NUEVO ENERGY CO, 10-K405, 1997-03-13

NUEVO ENERGY CO
10-K405, 1997-03-13
CRUDE PETROLEUM & NATURAL GAS

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

FORM 10-K
(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, 1996

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

For the transition period from to

Commission File Number 1-10537

NUEVO ENERGY COMPANY
(Exact name of registrant as specified in its charter)

Delaware 76-0304436
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

1331 Lamar, Suite 1650, Houston, Texas 77010
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (713) 652-0706

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

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
REGISTERED
Common Stock, par value $.01 per share New York Stock Exchange
12 1/2% Senior Subordinated Notes Due 2002 New York Stock Exchange
$2.875 Term Convertible Securities, Series A New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].

The aggregate market value of the voting stock held by non-affiliates of the
registrant at February 27, 1997, was approximately $846,096,804.

As of February 27, 1997, the number of outstanding shares of the registrant's
common stock was 20,145,162.

Documents Incorporated by Reference:

Portions of the registrant's annual proxy statement, to be filed within 120 days
after December 31, 1996, are incorporated by reference into Part III.
<PAGE>

ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

TABLE OF CONTENTS

Page
Number
PART I ------

Item 1. Business................................................. 3
Item 2. Properties............................................... 11
Item 3. Legal Proceedings........................................ 15
Item 4. Submission of Matters to a Vote of Security Holders...... 15

PART II

Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.................................... 16
Item 6. Selected Financial Data.................................. 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 18
Item 8. Financial Statements and Supplementary Data.............. 26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 67

PART III

Item 10. Directors and Executive Officers of the Registrant....... 67
Item 11. Executive Compensation................................... 67
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................. 67
Item 13. Certain Relationships and Related Transactions........... 67

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................ 67

Signatures
<PAGE>
NUEVO ENERGY COMPANY

PART I

This document includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"). All
statements other than statements of historical facts included in this document,
including without limitation, statements under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, estimated quantities and net present values of
reserves, business strategy, plans and objectives of management of the Company
for future operations and covenant compliance, are forward-looking statements.
Although the Company believes that the assumptions upon which such
forward-looking statements are based are reasonable, it can give no assurances
that such assumptions will prove to have been correct. Important factors that
could cause actual results to differ materially from the Company's expectations
("Cautionary Statements") are disclosed below and elsewhere in this document.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified by the
Cautionary Statements.

ITEM 1. BUSINESS

GENERAL

Nuevo Energy Company (the "Company" or "Nuevo") was formed as a Delaware
corporation on March 2, 1990, to acquire the businesses of certain public and
private partnerships (collectively "Predecessors" or "Predecessor
Partnerships"). On July 9, 1990, the plan of consolidation ("Plan of
Consolidation") was approved by limited partners owning a majority of units of
limited partner interests in the Predecessor Partnerships. Such Plan of
Consolidation provided for the exchange of the net assets of the Predecessor
Partnerships for common stock of the Company. The common stock began trading on
the New York Stock Exchange on July 10, 1990, under the symbol "NEV."

Nuevo, headquartered in Houston, Texas, is primarily engaged in the
exploration for, and the acquisition, exploitation, development and production
of crude oil and natural gas. The Company's principal properties are located
domestically onshore and offshore California, in East Texas and the onshore Gulf
Coast region; and internationally offshore the Republic of Congo in West Africa.
The Company accumulates oil and gas assets through the drilling of exploration
and developmental wells on acreage (leasehold interests) owned by the Company or
through the purchase of properties from others. The Company also owns and
operates gas plants, pipeline facilities and other oil and gas related assets.

OIL AND GAS ACTIVITIES

Since the Company's inception in 1990, it has grown and diversified its
operations through a series of disciplined, opportunistic acquisitions of oil
and gas properties and the subsequent exploitation and development of these
properties. The Company has complemented these efforts with an active and
growing exploration program which provides exposure to high-potential prospects.
The Company's primary strengths are its large inventory of exploitation and
exploration projects in its core areas of operation, its demonstrated ability to
implement and maintain a low cost structure, its ability to identify and
acquire, at attractive prices, producing properties which have significant
potential for further exploration, exploitation and development, and a capital
structure supportive of a growing investment

3
<PAGE>
program and future acquisitions. During the five years ended December 31, 1996,
the Company invested approximately $591.8 million in 26 acquisitions that added
estimated proved reserves of 185.4 MMBBLS of oil and 209.6 BCF of natural gas.
As a result of its activities, the Company's estimated proved equivalent
reserves have increased by approximately 678% since 1992.

DOMESTIC

In April 1996, the Company acquired certain upstream oil and gas
properties located onshore and offshore California ("Unocal Properties") from
Union Oil Company of California, ("Unocal") and certain California oil
properties ("Point Pedernales Properties" and, together with the Unocal
Properties, the "California Properties") from Torch Energy Advisors Incorporated
("Torch") and certain of its wholly-owned subsidiaries for a combined net
purchase price of $515.3 million, plus a contingent payment based on future
realized oil prices. The California Properties consist of 42 fields with
approximately 2,400 active wells, and estimated proved reserves as of December
31, 1996 of 177.7 MMBOE. During 1996, the California Properties constituted 66%
of the Company's total oil and natural gas production on a barrel of oil
equivalent basis. Since acquiring the California Properties, the Company has
spent approximately $35 million to commence over 110 exploitation and
development projects.

In June 1996, the Company sold 177 producing wells and the majority of its
acreage in the Giddings field and East Texas Austin Chalk holdings for $27.3
million, representing estimated net proved reserves of 4.2 MMBOE as of December
31, 1995. The Company retained ownership of seven wells and surrounding acreage
in the Turkey Creek prospect area of the Austin Chalk trend located in Grimes
County, Texas.

In July 1996, the Company completed the acquisition of a package of East
Texas oil and gas properties for a net purchase price of $9.3 million in cash.
The acquisition of these properties was effective as of December 1, 1995, and
the purchase price was reduced by the net cash flows from production between
such date and closing. In December 1996, the holders of the preferential rights
on these properties exercised such rights for a cash payment of $8.0 million
acquiring approximately half of the estimated proved reserves relating to this
acquisition.

In addition to ongoing acquisition activities, the Company continues to
participate in several oil and gas development projects. The Company initiates
workovers, recompletions, development drilling, secondary and tertiary recovery
operations and other production enhancement techniques to maximize current
production and the ultimate recovery of reserves. The Company has identified in
excess of 1,300 exploitation projects on its existing properties which it
believes offer meaningful opportunities to grow reserves and increase
production, irrespective of exploration or acquisition successes. Examples of
current or planned projects include: (i) infill drilling, the initiation of a
new steamflood project, and multiple zone recompletions in the Midway-Sunset
field in central California, (ii) infill drilling and horizontal drilling in the
Cymric field in central California, (iii) recompletions and the initiation of a
waterflood project in the Brea Olinda field in the Los Angeles basin; (iv)
infill drilling and the commencement of construction of an adjacent gas
processing plant at the Point Pedernales field offshore California; and (v)
infill drilling in the Oak Hill field in East Texas. Capital expenditures for
domestic exploitation projects are estimated to be approximately $103.0 million
in 1997.

4
<PAGE>
The Company also has an active and growing exploration program targeting
high-potential reserve opportunities in California and the onshore Gulf Coast
region. The Company seeks to reduce the risks normally associated with
exploration through the use of advanced technologies, such as 3-D seismic
surveys and computer aided exploration ("CAEX") techniques, and by participating
with experienced industry partners. The Company has had recent exploratory
discoveries in: (i) the Frontier section of the North Riley Ridge area in
Western Wyoming; (ii) the Antelope Shale section in the Monument Junction area
of the Cymric field in central California; and (iii) the Sespe section in the
Big Mountain field in the Ventura Basin of California. Capital expenditures for
domestic exploration activities are expected to be $20.0 million in 1997.

Effective January 1, 1993, the Company entered into an agreement whereby
it sold an interest in the Oak Hill field to Torchmark Corporation
("Torchmark"). The interest sold represented approximately 96 BCF of estimated
proved gas reserves and 287 MBBLS of estimated proved oil reserves at December
31, 1992. Torchmark paid a nominal amount of cash for the Oak Hill field
properties and conveyed to the Company a net profits production payment ("Oak
Hill Production Payment"). The Oak Hill Production Payment entitles the Company
to receive the net proceeds from production, limited to 90% of estimated proved
reserves at December 31, 1992, as well as an amount equal to 70% of the I.R.C.
ss.29 Tax Credits ("Section 29 Credits") generated by production from the Oak
Hill field properties. The Company has an option to repurchase the properties
for the fair market value of the reserves, which is based upon projected
discounted revenues from existing wells at the time of the repurchase. During
1996, 1995 and 1994, the Company recorded revenue of $.9 million, $1.1 million
and $1.3 million representing 70% of the Section 29 Credits generated by the Oak
Hill Production Payment, respectively.

Substantially all of the future cash flows from the Oak Hill field
properties will be paid to the Company pursuant to the Oak Hill Production
Payment. Therefore, the conveyance was not reflected as a sale. The Company will
continue to reflect revenues and the proved reserves dedicated to the Oak Hill
Production Payment as if such working interests were owned by the Company.

