EQUITY COMPRESSION SERVICES CORP, 10KSB, 1998-04-15

EQUITY COMPRESSION SERVICES CORP
10KSB, 1998-04-15
EQUIPMENT RENTAL & LEASING, NEC

Previous: BRAKE HEADQUARTERS U S A INC, 10-K, 1998-04-15

Next: MICROTEL INTERNATIONAL INC, 10-K, 1998-04-15

<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM 10-KSB

(MARK ONE)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE
TRANSITION PERIOD FROM ------------- TO -------------.

Commission file number 0-18205

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

OEC COMPRESSION CORPORATION

(Name of Small Business Issuer in its charter)

OKLAHOMA 73-1345732
(State of Incorporation) (I.R.S. Employer Identification
No.)

2501 CEDAR SPRINGS ROAD, 75201
SUITE 600, DALLAS, TX (Zip Code)
(Address of principal executive offices)

Issuer's telephone number, including 214-953-9560
area code

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

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

TITLE OF CLASS
Common Stock, par value $.01 per share

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

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

Issuer's revenue for the year ended December 31, 1997--$16,027,000

Aggregate Market Value of Voting Stock held by Non-affiliates on April 15,
1998--$28,009,149

Number of Shares of Common Stock Outstanding on April 15, 1998--29,161,643

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Issuer's Proxy Statement with respect to Annual Meeting of
Stockholders to be held May 28, 1998 is incorporated by reference in Part
III of the Form 10-KSB

Transitional Small Business Issuer Disclosure Format (Check one): Yes
/ / No /X/

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
PART I

Items 1. & 2. Description of Business and Properties..................................................... 3

Item 3. Legal Proceedings.......................................................................... 14

Item 4. Submission of Matters to a Vote of Security Holders........................................ 14

Item 4A. Executive Officers of the Registrant....................................................... 14

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters and Selected
Financial Data............................................................................ 15

Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 16

Item 7. Financial Statements....................................................................... 20

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 20

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons of the Registrant; Compliance
with Section 16(a) of the Exchange Act.................................................... 20

Item 10. Executive Compensation..................................................................... 20

Item 11. Security Ownership of Certain Beneficial Owners and Management............................. 20

Item 12. Certain Relationships and Related Transactions............................................. 21

Item 13. Exhibits and Reports on Form 8-K........................................................... 21

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

Signatures
</TABLE>

2
<PAGE>
OEC COMPRESSION CORPORATION
ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1997
PART I

ITEMS 1. AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES

GENERAL

OEC Compression Corporation, formerly Equity Compression Services
Corporation, formerly Hawkins Energy Corporation (the "Company") is engaged in
the leasing, contract management, outsourcing, remanufacturing and direct sale
of gas compression equipment to operators of producing natural gas wells and gas
gathering systems and in the production of natural gas and oil. Its principal
geographical operating areas lie within the states of Alabama, Mississippi,
Louisiana, Oklahoma, Arkansas, Kansas and Texas.

The Company was incorporated as Hawkins Energy Corporation in the state of
Oklahoma in June 1989 for the purpose of consolidating the businesses and assets
of Equity Compressors, Inc. ("Equity Compressors") and ten Hawkins Exploration
oil and gas limited partnerships (the "Hawkins Limited Partnership.") To effect
the consolidation, the Company extended an exchange offer to the stockholders of
Equity Compressors and the partners of the Hawkins Limited Partnerships.
Following approval by a majority in interest of the limited partners in each of
the Hawkins Limited Partnerships, the Company acquired the assets and assumed
the liabilities of the Hawkins Energy Partnerships and acquired the stock of
Equity Compressors, all in exchange for common stock of the Company, and
commenced operations on December 29, 1989.

The Company acquired Equity Compressors when its sole business was the
leasing of gas compression equipment to operators. Equity Compressors broadened
its scope of operations through its acquisition in April 1990 of a compressor
remanufacturing and service business. The business of the acquired company
centered around the acquisition, remanufacture and sale of existing gas
compressor units. By May 1990, this business was fully integrated into Equity
Compressors, and Equity Compressors relocated its headquarters from Tulsa to a
facility in Oklahoma City. This move positioned Equity Compressors strategically
in the heart of the Mid-Continent natural gas producing region.

In June 1993, the Company acquired Mid-South Compressors, Inc., a privately
held gas compression company ("Mid-South"). Mid-South leased compression
equipment throughout the gas producing regions of Mississippi, Alabama and
Northern Louisiana. The transaction involved the issuance of approximately 5.4
million shares of Company common stock and the payment of $1.4 million in cash
to Mid-South. The Company financed the cash portion of the acquisition through
additional borrowings.

In July 1993, the Company acquired all the outstanding shares of common
stock of Owens Compression Service, Inc. ("Owens"), a privately held company
that provided gas compression services primarily in East Texas and North
Louisiana in exchange for cash consideration of $42,000 and approximately 3.2
million shares of Company common stock.

During March 1995, the Board of Directors of Equity Compressors, Mid-South
and Owens each approved the formal merger of Mid-South and Owens with and into
Equity Compressors. The companies merged their operations under the Equity
Compressors name as of January 1, 1995. Currently, the businesses of Equity
Compressors include leasing, direct sales and remanufacturing services of
various types of gas compression equipment.

During December 1996, the shareholders of the Company approved an increase
in the number of authorized shares of common stock enabling the Company to sell
8 million shares of common stock and 8 million contingent warrants for a total
cash consideration of $4.4 million to HACL, Ltd., a Dallas-based

3
<PAGE>
investment group. Additionally, shareholders voted to change the name of the
Company to Equity Compression Services Corporation.

On August 6, 1997 the Company announced the acquisition of 100% of the
common stock of Ouachita Energy Corporation ("Ouachita") and the majority of the
assets of both Ouachita Compression Group, LLC and Ouachita Energy Partners,
LTD. Under the terms of the acquisition agreements that were closed effective
July 31, 1997 the Ouachita companies' shareholders received 7.6 million shares
of the Company's common stock and approximately $24 million in cash. At December
31, 1997 the combined compressor fleet consisting of Equity Compressors and
Ouachita owned 669 gas compression units with a total of approximately 169,000
horsepower.

On October 30, 1997 the Company through its wholly owned subsidiary,
Sunterra Energy Corporation, entered into a venture with Prize Petroleum, L.L.C.
of Tulsa, Oklahoma to form Sunterra Petroleum Company, L.L.C. The new venture
was initially capitalized with oil and gas properties and cash commitments with
a value in excess of $9 million. The venture will focus on oil and gas
acquisitions with development opportunities. A $10 million bank credit facility
has been established to allow the new entity to pursue property acquisitions and
their development.

On December 8, 1997 the Company announced that effective December 31, 1997
it would close its shop facilities in Oklahoma City, Oklahoma, Kilgore, Texas,
and Columbia, Mississippi. The acquisition of Ouachita enabled the Company to
consolidate the facilities operations into one state of the art facility located
in West Monroe, Louisiana. Although significant costs will be incurred as a
result of the closing of these facilities in the fourth quarter of 1997, the
consolidation of the shop facilities will allow the company greater control over
product engineering and design, better quality equipment, more reliable service
and increased control over expenses at the facilities level.

At December 31, 1997, the venture's oil and gas properties were estimated to
have proved reserves of 9,425,000 thousand cubic feet ("Mcf") of natural gas and
603,000 barrels of oil of which 9,245,000 Mcf and 603,000 barrels of oil are
proved developed. Natural gas reserves constituted approximately 73% of the
Company's proved developed reserve base on a "gas equivalent" basis (converting
each barrel of oil to 6 Mcf of natural gas, representing the estimated relative
energy content of oil and natural gas), and crude oil makes up 27% of the total
proved reserve base.

During March 1998, the Company received written consents from a majority of
shareholders to increase the number of authorized shares of common stock and to
change the name of the Company to OEC Compression Corporation.

The primary business plan of the Company is growth within the compression
sector of the natural gas industry. The Company plans to extend its activities
in the compression service sector by expanding its existing compressor fleet
into larger horsepower equipment and utilize the relationships established among
its expanded Board of Directors with large independents and natural gas
gathering and processing companies to gain entry to that sector of the
compression market. Service and sales growth will be pursued along the same
approach. Oil and gas property acquisitions will be pursued through the
Company's newly formed venture.

The Company had 174 employees at year-end 1997. Its principal executive
offices are maintained at 2501 Cedar Springs Road, Suite 600, Dallas, Texas
75201. Telephone (214) 953-9560.

GAS COMPRESSION OPERATIONS

GENERAL. The Company conducts its compressor operations through Ouachita
Energy Corporation, its wholly-owned subsidiary located in West Monroe,
Louisiana.

Within the continental U.S. there are over 250,000 gas wells with annual
production in excess of 18 trillion cubic feet of natural gas. A very large
portion of these wells are located in the seven state area of

4
<PAGE>
the Company's compression operations. The ages of these wells range from a few
days to decades. The age of a gas well usually affects its need for compression.
A gas well has a natural flowing pressure which may or may not be adequate to
overcome the pipeline pressure at the point where the gas is introduced into a
gathering system or transmission pipeline. If the flowing pressure of the gas is
not adequate to overcome the pipeline pressure, it is not physically possible to
produce or transport the gas. Gas compression is used to overcome this problem
by boosting the flowing pressure of the gas. Theoretically, all gas wells will
eventually need compression to boost natural well flowing pressure to exceed
pipeline pressure. Historically, gas compressors have generally been purchased
and operated by gas producers and gas transporters. However, over the last
several years, these same groups have also used equipment leasing as an accepted
means of providing for their gas compression needs.

EQUIPMENT LEASING AND CONTRACT COMPRESSION SERVICES. At year-end 1997, the
Company's service fleet included 669 compressors located in Alabama, Arkansas,
Kansas, Louisiana, Mississippi, Oklahoma and Texas. These compressors generally
average 253 horsepower in size and their cost as a new unit averages about
$190,000. The Company's rental fleet is comprised mostly of used, remanufactured
equipment which was acquired at a substantial discount to the cost of comparable
new compressor units. The fleet includes engines and compressors of various
manufacturers.

Prior to the Ouachita acquisition in the third quarter of fiscal year 1997,
the Company's core business was compression rental-with-maintenance to natural
gas producers, processors and pipelines. With the Ouachita acquisition, the
Company commenced providing full contract compression services, which is the
complete "outsourcing" of a client's compression operations to the Company.

The size and configuration of each compressor vary depending on the
particular application for which it is utilized. Consideration is given to the
differential between the wellhead and pipeline flowing pressures and the volumes
of gas delivered from the wellhead.

The following table sets forth certain data concerning the Company's
activity in the acquisition and leasing of compressors:

<TABLE>
<CAPTION>
DECEMBER
------------------------------------------
1997 1996 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Number of units................................................. 669 411 448 449
Horsepower utilization rate at end of period.................... 80% 81% 68% 84%
Equipment horsepower at end of period........................... 169,229 46,531 48,980 49,208
</TABLE>

At December 31, 1995, as a result of the highly competitive market for
compression rental equipment and the low utilization rates experienced on
certain of the Company's equipment, the Company identified certain compression
equipment (approximately 80 to 100 units) which it intended to dispose of. The
sale of these compressors occurred during the third quarter 1996. Proceeds of
this sale of equipment were used to acquire other compression equipment more
suited to the current marketplace.

LEASE/CONTRACT COMPRESSION TERMS. Generally, the Company's compressors are
leased or contract compression services are provided to well operators under
written agreements ranging from month to month to five years. These contracts
are sometimes renewed at the end of the specified term at which time the rentals
and other terms may be renegotiated. The competitive marketplace determines the
rental/ contract rates used in new contracts and in renewals of existing
contracts. Once the minimum term has expired, the equipment continues on a
month-to-month basis, with either party having the right to terminate the
contract by giving a thirty-day written notice. The majority of the deployed
compressors at December 31, 1997 were on the month to month basis.

Under the typical rental-with-maintenance lease, the lessee pays the costs
of transporting the compressor to the well site, installation, all fuel and
other operating costs. The compressors are operated

5
<PAGE>
on a daily basis by the employees of the lessee. The Company maintains service
departments which employ skilled compressor mechanics who service and maintain
compression equipment. Under the most common type of lease, the lessee pays a
flat fee for monthly compression inclusive of service, equipment rental,
lubricants and all parts and maintenance. Under the typical contract compression
service contract, the company provides the client with both the compression
equipment and operator of that equipment. The Company's personnel are
responsible for both day-to-day operation and maintenance of the provided
compression equipment for a monthly service fee.

REMANUFACTURING SERVICES. Remanufacturing services involve the overhaul and
rework of equipment owned by third parties. These services are performed under
contract with numerous customers, including gas gathering and transmission
companies, major oil companies, large independents and small producers to
overhaul and rework their gas compression equipment. Generally, the Company
prepares a description of the work to be conducted and the parts to be provided.
This description is accompanied by an estimate or a fixed bid of the costs to be
charged the customer for the overhaul work. In the event additional labor or
parts are required once the work is in process, the owner of the unit is
contacted regarding the work and additional charges are then agreed on. Overhaul
work is normally guaranteed for a period of ninety days.

COMPRESSOR SALES. The Company is also involved in the direct sales of
remanufactured gas compression equipment. The Company acquires, rebuilds and
sells previously owned gas compressor units to gas producers and transporters.
The Company maintains an inventory of compression parts and equipment at its
facility in West Monroe, Louisiana. The Company is able to sell its
remanufactured equipment at a discount to the cost of comparable new equipment,
and in most cases is able to customize and complete a compressor unit for a
customer in substantially less time than the same customer could acquire the
equipment new from the original manufacturer. The Company via its field
mechanics, is responsible for the service and maintenance of its direct sales
units during their ninety-day warranty period.

