3.8 & 4.8 Certificate of Designation for 1999 Series A 8% Convertible
Preferred Stock (Incorporated by reference to Form 8-K, dated
February 3, 1999, filed February 11, 1999)
4.9 Indenture dated May 29, 1997 between Magnum Hunter Resources, the
subsidiary guarantors named therein and First Union National Bank
of North Carolina, as Trustee (Incorporated by reference to
Registration Statement on Form S-4, File No. 333-2290)
4.10 Supplemental Indenture dated January 27, 1999 between Magnum
Hunter Resources, the subsidiary guarantors named therein and
First Union National Bank of North Carolina, as Trustee
(Incorporated by reference to Form 10-K for the year ended
December 31, 1998)
4.11 Form of 10% Senior Note due 2007 (Incorporated by reference to
Registration Statement on Form S-4, File No. 333-2290)
4.12 Form of Warrant Agreement by and between Magnum Hunter Resources,
Inc. and Securities Transfer Corporation as warrants agent
(including form of warrant certificate)(Incorporated by reference
to Registration Statement on Form S-3, File No. 333-79139)
4.13 Form of warrant certificate (Incorporated by reference to
Registration Statement on Form S-3, File No. 333-79139)
10.1 Amended and Restated Credit Agreement, dated April 30, 1997,
between Magnum Hunter Resources, Inc. and Bankers Trust Company,
et al. (Incorporated by reference to Registration Statement on
Form S-4, File No. 333-2290)
10.2 First Amendment to Amended and Restated Credit Agreement, dated
April 30, 1997, between Magnum Hunter Resources, Inc. and Bankers
Trust Company, et al. (Incorporated by reference to Registration
Statement on Form S-4, File No. 333-2290)
10.3 Second Amendment to Amended and Restated Credit Agreement, dated
April 30, 1997, between Magnum Hunter Resources, Inc. and Bankers
Trust Company, et al. (Incorporated by reference to Form 10-K for
the year ended December 31, 1998)
10.4 Third Amendment to Amended and Restated Credit Agreement, dated
April 30, 1997, between Magnum Hunter Resources, Inc. and Bankers
Trust Company, et al. (Incorporated by reference to Form 10-K for
the year ended December 31, 1998)
10.5 Employment Agreement for Gary C. Evans (Incorporated by reference
to Registration Statement on Form S-4, File No. 333-2290)
10.6 Employment Agreement for Matthew C. Lutz (Incorporated by
reference to Registration Statement on Form S-4, File No.333-2290)

<PAGE>

10.7 Stock Purchase Agreement among Magnum Hunter Resources, Inc. and
Trust Company of the West and TCW Asset Management Company, in the
capacities described herein, TCW Debt and Royalty Fund IVB and TCW
Debt and Royalty Fund IVC, dated as of December 6, 1996
(Incorporated by reference to Form 8-K dated December 26, 1996,
filed January 3, 1997)
10.8 Registration Rights Agreement, dated May 29, 1997, between Magnum
Hunter Resources, Inc. and Bankers Trust Company, et al.
(Incorporated by reference to Registration Statement on Form S-4,
File No. 333-2290)
10.9 Purchase and Sale Agreement, dated May 17, 1996 between Meridian
Oil, Inc. and ConMag Energy Corporation (Incorporated by reference
to Form 8-K, dated June 28, 1996, filed July 12, 1996)
10.10 Purchase and Sale Agreement, dated February 27, 1997 among
Burlington Resources Oil and Gas Company, Glacier Park Company and
Magnum Hunter Production, Inc. (Incorporated by reference to Form
8-K, dated April 30, 1997, filed May 12, 1997)
10.11 Purchase and Sale Agreement between Magnum Hunter Resources, Inc.
, NGTS, et al., dated December 17, 1997 (Incorporated by reference
to Form 8-K, dated December 17, 1997, filed December 29, 1997)
10.12 Purchase and Sale Agreement dated November 25, 1998 between Magnum
Hunter Production, Inc. and Unocal Oil Company of California
(Incorporated by reference to Form 10-K for the year ended
December 31, 1998)
10.13 Stock Purchase Agreement dated February 3, 1999 between ONEOK
Resources Company and Magnum Hunter Resources, Inc. (Incorporated
by reference to Form 8-K, dated February 3, 1999, filed February
11, 1999)
27* Financial Data Schedule

* Filed herewith.

(B) Form 8-K's - None.

<PAGE>

SIGNATURE

In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

MAGNUM HUNTER RESOURCES, INC.

By /s/ Gary C. Evans November 10, 1999
-------------------------------------------------------
Gary C. Evans
President and Chief Executive Officer

By /s/ Chris Tong November 10, 1999
--------------------------------------------------------
Sr. Vice President and
Chief Financial Officer

By /s/ David S. Krueger November 10, 1999
------------------------------------------------------
David S. Krueger
Vice President and
Chief Accounting Officer

By /s/ Morgan F. Johnston November 10, 1999
-------------------------------------------------------
Morgan F. Johnston
Vice President, General Counsel and
Secretary

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<CASH> 3,316
<SECURITIES> 0
<RECEIVABLES> 12,479
<ALLOWANCES> (166)
<INVENTORY> 0
<CURRENT-ASSETS> 16,620
<PP&E> 354,909
<DEPRECIATION> (96,619)
<TOTAL-ASSETS> 299,856
<CURRENT-LIABILITIES> 15,204
<BONDS> 229,758
0
1
<COMMON> 43
<OTHER-SE> 54,666
<TOTAL-LIABILITY-AND-EQUITY>299,856
<SALES> 47,779
<TOTAL-REVENUES> 48,328
<CGS> 20,580
<TOTAL-COSTS> 39,212
<OTHER-EXPENSES> (469)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,588
<INCOME-PRETAX> (7,003)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,089)
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<EXTRAORDINARY> 0
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<EPS-BASIC> (0.51)
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