INTERNATIONAL

In February 1995, the Company acquired a wholly-owned subsidiary of Amoco
Production Company ("APC")in the People's Republic of Congo ("Congo") adding
20.8 MMBBLS of oil to the Company's reserve base for a purchase price of $.6
million. At December 31, 1996, the Yombo field contained proved reserves of 20.2
MMBBLS. The properties purchased are located in the Yombo field which is 27
miles offshore from the Congo in 360 feet of water. As part of the acquisition,
the Company acquired a converted super tanker with storage capacity of over one
million barrels of oil for use as a floating production, storage and off loading
vessel ("FPSO"). The Company's production is converted to No. 6 fuel oil with
less than 0.3% sulphur content on the FPSO.

During 1996, the Company completed a six-well development drilling program
which contributed approximately 2,600 gross barrels of oil per day as of
December 31, 1996. Also during 1996, the Company drilled a successful
exploration well to the Lower Sendji formation in the Yombo field. This well is
completed in half of the 236 feet of net pay and is producing over 3,200 gross
barrels of oil per day. The Company plans to drill developmental offsets to this
well in late 1997. In 1997, the Company plans to drill an exploration well to
evaluate the Lower Sendji and sub-salt sections underlying

5
<PAGE>
the Masseko field located several miles to the west of the Yombo field, as well
as to further delineate the Upper Sendji and Tchala zones which were discovered
but not developed by the previous operator. Other potential exploration features
of the concession are being evaluated for possible future drilling.
Additionally, the Company plans to initiate a waterflood project to enhance
production from existing Upper Sendji and Tchala zones in 1997. In 1997, the
Company plans to spend $12.0 million and $5.0 million for international
development and exploration, respectively.

In 1996, revenues relating to production from the Yombo field represented
approximately 9% of the total oil and gas revenues for the Company.

The Company's Congo investment involves risks typically associated with
investments in emerging markets such as an uncertain political, economic, legal
and tax environment and expropriation and nationalization of assets. In
addition, if a dispute arises in its foreign operations, the Company may be
subject to the exclusive jurisdiction of foreign courts or may not be successful
in subjecting foreign persons to the jurisdiction of the United States. The
Company attempts to conduct its business and financial affairs so as to protect
against political and economic risks applicable to operations in the various
countries where it operates, but there can be no assurance the Company will be
successful in so protecting itself. The Company's investment is insured through
political risk insurance provided by the Overseas Private Investment Corporation
("OPIC").

GAS PLANT, PIPELINES AND OTHER FACILITIES

The Richfield Gas Storage project, in Morton County, Kansas, was acquired
in July 1993 for approximately $5.9 million. The storage facility has a working
gas capacity of 5 BCF. Three major pipelines are connected to the facility and
such pipelines provide access to multiple market areas.

In December 1992, the Company purchased an 80% interest in Bright Star
Gathering, Inc. ("Bright Star") which owns a 90% partnership interest in a
150-mile gas gathering system in Leon County, Texas for an adjusted purchase
price of approximately $6.0 million. The system was constructed in 1985 and
currently is gathering approximately 3 MMCFD of casinghead gas from 80 wells.

Effective April 1, 1992, the Company acquired a 95% interest in the NuStar
Joint Venture ("NuStar"), which owns a 66.7% interest in the Benedum natural gas
processing plant, a 50% undivided interest in the land on which such plant is
situated, a 100% interest in certain related assets and natural gas gathering
systems located in West Texas and rights to acquire certain other assets, all of
which are subject to certain obligations (the "Benedum Plant System"). The
purchase price for such interest was $21.6 million. In the second quarter of
1993, the installation of a new demethanizer unit was completed, increasing
daily gross processing capacity from 82 MMCFD to 95 MMCFD. Also, the operational
start-up of a bypass plant commenced in June 1993 and is currently processing 23
MMCFD.

An additional pipeline at West Delta 152, located offshore Louisiana,
became operational in 1990. This pipeline was sold during the third quarter of
1996, for net proceeds of $3.0 million. The Company's 84-mile natural gas
pipeline in Illinois became operational in October 1990. Throughput averaged 13
MMCFD, 22 MMCFD and 19 MMCFD in 1996, 1995 and 1994, respectively.

6
<PAGE>
INDUSTRY SEGMENT INFORMATION

For industry segment data (including foreign operations), see Note 11 to
the Notes to Consolidated Financial Statements.

MARKETS

The markets for hydrocarbons continue to be quite volatile. The Company's
financial condition, operating results, future growth and the carrying value of
its oil and gas properties are substantially dependent on prevailing prices of
oil and gas. The Company's ability to maintain or increase its borrowing
capacity and to obtain additional capital on attractive terms is also
substantially dependent upon oil and gas prices. Prices for oil and gas are
subject to large fluctuations in response to relatively minor changes in the
supply of and demand for oil and gas, market uncertainty and a variety of
additional factors beyond the control of the Company. These factors include
weather conditions in the United States, the condition of the United States
economy, the actions of the Organization of Petroleum Exporting Countries,
governmental regulation, political stability in the Middle East and elsewhere,
the foreign supply of oil and gas, the price of foreign oil imports and the
availability of alternate fuel sources. Any substantial and extended decline in
the price of oil elsewhere in the U.S. or gas would have an adverse effect on
the Company's carrying value of its proved reserves, borrowing capacity, the
Company's ability to obtain additional capital, and its revenues, profitability
and cash flows from operations. A modest portion of the Company's production is
California heavy oil. The market for California heavy oil differs from the
established market indices for oil elsewhere in the U.S., due principally to the
higher transportation and refining costs associated with heavy oil.

Sales to Rexene Corporation accounted for 18% and 19% of 1995 and 1994
revenues, respectively. In 1995, sales to Stinnes Interoil, Inc. accounted for
13% of total revenues. Management of the Company does not believe that the loss
of any single customer or contract would materially affect its business.

Under the terms of a $30.0 million volumetric production payment, the
Company is committed to deliver 10.7 BCF of natural gas through December 1998.
(See Note 4 of the Notes to Consolidated Financial Statements). There are no
other significant delivery commitments and substantially all of the Company's
oil and gas production is sold at market responsive pricing through a marketing
affiliate of Torch. The Company from time to time may enter into crude oil and
natural gas price swaps or other similar hedge transactions to reduce its
exposure to price fluctuations.

REGULATION

Oil and Gas Regulation

The availability of a ready market for any oil and gas production depends
upon numerous factors beyond the Company's control. These factors include state
and Federal regulation of oil and gas production as well as regulations
governing environmental quality and pollution control, state limits on allowable
rates of production by a well or proration unit, the amount of oil and gas
available for sale, the availability of adequate pipeline and other
transportation and processing facilities and the marketing of competitive fuels.
For example, a productive gas well may be "shut-in" because of an over-supply of
gas or lack of an available gas pipeline in the

7
<PAGE>
areas in which the Company may conduct operations. State and Federal regulations
generally are intended to prevent waste of oil and gas, protect rights to
produce oil and gas between owners in a common reservoir, control the amount of
oil and gas produced by assigning allowable rates of production and control
contamination of the environment. Pipelines and gas plants also are subject to
the jurisdiction of various Federal, state and local agencies.

Environmental Regulation

General. The Company's activities are subject to existing Federal, state
and local laws and regulations governing environmental quality and pollution
control. It is anticipated that, absent the occurrence of an extraordinary
event, compliance with existing Federal, state and local laws, rules and
regulations regulating the release of materials in the environment or otherwise
relating to the protection of the environment will not have a material effect
upon the operations, capital expenditures, earnings or the competitive position
of the Company.

Activities of the Company with respect to exploration, drilling and
production from wells, natural gas facilities, including the operation and
construction of pipelines, plants and other facilities for transporting,
processing, treating or storing natural gas and other products, are subject to
stringent environmental regulation by state and Federal authorities including
the Environmental Protection Agency ("EPA"). Such regulation can increase the
cost of planning, designing, installing and operating such facilities. In most
instances, the regulatory requirements relate to water and air pollution control
measures.

Waste Disposal. The Company currently owns or leases, and has in the past
owned or leased, numerous properties that have been used for production of oil
and gas for many years. Although the Company has utilized operating and disposal
practices that were standard in the industry at the time, hydrocarbons or other
wastes may have been disposed of or released on or under the properties owned or
leased by the Company. In addition, many of these properties have been operated
by third parties over whom the Company had no control as to such entities'
treatment of hydrocarbons or other wastes or the manner in which such substances
may have been disposed of or released. State and Federal laws applicable to oil
and gas wastes and properties have become more strict. Under these new laws, the
Company could be required to remove or remediate previously disposed wastes
(including wastes disposed of or released by prior owners or operators) or
property contamination (including groundwater contamination) or to perform
remedial plugging operations to prevent future contamination.

The Company may generate wastes, including hazardous wastes, that are
subject to the Federal Resource Conservation and Recovery Act and comparable
state statutes. The EPA has limited the disposal options for certain hazardous
wastes and is considering the adoption of stricter disposal standards for
nonhazardous wastes. Furthermore, certain wastes generated by the Company's oil
and gas operations that are currently exempt from treatment as "hazardous
wastes" may in the future be designated as "hazardous wastes," and therefore be
subject to more rigorous and costly operating and disposal requirements.