The Company faces competition from a number of different companies, some of
which have larger staffs, more equipment and assets and greater financial
resources. The principal competition in the compressor leasing business comes
from major equipment fabricators who lease and sell gas compression equipment
and services.

COMPLIANCE WITH ENVIRONMENTAL LAWS

The design and operation of gas compressors is subject to certain federal
and state environmental laws and regulations which, directly or indirectly,
relate to the discharge of materials into the environment. Complete compliance
with all of such laws and regulations may affect the Company's operations and
costs as a result of their effect on the design, condition and operation of its
gas compressors or its costs of repairing or remanufacturing them. Under most of
the leases for the gas compressors, responsibility for compliance with the
majority of these laws and regulations is placed on the lessee. However, there
can be no assurance that the Company would not be liable for any penalties or
fines that may be imposed as a result of any material noncompliance. It is not
anticipated that the Company will be required in the near future to expend
amounts that are material in the aggregate to the Company's overall operations
by reason of such laws and regulations.

NATURAL GAS AND OIL OPERATIONS

GENERAL. The Company acquired interests in natural gas and oil properties
by acquiring the assets and assuming the liabilities of ten oil and gas limited
partnerships on December 29, 1989, as a result of the exchange offer. The
Company continually reviews opportunities to acquire additional producing
properties, sell portions of its producing properties and conducts additional
development drilling on its properties. The Company is engaged in the production
and sale of natural gas, condensate and crude oil from these properties.

6
<PAGE>
The Company operates 43 of the wells in which it owns an interest. Through
the first quarter of 1996, the Company engaged an affiliated company to handle
the operations of the wells it controlled. During the second quarter of 1997,
the Company directly assumed operations of all of its properties.

SIGNIFICANT PROPERTIES. At December 31, 1997, the Company owned oil and gas
interests in 90 producing wells, undrilled leasehold interests and related
assets located in Arkansas, Kansas, Oklahoma and Texas. Exploration and
development efforts have been concentrated in the Anadarko, Arkoma and Permian
Basins located in the states listed above. It is expected that the Company will
continue to focus on these areas in its future operations.

ANADARKO BASIN

In the Anadarko Basin, the interests owned by the Company consist of 63
gross (29.40 net) wells, of which 25 are controlled by the Company. The
properties in this basin contain proved reserves totalling 5,766,626 Mcf of gas
and 248,267 barrels of oil and represent approximately 53.74% of the present
value of the proved reserves of the Company at December 31, 1997.

ARKOMA BASIN

In the Arkoma Basin, the interests owned by the Company consist of 18 gross
(5.78 net) wells, nine of which are controlled by the Company. The properties in
this basin contain proved reserves totalling 2,610,813 Mcf of gas and represent
approximately 25.12% of the present value of the proved reserves of the Company
as of December 31, 1997.

PERMIAN BASIN

In the Permian Basin the interest owned by the Company consists of 9 gross
(8.92 net) wells, all of which are controlled by the Company. The properties in
this basin contain proved reserves totalling 0 Mcf of gas and 267,244 barrels of
oil and represent approximately 21.14% of the present value of the proved
reserves of the Company at December 31, 1997.

DRILLING ACTIVITIES. During the periods indicated, the Company participated
in the drilling of the following development wells:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- -----------
GROSS NET GROSS NET GROSS
----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Development
Productive........................................................ 3.0 1.40 4.0 3.0 --
Non-Productive.................................................... 1.0 .11 -- -- --
-- -- --
--- ---
Total............................................................. 4.0 1.51 4.0 3.0 --

NET
---------
<S> <C>
Development
Productive........................................................ --
Non-Productive.................................................... --

---
Total............................................................. --
</TABLE>

PRODUCTIVE WELLS. The following table sets forth certain information
relating to oil and gas wells which are producing or which are shut-in but
capable of producing oil and/or gas at December 31, 1997. A "gross" well is any
well in which the Company owned an interest while "net" wells equal the sum of
the Company's interests in the gross wells.

7
<PAGE>
PRODUCTIVE WELLS
AS OF DECEMBER 31, 1997

<TABLE>
<CAPTION>
GROSS NET
----------- ---------
<S> <C> <C>
Oil....................................................... 30 23.49
Gas....................................................... 60 20.61
</TABLE>

ACREAGE. The following table sets forth the gross and net oil and gas
leasehold acreage of the Company as of December 31, 1997. "Gross" acreage refers
to any acreage in which the Company owns an interest while "net" acreage refers
to the Company's actual proportionate interest in the acreage.

ACREAGE
AS OF DECEMBER 31, 1997
DEVELOPED

<TABLE>
<S> <C>
Gross Acres......................................... 30,980
Net Acres........................................... 13,456
</TABLE>

PROVED RESERVES. The following table reflects the proved reserves of the
Company as estimated, at the dates indicated. The increase in Mcf from 1997 to
1996 is partly due to the drilling of three new gas wells which added proved
reserves totalling 836,000 Mcf. All reserve information is attributable to the
Company's ownership in Sunterra Petroleum L.L.C., for which there is an
approximate 20% minority interest.

ESTIMATED PROVED RESERVES
(IN THOUSANDS)

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
- ----------------------------------------------------------------
1997 1996 1995
- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
Oil Gas Oil Gas Oil Gas
Bbls Mcf Bbls Mcf Bbls Mcf
603 9,425 930 4,989 913 3,801
</TABLE>

The following table sets forth the estimated future net revenues from proved
reserves of the Company, before deducting the impact of federal and state income
taxes. The present value of estimated future net revenues discounted at 10% per
annum was prepared using constant prices of approximately $17.64 per barrel of
oil and $2.26 per Mcf of gas, which were the average oil and gas prices in
effect at December 31, 1997. As of April 13, 1998, the Company's average prices
were approximately $14.32 per Bbl of oil and $2.18 per Mcf of gas.

8
<PAGE>
ESTIMATED FUTURE NET REVENUES FROM PROVED RESERVES
(IN THOUSANDS)

<TABLE>
<S> <C>
Estimated Future Net Revenues Attributable to
Production During:
1998............................................... $ 2,401
1999............................................... 2,245
2000............................................... 1,941
2001............................................... 1,674
2002............................................... 1,440
Remainder.......................................... 8,179
---------
Total.............................................. $ 17,880
---------
---------
Net Present Value (discounted at 10% per annum).... $ 11,063
---------
---------
</TABLE>

The reserve data set forth herein represents estimates only. Reserve
engineering is a subjective process of estimating underground accumulations of
crude oil and natural gas that cannot be measured in an exact manner. The
accuracy of any reserve estimate is a function of the quality of available data
and of engineering and geological interpretation and judgment. As a result,
estimates of different engineers may vary. In addition, results of drilling,
testing and production subsequent to the date of an estimate may justify
revision of such estimate. Accordingly, reserve estimates often differ from the
quantities of crude oil and natural gas that are ultimately recovered. The
meaningfulness of such estimates is highly dependent upon the accuracy of the
assumptions upon which they were based.

MARKET FOR OIL AND GAS. The market for oil and gas production depends upon
a number of factors, including the availability of other domestic production,
crude oil imports, the proximity and size of oil and gas pipelines, the
marketing of competitive fuels and general fluctuations in the supply and demand
for oil and gas. For the past several years, there has existed a surplus of
imported oil and domestic natural gas. Such excess has resulted in reduced oil
and gas prices and curtailment of gas production. In addition, such oversupplies
may cause delays in marketing the natural gas from producing wells.

While certain of the Company's natural gas production is sold at the
wellhead to intrastate and interstate pipelines under contracts with terms
ranging from one to twenty years, most of its gas production is sold on the
"spot market" under commitments which generally extend for only thirty days. All
of the Company's long-term contracts contain provisions for readjustment of
price, termination and other terms customary in the industry. Certain of these
contracts contain "market out" and price adjustment provisions which could allow
the purchaser to cancel the contract or purchase the gas produced at a
substantially lower price. Likewise, if prices increase, the Company can cancel
the contract or require the gas produced to be purchased at the higher prices.

Approximately 73% of the Company's proved reserves are crude oil on an
equivalent unit basis, while the remaining 27% consist of natural gas.
Consequently, the financial results of the Company's gas and oil production
activities will be affected by positive or negative developments in the pricing
of and markets for both natural gas and crude oil. In previous years the
Company's proved reserve base consisted primarily of natural gas.

The Company does not believe that the loss of any of its oil purchasers, if
not replaced, would have a material adverse effect on its operations. The loss
of a gas purchaser could result in contracts being executed for sales with
prices less than those previously in effect or in prolonged production delays.
The loss or termination of several gas purchase agreements or purchasers could,
if not replaced, adversely affect the Company's financial condition. The
marketing of oil and gas by the Company can be affected by a number of factors
which are beyond its control, the exact effects of which cannot be accurately
predicted.

9
<PAGE>
OIL AND GAS SALES PRICES AND PRODUCTION COSTS. The following table sets
forth the average sales prices per barrel of oil (including condensates and
other liquid hydrocarbons) and per Mcf of gas produced and the production
expense (including taxes and transportation charges) per equivalent Mcf of gas
production and Bbl of oil of the Company for each of the periods indicated.

AVERAGE SALES PRICES AND PRODUCTION COSTS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Average Sales Price per Mcf of gas produced................................ $ 2.65 $ 2.36 $ 1.60
Average Sales Price per barrel of oil produced............................. $ 19.35 $ 19.32 $ 17.47
Production Cost per MCFE(1)................................................ $ .85 $ .73 $ .80
Production Cost per BOE(2)................................................. $ 5.11 $ 4.35 $ 4.79
</TABLE>

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

(1) "MCFE" means equivalent Mcf of natural gas and is determined by converting
each barrel of oil to six Mcf of natural gas.

(2) "BOE" means equivalent barrels of oil and is determined by converting six
Mcf of natural gas to one barrel of oil.

REGULATIONS

The oil and gas industry is extensively regulated by federal, state and
local authorities. Legislation affecting the oil and gas industry is under
constant review for amendment or expansion. Numerous departments and agencies,
both federal and state, have issued rules and regulations binding on the oil and
gas industry and its individual members some of which carry substantial
penalties for the failure to comply. The regulatory burden on the oil and gas
industry increases its cost of doing business and, consequently, affects its
profitability. Inasmuch as such laws and regulations are frequently amended or
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such regulations.

EXPLORATION AND PRODUCTION. Exploration and production operations of the
Company are subject to various types of regulation at the federal, state and
local levels. Such regulation includes requiring permits for the drilling of
wells, maintaining bonding requirements in order to drill or operate wells, and
regulating the location of wells, the method of drilling and casing wells, the
surface use and restoration of properties upon which wells are drilled and the
plugging and abandoning of wells. The Company's operations are also subject to
various conservation matters. These include the regulation of the size of
drilling and spacing units or proration units and the density of wells which may
be drilled and the unitization or pooling of oil and gas properties. In this
regard, some states allow the forced pooling or integration of tracts to
facilitate exploration while other states rely on voluntary pooling of lands and
leases. In addition, state conservation laws establish maximum rates of
production from oil and gas wells, generally prohibit the venting or flaring of
gas and impose certain requirements regarding the ratability of production. The
effect of these regulations is to limit the amounts of oil and gas the Company
can produce from its wells, and to limit the number of wells or the locations at
which the Company can drill.

Oklahoma and Texas have adopted limits on gas production that attempt to
match production with market demand. In March 1992, Oklahoma enacted a law which
places statewide limits on gas production. The Oklahoma Corporation Commission
sets production levels quarterly. The production of natural gas from a single
well is limited to the greater of a specified Mcf per day or a percentage of the
total daily production capacity of the well. In April 1992, the Texas Railroad
Commission ("TRC") unanimously approved a new proration system that eliminated
monthly purchaser nominations as the starting point for determining reservoir
market demand. Instead, the TRC makes an initial determination of reservoir
market demand for prorated fields each month using production in the same month
from the previous year and the operator's forecast for demand for that month.
This initial determination is subject to certain

10
<PAGE>
adjustments. Individual well allowable determinations are determined by an
enhanced capability determination routine. A well capacity is determined as the
lesser of the latest TRC well deliverability test on file or the highest monthly
production during the last six months. Alternatively, an operator may submit a
substitute capability determination that has been determined by a registered
professional engineer.

The Company cannot predict whether other states will adopt similar
legislation or rules governing gas production. The effect of the Oklahoma and
Texas provisions and any other restrictions, if adopted, could be to decrease
allowable production on certain properties and the revenues from gas properties.
It is also possible that such legislation and regulations may result in a
decrease in natural gas production, which might also have the effect of exerting
upward pressure on prices of natural gas, although there can be no assurance
that any such increase will occur. However, if such restrictions do result in
increased prices of natural gas, they could face challenges in the courts and
there can be no assurance as to the outcome of any such challenge, or federal
legislation may be enacted to override the effects of state provisions.

Various federal, state and local laws and regulations covering the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, may affect the Company's operations and costs as a result of
their effect on exploration, development and production operations. Violation of
environmental legislation and regulations may result in the imposition of fines
or civil or criminal penalties and, in certain circumstances, the entry of an
order for the removal, remediation and abatement of the conditions, and the
suspension of the activities, giving rise to the violation. The Company is also
subject to laws and regulations concerning occupational safety and health. It is
not anticipated that the Company will be required in the near future to expend
amounts that are material in the aggregate to the Company's overall operations
by reason of environmental or occupational safety and health laws and
regulations, but inasmuch as such laws and regulations are frequently changed,
the Company is unable to predict the ultimate cost of compliance.