Superfund. The Federal Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), also known as the "Superfund" law, imposes joint
and several liability, without regard to fault or the legality of the original
conduct, on certain classes of persons with respect to the release of a
"hazardous substance" into the environment. These persons

8
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include the current owner and operator of a facility and persons that disposed
of or arranged for the disposal of the hazardous substances found at a facility.
CERCLA also authorizes the EPA and, in some cases, third parties to take actions
in response to threats to the public health or the environment and to seek to
recover from the responsible classes of persons the costs of such action. In the
course of its operations, the Company may have generated and may generate wastes
that fall within CERCLA's definition of "hazardous substances." The Company may
also be an owner of facilities on which "hazardous substances" have been
released by previous owners or operators. The Company may be responsible under
CERCLA for all or part of the costs to clean up facilities at which such wastes
have been released. Neither the Company nor, to its knowledge, its Predecessors
has been named a potentially responsible person under CERCLA nor does the
Company know of any prior owners or operators of its properties that are named
as potentially responsible parties related to their ownership or operation of
such property.

Air Emissions. The operations of the Company are subject to local, state
and Federal regulations for the control of emissions of air pollution.
Administrative enforcement actions for failure to comply strictly with air
pollution regulations or permits are generally resolved by payment of monetary
fines and correction of any identified deficiencies. Alternatively, regulatory
agencies could require the Company to forego construction, modification or
operation of certain air emission sources, although the Company believes that in
the latter cases it would have enough permitted or permittable capacity to
continue its operations without a material adverse effect on any particular
producing field.

Oil Pollution Act. The Oil Pollution Act of 1990 ("OPA") and regulations
thereunder impose a variety of regulations on "responsible parties" related to
the prevention of oil spills and liability for damages resulting from such
spills in United States waters. A "responsible party" includes the owner or
operator of a facility or vessel, or the lessee or permittee of the area in
which a facility covered by OPA is located. OPA assigns joint and several
liability to each responsible party for oil removal costs and a variety of
public and private damages. Few defenses exist to the liability imposed by OPA.

OPA also imposes ongoing requirements on a responsible party, including
proof of financial responsibility to cover at least some costs in a potential
spill. On August 25, 1993, an advance notice of intention to adopt a rule under
OPA was published that would require owners and operators of offshore oil and
gas facilities to establish $150 million in financial responsibility. Under the
proposed rule, financial responsibility could be established through insurance,
guaranty, indemnity, surety bond, letter of credit, qualification as a
self-insurer or a combination thereof. There is substantial uncertainty as to
whether insurance companies or underwriters will be willing to provide coverage
under OPA because the statute provides for direct lawsuits against insurers who
provide financial responsibility coverage, and most insurers have strongly
protested this requirement. The financial tests or other criteria that will be
used to judge self-insurance are also uncertain. The Company cannot predict the
final form of the financial responsibility rule that will be adopted but such
rule has the potential to result in the imposition of substantial additional
annual costs to the Company or otherwise materially adversely affect the
Company. The impact of the rule should not be any more adverse to the Company
than it will be to other similarly situated or less capitalized owners or
operators in the Gulf of Mexico.

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<PAGE>
Management believes that the Company is in substantial compliance with
current applicable environmental laws and regulations and that continued
compliance with existing requirements will not have a material adverse impact on
the Company.

COMPETITION

The Company operates in the highly competitive areas of oil and gas
exploration, development and production. The availability of funds and
information relating to a property, the standards established by the Company for
the minimum projected return on investment and the availability of alternate
fuel sources are factors which affect the Company's ability to compete in the
marketplace. The Company's competitors include major integrated oil companies
and a substantial number of independent energy companies, many of which possess
greater financial and other resources than the Company.

PERSONNEL

At December 31, 1996, the Company employed 53 full time employees who
represent the executive officers and key operating, exploration, financial and
accounting management. The Company outsources the administrative and operational
functions to Torch, which maintains a large technical, operating, accounting and
administrative staff. Pursuant to an agreement with Torch (the "Torch
Agreement"), Torch administers certain business activities of the Company for a
monthly fee based on a fixed percentage of operating cash flow and total assets
(as defined). (See Note 5 to the Notes to Consolidated Financial Statements).
The combined personnel of Torch and the Company consists of 787 employees at
December 31, 1996.

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ITEM 2. PROPERTIES

RESERVES, PRODUCTIVE WELLS, ACREAGE AND PRODUCTION

The Company holds interests in oil and gas wells located in the United
States and West Africa. The Company's principal developed properties are located
in California, Texas, Nevada, Mississippi, the Gulf of Mexico and offshore West
Africa; and undeveloped acreage is located primarily in California, Texas,
Mississippi and Alabama. Proved oil and gas reserves at December 31, 1996
increased approximately 212% since December 31, 1995 primarily as a result of
development drilling activities and acquisitions of producing properties. (See
Note 14 to the Notes to Consolidated Financial Statements). The Company has not
filed any different oil or gas reserve information with any foreign government
or other Federal authority or agency.

The following table sets forth certain information, as of December 31,
1996, which relates to the Company's principal oil and gas properties:
<TABLE>
<CAPTION>
NET PROVED RESERVES
DECEMBER 31, 1996 1996 PRODUCTION
-------------------------- ------------------------
GROSS OIL GAS OIL GAS
WELLS (MBBLS) (MMCF) MBOE (MBBLS) (MMCF) MBOE
----- ------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. PROPERTIES
California Fields
Cymric .......... 398 28,698 434 28,770 1,855 40 1,862
Midway-Sunset ... 439 28,806 -- 28,806 1,674 -- 1,674
Brea Olinda ..... 232 22,303 5,656 23,246 517 118 537
Point Pedernales 15 17,158 11,796 19,124 2,215 -- 2,215
Belridge ........ 405 4,232 958 4,392 254 263 298
Dos Cuadros ..... 135 9,983 7,054 11,159 491 382 555
Coalinga ........ 92 298 15,894 2,947 56 4,023 727
Huntington Beach 21 7,975 1,185 8,173 353 51 362
Santa Clara ..... 47 11,568 9,707 13,186 698 565 792
Belmont ......... 11 2,517 478 2,597 246 32 251
South Mountain .. 101 4,876 2,034 5,215 141 137 164
Other ........... 534 23,665 38,463 30,076 2,049 6,933 3,205
----- ------- ------- ------- ------ ------ ------
Total California
fields(1) ....... 2,430 162,079 93,659 177,691 10,549 12,544 12,642

Other U.S. Fields
Oak Hill, Tx .... 240 408 260,902 43,892 25 9,619 1,628
Chappell Hill, Tx 199 754 16,244 3,461 76 1,704 360
Weeks Island, La 9 439 1,207 640 391 329 446
N.Frisco City, Al 8 1,263 1,745 1,554 340 398 406
Giddings, Tx .... 5 48 12,198 2,081 160 7,531 1,415
Other ........... 61 848 8,675 2,292 383 2,650 823
----- ------- ------- ------- ------ ------ ------
Total other
U.S. fields ... 522 3,760 300,971 53,920 1,375 22,231 5,078
----- ------- ------- ------- ------ ------ ------
Total U.S. .........
Properties ......... 2,952 165,839 394,630 231,611 11,924 34,775 17,720

FOREIGN PROPERTIES
Yombo, W. Africa 25 20,214 -- 20,214 1,420 -- 1,420
----- ------- ------- ------- ------ ------ ------
Total Properties ... 2,977 186,053 394,630 251,825 13,344 34,775 19,140
===== ======= ======= ======= ====== ====== ======
</TABLE>
(1) Represents production from the date of acquisition of the California
Properties (April 9, 1996).

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ACREAGE

The following table sets forth the acres of developed and undeveloped oil
and gas properties in which the Company held an interest as of December 31,
1996. Undeveloped acreage is considered to be those leased acres on which wells
have not been drilled or completed to a point that would permit the production
of commercial quantities of oil and gas, regardless of whether or not such
acreage contains proved reserves. A gross acre in the following table refers to
the number of acres in which a working interest is owned directly by the
Company. The number of net acres is the sum of the fractional ownership of
working interests owned directly by the Company in the gross acres expressed as
a whole number and percentages thereof. A "net acre" is deemed to exist when the
sum of fractional ownership of working interests in gross acres equals one.

GROSS NET
--------- ---------
Developed Acreage 297,688 153,403
Undeveloped Acreage 255,056 127,722
--------- ---------
Total 552,744 281,125
========= =========

The following table sets forth the Company's undeveloped acreage at
December 31, 1996:

GROSS NET
------- -------
California ............................. 123,578 93,521
Texas .................................. 47,928 9,816
Nevada ................................. 19,108 2,395
Mississippi ............................ 14,746 3,966
Yombo .................................. 26,375 11,539
Other .................................. 23,321 6,485
------- -------
Total ............................ 255,056 127,722
======= =======

PRODUCTIVE WELLS

The following table sets forth the Company's gross and net interests in
productive oil and gas wells as of December 31, 1996. Productive wells are
producing wells and wells capable of production.

GROSS NET
----- -----
Oil Wells .............................. 2,628 2,317
Gas Wells .............................. 349 110
----- -----
Total .................................. 2,977 2,427
===== =====

PRODUCTION

The Company's principal production volumes during the year ended December
31, 1996 were from the states of California, Texas, Alabama, Louisiana, and from
the Gulf of Mexico and West Africa.

12
<PAGE>
Data relating to production volumes, average sales prices, average unit
production costs and oil and gas reserve information appears in Note 14 to the
Notes to Consolidated Financial Statements.

DRILLING ACTIVITY AND PRESENT ACTIVITIES

During the three year period ended December 31, 1996, the Company's
principal drilling activities occurred in the continental United States and
offshore in state and federal waters, and offshore in the Republic of Congo.