Certain of the Company's oil and gas leases are granted by the federal
government and administered by various federal agencies. Such leases require
compliance with detailed federal regulations and orders which regulate, among
other matters, drilling and operations on these leases and calculation of
royalty payments to the federal government. The Mineral Lands Leasing Act of
1920 places limitations on the number of acres under federal leases that may be
owned in any one state. While subject to this law, the Company does not have a
substantial federal lease acreage position in any state or in the aggregate. The
Mineral Lands Leasing Act of 1920 and related regulations also may restrict a
corporation from the holding of a federal onshore oil and gas lease if stock of
such corporation is owned by citizens of foreign countries which are not deemed
reciprocal under such Act. Reciprocity depends, in large part, on whether the
laws of the foreign jurisdiction discriminate against a United States person's
ownership of rights to minerals in such jurisdiction. The purchase of shares in
the Company by citizens of foreign countries who are not deemed to be reciprocal
under such Act could have an impact on the Company's ownership of federal
leases.

MARKETING, GATHERING AND TRANSPORTATION. Federal legislation and regulatory
controls have historically affected the price of the gas produced by the Company
and the manner in which such production is marketed. Historically, the
transportation and sale for resale of gas in interstate commerce have been
regulated pursuant to the Natural Gas Act of 1938 (the "NGA") and the Natural
Gas Policy Act of 1978 (the "NGPA") and Federal Energy Regulatory Commission
("FERC") regulations promulgated thereunder. Since 1978, maximum selling prices
of certain categories of gas, whether sold in interstate or intrastate commerce,
have been regulated pursuant to the NGPA. The NGPA established various
categories of gas and provided for graduated deregulation of price controls of
several categories of gas and the deregulation of sales of certain categories of
gas. All price deregulation contemplated under the NGPA has already taken place.

11
<PAGE>
On July 26, 1989, the Natural Gas Wellhead Decontrol Act of 1989 (the
"Decontrol Act") was enacted. The Decontrol Act amended the NGPA to remove, as
of July 27, 1989, both price and non-price controls from gas not subject to a
contract in effect on July 26, 1989. Gas under contract on July 26, 1989, was
decontrolled on the earlier of the termination of the contract or January 1,
1993. Gas from wells spudded after July 26, 1989, was decontrolled on May 15,
1991, even if those wells were still covered by an existing contract.

In December 1992, the FERC issued Order No. 547, which is a blanket
certificate of public convenience and necessity pursuant to Section 7 of the NGA
and which authorizes any company which is not an interstate natural gas pipeline
or an affiliate thereof to make sales for resale at negotiated rates in
interstate commerce of any category of gas that is subject to the FERC's NGA
jurisdiction. The blanket certificates were effective January 7, 1993, and do
not require any further application. There are certain requirements which must
be met before an affiliated marketer of an interstate pipeline can avail itself
of this certificate.

The cumulative impact on the Company of the deregulation provisions of the
NGPA, the Decontrol Act and Order No 547 is that the Company's gas production is
no longer subject to price regulation. Rather, it is subject only to that price
contractually agreed upon between the producer and purchaser. Under current
market conditions, deregulated gas prices under new contracts tend to be lower
than most regulated price ceilings previously prescribed by the NGPA.

In February 1988, the FERC issued Order No. 490, which promulgated new
abandonment regulations for expired, canceled or modified contracts involving
the sale of certain gas committed or dedicated to interstate commerce prior to
the enactment of the NGPA. The new rules largely eliminate delays and regulatory
burdens associated with securing approval to abandon gas service upon
termination or expiration of a contract for the sale of such gas. The new rules
also significantly facilitate certain pipelines' ability to discontinue
purchasing such gas under terms unfavorable to the pipeline in situations in
which the contract has expired or terminated, but abandonment authorization is
required to terminate the service. The Company has gas purchase agreements with
purchasers that have been abandoned pursuant to Order No. 490. Order No. 490 is
currently being challenged in the courts. The Company is unable to predict the
outcome of these proceedings, and is also unable to predict the consequences to
it of any possible future vacation of Order No. 490.

Commencing in late 1985, the FERC issued a series of orders (Order No. 436,
Order No. 500 and related orders), which promulgated regulations designed to
create a more competitive, less regulated market for natural gas. These and
subsequent regulations have significantly altered the marketing and pricing of
gas. Among other things, these regulations (a) require interstate pipelines that
elect to transport gas for others under self-implementing authority to provide
transportation services to all shippers on a non-discriminatory basis and (b)
permit each existing firm sales customer of any such pipeline to modify over at
least a five-year period, its existing purchase obligations. Although the new
regulations do not directly regulate gas producers such as the Company, the
availability of non-discriminatory transportation services and the ability of
pipeline customers to modify their existing purchase obligations under these
regulations has greatly enhanced the ability of producers to market their gas
directly to end users and local distribution companies. In this regard, access
to markets through interstate pipelines is critical to the Company's marketing
initiatives.

In April 1992, (and clarified in August 1992 and finalized in November
1992), the FERC issued Order 636, a complex regulation which has had a major
impact on natural gas pipeline operations, services and rates. Among other
things, Order 636 requires each interstate pipeline company to "unbundle" its
traditional wholesale services and create and make available on an open and
nondiscriminatory basis numerous constituent services (such as gathering
services, storage services, firm and interruptible transportation services and
stand-by sales services) and to adopt a new rate making methodology to determine
appropriate rates for those services. To the extent the pipeline company or its
sales affiliate makes gas sales

12
<PAGE>
as a merchant in the future, it will do so in direct competition with all other
sellers pursuant to private contracts; however, pipeline companies are not
required to remain "merchants" of gas, and many of the interstate pipeline
companies have or will become transporters only. Each pipeline company had to
develop the specific terms of service in individual proceedings. The new rules
are subject to pending court challenges by numerous parties. In addition, many
of the individual pipeline restructurings are the subject of pending appeals,
either before the FERC or in the courts.

As noted, Order 636 is still in the judicial review stage. On October 29,
1996, the United States Court of Appeals for the District of Columbia Circuit
denied petitions for rehearing of its earlier decision, UNITED DISTRIBUTION
COMPANIES V. FERC, 88 F.3d 1105, 1191 (D.C. Cir. 1996), in which the D.C.
Circuit upheld most of Order 636. However, the Court remanded to the FERC for
further explanation the provisions pertaining to (1) restriction of entitlement
to receive no-service to those customers who received bundled firm-sales service
on May 18, 1992; (2) the twenty year term-matching cap for the right-of-first
refusal mechanism; (3) two aspects of the straight fixed variable rate design
mitigation measures; and (4) why, in light of Order 500 and the general cost
spreading principles of Order 636, pipelines can pass through all their gas
supply realignment ("GSR") transition costs to customers and why interruptible
transportation customers should bear 10% of GSR costs.

The issuance of Order 636, and its future interpretation, as well as the
future interpretation and application by FERC of all of the above rules and its
broad authority, or of the state and local regulations by the relevant agencies,
could affect the terms and availability of transportation services for
transportation of natural gas to customers and the prices at which gas can be
sold. For instance, as a result of Order 636 a number of interstate pipeline
companies have (i) "spun-down" their gathering systems from regulated pipeline
transportation companies to unregulated affiliates, (ii) spun-off gathering
systems to non-related entities, and/or (iii) "refunctionalized" portions of
their pipeline facilities from transmission to gathering. In a May 27, 1994
order and a December 2, 1994 rehearing order, FERC ruled that it generally does
not have jurisdiction over gathering facilities absent abuse involving the
pipeline-affiliate relationship. However, FERC directed pipelines spinning down
or off their gathering systems to include certain Order No. 497 standards of
conduct in their tariffs and to enter into continuity of service agreements with
existing users or to execute a "default contract" with users with whom they
cannot reach agreement, with the default contract to contain a minimum two-year
term, use the pipeline gatherer's then current rate (with an appropriate
escalator clause) for existing customers for similar service, and contain terms
and conditions consistent with those applicable to the pipeline's gathering
service. However, in 1996 the United States Court of Appeals for the District of
Columbia upheld the FERC's allowing the spinning down of gathering facilities to
a non-regulated affiliate, but remanded the FERC's default contract mechanism.

On October 31, 1996, four producers, Amoco Energy Trading Corp. (together
with its parent, Amoco Production Co.), Anadarko Production Corp., Conoco Inc.
and Marathon Oil Co., petitioned the Supreme Court of the United States to
review the D.C. Circuit's upholding the FERC's determination not to regulate the
gathering systems spun down to affiliates except in circumstances of affiliate
abuse. Consequently, the Company cannot reliably predict at this time how
regulation will ultimately impact the Company's natural gas operations.

With respect to oil pipeline rates subject to the FERC's jurisdiction, in
October 1993 the FERC issued Order No. 561 in order to fulfill the requirements
of Title XVIII of the Energy Policy Act of 1992. Order No. 561 establishes an
indexing system, effective January 1, 1995, under which oil pipelines will be
able to readily change their rates to track changes in the Producer Price Index
for Finished Goods (PPI-FG), minus one percent. This index established ceiling
levels for rates. Order No. 561 also permits cost-of-service proceedings to
establish just and reasonable rates for initial rates for new service.
Cost-of-service review may be invoked when an oil pipeline company claims it is
significantly under-recovering its costs, or when customers claim the pipeline's
rates are excessive in relation to actual costs. The order does not alter the
right of a pipeline to seek FERC authorization to charge market-bases rates.
However, until the FERC

13
<PAGE>
makes the finding that the pipeline does not exercise significant market power,
the pipeline's rates cannot exceed the applicable index ceiling level or a level
justified by the pipeline's cost of service.

EMPLOYEES

At December 31, 1997, the Company had 167 full time employees and 7 part
time employees. The Company has 154 employees in its gas compression operations,
6 employees in its oil and gas operations and 14 employees in its general
corporate area. None of these employees are represented by a union or labor
organization. The Company considers its relations with these employees to be
satisfactory.

ITEM 3. LEGAL PROCEEDINGS

None.

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

On March 2, 1998, the Company's stockholders were issued a special proxy to
consider and vote on proposals to (i) amend the Company's Certificate of
Incorporation to increase the number of authorized shares of the Company's
Common Stock from 40,000,000 shares to 60,000,000 shares, and (ii) amend the
Company's Certificate of Incorporation to change the name of the Company to "OEC
Compression Corporation". On or around March 9, 1998 the Company received
written consents from four shareholders representing approximately 16,176,000
shares constituting 56% of the outstanding shares of company common stock. As a
consequence, both resolutions were adopted as of such date.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is certain information with respect to each executive
officer of the Company. Executive officers are elected by the Board of Directors
of the Company and serve at its discretion.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Richard D. Brannon.............................. 39 Chairman of the Board
Matthew S. Ramsey............................... 43 President/Chief Executive Officer
Dennis W. Estis................................. 51 Chief Operating Officer
Jack D. Brannon................................. 41 Senior Vice President/Chief Financial Officer
</TABLE>

The following is a brief description of the business background of each of
the executive officers of the Company.

Mr. Richard Brannon has served as Chairman of the Board since December 19,
1996. Mr. Brannon is President of Brannon Oil & Gas, Inc., an independent energy
investment company. Mr. Brannon is an investor in oil and gas production,
natural gas pipelines, real estate and equity investments. Mr. Brannon served as
director of Cornerstone Natural Gas, Inc., a natural gas pipeline and processing
company, until its sale to El Paso Natural Gas company in 1996. Mr. Brannon also
previously served as an Advisory Board member to First Interstate Bank, Fort
Worth. Mr. Brannon has a B.S. degree in Petroleum Engineering from the
University of Texas at Austin and is a Certified Professional Engineer.

Mr. Ramsey has served as Chief Executive Officer since December 19, 1996.
Mr. Ramsey served as Vice President of Nuevo Energy Company, an independent
energy company, from 1990 to 1996. From 1990 to 1996, he was employed by Torch
Energy Advisors Incorporated, a company providing management and operations
services to energy companies including Nuevo Energy Company, last serving as a
director and Executive Vice President. Mr. Ramsey joined Torch Energy as Vice
President of Land and was named Senior Vice President of Land in 1992. Prior to
joining Torch Energy, Mr. Ramsey was self-employed for eleven years. Mr. Ramsey
holds a B.B.A. in Marketing from the University of Texas at Austin and a J.D.

14
<PAGE>
from South Texas College of Law. Mr. Ramsey is a graduate of Harvard Business
School's Advanced Management Program. He is licensed to practice law in the
State of Texas.

Mr. Dennis Estis has served as Chief Operating Officer since August 1, 1997.
Previously, he was employed by Dow Chemical, Ethyl Corporation and Production
Operators, Inc., where he served as Vice President of Operations and Marketing.
Mr. Estis founded Ouachita Energy Corporation in 1976. He holds two degrees from
Louisiana State University: a B.S. in Chemical Engineering and an M.B.A.

Mr. Jack Brannon has served as Senior Vice President and Chief Financial
Officer since January 1, 1997. Previously, he was employed by BOK Capital
Services Corporation as Senior Vice President (1994-1996) and its affiliate,
Bank of Oklahoma, N.A., as Vice President, Energy Group (1984-1996). He holds
three degrees from the University of Texas at Austin: a B.S. with honors, an
M.A. and an M.B.A.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS AND SELECTED FINANCIAL DATA

As of April 15, 1998, the Company had approximately 1,270 holders of record
of its common stock. The Company's stock is quoted on the NASDAQ Small Cap
Market under the symbol "EQCS". Effective April 17, 1998, in connection with the
change of the Company's name, such symbol was changed to "OECC". The table below
reflects the high and low bid prices per share of the Company"s common stock for
each calendar quarter during 1997 and 1996 as quoted by NASDAQ. The bid
quotations reflect inter-dealer prices without adjustment for retail markups,
markdowns or commissions and may not reflect actual transactions.

<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
QUARTER HIGH LOW HIGH LOW
- ------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
First........................................................ 1.688 1.188 .563 .406
Second....................................................... 2.500 1.531 .813 .406
Third........................................................ 2.625 2.063 .813 .563
Fourth....................................................... 2.750 2.188 1.875 .594
</TABLE>

The Company has not paid any cash dividends on shares of its common stock
since its organization and currently intends to continue its policy of retaining
earnings, if any, for the Company's operations. The Company is prohibited by
certain loan agreement provisions from paying dividends.

15
<PAGE>
SELECTED FINANCIAL DATA

Certain selected financial data is presented for each of the five years
ended December 31.

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ---------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Total revenues................................ $ 16,027 $ 9,443 $ 9,943 $ 13,676 $ 8,978
Net Income (loss)............................. (1,687)(1) (160) (1,438)(2) 1,049(3) 288
Income (loss) per common share................ (.07) (.01) (.11) .08 .03
Total Assets.................................. 84,365 25,810 26,041 27,914 26,357
Long-term debt:
Current portion............................. 5 177 682 2,263 570
Long-term portion........................... 39,076 5,362 9,000 6,967 5,666
Obligation under capital
lease....................................... 464 -- -- -- 3,220
</TABLE>

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

(1) Includes recognition of contingent warrant expense of $1,440,000.

(2) Includes a provision to reduce the carrying value of certain compression
equipment of $1,790,000.

(3) Includes gain on sale of oil and gas properties of $1,880,000.

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

On August 6, 1997, the Company closed its previously announced acquisition
of 100% of the common stock of Ouachita and the majority of the assets of both
Ouachita Compression Group, LLC and Ouachita Energy Partners, LTD. Under the
terms of the acquisition agreements that were closed effective July 31, 1997,
the Ouachita companies' shareholders received 7.6 million shares, valued at
approximately $12.5 million, of the Company's common stock and approximately $24
million in cash including related acquisition costs. The Company funded the cash
portion of the purchase through $20 million in proceeds from the issuance and
sale to Prudential Insurance Company of America, of $5 million of 7 year
floating rate senior notes and $15 million of 10.15% senior subordinated notes
with 8-10 year maturities, with the balance drawn under its existing $20 million
Bank Credit Facility. Prudential Insurance Company of America also received
warrants to acquire 1 million shares of the company's common stock at an
exercise price of $2.80 per share. The Company's borrowing base under the Bank
Credit Facility was increased from $12.7 million to $20 million upon the close
of the transaction. The principal assets acquired consisted of a compressor
fleet aggregating roughly 100,000 horsepower and a refabrication facility in
West Monroe, Louisiana. The acquisition was accounted for using the purchase
method of accounting and accordingly, the results of operations of Ouachita are
included in the Company's results of operations since the date of acquisition.

Effective October 1, 1997, the Company through its wholly owned subsidiary,
Sunterra Energy Corporation, entered into a venture with Prize Petroleum, L.L.C.
of Tulsa, Oklahoma to form Sunterra Petroleum Company, L.L.C. The new venture
was initially capitalized with oil and gas properties and cash commitments with
a value in excess of $9 million. The venture will focus on oil and gas
acquisitions with development opportunities. A $10 million bank credit facility
has been provided for the new entity.

16
<PAGE>
The Company reported a net loss of $1,687,000 in 1997 due principally to the
recognition of contingent warrant expense of $1,440,000 during the third quarter
of 1997 relating to the HACL, Ltd. transaction in December of 1996. Expenses
relating to the shop closings consisting primarily of severance packages,
relocation bonuses, and freight charges to relocate equipment totaled
approximately $307,000. In addition, the Company recognized a loss of
approximately $404,000 as a result of Inventory write downs associated with the
shop closings in December 1997.

In 1998, the Company is focused on expansion of its compressor services
operation (rental & contract compression) through more efficient utilization of
its existing compressor fleet as well as from fleet additions through 1)
individual unit acquisitions for identified leasing opportunities, 2)
Purchase/Leaseback transaction with gas producers and 3) acquisition of
competing compression companies.

FINANCIAL CONDITION AND LIQUIDITY

On March 30, 1998, the Company replaced its previously existing $20 million
senior bank credit facility with a new senior bank credit facility. The initial
maximum commitment is $40 million, which can be expanded to $60 million with the
future addition of other participating financial institutions. The facility is a
borrowing base revolver effective through March, 2000, converting to a three
year term loan with a seven year principal amortization. The initial borrowing
base is the $40 million initial commitment. The credit facility is
collateralized by substantially all of the assets of the Company with the
exception of the Company's oil and gas properties which have been pledged on the
related venture's bank credit facility. At April 3, 1997, the unused portion was
approximately $18.5 million.

In December, 1997, Sunterra Petroleum, L.L.C., entered into a new $10
million bank revolving credit facility with borrowings limited to a borrowing
base determined based on the value of the underlying oil and gas reserves. In
December 1999, the revolver converts to a four-year term loan. The credit
facility is collateralized by the Sunterra subsidiary's oil and gas properties.
At December 31, 1997, the unused portion of the borrowing base was $2.1 million.

In July, 1997, the Company entered into senior subordinated term note
agreements with The Prudential Insurance Company of North America (Prudential)
for $15 million and $5 million. The $15 million term note agreement contained a
warrant purchase agreement authorizing Prudential to purchase up to 1 million
shares of the Company's common stock at an initial exercise price of $2.80 per
share until the termination date of the related term note. The fair value of the
warrants, $870,000, was determined using the Black-Scholes model and was treated
as an addition to paid-in capital. The resulting term note amount of $14,230,000
will be accreted over the 10 year term using its effective interest rate of
11.14%. The Company's cash pay-out over the term of the note is at the stated
rate of 10.15%.

Net cash provided by operating activities decreased to $2.2 million in 1997
from $3.1 million in 1996 primarily due to increased levels of accounts and
income tax receivable and prepaid expense. Net cash used in investing activities
increased to $36.7 million in 1997 from $3.4 million in 1996 due to additions to
the compressor rental fleet, the acquisition of Ouachita and a increase in debt
issue costs associated with the acquisition. Net cash provided by financing
activities increased to $34.5 million from $116,000 in 1996 as a result of the
addition of $20 million in senior and senior subordinated notes to finance the
acquisition of Ouachita and additional borrowings from the revolving line of
credit. At December 31, 1997, the Company had current assets of approximately
$6.0 million and current liabilities of $4.7 million. The Company anticipates
that 1998 cash flow from operations, as well as the Company's new senior bank
credit facility will be sufficient to fund the Company's working capital and
capital expenditure needs.

17
<PAGE>
RESULTS OF OPERATIONS

1997 VERSUS 1996

In 1997, compressor rental revenues increased $6.0 million or 92% from 1996
due to the acquisition of Ouachita, other additions to the Company's rental
fleet, and increased rental income on the existing fleet. The overall compressor
horsepower utilization rate of 80% remained relatively constant when compared to
81% in 1996. Revenues from Compressor sales and remanufacturing services
decreased $198,000 or 17% in 1997 from 1996. This decrease reflects the
Company's concentration of shop facilities on maintenance of the existing rental
fleet. Gross profit from compressor sales and remanufacturing services decreased
to $38,000 in 1997 from $283,000 in 1996 due to decreased margins on compressor
sales, remanufacturing and other sales when compared to 1996.

Compressor operating costs of $5,063,000 increased 92% when compared to 1996
as a result of increased horsepower on leases form the existing fleet and the
fleet size increase due to the Ouachita acquisition.

Revenues from oil and gas sales increased $864,000 or 47% in 1997 from 1996
primarily due to a 68% increase in the volume of oil sold by the Company. This
increase in oil volume resulted in approximately $409,000 of the total increase
in oil and gas revenues during 1997 and is the result of the successful
completion of two producing oil wells and response of a secondary oil recovery
project located in Texas.

The volume of natural gas sold by the Company increased by 20% during 1997
when compared to 1996 due to the successful drilling of two development wells
and the properties contributed by Prize. The average price of natural gas
received by the Company increased 12% from $2.36 per Mcf in 1996 to $2.65 per
Mcf in 1997. The average price per Bbl remained relatively constant at $19.35 in
1997 compared to $19.32 in 1996.

Oil and gas operating costs for 1997 are 56% higher than for the same period
in 1996 due to an increase of production taxes and expenses related to the
increase in the number of producing wells. However, as a percentage of revenues,
operating costs increased 2% in 1997 compared to 1996.

Depletion, depreciation and amortization of the composite cost of evaluated
oil and gas properties is computed on the units-of-production method based on
estimated proved reserves. The 1997 expense related to oil and gas properties is
32% higher when compared to 1996 due to the higher volumes of oil and gas
produced. Depreciation of the Compressor fleet increased 65% from 1996 due to
the acquisition of the Ouachita fleet. Associated with its acquisition of
Ouachita, the Company changed its estimate of useful lives for certain of its
compressor equipment to 20 years with capitalized overhauls on compressor rental
equipment depreciated over 5 years. The effect of these changes decreased the
1997 loss from operations, net loss and loss per share (diluted) by $265,000,
$165,000 and $0.01, respectively.

The company incurred $404,000 of inventory write downs associated with the
closing of the shop facilities at December 31, 1997.

General and administrative costs increased 98% to $4,110,000 when compared
to 1996. The increase relates to the relocation of the Company's corporate
office, severance packages paid to former employees and expenses associated with
the Company's increased level of operations subsequent to the acquisition of
Ouachita.

Shop closing costs of $307,000 consisted of severance packages of $143,000,
transfer bonuses of $23,000, freight and miscellaneous costs of $130,000 and
loss on sale of facilities of approximately $11,000.

Interest expense increased to $1,884,000 in 1997 from $927,000 in 1996 due
to increased debt balances primarily to finance the acquisition of Ouachita.

18
<PAGE>
1996 VERSUS 1995

In 1996, compressor rental revenue decreased $357,000 from 1995, primarily
as a result of the Company's decision to remove approximately 50 compressor
units from its rental fleet at the end of 1995. The overall compressor
horsepower utilization rate increased to 81% in 1996 from 68% in 1995,
generally, as a result of the sale of approximately 50 of the Company's idle
compression units at auction during the third quarter of 1996. Revenues from
compressor sales and remanufacturing services decreased $434,000 or 27% in 1996
from 1995. Gross profit of $283,000 in 1996 decreased from $518,000 during 1995.
The profit margins on compressor sales and remanufacturing decreased to 24% in
1996 from 32% in 1995.

Due to the Company's effort to minimize operating costs, compressor
operating costs incurred on rental units decreased 26%. Compressor operating
costs were 41% and 52% of related revenues for the years ended December 31, 1996
and 1995, respectively. This percentage decrease is related to lower operating
costs on newly leased compressors.

Revenues from the sale of oil and gas increased by $291,000 or 19% in 1996
from 1995, reflecting the increase in the average sales price per Mcf of gas of
48% from $1.60 in 1995 to $2.36 in 1996 and the increase in the average sales
price per Bbl of oil of 11% from $17.47 in 1995 to $19.32 in 1996. Oil and gas
operating costs for 1996 were 17% lower than for 1995, primarily due to lower
overhead costs on outside operated wells.

At December 31, 1996, the Company had oil price swaps related to its
production and sale of oil which provided the Company a minimum price of $18.00
per Bbl and a maximum price of $22.90 per Bbl for 2,000 Bbls per month for the
months of October 1996 through September of 1997. The swaps are accounted for as
hedges of the Company's oil sales.

Depletion, depreciation and amortization of the composite cost of evaluated
oil and gas properties is computed on the units-of-production method based on
estimated proved reserves. The 1996 expense related to oil and gas properties is
21% lower than 1995, due to lower production volumes and an upward revision of
reserves estimates. Depreciation of the compressor fleet decreased 4% in 1996
from 1995, primarily as a result of the decrease in the Company's compressor
fleet.

At December 31, 1995, associated with the highly competitive marketplace for
compression rental equipment and the low utilization rates experienced on
certain of the Company's equipment, the Company identified certain equipment
which it intended to dispose of. Accordingly, the book value of the equipment
was reduced to its estimated fair value of approximately $800,000, resulting in
a provision to reduce the carrying value of the equipment of $1,790,000. These
and certain other equipment were disposed of in 1996, generating proceeds of
approximately $724,000 and resulting in an additional loss of $437,000. For the
year ended December 31, 1995, these compressors generated revenues of
approximately $338,000 and depreciation expense of $246,000. The Company used
the proceeds of this sale of equipment to acquire other compression equipment
more suited to the current marketplace.

General and administrative expense increased $230,000 or 12%, generally due
to termination benefits accrued at year-end associated with certain changes in
management of the Company.

Interest expense decreased by $116,000 in 1996 compared to 1995, as a result
of lower debt balances in 1996.

NEW ACCOUNTING PRONOUNCEMENTS

In December 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share," effective January 1, 1997,
resulting in the replacement of primary earnings per share (EPS) with a newly
defined basic EPS and modification to the computation of diluted EPS. As a
result, all prior period EPS data has been restated to conform to the provisions
of this statement. (See Note 1 to the consolidated financial statements). In
addition, in December 1997, the Company adopted

19
<PAGE>
SFAS No. 129, "Disclosure of Information about Capital Structure," resulting in
no material impact. In June 1997, the Financial Accounting Standards Board
(FASB) issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" effective
for fiscal years beginning after December 15, 1997. These statements, when
adopted, will not have a martial effect on the Company's financial position or
results of operations.

YEAR 2000

The Company has determined that it will not be required to modify
significant portions of its software to utilize dates beyond December 31, 1999.
The Company presently believes that with little modifications to its existing
software, the year 2000 issue can be managed.

EFFECTS OF INFLATION

In recent years inflation has not had a significant impact on the Company's
operations or financial condition. The impact of inflation on the Company in the
future will depend on the relative increases, if any, the Company may realize
from its compressor sales and rental rates and the selling price of its oil and
gas.

ITEM 7. FINANCIAL STATEMENTS

The Company's Consolidated Financial Statements required by this Item begin
at page F-1 following page 23 hereof.

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

None.