Between the date of acquisition, April 9, 1996, and the end of 1996, the
Company drilled 71 wells in the Cymric field in central California, which
contains 11% of the Company's total estimated proved equivalent reserves at
December 31, 1996, and anticipates drilling approximately 100 wells during 1997.
In the Midway-Sunset field in central California, which contains 11% of the
total estimated proved equivalent reserves at December 31, 1996, the Company
drilled 35 wells during 1996, and plans to drill approximately 70 wells in 1997.

In the Oak Hill field in Rusk County, Texas, the Company drilled 18 wells
in 1996. The Company received Texas Railroad Commission approval for 80 acre
spacing in March 1995, providing a total of 189 additional drilling locations,
72 of which are included in the Company's proved reserve volumes. The Company
commenced a two rig drilling program in July 1996, and plans to continue
drilling through 1997.

In 1996, the Company sold 177 producing wells and the majority of its
undeveloped acreage in the Giddings field and East Texas Austin Chalk formation
for $27.3 million. The Company retained ownership of several wells and
surrounding acreage in the Turkey Creek prospect area of the Austin Chalk trend.
The Company drilled 3 wells in 1996 and plans to drill 4 wells in this area
during 1997. Two of the three wells drilled tested at gross rates of over 20
MMCFD.

During 1996, the Company completed a six-well development drilling program
in the Congo which contributed approximately 2,600 gross barrels of oil per day
as of December 31, 1996. Also during 1996, the Company drilled a successful
exploration well to the Lower Sendji formation in the Yombo field. This well is
completed in half of the 236 feet of net pay and is producing over 3,200 gross
barrels of oil per day. In 1997, the Company plans to drill an exploration well
to evaluate the Lower Sendji and sub-salt sections underlying the Masseko field
located several miles to the west of the Yombo field, as well as to further
delineate the Upper Sendji and Tchala zones which were discovered but not
developed by the previous operator. Other potential exploration features of the
concession are being evaluated for possible future drilling. Additionally, the
Company plans in 1997 to initiate a waterflood project to enhance production
from existing Upper Sendji and Tchala zones.

The Company's exploration program resulted in 6 successful wells out of 13
drilled in 1996. The Company's most significant discoveries in 1996 were in: (i)
the Lower Sendji section of the Yombo field, (ii) an Antelope Shale section
beneath the Cymric field in central California; and (iii) a Frontier sand
formation at North Riley Ridge in Western Wyoming. In 1995, the Company's
exploration program resulted in 7 successful wells out of 16 drilled.
Discoveries include Brownsville Dome in Hinds County, Mississippi and East Mud
Lake in Cameron Parish, Louisiana. In 1994, the Company's exploration program
resulted in 10 successful wells in Conecuh County,

13
<PAGE>
Alabama; Iberia Parish, Louisiana; and Glasscock, Harvard and Pecos Counties,
Texas.

In 1992, the Company discovered the North Frisco City field in Monroe
County, Alabama through its exploration efforts. In 1995, the Company
successfully implemented a water injection project in the North Frisco City
field which has increased oil and gas recoveries and will extend the life of the
field.

The Company had 30 gross (19 net) wells awaiting completion at December
31, 1996. The following table sets forth the results of drilling activity by the
Company, net to its interest, for the last three calendar years. Gross wells, as
it applies to wells in the following tables, refers to the number of wells in
which a working interest is owned directly by the Company. The number of net
wells is the sum of the fractional ownership of working interests owned directly
by the Company in gross wells expressed as whole numbers and percentages
thereof.

EXPLORATORY WELLS

GROSS NET
------------------------- ------------------------------
DRY DRY
PRODUCTIVE HOLES TOTAL PRODUCTIVE HOLES TOTAL
---------- ----- ----- ---------- ------- ------
1994 ............. 10 9 19 1.84 2.74 4.58
1995 ............. 7 9 16 1.32 1.97 3.29
1996 ............. 6 7 13 3.40 2.09 5.49

DEVELOPMENT WELLS

GROSS NET
---------------------------- ------------------------------
DRY DRY
PRODUCTIVE HOLES TOTAL PRODUCTIVE HOLES TOTAL
---------- ----- ----- ---------- ----- ------
1994 ............ 99 - 99 40.45 -- 40.45
1995 ............ 53 - 53 15.30 -- 15.30
1996 ............ 149 1 150 125.24 1.00 126.24

14
<PAGE>
GAS PLANT, PIPELINES AND OTHER FACILITIES

As of December 31, 1996 the Company owned interests in the following gas
plant and pipeline facilities:
1996
CAPACITY THROUGHPUT OWNERSHIP
FACILITY STATE OPERATOR MMCFD MMCFD INTEREST
- -------- -------- ---------------- -------- ---------- ----------
Illini Illinois Illini Carrier, 50 13.0 100%
Carrier L.P.

Bright Star Texas Bright Star Gathering 30 3.0 72%
Incorporated

Benedum Gas Texas Torch Operating 125 63.2 *
Plant Company

Stearns Gas California Torch Operating 6 3.0 100%
Plant Company

Santa Clara California Torch Operating 18 7.0 100%
Plant Company

The Richfield Gas Storage facility is located in Morton County, Kansas and
is operated by Associated Natural Gas, Inc. The storage facility has a working
gas capacity of 5 BCF with firm gas storage agreements for 3.5 BCF in place at
December 31, 1996. The Company owns a 48.5% interest in the facility.
- ------------
* The Company owns 63% of the Benedum Plant System, however, the Benedum
bypass plant, which became operational in 1993, is owned 95% by the
Company.

ITEM 3. LEGAL PROCEEDINGS

Neither the Company nor its subsidiaries are parties to any material
pending legal proceedings.

The Company has been named as a defendant in certain lawsuits incidental
to its business. Management does not believe that the outcome of such litigation
will have a material adverse impact on the Company's operating results or
financial condition. However, these actions and claims in the aggregate seek
substantial damages against the Company and are subject to the inherent
uncertainties in any litigation. The Company is defending itself vigorously in
all such matters.

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

There were no matters submitted to a vote of security holders during the
fourth quarter of 1996.

15
<PAGE>
PART II

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

The principal market on which the Company's common stock is traded is the
New York Stock Exchange (Symbol: NEV). There were approximately 1,570
stockholders of record and approximately 8,556 additional beneficial owners as
of February 27, 1997. The Company has not paid dividends on its common stock and
does not anticipate the payment of cash dividends in the immediate future as it
contemplates the use of cash flows for expansion of its operations. In addition,
certain restrictions contained in the Company's financing arrangements restrict
the payment of dividends (See Management's Discussion and Analysis of Financial
Condition and Results of Operations Capital Resources and Liquidity and Note 6
to the Notes to Consolidated Financial Statements). The high and low recorded
prices of the Company's common stock during 1995 and 1996 are presented in the
following table:

MARKET PRICE
----------------
HIGH LOW
Quarter Ended: ------- ------

March 31, 1995....................... $20.00 $16.00
June 30, 1995........................ $23.63 $18.63
September 30, 1995................... $24.88 $20.13
December 31, 1995.................... $23.63 $20.38

March 31, 1996....................... $28.75 $20.38
June 30, 1996........................ $32.75 $26.88
September 30, 1996................... $43.00 $30.75
December 31, 1996.................... $53.75 $41.50

PRIVATE PLACEMENTS OF SECURITIES

On April 9, 1996, the Company acquired the Point Pedernales Properties from
Torch for an adjusted net purchase price of $35.7 million. The Company paid the
purchase price of the Point Pedernales Properties by issuing to Torch 1,275,000
shares (the "Shares") of the Company's Common Stock valued at $28.00 per share,
the price to the public in the Company's public offering of common stock that
closed on that same date. On April 9, 1996, the Company also issued to John B.
Hall and EnCap Investments, Inc. warrants ("Warrants") to purchase 120,000 and
30,000 shares of Common Stock, respectively. The Warrants were issued as
brokers' fees for services rendered in connection with the Company's acquisition
of the California Properties. The Warrants have an initial exercise price of
$28.00 per share and are exercisable for a period of five years. The Warrants
also contain a cashless exercise feature.

The Company believes that since (i) the Shares and Warrants were offered
without public solicitation to only three persons who were intimately involved
in negotiating the acquisition of the California Properties and (ii) the Shares
and the Warrants were issued pursuant to direct negotiations with such persons,
the issuance of the Shares and the Warrants and the issuance of the shares of
Common Stock issuable upon conversion of the Warrants qualified and will qualify
for the exemption from the registration provisions of the Securities Act
provided by Section 4(2) thereof.

16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data with respect to the Company should
be read in conjunction with the consolidated financial statements and
supplementary information included in Item 8 (amounts in thousands, except per
share data).