PART III

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

Information required by this item with respect to the Company's Directors
and compliance with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated by reference to the Section entitled "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance", respectively, of the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company's 1998 annual meeting. The information
required by this item with respect to the Company's executive officers appears
at Item 4A of Part I of this Form 10-KSB.

ITEM 10. EXECUTIVE COMPENSATION

Information required by this item is incorporated by reference to the
Section entitled "Compensation of Directors and Executive Officers" of the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company's 1998 annual meeting.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this item is incorporated by reference to the
Section entitled "Voting Securities and Principal Holders Thereof" of the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company's 1998 annual meeting.

20
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this item is incorporated by reference to the
Section entitled "Certain Relationships and Related Transactions" of the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company's 1998 annual meeting.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS:

<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger dated as of May 15, 1997 by and among the Company,
OEC Acquisition Corporation, Ouachita Energy Corporation, and Dennis W. Estis.

2.2 First Amendment to Agreement and Plan of Merger dated as of July 30, 1997 by and
among the Company, OEC Acquisition Corporation, Ouachita Energy Corporation,
and Dennis W. Estis.

2.3 Asset Purchase and Sales Agreement dated as of May 15, 1997 by and among the
Company, OEC Acquisition Corporation, Ouachita Energy Partners, Ltd., Ouachita
Compression Partners, L.L.C. and Dennis W. Estis.

2.4 First Amendment to Asset Purchase and Sales Agreement dated as of July 30, 1997
by and among the Company, OEC Acquisition Corporation, Ouachita Energy
Partners, Ltd., Ouachita Compression Partners, L.L.C. and Dennis W. Estis.

3.1 Certificate of Incorporation. Previously filed as Exhibit 3.1 to the Company's
Registration Statement on Form S-8 (File No. 333-23925), which Exhibit is
incorporated herein by reference thereto.

3.2 Amendment to Certificate of Incorporation. Previously filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-8 (File No. 333-23925), which
Exhibit is incorporated herein by reference thereto.

3.3 By-Laws. Previously filed as Exhibit 3.5 to the Company's Registration Statement
on Form S-4 (File No. 33-30686), which Exhibit is incorporated herein by
reference thereto.

4.1 Note Agreement dated July 31, 1997 by and between the Company and Prudential Life
Insurance Company of America.

4.2 Subordinated Note and Warrant Purchase Agreement dated July 31, 1997 by and
between the Company and Prudential Life Insurance Company of America.

4.3 Registration Rights Agreement dated as of July 31, 1997 by and between the
Company and Prudential Life Insurance Company of North America.

4.4 Participation Agreement dated July 31, 1997 by and among the Company, Prudential
Life Insurance Company of North America and certain stockholders of the
Company.

4.5 Registration Rights Agreement dated as August 6, 1997 by and between the Company
and certain stockholders named therein.

4.6 Common Stock Purchase Warrant dated July 31, 1997 issued by the Company to
Prudential Life Insurance Company of America.

10.1 Equity Compressors Leasing 1990 Limited Partnership dated July 31, 1990 between
Equity Compressors, Inc. and Limited Partners. Previously filed as Exhibit 10.4
to the Company's Annual Report on Form 10-K for the year ended December 31,
1991, which Exhibit is incorporated herein by reference thereto.
</TABLE>

21
<PAGE>
<TABLE>
<C> <S>
10.2 Employment Agreement dated as of June 11, 1993, between Don E. Smith and
Mid-South Compressors, Inc. Previously filed as Exhibit 10.5 to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1993, which
Exhibit is incorporated herein by reference thereto. (2)

10.3 Amended and Restated Employee Stock Option Plan. Previously filed as Exhibit 4.8
to the Company's Registration Statement on Form S-8 (File No. 333-23925), which
Exhibit is incorporated herein by reference thereto. (2)

10.4 Hawkins Energy Corporation 1994 Directors Stock Option Plan. Previously filed as
Exhibit 10.8 to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994, which Exhibit is incorporated herein by reference thereto.
(2)

10.5 Hawkins Energy Corporation 401(k) Plans. Previously filed as Exhibit 4(c) to the
Company's Registration Statement on Form S-8 (File No. 33-74640), which Exhibit
is incorporated herein by reference thereto. (2)

10.6 Hawkins Energy Corporation Revolving Credit and Term Loan Agreement dated
September 1, 1995. Previously filed as Exhibit 10.10 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995, which Exhibit is
incorporated herein by reference thereto.

10.7 Hawkins Energy Corporation Director Stock Plan. Previously filed as Exhbit 4.6 to
the Company's Registration Statement on Form S-8 (File No. 333-23925), which
Exhibit is incorporated herein by reference thereto. (2)

10.8 Fifth Amended Revolving Credit Facility dated as of July 31, 1997 between the
Company, certain of its subsidiaries and the Bank of Oklahoma, N.A. Previously
filed as Exhibit 10.2 to the Company's Quarterly report on Form 10-QSB for the
period ended June 30, 1997, which exhibit is incorporated herein by reference
thereto.

10.9 Employment Agreement dated as of August 6, 1997 among Ouachita Energy
Corporation, the Company and Dennis W. Estis. Previously filed as Exhibit 10.3
to the Company's Quarterly report on Form 10-QSB for the period ended June 30,
1997, which exhibit is incorporated herein by reference thereto. (2)

10.10 Employment Agreement dated as of August 6, 1997 among Ouachita Energy
Corporation, the Company and Andy Payne. Previously filed as Exhibit 10.4 to
the Company's Quarterly report on Form 10-QSB for the period ended June 30,
1997, which exhibit is incorporated herein by reference thereto. (2)

10.11 Employment Agreement dated as of August 6, 1997 among Ouachita Energy
Corporation, the Company and Dan McCormick. Previously filed as Exhibit 10.5 to
the Company's Quarterly report on Form 10-QSB for the period ended June 30,
1997, which exhibit is incorporated herein by reference thereto. (2)

21.1 Subsidiaries of the Registrant. (1)

23.1 Consent of Independent Accountants. (1)

27 Financial Data Schedule. (1)
</TABLE>

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

(1) Filed herewith.

(2) Management contract or agreement.

(b) REPORTS ON FORM 8-K

The Company filed Form 8-K/A on October 21, 1997 amending the Form 8-K filed
on August 6, 1997 to include the audited Financial Statements of Ouachita Energy
Corporation and Pro Forma Financial Statements relating to the acquisition of
Ouachita Energy Corporation.

22
<PAGE>
SIGNATURES

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

<TABLE>
<S> <C> <C>
EQUITY COMPRESSION SERVICES
CORPORATION

DATE: April 15, 1998 By: /s/ MATTHEW S. RAMSEY
-----------------------------------------
Matthew S. Ramsey
CHIEF EXECUTIVE OFFICER, PRESIDENT

By: /s/ JACK D. BRANNON
-----------------------------------------
Jack D. Brannon
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER
</TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ RICHARD D. BRANNON
- ------------------------------ Chairman of the Board and April 15, 1998
Richard D. Brannon Director

/s/ MATTHEW S. RAMSEY
- ------------------------------ Chief Executive Officer, April 15, 1998
Matthew S. Ramsey President and Director

/s/ CHARLES M. BUTLER, III
- ------------------------------ Director April 15, 1998
Charles M. Butler, III

/s/ RAY C. DAVIS
- ------------------------------ Director April 15, 1998
Ray C. Davis

/s/ DENNIS W. ESTIS
- ------------------------------ Director April 15, 1998
Dennis W. Estis

/s/ JAMES D. FINLEY
- ------------------------------ Director April 15, 1998
James D. Finley

/s/ NEAL A. HAWTHORNE
- ------------------------------ Director April 15, 1998
Neal A. Hawthorne

/s/ CLIFFORD S. LEWIS
- ------------------------------ Director April 15, 1998
Clifford S. Lewis

/s/ ANDY C. PAYNE
- ------------------------------ Director April 15, 1998
Andy C. Payne

/s/ DON E. SMITH
- ------------------------------ Director April 15, 1998
Don E. Smith

/s/ JON P. STEPHENSON
- ------------------------------ Director April 15, 1998
Jon P. Stephenson

/s/ KELCY L. WARREN
- ------------------------------ Director April 15, 1998
Kelcy L. Warren

23
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of independent accountants.......................................................................... F-2

Consolidated balance sheets................................................................................ F-3

Consolidated statements of operations...................................................................... F-4

Consolidated statements of changes in stockholders' equity................................................. F-5

Consolidated statements of cash flows...................................................................... F-6

Notes to consolidated financial statements................................................................. F-8
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders

OEC Compression Corporation

We have audited the consolidated balance sheets of OEC Compression
Corporation, formerly Equity Compression Services Corporation ("the Company") as
of December 31, 1997 and 1996 and the related consolidated statements of
operations, changes in 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1997 and 1996 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Tulsa, Oklahoma
March 30, 1998

F-2
<PAGE>
OEC COMPRESSION CORPORATION
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................................. $ 1 $ 10
Accounts receivable, less allowance for doubtful accounts of $75 and $76 in 1997 and 1996,
respectively............................................................................ 2,782 1,220
Accounts receivable--related party........................................................ -- 25
Income tax receivable..................................................................... 212 --
Compressors and compressor parts inventory................................................ 2,674 1,476
Other..................................................................................... 282 52
--------- ---------
Total current assets.................................................................... 5,951 2,783
Property and equipment, net (Note 5)........................................................ 76,888 22,280
Notes receivable--related party............................................................. 332 --
Goodwill and other intangibles, net of amortization of $1,819 in 1997 and $1,742 in 1996.... 1,175 742
Other assets, net........................................................................... 19 5
--------- ---------
Total Assets................................................................................ $ 84,365 $ 25,810
--------- ---------
--------- ---------
Current Liabilities:
Current portion of long-term debt......................................................... $ 5 $ 177
Current portion of capital lease obligations.............................................. 251 --
Accounts payable and accrued liabilities.................................................. 4,435 1,806
Income tax payable........................................................................ -- 13
--------- ---------
Total current liabilities............................................................... 4,691 1,996
Long-term debt.............................................................................. 39,076 5,362
Capital lease obligations................................................................... 213 --
Deferred income taxes....................................................................... 10,142 3,566
Other....................................................................................... 90 89
--------- ---------
Total Liabilities........................................................................... 54,212 11,013
--------- ---------
Minority interest........................................................................... 1,418 --
Commitments (Note 11)
Stockholders' Equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued................ -- --
Common stock, $.01 par value, 40,000,000 shares authorized, 29,080,710 and 21,049,235
shares issued and 29,071,643 and 21,040,168 outstanding in 1997 and 1996,
respectively............................................................................ 290 210
Additional paid-in capital................................................................ 31,797 17,692
Accumulated deficit....................................................................... (3,343) (1,656)
Treasury stock, at cost (9,067 shares in 1997 and 1996)................................... (9) (9)
Deferred expense--contingent warrants..................................................... -- (1,440)
--------- ---------
Total stockholders' equity.................................................................. 28,735 14,797
--------- ---------
Total Liabilities and Stockholders' Equity.................................................. $ 84,365 $ 25,810
--------- ---------
--------- ---------
</TABLE>

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

F-3
<PAGE>
OEC COMPRESSION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT FOR
PER SHARE AMOUNTS)
Revenues:
Compressor rentals and service fees............................................ $ 12,363 $ 6,445 $ 6,802
Compressor sales and remanufacturing........................................... 979 1,177 1,611
Oil and gas sales.............................................................. 2,685 1,821 1,530
--------- --------- ---------
Total revenues............................................................... 16,027 9,443 9,943
--------- --------- ---------
Operating Expenses:
Operating costs-compressors.................................................... 5,063 2,643 3,558
Cost of compressor sales and remanufacturing................................... 941 894 1,093
Operating costs-oil and gas.................................................... 804 516 621
Depreciation, depletion and amortization....................................... 3,605 2,096 2,253
Inventory write down........................................................... 404 -- --
Shop closing costs............................................................. 307 -- --
General and administrative..................................................... 4,110 2,080 1,881
Amortization of intangibles.................................................... 82 105 73
Provision to reduce the carrying value of compressor equipment (Note 4)........ -- -- 1,790
--------- --------- ---------
Total expenses............................................................... 15,316 8,334 11,269
--------- --------- ---------
Income (loss) from operations.................................................... 711 1,109 (1,326)
--------- --------- ---------
Other income (expense):
Gain (loss) on sale of assets.................................................. 10 (437) (23)
Interest and other income...................................................... 52 26 102
Interest expense............................................................... (1,884) (927) (1,043)
Contingent warrant expense..................................................... (1,440) -- --
Minority interest in results of oil and gas operations......................... (60) -- --
--------- --------- ---------
(3,322) (1,338) (964)
--------- --------- ---------
Loss before income taxes......................................................... (2,611) (229) (2,290)
Income tax benefit............................................................... 924 69 852
--------- --------- ---------
Net loss......................................................................... $ (1,687) $ (160) $ (1,438)
--------- --------- ---------
--------- --------- ---------
Basic and diluted loss per common share.......................................... $ (.07) $ (.01) $ (.11)
--------- --------- ---------
--------- --------- ---------
Weighted average number of shares outstanding.................................... 24,196 13,687 12,931
--------- --------- ---------
--------- --------- ---------
</TABLE>