AT AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- --------- -------- --------
Oil and gas revues .... $282,656 $103,216 $ 79,968 $ 67,184 $ 41,331
Gas plant revenues .... 34,802 27,183 28,798 24,680 15,883
Pipeline and other
revenues ............ 6,774 7,222 10,309 14,697 3,574

Interest and other
income .............. 1,614 1,106 245 1,271 664
-------- -------- --------- -------- --------
Total Revenues ........ $325,846 $138,727 $ 119,320 $107,832 $ 61,452

Total expenses
(including income
taxes and minority
interest)(2) ........ 291,150 129,717 136,923 98,899 57,770
-------- -------- --------- -------- --------
Net income (loss)(1)(3) $ 34,696 $ 9,010 $ (17,603) $ 8,933 $ 3,682
======== ======== ========= ======== ========
Earnings (loss)
attributable to
common stockholder(2) $ 33,757 $ 7,538 $ (19,353) $ 7,183 $ 2,647

Earnings (loss) per
common and common
equivalent share(1) . $ 1.92 $ .66 $ (1.76) $ .70 $ .30

Earnings (loss) per
common and common
equivalent share,
assuming full
dilution ............ $ 1.83 $ .66 $ (1.76) $ .70 $ .30

Total Assets .......... $863,803 $306,544 $ 307,220 $287,591 $238,891

Long-term debt, net of
current matuturities $287,038 $113,032 $ 118,219 $ 87,049 $ 88,742
- ------------
(1) No common stock dividends have been declared since the formation of the
Company. See Note 6 to the Notes to Consolidated Financial Statements
concerning restrictions on the payment of common stock dividends.

(2) Includes $34.6 million related to the excess of capitalized costs over
future net revenues in 1994. (See Note 2 to the Notes to Consolidated
Financial Statements).

(3) The year ended December 31, 1996 includes activity of the California
Properties from the date of acquisition (April 9, 1996.)

17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Nuevo is an independent energy company engaged in the acquisition,
development and exploration of oil and gas properties. Since its inception, the
Company has grown through a series of disciplined, opportunistic acquisitions of
oil and gas properties and the subsequent exploitation and development of these
properties. The Company has complemented these efforts with an active and
growing exploration program which provides exposure to high potential prospects.
The Company's primary strengths are its large inventory of exploitation and
exploration projects in its core areas of operation, its demonstrated ability to
implement and maintain a low cost structure, its ability to identify and
acquire, at attractive prices, producing properties which have significant
potential for further exploration, exploitation and development, and a capital
structure supportive of a growing investment program and future acquisitions.

The Company's results of operations have been significantly affected by
its success in acquiring oil and gas properties and its ability to maintain or
increase production through its exploitation activities. Fluctuations in oil and
gas prices have also significantly affected the Company's results. Principally
through acquisitions and exploitation, the Company has achieved significant
increases in its oil and gas production. The following table reflects the
Company's oil and gas production and its average oil and gas prices (inclusive
of crude oil and natural gas price swaps) for the periods presented:

YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
----------- ---------- ----------
Production:
Oil (MBBLS) ........................ 13,051 3,947 2,365
Natural gas (MMCF) ................. 34,775 28,913 23,327
Natural Gas Liquids (MBBLS) ........ 293 -- --

Average sales price:
Oil and condensate (per barrel) .... $ 15.93 $ 14.68 $ 14.89
Natural gas (per MCF) .............. $ 2.12 $ 1.56 $ 1.90

Average unit production cost
per equivalent barrel (6 MCF
equal 1 barrel) .................... $ 5.01 $ 3.38 $ 2.42

Average unit depletion rate per
equivalent barrel (6 MCF equal
1 barrel):
Domestic .......................... $ 4.05 $ 4.98 $ 5.60
Congo ............................. $ .75 $ .75 $ --

18
<PAGE>
The Company utilizes the full cost method to account for its investment in
oil and gas properties. Under the full cost method of accounting, all costs of
acquisition, exploration and development of oil and natural gas reserves
(including such costs as leasehold acquisition costs, geological expenditures,
dry hole costs and tangible and intangible development costs and directly
associated internal costs) are capitalized into a "full cost pool" as incurred
on a country-by-country basis. Oil and gas properties, the estimated future
expenditures to develop proved reserves, and estimated future abandonment, site
remediation and dismantlement costs are depleted and charged to operations using
the unit-of-production method based on the ratio of current production to total
proved recoverable oil and natural gas reserves as estimated by independent
engineering consultants. Costs directly associated with the acquisition and
evaluation of unproved properties are excluded from the amortization computation
until it is determined whether or not proved reserves can be assigned to the
properties or whether impairment has occurred. Domestic depletion expense per
equivalent barrel of production was $4.05 in 1996, $4.98 in 1995 and $5.60 in
1994. Depletion expense for the Congo was $0.75 per equivalent barrel of
production in 1996 and in 1995. Dispositions of oil and gas properties are
recorded as adjustments to capitalized costs, with no gain or loss recognized
unless such adjustments would significantly alter the relationship between
capitalized costs and proved reserves of oil and natural gas. To the extent that
capitalized costs of oil and gas properties, net of accumulated depreciation,
depletion and amortization and related deferred income taxes, exceed the tax
affected discounted future net revenues of proved oil and natural gas reserves,
on a country-by-country basis, such excess capitalized costs would be charged to
operations. Late in 1994, natural gas prices declined significantly. This trend
continued through the third quarter of 1995. Due to this decline, the Company
recorded a write down in 1994 for the excess of capitalized costs over
discounted future net revenues of $33 million for U.S. operations and $1.6
million for foreign operations. No such write down in book value was required in
1996 or 1995.

FINANCING ACTIVITIES

The Company has $292.4 million in outstanding indebtedness at December 31,
1996 which is scheduled to mature as follows: (amounts in thousands)

1997..........................$ 5,408
1998.......................... 3,716
1999.......................... 3,716
2000.......................... 11,462
2001.......................... 51,250
Thereafter.................... 216,894
---------
$ 292,446
=========

On December 23, 1996, the Company and its wholly-owned subsidiary, Nuevo
Financing I, a statutory business trust formed under the laws of the state of
Delaware, (the "Trust"), closed the offering of 2,300,000 Term Convertible
Securities, Series A, ("TECONS") on behalf of the Trust. The price to the public
of the TECONS was $50.00 per TECONS. Distributions on the TECONS began to
accumulate from December 23, 1996 and will be payable quarterly on March 15,
June 15, September 15, and December 15, at an annual rate of $2.875 per TECONS.
Each TECONS is convertible at any time prior to the close of business on
December 15, 2026 at the option of the holder into shares of Common Stock at the
rate of .8421 shares of Common Stock for each TECONS, subject to adjustment.
(See Note 7 to Notes to Consolidated Financial Statements).

19
<PAGE>
Also on December 23, 1996, the Company and United Investors Management
Company, ("United"), and The 1818 Fund, L.P. ("The 1818 Fund"), closed the
offering of 2,138,605 shares of Common Stock (the "Shares"). United sold
1,275,000 Shares and The 1818 Fund sold 863,605 Shares. The price to the public
of the Shares was $47.50 per share. All of the Shares sold by United were
outstanding and 112 of the Shares sold by The 1818 Fund were outstanding prior
to the offering. The remaining 863,493 of the Shares sold by The 1818 Fund were
issued upon conversion of the remaining 11,220 shares of 7% Cumulative
Convertible Preferred Stock, ("7% Preferred Stock") of the Company. As a result
of this conversion by The 1818 Fund of its shares of 7% Preferred Stock, there
are no longer any shares of the 7% Preferred Stock outstanding. The Company did
not receive any proceeds from the sale of the Shares. (See Note 6 to Notes to
Consolidated Financial Statements).

In April 1996, the Company financed the acquisition of the Unocal
Properties with the proceeds from the sale to the public of 5,109,200 shares of
Common Stock (the "Common Stock Offering") and a principal amount of $160.0
million, 9 1/2% Senior Subordinated Notes due 2006 of the Company, and by
borrowings under a revolving credit facility (the "Credit Facility") dated as of
April 1, 1996 with a syndicate of banks which provides the Company with a line
of credit of up to $385.0 million. (See Note 8 to Notes to Consolidated
Financial Statements). Such proceeds were also used to retire the borrowings
under an existing credit facility in the amount of $27.0 million. The purchase
of the Point Pedernales Properties was financed by the issuance to Torch of
1,275,000 shares of the Company's Common Stock valued at the public offering
price of $28.00 per share in the Common Stock Offering. In connection with the
acquisition of the Unocal Properties, the Company also entered into a bridge
commitment with a bank group led by NationsBank of Texas, N.A. The facility was
not drawn down; however, $1.7 million in fees associated with the bridge
commitment were expensed in the second quarter of 1996, when the commitment
expired.

During the third quarter of 1995, the Company consummated the sale of
2,225,000 shares of common stock at an offering price of $24.25 per share. Of
the shares sold, 760,399 were newly-issued by the Company upon the conversion of
approximately 40% of the Company's 7% Preferred Stock by The 1818 Fund. The
remaining 1,464,601 shares were sold by Energy Assets International Corporation,
a wholly-owned subsidiary of Torch. The Company did not receive any proceeds
from the sale of the shares.

In February 1995, in connection with the purchase of the stock of the
Amoco Congo Petroleum Company, the Company negotiated with OPIC and an agent
bank for a non-recourse credit facility in the amount of $25.0 million. The
initial drawdown on the facility was $8.8 million to finance a portion of the
purchase price. The remaining funds under the credit facility will be used to
finance 75% of a development drilling program in the Congo. A portion of the
remaining outstanding commitment, $6.0 million, was drawn down in January 1996
to fund the first phase of the development drilling program in the Congo. The
interest rate associated with such credit facility is the London Interbank
Offered Rate plus 20 basis points and a guaranty fee of 2.75% of the outstanding
loan balance, all of which is payable quarterly. At December 31, 1996, the
interest rate was 6.09%, plus the 2.75% guaranty fee. The loan agreement
requires a sixteen-quarter repayment period.