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

F-4
<PAGE>
OEC COMPRESSION CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
DEFERRED
ADDITIONAL RETAINED EXPENSE--
COMMON PAID-IN EARNINGS TREASURY CONTINGENT
STOCK CAPITAL (DEFICIT) STOCK WARRANTS TOTAL
----------- ----------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994.................. $ 130 $ 12,114 $ 52 (206) $ -- $ 12,090
Sale of treasury stock (99,400 shares)..... -- -- (62) 108 -- 46
Net loss................................... -- -- (1,438) -- -- (1,438)
----- ----------- ----------- ---------- ----------- ---------
Balances, December 31, 1995.................. $ 130 $ 12,114 $ (1,448) $ (98) $ -- $ 10,698
----- ----------- ----------- ---------- ----------- ---------
Sale of stock (8,000,000 shares)........... 80 4,138 -- -- -- 4,218
Issuance of contingent warrants............ -- 1,440 -- -- (1,440) --
Sale of treasury stock (78,200 shares)..... -- -- (48) 89 -- 41
Net loss................................... -- -- (160) -- -- (160)
----- ----------- ----------- ---------- ----------- ---------
Balances, December 31, 1996.................. $ 210 $ 17,692 $ (1,656) $ (9) $ (1,440) $ 14,797
----- ----------- ----------- ---------- ----------- ---------
Exercise of Stock Options.................. 1 73 -- -- -- 74
Issuance of shares in connection with
Ouachita Acquisition (7.6 million
shares).................................. 76 12,464 -- -- -- 12,540
Issuance of shares in connection with
settlement of liability (Note 2)......... 3 698 -- -- -- 701
Vesting of contingent warrants............. -- -- -- -- 1,440 1,440
Warrants issued in connection with secured
senior subordinated term note............ -- 870 -- -- -- 870
Net loss................................... -- -- (1,687) -- -- (1,687)
----- ----------- ----------- ---------- ----------- ---------
Balances, December 31, 1997.................. $ 290 $ 31,797 $ (3,343) $ (9) $ -- $ 28,735
----- ----------- ----------- ---------- ----------- ---------
----- ----------- ----------- ---------- ----------- ---------
</TABLE>

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

F-5
<PAGE>
OEC COMPRESSION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................................................... $ (1,687) $ (160) $ (1,438)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depletion, depreciation, and amortization...................................... 3,687 2,201 2,326
Accretion of discount on debt.................................................. 19
Provision to reduce the carrying value of compressor equipment................. -- -- 1,790
Deferred taxes................................................................. (709) (131) (958)
Loss on sale of assets......................................................... 1 437 23
Inventory write down........................................................... 404 -- --
Contingent warrant expense..................................................... 1,440 -- --
Minority interest in results of oil and gas operations......................... 60 -- --
Changes in operating assets and liabilities:
Accounts receivable............................................................ (1,157) 106 (564)
Allowance for doubtful accounts................................................ (1) 51 52
Notes receivable............................................................... 27 571 98
Compressors and parts inventory................................................ (209) (18) (234)
Accounts payable and accrued liabilities....................................... 720 (47) 25
Other.......................................................................... (397) 124 (72)
---------- --------- ---------
Net cash provided by operating activities.................................... 2,198 3,134 1,048
---------- --------- ---------
Cash flows from investing activities:
Acquisitions of compressor and other equipment................................. (11,788) (3,580) (1,753)
Acquisition of Subsidiary...................................................... (23,831) -- --
Proceeds from sale of compressor and other equipment........................... 349 724 291
Additions to oil and gas properties............................................ (877) (732) (2,534)
Proceeds from disposition of oil and gas properties............................ 4 174 --
Cash held for reinvestment in oil and gas properties........................... -- -- 2,513
Increase in goodwill and other assets.......................................... (525) (3) (1)
---------- --------- ---------
Net cash used in investing activities............................................ (36,668) (3,417) (1,484)
---------- --------- ---------
</TABLE>

F-6
<PAGE>
OEC COMPRESSION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS--CONTINUED

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
------------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from financing activities:
Sale of treasury stock.................................................... $ -- $ 41 $ 46
Payments of capital lease obligations..................................... (144) -- --
Proceeds of long term debt................................................ 40,336 6,752 1,804
Payments on long term debt................................................ (5,805) (10,895) (1,352)
Proceeds of stock issuance................................................ 74 4,218 --
------------- ---------- ---------
Net cash provided by financing activities................................. 34,461 116 498
------------- ---------- ---------
Net increase (decrease) in cash and cash equivalents........................ (9) (167) 62
Cash and cash equivalents beginning of year................................. 10 177 115
------------- ---------- ---------
Cash and cash equivalents end of year....................................... $ 1 $ 10 $ 177
------------- ---------- ---------
------------- ---------- ---------
Supplemental disclosure of cash flow information:
Interest paid............................................................. $ 1,646 $ 947 $ 952
------------- ---------- ---------
------------- ---------- ---------
Income taxes paid......................................................... $ 35 $ 48 $ 170
------------- ---------- ---------
------------- ---------- ---------
Non-cash investing and financing activities:
Issuance of common stock in connection with acquisition of subsidiary... $ 12,540,000 -- --
Capital leases assumed in connection with acquisition of subsidiary..... $ 608,000 -- --
Issuance of warrants in connection with secured senior subordinated term
note.................................................................. $ 870,000 -- --
Issuance of common stock in connection with settlement of liability
(Note 2).............................................................. $ 701,000 -- --
Contribution of oil and gas properties by minority interest owner....... $ 1,358,000 -- --
</TABLE>

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

F-7
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

OEC Compression Corporation, formerly Equity Compression Services
Corporation, formerly Hawkins Energy Corporation (the "Company") is engaged in
the leasing, remanufacturing and direct sale of gas compression equipment to
operators of producing natural gas wells and gas gathering systems and in the
production of natural gas and oil. Its principal geographical operating areas
lie within the states of Alabama, Mississippi, Louisiana, Oklahoma, Arkansas,
Kansas and Texas.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries Ouachita Energy Corporation ("Ouachita"), Equity
Compressors, Inc. ("Equity Compressors"), Equity Leasing Corporation, Sunterra
Energy Corporation ("Sunterra") and its 80% owned oil and gas venture Sunterra
Petroleum Company, L.L.C. All intercompany transactions have been eliminated.

CASH EQUIVALENTS

The Company includes in cash equivalents all investments with original
maturities of three months or less at the date of purchase, which are readily
convertible into known amounts of cash.

COMPRESSORS AND COMPRESSOR PARTS INVENTORY

Compressors and compressor parts are carried at the lower of cost or market,
using specific identification of costs and weighted average costs, respectively.
At December 31, compressor and compressor parts inventory consisted of:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Compressor Work in Progress................................................ $ 612 $ 335
Cylinders.................................................................. 743 99
Parts and Supplies......................................................... 1,319 1,042
--------- ---------
$ 2,674 $ 1,476
--------- ---------
--------- ---------
</TABLE>

OIL AND GAS OPERATIONS

Effective October 1, 1997, the Company through its wholly-owned subsidiary,
Sunterra, entered into a venture with Prize Petroleum, L.L.C. of Tulsa, Oklahoma
to form Sunterra Petroleum Company, L.L.C. The new venture was capitalized with
all of the Company's oil and gas properties and oil and gas properties
contributed by Prize valued at $1,358,000. The venture will focus on oil and gas
acquisitions with development opportunities. At December 31, 1997, the Company
has an approximate 80% ownership in the venture which interest will decline in
the future to a minimum interest of 51% as Prize makes additional contributions
of oil and gas properties. The Company has effective control over the operations
of the venture and has consolidated the results of the venture for the period of
October 1, 1997 through December 31, 1997.

The Company accounts for its oil and gas exploration and development
activities on the full cost method of accounting prescribed by the Securities
and Exchange Commission ("SEC"). Accordingly, all

F-8
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
productive and non-productive costs incurred in connection with the acquisition,
exploration and development of oil and gas reserves are capitalized and
amortized using the units-of-production method based on proved oil and gas
reserves. Prior to 1997, the Company's oil and gas reserves were estimated
annually by independent petroleum engineers. Beginning in 1997, the Company's
oil and gas reserves are estimated by a petroleum engineer who is an employee of
the Company.

The depreciation, depletion and amortization rates were $.43, $.37 and $.43
per equivalent Mcf produced in 1997, 1996 and 1995, respectively. As of December
31, 1997, no unevaluated properties or major development projects were excluded
from the amortization base. In the event the unamortized cost of oil and gas
properties being amortized exceeds the full cost ceiling as defined by the SEC,
the excess is charged to expense in the period during which such excess occurs.
Changes in reserve estimates or a decline in oil and natural gas prices could
cause the Company in the near-term to reduce the carrying value of its oil and
natural gas properties (see Note 13).

Sales and abandonment's of properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized unless a significant amount of
reserves is involved. Since all of the Company's oil and gas properties are
located in the United States, a single cost center is used.

PROPERTY AND EQUIPMENT

Compressor equipment held by the Company for rental purposes is stated at
cost and depreciated on a straight-line basis over an estimated 12, 15 or 20
year useful life. Associated with its acquisition of Ouachita, the Company
changed its estimate of useful lives for certain of its compressor equipment to
20 years with capitalized overhauls on compressor rental equipment depreciated
over 5 years. The effect of these changes decreased the 1997 loss from
operations, net loss and loss per share (diluted) by approximately $265,000,
$165,000 and $0.01, respectively. Buildings and other equipment are stated at
cost and depreciated over their estimated useful lives of 30 years and 5 years,
respectively.

Repairs and maintenance are charged to expense as incurred and major
overhauls and betterments are capitalized. Upon sale or retirement of equipment,
the cost of the equipment disposed of and the related accumulated depreciation
are removed from the accounts and the resulting gain or loss is reflected in
operations.

Long-lived assets are evaluated for impairment whenever events or changes
and circumstances indicate that the carrying value of an asset may not be
recoverable. Assets determined to be impaired based on estimated undiscounted
future net cash flows are reduced to estimated fair value. Changes in such
estimates could cause the Company to reduce the carrying value of its property
and equipment and goodwill.

GOODWILL AND OTHER INTANGIBLES

Goodwill is amortized using the straight-line method over the estimated
benefit periods of twenty-four to thirty years. Non-compete agreements are
amortized using the straight-line method over the life of the agreement of seven
years. Debt issue costs are amortized using the straight-line method over the
life of the agreements ranging from 7 to 10 years.

F-9
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GAS BALANCING

The Company accounts for oil and gas revenue on the sales method--recording
revenues earned when gas is delivered. During such times as the Company's sales
of gas exceeds its percentage ownership in a well, such sales are recorded as
revenue unless total sales from the well have exceeded the Company's share of
total estimated reserves underlying the property, at which time such excess is
recorded as a liability. At December 31, 1997, based on the year-end price of
$2.26 per mcf, the Company estimates its balancing position to be approximately
$80,000 on under-produced properties and $120,000 on overproduced properties.
The Company's policy is to record lease operating costs from all wells to
correspond with the related recognition of revenue.

INCOME TAXES

The Company uses the liability method of accounting for income taxes. This
method requires the measurement of deferred tax assets for deductible temporary
differences and deferred tax liabilities for taxable temporary differences.
Measurement of current and deferred tax liabilities and assets is based on
provisions of enacted tax law; the effects of future changes in tax laws or
rates are not included in the measurement. Deferred tax liabilities primarily
result from the recognition of depreciation, depletion and amortization in
different periods for financial reporting and tax purposes. Income tax benefit
or expense is the tax payable for the current year and the change during that
year in deferred tax assets and liabilities.

STOCK BASED COMPENSATION

The Company applies APB Opinion No. 25 in accounting for its stock option
plans. Under this standard, no compensation expense is recognized for grants of
options which include an exercise price equal to or greater than the market
price of the stock on the date of grant. Accordingly, based on the Company's
grants in 1997, 1996 and 1995, no compensation expense has been recognized. As
provided by Statement of Financial Accounting Standards (SFAS) No. 123
"Accounting for Stock-Based Compensation", the Company has disclosed the pro
forma effects of recording compensation for such option grants based on their
fair value in Note 9 to the financial statements.

CONCENTRATIONS OF CREDIT RISK

Financial instruments which subject the Company to concentrations of credit
risk consist primarily of trade receivables with a variety of oil and gas
companies. The Company generally does not require collateral related to
receivables. Such credit risk is considered by management to be limited due to
the large number of customers comprising the Company's customer base.

The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits.

SHOP CLOSING COSTS

In the fourth quarter of 1997, the Company recognized a $307,000 charge in
connection with the closure of its Oklahoma City, Oklahoma, Kilgore, Texas and
Columbia, Mississippi shop facilities. The charge was comprised of provisions
for approximately $143,000 related to severance costs, approximately $130,000
for moving and relocation costs, approximately $23,000 for transfer bonuses and
approximately

F-10
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$11,000 related to the loss on sale of the Columbia, Mississippi facility.
Approximately $34,000 of the costs were paid in 1997. The Company expects the
remaining $273,000 of costs to be paid during 1998.

ACCOUNTING ESTIMATES

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

EARNINGS PER SHARE

In December 1997, the Company adopted SFAS No. 128, "Earnings per Share,"
effective January 1, 1997, resulting in the replacement of primary earnings per
share (EPS) with a newly defined basic EPS and modification to the computation
of diluted EPS. As a result, all prior period EPS data has been restated to
conform to the provisions of this statement. Approximately 10,897,000 and
637,500 of common stock options and warrants outstanding at December 31, 1997
and December 31, 1996, respectively, were excluded from the computation of
diluted EPS because their effect on EPS would have been anti-dilutive for those
periods.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform with the
current year presentation.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 1997, the Company adopted SFAS No. 129, "Disclosure of
Information about Capital Structure," resulting in no material impact. In
addition, in June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," effective for fiscal
years beginning after December 15, 1997. These statements, when adopted, will
not have a material effect on the Company's financial position or results of
operations.