20
<PAGE>
Company to deliver a fixed volume of natural gas, based upon prevailing market
conditions at the time of the advance. During 1994, the Company received $18.4
million covering expenditures on nineteen wells. No such proceeds were received
in 1996 or 1995. (See Note 4 to the Notes to Consolidated Financial Statements).

On July 24, 1992, the Company closed the sale of $75.0 million aggregate
principal amount of 12 1/2% Senior Subordinated Notes (the "Notes") due June 15,
2002. The Notes are callable in June 1997 at 104% of face value. The Company
currently anticipates borrowing under its Credit Facility to redeem the Notes.
However, the Company's final decision and ability will depend upon numerous
factors at the time of redemption, including commodity prices and the conditions
of the capital markets. The indenture contains covenants that, among other
things, limit the Company's ability to incur additional indebtedness; pay common
stock dividends; purchase capital stock; make certain other distributions;
secure loans and investments; sell assets; enter into transactions with related
persons; and merge, consolidate or transfer substantially all of its assets. The
Notes are unsecured general obligations of the Company and are subordinated in
right of payment to all existing and future senior indebtedness of the Company.
(See Note 8 to the Notes to Consolidated Financial Statements).

On May 28, 1992, the Company sold $25.0 million of its 7% Preferred Stock,
to The 1818 Fund. (See Note 6 of the Notes to Consolidated Financial
Statements). As a result of the conversion by The 1818 Fund of its shares of 7%
Preferred Stock, there are no longer any shares outstanding.

At present, there is no plan to pay dividends on common stock. The Company
maintains a policy of reinvesting its discretionary cash flows for the expansion
of its business and operations.

OTHER MATTERS

GAS BALANCING POSITIONS

It is customary in the industry for various working interest partners to
sell more or less than their entitled share of natural gas. The settlement or
disposition of gas balancing positions is not anticipated to adversely impact
the financial condition of the Company in the near term.

RESULTS OF OPERATIONS

REVENUES

Oil and gas revenues for 1996 of $282.7 million were 174% higher than 1995
oil and gas revenues of $103.2 million, due to the acquisition of the California
Properties, as well as higher oil and gas prices. The California Properties
accounted for 66% of total oil and gas revenues in 1996.

The Company has experienced significant oil and gas revenue growth in
recent years. Oil and gas revenues for 1995 were 29% higher than 1994 oil and
gas revenues of $80.0 million. In 1995, the Congo acquisition accounted for
$17.7 million of the increase in revenues over 1994. In 1996, oil and gas
revenues were decreased by $2.5 million due to the effects of oil and gas
hedges. In 1995, oil and gas revenues were reduced by $.1 million in relation to
a gas price hedge, while the effect of hedging in 1994 was to increase revenues
by $.3 million. The Company's acquisitions of producing properties and
development drilling programs are primarily

21
<PAGE>
responsible for the increased revenues during 1996, 1995 and 1994. During the
three year period, the volatility of oil and gas prices directly impacted
revenues.

Gas plant revenues in 1996 of $34.8 million were 28% higher than 1995
revenues of $27.2 million, primarily due to increased natural gas liquids
prices. Gas plant revenues in 1995 were 6% lower than 1994 revenues of $28.8
million. The decrease from 1995 to 1994 was primarily due to decreased volumes
and price declines in natural gas liquids. Pipeline and other revenues for 1996
were $6.8 million, or 6% lower than 1995 revenues of $7.2 million, due primarily
to the sale of the West Delta 152 pipeline during July 1996. Pipeline and other
revenues for 1995 were 30% less than 1994 pipeline revenues of $10.3 million.
The decrease is primarily attributable to reduced throughput in the West Delta
152 pipeline and decreased throughput in the Bright Star gathering system
associated with reduced volumes resulting from producers in the Alabama Ferry
Field employing gas lift recovery in their reservoir maintenance operations.

EXPENSES

Lease operating expenses for 1996 totaled $95.9 million, as compared to
$29.6 million and $15.2 million for 1995 and 1994, respectively. The annual
increases of 224% in 1996 and 95% in 1995 are reflective of higher production
and costs associated with the California Properties and Congo acquisitions.

Gas plant expenses of $29.3 million for 1996 were 29% higher than expenses
of $22.7 million in 1995, primarily due to increased liquids settlements under
percent of proceeds contracts resulting from higher natural gas and natural gas
liquids prices. Gas plant expenses for 1995 were 12% lower than 1994 expenses of
$25.8 million in 1994. This decrease was primarily due to decreased volumes and
the effect of decreased gas prices on plant volume recovery gas. Pipeline and
other operating expenses for 1996 were $6.1 million, or 30% higher than 1995
expenses of $4.7 million, which is attributable to increased tariffs on the
Illini pipeline due to additional transportation contracts. Pipeline and other
operating expenses for 1995 were 31% lower than 1994 pipeline expenses of $6.8
million, due to decreased throughput at the Bright Star gathering system.

Depreciation, depletion and amortization of $77.3 million in 1996 reflects
an increase of 84% from the 1995 amount of $41.9 million. Such increase reflects
increased production volumes in 1996, due to the acquisition of the California
Properties in 1996, partially offset by a lower depletion rate per barrel of oil
equivalent. In 1995, depreciation, depletion and amortization was 9% higher than
the 1994 amount of $38.6 million primarily due to increased production volumes
in 1995, partially offset by a decreased depletion rate per barrel of oil
equivalent due to the write-down related to the excess of capitalized costs over
future net revenues in December 1994.

Late in 1994 and continuing into 1995, natural gas prices declined
significantly. As a result of this decline, the capitalized costs of the Company
were in excess of the discounted future net revenues. A provision for impairment
of oil and gas properties of $34.6 million was recorded in 1994. No such
provision was required in 1996 or 1995.

General and administrative expenses totaled $22.2 million, $10.2 million,
and $10.7 million in 1996, 1995, and 1994, respectively. The 118% increase in
1996 as compared to 1995 is due to the increase in management fees resulting
from significant growth in the assets of the Company, as well as additional
general and administrative costs associated with the acquisition of the
California Properties.

22
<PAGE>
The 5% decrease in 1995 as compared to 1994 was primarily due to decreased
management fees resulting from a revision to the Torch Agreement which was
implemented on January 1, 1995 as well as reduced legal fees.

Interest expense increased 135% to $36.2 million in 1996 from $15.4
million in 1995. Such increase is due primarily to increased borrowings under
the Credit Facility as well as the issuance of $160.0 million, 9 1/2% Senior
Subordinated Notes due 2006 in order to finance the acquisition of the
California Properties. In 1995, interest expense increased 22% from $12.6
million in 1994 due to increased borrowings under existing debt facilities along
with interest incurred under the OPIC facility.

Income tax expense of $23.4 million was recognized in 1996 compared to
income tax expense of $5.2 million in 1995 and an income tax benefit of $9.7
million in 1994. The Company's effective income tax rate increased from 36.6% in
1995 to 40.5% in 1996 primarily due to increased state income taxes associated
with business activity in the state of California.

NET INCOME (LOSS)

Net income of $34.7 million was generated in 1996, as compared to net
income of $9.0 million in 1995 and a net loss of $17.6 million in 1994. Net
income after deducting dividends paid on the 7% Preferred Stock was $33.8
million in 1996 as compared to net income of $7.5 million in 1995 and a net loss
of $19.4 million in 1994.

CAPITAL RESOURCES AND LIQUIDITY

Since the formation of the Company, management's strategy has been to
purchase and develop producing oil and gas properties, participate in gas
processing, gas gathering and pipeline investments and to participate
selectively in exploration activities. The funding of these activities was
provided by operating cash flows, debt and bank financing, private and public
placements of equity, property divestitures and joint ventures with industry
participants. Net cash provided by operating activities was $130.1 million,
$40.1 million, and $63.8 million in 1996, 1995 and 1994, respectively. The
Company invested $520.3 million, $42.6 million, and $108.2 million in oil and
gas properties in 1996, 1995 and 1994, respectively. Additionally, the Company
spent $17.7 million, $1.0 million and $3.4 million on gas plant, pipelines and
other facilities in 1996, 1995 and 1994, respectively. Included in the $520.3
million spent on investments in oil and gas properties in 1996 is approximately
$477.6 million relating to acquisition costs. Also included in the oil and gas
capital expenditures for 1996 is approximately $35.0 million for development
drilling activity in California. In the Company's 1997 capital budget,
approximately $115.0 million is allocated to exploitation projects and the
remaining $25.0 million is directed to exploration. The exploitation spending is
anticipated to consist of $83 million in California, $20 million in East Texas
and the Gulf Coast region, and $12 million internationally. The exploration
spending is planned to be allocated $12 million in East Texas and the Gulf Coast
region, $8 million in California, and $5 million internationally.

The Company believes its working capital, cash flow from operations and
available financing sources are sufficient to meet its obligations as they
become due and to finance its exploration and development programs. The Company
has an unused commitment under the Credit Facility of $249.0 million at December
31, 1996. Current maturities of long-term debt are $5.4 million, $3.7 million,
$3.7 million, $11.5 million, and $51.3 million for 1997, 1998, 1999, 2000 and
2001, respectively.

23
<PAGE>
OUTLOOK

The Company anticipates investing approximately $140.0 million during
1997, primarily for development drilling activities. The Company believes its
working capital, cash provided by operating activities, property divestitures,
project financing resources and the Credit Facility are sufficient to meet these
capital commitments.

Estimates of future net cash flows from proved reserves of oil, gas,
condensate and natural gas liquids were made in accordance with Statement of
Accounting Standard No. 69, "Disclosures about Oil and Gas Producing
Activities." (See Note 14 to Notes to Consolidated Financial Statements). The
estimates are based on prices at year-end of $18.31 BBL for oil and $3.71 MCF
for gas. Significant changes can occur in these estimates based on prices
currently in effect. The results of these disclosures should not be construed to
represent the fair market value of the Company's oil and gas properties.

The Company periodically uses derivative financial instruments to manage
oil and gas price risk. At December 31, 1996, the Company has entered into
contracts to hedge 2% of its 1997 estimated oil production, and 60% of its 1997
estimated gas production.

Inflation has not had a material impact on the Company and is not expected
to have a material impact on the Company in the future.

NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
issued by the Financial Accounting Standards Board ("FASB") in March 1995, was
implemented by the Company in the first quarter of 1996. This standard addresses
the accounting for the recognition and measurement of impairment losses for
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used. This standard also addresses the accounting
for long-lived assets and certain identifiable intangibles to be disposed of.

The adoption of Accounting Standard 121 did not have a significant impact
on consolidated results of operations or the financial position of the Company.

The Company follows the intrinsic value method for stock options granted
to employees. In October 1995, the FASB issued Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation." The Company did not
adopt the fair value method for stock-based compensation plans, but has provided
the proforma effects on net income and earnings per share that would have been
recognized if the fair value method was used. (See Note 6 to Notes to
Consolidated Financial Statements).

CONTINGENCIES

24
<PAGE>
damages against the Company and are subject to the inherent uncertainties in any
litigation. The Company is defending itself vigorously in all such matters.

In connection with their respective acquisitions of two subsidiaries
owning interests in the Yombo field offshore West Africa (each a "Congo
subsidiary"), the Company and a wholly-owned subsidiary of CMS NOMECO Oil & Gas
Co., ("CMS") agreed with the seller of the subsidiaries not to claim certain tax
losses ("Dual Consolidated Losses") incurred by such subsidiaries prior to the
acquisitions. Pursuant to the agreement, the Company and CMS may be liable to
the seller for the recapture of Dual Consolidated Losses utilized by the seller
in years prior to the acquisitions if certain triggering events occur, including
(i) a disposition by either the Company or CMS of its respective Congo
subsidiary, (ii) either Congo subsidiary's sale of its interest in the Yombo
field, (iii) the acquisition of the Company or CMS by another consolidated group
or (iv) the failure of the Company or CMS's Congo subsidiary to continue as a
member of its respective consolidated group. A triggering event will not occur,
however, if a subsequent purchaser enters into certain agreements specified in
the consolidated return regulations intended to ensure that such Dual
Consolidated Losses will not be claimed. The Company and CMS have agreed among
themselves that the party responsible for the triggering event shall indemnify
the other for any liability to the seller as a result of such triggering event.
The Company's potential direct liability could be as much as $54.0 million if a
triggering event with respect to the Company occurs, and the Company believes
that CMS's liability (for which the Company would be jointly liable with an
indemnification right against CMS) could be as much as $72.0 million. The
Company does not expect a triggering event to occur with respect to it or CMS
and does not believe the agreement will have a material adverse effect upon the
Company.

25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE
NUMBER
------
Independent Auditors' Report....................................... 27

Financial Statements:

Consolidated Balance Sheets as of December 31, 1996
and 1995......................................................... 28

Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994................................. 30

Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1996, 1995 and 1994...... 31

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994................................. 32

Notes to Consolidated Financial Statements......................... 34

26
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Nuevo Energy Company:

We have audited the accompanying consolidated balance sheets of Nuevo Energy
Company as of December 31, 1996 and 1995, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 financial position of Nuevo Energy Company
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Houston, Texas
February 21, 1997

27
<PAGE>
NUEVO ENERGY COMPANY

CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS)

ASSETS

DECEMBER 31, DECEMBER 31,
1996 1995
----------- ----------
CURRENT ASSETS:

Cash and cash equivalents........ $ 13,636 $ 5,765
Accounts receivable.............. 37,595 21,195
Product inventory................ 2,731 2,187
Due from affiliates.............. 5,609 ---
Prepaid expenses and other....... 4,067 573
----------- ----------
Total current assets.......... 63,638 29,720
----------- ----------
PROPERTY AND EQUIPMENT, AT COST:

Land ............................ 49,696 ---
Buildings and improvements....... 5,304 ---
Oil and gas properties (full cost
method) ($44,661 and $12,414
of unproved properties are excluded
from amortization in 1996 and 1995,
respectively).................. 1,031,057 460,800
Pipeline and other facilities.... 46,887 50,970
Gas plant facilities............. 41,694 25,661
----------- ----------
1,174,638 537,431
Accumulated depreciation,
depletion and amortization.... (392,977) (269,989)
----------- ----------
781,661 267,442

OTHER ASSETS..................... 18,504 9,382
----------- ----------
$ 863,803 $ 306,544
=========== ==========

See Notes to Consolidated Financial Statements.

28
<PAGE>
CONSOLIDATED BALANCE SHEETS (CONTINUED)

(AMOUNTS IN THOUSANDS)

LIABILITIES AND STOCKHOLDERS' EQUITY

DECEMBER 31, DECEMBER 31,
1996 1995
-------- --------
CURRENT LIABILITIES:

Accounts payable .................................... $ 18,720 $ 4,591
Accrued interest .................................... 4,736 972
Accrued liabilities ................................. 10,482 2,930
Gas balancing liabilities ........................... 754 479
Due to affiliates ................................... -- 1,314
Current maturities of long-term debt ................ 5,408 3,677
-------- --------
Total current liabilities ........................... 40,100 13,963
-------- --------
OTHER LONG-TERM LIABILITIES ......................... 3,864 1,949

DEFERRED REVENUE .................................... 4,828 8,932

LONG-TERM DEBT, NET OF CURRENT MATURITIES ........... 287,038 113,032

DEFERRED TAXES ...................................... 35,153 12,926

MINORITY INTEREST ................................... 704 1,134

COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED SECURITIES OF NUEVO FINANCING I .......... 115,000 --

CONTINGENCIES

STOCKHOLDERS' EQUITY:

Preferred stock, $1.00 par value, $1,000 per
share liquidation preference, 10,000,000
shares authorized; 7% Cumulative Convertible
Preferred Stock, Series A and B, none issued
and outstanding at December 31, 1996, and
12,619 and 2,500 shares issued and
outstanding at December 31, 1995 ................. -- 15

Common stock, $.01 par value, 50,000,000 shares
authorized, 19,852,478 and 11,716,919 shares
issued and outstanding at December 31, 1996
and 1995, respectively ........................... 199 117

Additional paid-in capital .......................... 340,126 151,442
Retained earnings ................................... 36,791 3,034
-------- --------
Total stockholders' equity ...................... 377,116 154,608
-------- --------
$863,803 $306,544
======== ========

See Notes to Consolidated Financial Statements.

29
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
--------- -------- ---------
REVENUES:
Oil and gas revenues .................... $ 282,656 $103,216 $ 79,968
Gas plant revenues ...................... 34,802 27,183 28,798
Pipeline and other revenues ............. 6,774 7,222 10,309
Interest and other income ............... 1,614 1,106 245
--------- -------- ---------
325,846 138,727 119,320
--------- -------- ---------
COSTS AND EXPENSES:
Lease operating expenses ................ 95,859 29,634 15,160
Gas plant operating expenses ............ 29,311 22,667 25,794
Pipeline and other operating
costs ................................. 6,105 4,726 6,767
General and administrative
expenses .............................. 22,218 10,165 10,656
Depreciation, depletion and
amortization .......................... 77,253 41,866 38,568
Provision for impairment of
oil and gas properties ................ -- -- 34,632
Interest expense ........................ 36,174 15,389 12,560
Other expense ........................... 1,069 45 2,387
--------- -------- ---------
267,989 124,492 146,524
--------- -------- ---------
Income (loss) before income taxes
and minority interest ................... 57,857 14,235 (27,204)

Income tax expense (benefit) .............. 23,432 5,209 (9,653)

Minority interest in (loss) earnings
of subsidiary .......................... (271) 16 52
--------- -------- ---------
Net income (loss) ......................... 34,696 9,010 (17,603)
Dividends on preferred stock .............. 939 1,472 1,750
--------- -------- ---------
Earnings (loss) attributable to
common stockholders ...................... $ 33,757 $ 7,538 $ (19,353)
========= ======== =========
Earnings (loss) per share ................. $ 1.92 $ .66 $ (1.76)
========= ======== =========
Earnings per share assuming full
dilution ................................ $ 1.83 $ .66 $ (1.76)
========= ======== =========
Weighted average common and common
equivalent shares outstanding ............ 17,560 11,355 10,972
========= ======== =========
Weighted average common and common
equivalent shares outstanding
assuming full dilution .................. 18,959 11,437 10,972
========= ======== =========

See Notes to Consolidated Financial Statements.