NOTE 2 ACQUISITION OF SUBSIDIARY

On August 6, 1997, the Company completed the acquisition of 100% of the
common stock of Ouachita Energy Corporation and the majority of the assets of
both Ouachita Compression Group, LLC and Ouachita Energy Partners, LTD. Under
the terms of the acquisition the Ouachita companies' shareholders received 7.6
million shares of the Company's common stock valued at $12,540,000, and
approximately $24 million in cash. The acquisition was accounted for using the
purchase method of accounting and accordingly, the results of operations of
Ouachita are included in the Company's results of

F-11
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 ACQUISITION OF SUBSIDIARY (CONTINUED)
operations since the date of acquisition. The aggregate purchase price of
$36,560,000 has been allocated as follows:

<TABLE>
<S> <C>
Current assets............................................. $ 3,305,000
Compressor equipment....................................... 41,730,000
Buildings and equipment.................................... 2,210,000
Current liabilities........................................ (2,507,000)
Deferred income tax liability.............................. (8,178,000)
-----------
$36,560,000
-----------
-----------
</TABLE>

The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1997 and 1996 assuming the acquisition occurred as of
January 1, 1997 and 1996 respectively, are as follows:

<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Revenue.............................................. $ 23,600,000 $ 18,783,000
Net Loss............................................. $ (3,700,000) $ (1,963,000)
Loss Per Share....................................... $ (.13) $ (.09)
</TABLE>

A liability to the former owner of Ouachita totalling approximately $701,000
which was assumed in the acquisition was subsequently settled by the issuance of
an additional 286,475 shares of the Company's common stock.

NOTE 3 SALE OF COMMON STOCK AND ISSUANCE OF CONTINGENT WARRANTS

Effective December 19, 1996, the Company sold to a private investment group
(HACL) 8,000,000 shares of its common stock and warrants which, upon satisfying
certain vesting requirements, entitle the purchase of an additional 8,000,000
shares of its common stock at a price of $.91 per share, for aggregate
consideration of $4,400,000. The Company reported the cash consideration
received, net of related costs, of $4,400,000 as an addition to common stock and
paid-in-capital. The "fair value" of the warrants was estimated by an
independent valuation firm to be $1,440,000, which the Company reported as an
addition to paid-in-capital offset by a deferred expense contra-equity account.
A committee of the Board of Directors determined that the warrants fully vested
during the third quarter of 1997. Accordingly, the $1,440,000 was expensed in
the third quarter of 1997. The warrants for the corresponding 8,000,000 shares
of common stock have not been exercised.

NOTE 4 PROVISION TO REDUCE THE CARRYING VALUE OF COMPRESSOR EQUIPMENT

F-12
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 PROVISION TO REDUCE THE CARRYING VALUE OF COMPRESSOR EQUIPMENT
(CONTINUED)
$372,000. For the year ended December 31, 1995, these compressors generated
revenues of approximately $338,000 and depreciation expense of $246,000.

NOTE 5 PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
(IN THOUSANDS)
Land and building................................................................ $ 1,693 $ 307
Oil and gas properties, full cost method......................................... 37,374 35,102
Compressor equipment............................................................. 76,056 23,489
Other equipment.................................................................. 2,317 479
---------- ---------
117,440 59,377
Less accumulated depreciated, depletion and amortization......................... 40,552 37,097
---------- ---------
Net property and equipment....................................................... $ 76,888 $ 22,280
---------- ---------
---------- ---------
</TABLE>

On August 1, 1997, the Company acquired $41,730,000 of compressor equipment,
$1,649,000 of land and buildings and $561,000 of other equipment as a result of
the acquisition of Ouachita Energy Corporation.

NOTE 6 LONG-TERM DEBT

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
LONG-TERM DEBT CONSISTS OF THE FOLLOWING:
8.25% Revolving line of credit (a) (d)..................................................... $ 17,926 $ 5,358
8.25% Revolving line of credit due December, 1999 (b) (d).................................. 2,000 --
Secured Senior Subordinated Term Note due July, 2007 (c) (d)............................... 14,149 --
Senior Floating Rate Secured Term Note due July, 2004 (interest at LIBOR, 8.25% at December
31, 1997) (c) (d)........................................................................ 5,000 --
Notes payable other........................................................................ 6 181
--------- ---------
Total debt................................................................................. 39,081 5,539
Less current portion....................................................................... 5 177
--------- ---------
Total long-term debt....................................................................... $ 39,076 $ 5,362
--------- ---------
--------- ---------
</TABLE>

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

(a) On March 10, 1998, the Company replaced its previously existing $20 million
senior bank credit facility with a new senior bank credit facility. The
initial maximum commitment is $40 million, which can be expanded to $60
million with the future addition of other participating financial
institutions. The facility is a borrowing base revolver effective through
March, 2000, converting to a three term loan with a seven year principal
amortization. The initial borrowing base exceeds the $40 million initial
commitment. The credit facility is collateralized by substantially all of
the assets of the

F-13
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6 LONG-TERM DEBT (CONTINUED)
Company with the exception of the Company's oil and gas properties which
have been pledged on the related venture's bank credit facility. (See (d)).

(b) In December, 1997, Sunterra Petroleum, L.L.C., entered into a new $10
million bank revolving credit facility with borrowings limited to a
borrowing base determined based on the value of the underlying oil and gas
reserves. In December, 1999, the revolver converts to a four year term loan.
The credit facility is collateralized by the venture's oil and gas
properties. At December 31, 1997, the unused portion was $8,000,000.

(c) In July, 1997, the Company entered into senior subordinated term note
agreements with The Prudential Insurance Company of North America
(Prudential) for $15 million and $5 million. The $15 million term note
agreement contained a warrant purchase agreement authorizing Prudential to
purchase up to 1 million shares of the Company's common stock at an initial
exercise price of $2.80 per share until the termination date of the related
term note. The fair value of the warrants, $870,000, was determined using
the Black-Scholes model and was reported as an addition to paid-in capital
and as a discount on the notes. The resulting term note amount of
$14,130,000 will be accreted over the 10 year term using its effective
interest rate of 11.14%.

(d) Covenants related to the debt agreements include the maintenance of
specified levels of working capital, tangible net worth and debt service
ratio, as defined by the agreements. Additionally, the agreements prohibit
the payment of dividends and place limitations on the repurchase of shares
of the Company's stock and the incurrence of new borrowings. During 1997,
the Company was not in compliance with certain covenants of its debt
agreements, which were waived by the lender.

Long-term debt maturities as of December 31, 1997 are $5,000, $1,000,
$2,420,000, $3,060,000 and $3,060,000 in 1998, 1999, 2000, 2001, and 2002,
respectively, with a remainder of $30,535,000 due in subsequent years. Based on
the interest rates currently available to the Company for borrowings with
similar terms and maturities, the long-term debt at December 31, 1997
approximates fair value.

NOTE 7 CAPITAL LEASES

The Company has vehicles under capital lease agreements with a cost of
$574,039 and accumulated amortization of $109,950.

F-14
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 CAPITAL LEASES (CONTINUED)
Future minimum lease payments for the above assets under capital leases at
December 31, 1997 are as follows:

<TABLE>
<S> <C>
1998............................................. $ 303,000
1999............................................. 220,000
2000............................................. 30,000
2001............................................. 14,000
2002............................................. 2,000
---------
Total minimum obligations........................ 569,000
Interest......................................... (105,000)
---------
Present value of net minimum obligations......... 464,000
Current portion.................................. (251,000)
---------
Long term portion................................ $ 213,000
---------
---------
</TABLE>

NOTE 8 INCOME TAXES

Consolidated income tax benefit for each of the three years in the period
ended December 31, 1997, consists of the following components:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current provision (benefit).................................................... $ (182) $ 28 $ 20
Deferred benefit............................................................... (742) (97) (872)
--------- --- ---------
Total income tax benefit....................................................... $ (924) $ (69) $ (852)
--------- --- ---------
--------- --- ---------
</TABLE>

The Company's effective tax rate on pre-tax income differs from the U.S.
federal statutory regular tax rate as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
U.S. statutory regular tax rate............................................ (34)% (34)% (34)%
State taxes................................................................ (4)% (4)% (4)%
Goodwill and other......................................................... 2% 8% 1%
--- --- ---
Total...................................................................... (36)% (30)% (37)%
--- --- ---
--- --- ---
</TABLE>

F-15
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8 INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities are comprised of the following at
December 31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Allowances for losses............................................................ $ 29 $ 29
Net operating loss carryforward.................................................. 3,543 1,219
Alternative minimum tax credit carryforward...................................... 602 358
Warrant expense deferred for income tax purposes................................. 547 --
--------- ---------
Gross deferred tax assets.................................................... 4,721 1,606
Deferred tax liabilities:
Property and equipment--depreciation
depletion and amortization..................................................... 14,863 5,172
--------- ---------
Gross deferred tax liabilities................................................. 14,863 5,172
--------- ---------
Net deferred tax liability......................................................... $ 10,142 $ 3,566
--------- ---------
--------- ---------
</TABLE>

At December 31, 1997, the Company had net operating loss carryforwards for
regular tax purposes of $9,323,000, which expire in 2009 through 2012.

NOTE 9 COMPENSATION PLANS

EMPLOYEE STOCK OPTION PLAN. On August 8, 1989, the Board of Directors of
the Company adopted and its stockholders approved an Employee Stock Option Plan
(the "Stock Option Plan") which became effective on that date. An aggregate of
130,000 shares of common stock were initially available for sale upon exercise
of options granted under the Stock Option Plan, provided that the number of
shares available for options which may be granted under the Stock Option Plan
will automatically be increased without action of the directors or stockholders
of the Company to an amount equal to (when added to the number of shares of
common stock subject to all other options granted by the Company) 8% of the
issued and outstanding shares of common stock upon each issuance of shares of
common stock occurring after February 28, 1990 (other than issuance's of shares
upon the exercise of options granted under the Stock Option Plan). The Board of
Directors may make authorized but unissued common stock available for the
exercise of options or it may utilize shares held in treasury. On February 24,
August 6, and December 29, 1997, the Board of Directors approved the issuance of
535,000, 200,000, and 599,240 stock options under the Stock Option Plan. The
Stock Option Plan is not subject to the provisions of the Employee Retirement
Income Security Act of 1974 and the options are not "incentive stock options",
as such term is defined in Internal Revenue Code Section 422A. As of December
31, 1997, options to acquire 1,594,240 shares of common stock at prices ranging
from $.050 to $2.25 were outstanding.

DIRECTOR STOCK OPTION PLANS. On August 8, 1989, the Board of Directors
adopted and the stockholders approved a Director Stock Option Plan (the "1989
Director Plan") which became effective on that date. An aggregate of 170,000
shares of common stock are available for sale upon exercise of options granted
under the 1989 Director Plan. At December 31, 1997, options for 30,000 shares at
a price of $2.50 were exercisable. As of December 31, 1997, no options had been
exercised. The 1989 Director Plan is not subject to the provisions of the
Employee Retirement Income Security Act of 1974 and the options will not be
"incentive stock options," as such term is defined in Internal Revenue Code
Section 422A.

F-16
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 COMPENSATION PLANS (CONTINUED)

On May 25, 1994, the Board of Directors adopted and the stockholders
approved the 1994 Director Stock Option Plan which became effective on that
date. Options to acquire an aggregate of 355,000 shares of common stock were
initially granted; however, options to acquire 280,000 shares of common stock
were surrendered for cancellation in 1996. At December 31, 1997, options for
75,000 shares at a price of $1.40 were exercisable. As of December 31, 1997, no
options had been exercised. These options expire on May 24, 2004.

On March 27, 1996, the Board of Directors adopted and on May 29, 1996, the
stockholders approved the Director Stock Plan, which became effective on the
date of its approval by the Company's stockholders. Under the Director Stock
Plan, non-qualified stock options may be issued to non-employee directors of the
Company. An aggregate of 250,000 shares of common stock are reserved for
issuance upon the exercise of options granted under the Director Stock Plan. The
Director Stock Plan provided for, effective upon its approval by the Company's
stockholders, the automatic grant to eligible directors of an option to purchase
either (i) 50,000 shares of common stock, if such eligible director had been an
employee of the Company at any time, or (ii) 17,500 shares of common stock, if
such eligible director had never been an employee of the Company. On each
anniversary of each eligible director's election to the Board for the term as a
director which he or she is currently serving, each such director will be
granted an option to purchase 5,000 shares of common stock. In addition, upon an
eligible director's initial election or appointment to the Board, such director
will receive the grant of an option to purchase 10,000 shares of common stock.
At December 31, 1997, options to acquire 182,500 shares of common stock at
prices ranging from $0.56 to $2.32 were outstanding. As of December 31, 1997,
32,500 options issued under the Director Stock Plan had been exercised. The
Director Stock Plan is not subject to any of the provisions of the Employee
Retirement Income Security Act of 1974 and the options will not be "incentive
stock options", as such term is defined in Internal Revenue Code Section 422A.

Activity pertaining to the Company's employee and director stock option
plans is as follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Outstanding at December 31, 1994......................................... 540,000 $ 1.78
Granted.................................................................. -- --
Exercised................................................................ -- --
Canceled................................................................. -- --
---------- ------
Outstanding at December 31, 1995......................................... 540,000 $ 1.78
Granted.................................................................. 517,500 0.58
Exercised................................................................ -- --
Canceled................................................................. (420,000) (1.40)
---------- ------
Outstanding at December 31, 1996......................................... 637,500 $ 0.81
Granted.................................................................. 1,404,240 1.86
Exercised................................................................ (145,000) (.51)
Canceled................................................................. -- --
---------- ------
Outstanding at December 31, 1997......................................... 1,896,740 $ 1.61
---------- ------
---------- ------
</TABLE>

F-17
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 COMPENSATION PLANS (CONTINUED)
OUTSTANDING OPTIONS

<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE AVERAGE
EXERCISE NUMBER OF REMAINING EXERCISE
PRICES SHARES CONTRACTUAL LIFE* PRICE
- ------------- ----------- ------------------- -----------
<S> <C> <C> <C>
$ 0.50 - 1.00 332,500 33.0Years $ 0.51
$ 1.00 - 2.00 670,000 33.3Years $ 1.34
$ 2.00 - 2.50 894,240 38.1Years $ 2.22
</TABLE>

As of December 31, 1997, options on 453,800 shares were exercisable.

* Upon termination of employment or board service the option term becomes four
years from date of termination.

The Company applies APB Opinion No. 25 in accounting for its employee and
director stock option plans. Accordingly, based on the nature of the Company's
grants of options, no compensation cost has been recognized in 1997 and 1996.
Had compensation been determined on the basis of fair value pursuant to SFAS No.
123, "Accounting for Stock-Based Compensation" net loss per share would have
been as follows:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Net loss (in thousands)
As reported........................................................................ $ (1,687) $ (160)
Pro forma.......................................................................... $ (1,874) $ (348)
Loss per share (diluted)
As reported........................................................................ $ (0.07) $ (.01)
Pro forma.......................................................................... $ (0.08) $ (.03)
</TABLE>

The fair value of each option granted is estimated using the Black-Scholes
model. The Company's estimated stock volatility was 86% and 96% for 1997 and
1996 based on previous stock performance. Dividend yield was estimated to remain
at zero with a risk free interest rate of 6% in 1997 and 1996. Expected life was
estimated at four to eight years based on prior experience depending on the
vesting periods involved and the make up of participating employees within each
grant. The weighted average fair value of options granted during 1997 and 1996,
as estimated using the Black-Scholes option pricing model, was $1.08 and $.38,
respectively.

EMPLOYEE BENEFIT PLAN. Substantially all of the Company's employees are
covered by a defined contribution 401(k) plan adopted in 1991. The Company
matches 50% of the employee contributions up to a limit of 4% of employee annual
earnings. All matching contributions are made in Company stock. Total expense
related to the plan amounted to $50,000 in 1997, $41,000 in 1996 and $48,000 in
1995.

OTHER. Non-qualified options for 15,000 shares at a price of $2.50 per
share were granted to a former employee of the Company in 1990, all of which are
currently exercisable with an expiration date of January 2030.

F-18
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 TRANSACTIONS WITH RELATED PARTIES

Through its acquisition of Ouachita, the Company acquired a note receivable
of approximately $332,000 from the former owner of Ouachita, who is now a
director and officer of the Company.

On December 31, 1997, the Company sold its facility located in Columbia,
Mississippi to a current member of the Company's Board of Directors. The Company
received $316,000 in cash resulting in a loss of $11,000.

The Company maintains a rent and expense sharing agreement with an
affiliate. At December 31, 1997, the Company was owed approximately $11,000 from
the affiliate.

The Company earned compressor rental revenues from affiliates totaling
$341,000 in 1997, $32,000 in 1996 and $104,000 in 1995. At December 31, 1997 the
Company was owed approximately $135,000 on rental revenues earned in 1997.

Amounts have been accrued in the years ended December 31 by the Company to
an affiliate for general and administrative overhead including rent, production
and drilling overhead as follows: $0 in 1997, $53,000 in 1996 and $135,000 in
1995.

NOTE 11 COMMITMENTS

The Company leases compressor equipment under contracts with terms ranging
from month-to-month to five years. The future revenues to be received under
contracts at December 31, 1997 are $6,373,000, $4,235,000, $1,726,000, $867,000
and $74,000 in 1998, 1999, 2000, 2001 and 2002, respectively.

The Company leases facilities for its corporate and field offices with lease
terms ranging from month-to-month to three years. The Company has certain other
operating leases for other facilities, office equipment and automobiles. Future
minimum rental payments under these leases total $542,000, $448,000, $398,000,
$316,000 and $316,000 for 1998, 1999, 2000, 2001 and 2002, respectively. The
Company's rental expenses were $467,000, $431,000 and $400,000 in 1997, 1996 and
1995, respectively.

F-19
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12 INDUSTRY SEGMENT INFORMATION

OPERATIONS BY INDUSTRY SEGMENT

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Revenues:
Compressor operations............................................................ $ 13,401 $ 7,679 $ 8,470
Oil and gas...................................................................... 2,685 1,821 1,530
Intersegment..................................................................... (59) (57) (57)
--------- --------- ---------
Total revenue.................................................................... $ 16,027 $ 9,443 $ 9,943
--------- --------- ---------
--------- --------- ---------
Operating profit(loss)(includes depreciation, depletion and amortization)
Compressor operations............................................................ $ (501) $ 668 $ (1,281)(1)
Oil and gas...................................................................... 1,212 441 (45)
--------- --------- ---------
Total operating profit (loss).................................................... 711 1,109 (1,326)
--------- --------- ---------
Gain (loss) on sale of assets.................................................... 10 (437) (23)
Interest and other income........................................................ 52 26 102
Interest expense................................................................. (1,884) (927) (1,043)
Contingent warrant expense....................................................... (1,440) -- --
Minority interest in results of oil and gas operations........................... (60) -- --
--------- --------- ---------
Loss before income taxes......................................................... $ (2,611) $ (229) $ (2,290)
--------- --------- ---------
--------- --------- ---------
Identifiable assets:
Compressor operations............................................................ $ 77,985 $ 21,267 $ 21,764
Oil and gas...................................................................... 6,380 4,543 4,277
--------- --------- ---------
Total identifiable assets........................................................ $ 84,365 $ 25,810 $ 26,041
--------- --------- ---------
--------- --------- ---------
Capital expenditures:
Compressor operations............................................................ $ 11,788 $ 3,580 $ 1,753
Oil and gas...................................................................... 877 732 2,534
--------- --------- ---------
Total capital expenditures....................................................... $ 12,665 $ 4,312 $ 4,287
--------- --------- ---------
--------- --------- ---------
Depreciation, depletion and amortization:
Compressor operations............................................................ $ 3,278 $ 1,891 $ 1,976
Oil and gas...................................................................... 409 310 350
--------- --------- ---------
Total depreciation, depletion and amortization................................... $ 3,687 $ 2,201 $ 2,326
--------- --------- ---------
--------- --------- ---------
</TABLE>

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

(1) Includes a provision to reduce the carrying value of certain compression
equipment of $1,790,000.

F-20
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13 OIL AND GAS INFORMATION (UNAUDITED AS TO RESERVE INFORMATION)

Capitalized costs at year-end and costs incurred during the year were as
follows:

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Capitalized costs:
Proved properties.................................................... $ 37,374 $ 35,102 $ 34,544
Unproved properties.................................................. -- -- --
--------- --------- ---------
Total.................................................................. 37,374 35,102 34,544
Less:
Accumulated depreciation, depletion and amortization and provision to
reduce carrying value.............................................. 31,824 31,376 31,115
--------- --------- ---------
Net capitalized costs.............................................. $ 5,550 $ 3,726 $ 3,429
--------- --------- ---------
--------- --------- ---------
Costs incurred:
Proved properties.................................................... -- -- 2,534
Development.......................................................... 877 732 --
--------- --------- ---------
Total costs incurred................................................... $ 877 $ 732 $ 2,534
--------- --------- ---------
--------- --------- ---------
</TABLE>

Results of operations for producing activities were as follows:

<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Revenues................................................................... $ 2,685 $ 1,821 $ 1,530
Production costs........................................................... (804) (516) (621)
Depreciation, depletion and amortization................................... (409) (261) (329)
Income taxes............................................................... (538) (397) (220)
--------- --------- ---------
Results of operations for producing activities (excluding overhead and
financing costs)......................................................... $ 934 $ 647 $ 360
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-21
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13 OIL AND GAS INFORMATION (UNAUDITED AS TO RESERVE INFORMATION)
(CONTINUED)
Estimated quantities of proved developed oil and natural gas reserves and
changes in net quantities of proved oil and natural gas reserves were as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1997 1996 1995
-------------------- ---------------------- ----------------------
OIL BBLS GAS MCF OIL BBLS GAS MCF OIL BBLS GAS MCF
--------- --------- --- --------- --- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Proved Reserves:
Beginning of year...................................... 930 4,989 913 3,801 18 2,501
Revision of estimates.................................. (321) 1,337 39 604 3 (75)
Extension and discoveries.............................. -- 1,015 -- 965 631 --
Purchase of reserves................................... 46 2,716 9 144 286 2,000
Sales of reserves...................................... -- -- -- -- -- --
Production............................................. (52) (632) (31) (525) (25) (625)
--- --------- --- --------- --- ---------
End of Year............................................ 603 9,425 930 4,989 913 3,801
--- --------- --- --------- --- ---------
--- --------- --- --------- --- ---------
Proved Developed Reserves................................ 603 9,245 930 4,717 282 3,801
--- --------- --- --------- --- ---------
--- --------- --- --------- --- ---------
</TABLE>

All of the Company's reserves are attributable to Sunterra Petroleum, L.L.C.
for which there is an approximate 20% minority interest.

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

Oil and gas reserves cannot be measured exactly. Estimates of oil and gas
reserves require extensive judgments of reservoir engineering data and are
generally less precise than other estimates made in connection with financial
disclosures.

Assigning monetary values to such estimates does not reduce the subjectivity
and changing nature of such reserve estimates. Indeed the uncertainties inherent
in the disclosure are compounded by applying additional estimates of the rates
and timing of production and the costs that will be incurred in developing and
producing the reserves. The information set forth herein is therefore subjective
and, since judgments are involved, may not be comparable to estimates submitted
by other oil and gas producers. In addition, since prices and costs do not
remain static and no price or cost escalation's or de-escalation's have been
considered, the results are not necessarily indicative of the estimated fair
market value of estimated proved reserves nor of estimated future cash flows.

F-22
<PAGE>
OEC COMPRESSION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13 OIL AND GAS INFORMATION (UNAUDITED AS TO RESERVE INFORMATION)
(CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS

The standardized measure of discounted future net cash flows ("SMOG") was
calculated using year-end prices and costs, and year-end statutory tax rates,
adjusted for permanent differences, that relate to existing proved oil and gas
reserves. Future net cash flows as of December 31 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Future cash flows.................................................... $ 29,730 $ 38,897 $ 22,906
Production costs..................................................... (11,849) (12,124) (7,745)
Development costs.................................................... -- (148) (576)
Income tax expense................................................... (6,790) (9,900) (5,410)
---------- ---------- ---------
Future net cash flows................................................ 11,091 16,725 9,175
10% discount factor.................................................. (4,232) (6,487) (3,759)
---------- ---------- ---------
Standardized measure of discounted future net cash flows............. $ 6,859 $ 10,238 $ 5,416
---------- ---------- ---------
---------- ---------- ---------
</TABLE>

The following table summarizes the principal factors comprising the changes
in the standardized measure of discounted future net cash flows.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Standardized measure, beginning of year.......................................... $ 10,238 $ 5,416 $ 1,052
Sales of oil and gas net of production costs..................................... (1,822) (1,305) (909)
Net changes in prices and production costs....................................... (4,311) 6,184 1,371
Extensions and discoveries less related costs.................................... 687 1,454 3,659
Purchase of reserves............................................................. 1,290 157 2,714
Sale of reserves................................................................. -- -- --
Revisions of previous estimates.................................................. (707) 674 74
Accretion of discount............................................................ 885 524 89
Change in income tax expense..................................................... 599 (2,866) (2,634)
--------- --------- ---------
Standardized measure, end of year................................................ $ 6,859 $ 10,238 $ 5,416
--------- --------- ---------
--------- --------- ---------
</TABLE>

All of the Company's reserves and standardized measure of discounted future
net cash flows are attributable to Sunterra Petroleum, L.L.C., for which there
is an approximate 20% minority interest.

The Company's reserves were determined at December 31, 1997 using constant
prices of approximately $17.64 per Bbl of oil and $2.26 per Mcf of gas. As of
April 13, 1998 the Company would be able to contract it's oil and gas for sale
at $14.32 per Bbl and $2.18 per Mcf, respectively. This decrease in prices would
have an effect on the SMOG value of the Company's reserves at December 31, 1997.

F-23
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
21.1 Subsidiaries of the Registrant...............................................................

23.1 Consent of Independent Accountants...........................................................

27 Financial Data Schedule......................................................................
</TABLE>

<PAGE>
EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

<TABLE>
<CAPTION>
STATE OF PERCENTAGE
SUBSIDIARY INCORPORATION OWNED
- -------------------------------------- ------------- -------------
<S> <C> <C>
Equity Compressors, Inc. Oklahoma 100%
Ouachita Energy Corporation Delaware 100%
Sunterra Energy Corporation Oklahoma 100%
Equity Leasing Corporation Oklahoma 100%
</TABLE>

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the Registration Statements
of OEC Compression Corporation, (formerly Equity Compression Services
Corporation, formerly Hawkins Energy Corporation, the "Company") on Form S-8
(File Nos. 33-74640 and 333-23925) of our report dated March 30, 1998 on our
audits of the consolidated financial statements of the Company as of December
31, 1997 and 1996, and for the years ended December 31, 1997, 1996 and 1995,
which report is included in this Annual Report on Form 10-KSB.

COOPERS & LYBRAND L.L.P.

Tulsa, Oklahoma
April 14, 1998

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 2,857
<ALLOWANCES> 75
<INVENTORY> 2,674
<CURRENT-ASSETS> 5,951
<PP&E> 117,440
<DEPRECIATION> 40,552
<TOTAL-ASSETS> 84,365
<CURRENT-LIABILITIES> 4,691
<BONDS> 0
0
0
<COMMON> 290
<OTHER-SE> 28,445
<TOTAL-LIABILITY-AND-EQUITY> 84,365
<SALES> 16,027
<TOTAL-REVENUES> 16,027
<CGS> 6,808
<TOTAL-COSTS> 15,316
<OTHER-EXPENSES> 1,438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,884
<INCOME-PRETAX> (2,611)
<INCOME-TAX> 924
<INCOME-CONTINUING> (1,687)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,687)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)

</TABLE>