30
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS' EQUITY

(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK PREFERRED STOCK ADDITIONAL RETAINED STOCK-
----------------- ---------------- PAID-IN EARNINGS HOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) EQUITY
------ ---- --- ---- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1994 ........................... 10,758 $108 25 $ 25 $148,155 $ 14,849 $ 163,137
------ ---- --- ---- -------- -------- ---------
Exercise of stock options
and related tax benefit ................... 10 -- -- -- 154 -- 154
Preferred stock dividends .................. -- -- -- -- -- (1,750) (1,750)
Net loss ................................... -- -- -- -- -- (17,603) (17,603)
------ ---- --- ---- -------- -------- ---------
December 31, 1994 ........................ 10,768 $108 25 $ 25 $148,309 $ (4,504) $ 143,938
------ ---- --- ---- -------- -------- ---------
Exercise of stock options
and related tax benefit ................... 189 1 -- -- 3,123 -- 3,124
Conversion of preferred
stock .................................... 760 8 (10) (10) 10 -- 8
Preferred stock dividends .................. -- -- -- -- -- (1,472) (1,472)
Net income ................................. -- -- -- -- -- 9,010 9,010
------ ---- --- ---- -------- -------- ---------
December 31, 1995 .......................... 11,717 $117 15 $ 15 $151,442 $ 3,034 $ 154,608
====== ==== === ==== ======== ======== =========
Issuance of Common Stock ................... 6,384 64 -- -- 172,147 -- 172,211
Exercise of stock options
and related tax benefit ................... 587 6 -- -- 14,718 -- 14,724
Issuance of non-employee
stock options ............................ -- -- -- -- 244 -- 244
Issuance of warrants ....................... -- -- -- -- 1,575 -- 1,575
Conversion of preferred
stock .................................... 1,164 12 (15) (15) -- -- (3)
Preferred stock dividends .................. -- -- -- -- -- (939) (939)
Net income ................................. -- -- -- -- -- 34,696 34,696
------ ---- --- ---- -------- -------- ---------
December 31, 1996 .......................... 19,852 $199 -- -- $340,126 $ 36,791 $ 377,116
====== ==== === ==== ======== ======== =========
</TABLE>
See Notes to Consolidated Financial Statements.

31
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
--------- -------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) ........................ $ 34,696 $ 9,010 $ (17,603)
Adjustments to reconcile net income
(loss) to net cash provided
by operating activities:
Depreciation, depletion and
amortization and impairment
provision .............................. 77,253 41,866 73,200
Amortization of debt
financing costs ....................... 1,370 365 394
Amortization of deferred revenue ....... (4,104) (5,955) (3,463)
Deferred taxes ......................... 21,932 5,193 (8,737)
Minority interest ...................... (271) 16 52
--------- -------- ---------
................ 130,876 50,495 43,843
Changes in assets and liabilities,
net of acquisition effects:
Accounts receivable .................... (15,477) (2,493) 1,922
Gas imbalances ......................... (198) 225 (269)
Accounts payable ....................... 14,688 1,283 589
Accrued liabilities .................... 11,316 (3,852) 2,364
Due (to) from affiliates ............... (6,923) (4,198) (1,231)
Deferred revenue ....................... -- -- 18,350
Other .................................. (4,224) (1,352) (1,801)
--------- -------- ---------
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES .................... 130,058 40,108 63,767
--------- -------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to land ........................ (49,696) -- --
Additions to buildings and
improvements ........................... (5,304) -- --
Additions to oil and gas
properties ............................. (520,322) (41,942) (108,238)
Proceeds from sales of oil and gas
properties ............................. 43,900 5,257 9,080
Additions to gas plant, pipelines
and other facilities ................... (17,717) (1,022) (3,397)
Acquisition of Amoco Congo Production
Company, net of cash acquired .......... -- (639) --
Other .................................... -- 2,850 (2,857)
--------- -------- ---------
NET CASH FLOWS USED IN
INVESTING ACTIVITIES .................... (549,139) (35,496) (105,412)
--------- -------- ---------

See Notes to Consolidated Financial Statements.

32
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(AMOUNTS IN THOUSANDS)

YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
--------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from borrowings ............ 408,000 17,813 33,000
Deferred financing costs ............ (10,920) -- --
Net proceeds from issuance of
common stock ....................... 138,327 -- --
Payments of long-term debt .......... (232,359) (20,847) (1,475)
Preferred stock dividends ........... (939) (1,472) (1,750)
Proceeds from exercise of stock
options ........................... 10,003 2,462 154
Proceeds from issuance of
Company-obligated mandatorily
redeemable convertible
preferred securities of
Nuevo Financing I ................. 115,000 -- --
Cash distribution to minority
interest ........................... (160) (250) --
--------- -------- --------
NET CASH FLOWS PROVIDED BY
(USED IN) FINANCING ACTIVITIES ..... 426,952 (2,294) 29,929
--------- -------- --------
Net increase (decrease) in cash
and cash equivalents .............. 7,871 2,318 (11,716)
Cash and cash equivalents at
beginning of year ................. 5,765 3,447 15,163
--------- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF YEAR ......................... $ 13,636 $ 5,765 $ 3,447
========= ======== ========

See Notes to Consolidated Financial Statements.

33
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NUEVO ENERGY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

Nuevo Energy Company (the "Company" or "Nuevo") was formed as a Delaware
corporation on March 2, 1990, to acquire the businesses of certain public
and private partnerships (collectively "Predecessors" or "Predecessor
Partnerships"). On July 9, 1990, the plan of consolidation ("Plan of
Consolidation") was approved by limited partners owning a majority of
units of limited partner interests in the partnerships whereby the net
assets of the Predecessor Partnerships, which were subject to such Plan of
Consolidation, were exchanged for common stock of the Company. The common
stock began trading on the New York Stock Exchange on July 10, 1990, under
the symbol "NEV."

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Nuevo and
its wholly-owned subsidiaries. NuStar Joint Venture and its 66.7%
investment in the Benedum Plant System, of which the Company owns a 95%
interest, has been pro rata consolidated. The Company's 48.5% general
partner interest in Richfield Gas Storage Partnership also has been pro
rata consolidated. The consolidated financial statements also include
Bright Star Gathering, Inc., which is 80% owned by the Company; minority
interests have been deducted from results of operations and stockholders'
equity in the appropriate period. All significant intercompany accounts
and transactions have been eliminated in consolidation.

OIL AND GAS PROPERTIES

The Company utilizes the full cost method to account for its investment in
oil and gas properties. Under the full cost method of accounting, all
costs of acquisition, exploration and development of oil and natural gas
reserves (including such costs as leasehold acquisition costs, geological
expenditures, dry hole costs and tangible and intangible development costs
and directly associated internal costs) are capitalized into a "full cost
pool" as incurred on a country-by-country basis. Oil and gas properties,
the estimated future expenditures to develop proved reserves, and
estimated future abandonment, site remediation and dismantlement costs are
depleted and charged to operations using the unit-of-production method
based on the ratio of current production to total proved recoverable oil
and natural gas reserves as estimated by independent engineering
consultants. Costs directly associated with the acquisition and evaluation
of unproved properties are excluded from the amortization computation
until it is determined whether or not proved reserves can be assigned to
the properties or whether impairment has occurred. Domestic depletion
expense per equivalent barrel of production was $4.05 in 1996, $4.98 in
1995 and $5.60 in 1994. Depletion expense for the Congo was $0.75 per
equivalent barrel of production in 1996 and 1995. Dispositions of oil and
gas properties are recorded as adjustments to capitalized costs, with no
gain or loss recognized unless such adjustments would significantly alter
the relationship between capitalized costs and proved reserves of oil and
natural gas. To the extent that capitalized costs of oil and gas
properties, net of accumulated depreciation, depletion and

34
<PAGE>
amortization and related deferred income taxes, exceed the tax affected
discounted future net revenues of proved oil and natural gas reserves, on
a country-by-country basis, such excess capitalized costs would be charged
to operations. Late in 1994, natural gas prices declined significantly.
This trend continued through the third quarter of 1995. Due to this
decline, the Company recorded a write down in 1994 for the excess of
capitalized costs over discounted future net revenues of $33 million for
U.S. operations and $1.6 million for foreign operations. No such write
down in book value was required in 1996 or 1995.

Any reference to oil and gas reserve information in the Notes to
Consolidated Financial Statements is unaudited.

GAS PLANT, PIPELINES AND OTHER FACILITIES

Gas plant, pipelines and other facilities include the costs to acquire
certain gas plant, pipelines and other facilities and to secure
rights-of-way. Capitalized costs associated with gas plant, pipelines and
other facilities are amortized primarily over the estimated useful lives
of the various components of the facilities utilizing the straight-line
method. The estimated useful lives of such assets range from three to
thirty years.

NEW ACCOUNTING STANDARDS

Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," issued by the Financial Accounting Standards Board ("FASB") in March
1995, was implemented by the Company in the first quarter of 1996. This
standard addresses the accounting for the recognition and measurement of
impairment losses for long-lived assets, certain identifiable intangibles
and goodwill related to those assets to be held and used. This standard
also addresses the accounting for long-lived assets and certain
identifiable intangibles to be disposed of.

The adoption of Accounting Standard 121 did not have a significant impact
on consolidated results of operations or the financial position of the
Company.

The Company follows the intrinsic value method for stock options granted
to employees. In October 1995, the FASB issued Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation."
The Company did not adopt the fair value method for stock-based
compensation plans, but has provided the proforma effects on net income
and earnings per share that would have been recognized if the fair value
method was used.

GAS BALANCING POSITIONS

The Company uses the entitlement method for recording sales of natural
gas. Under the entitlement method of accounting, revenue is recorded based
on the Company's net revenue interest in production. Deliveries of natural
gas in excess of the Company's revenue interests are recorded as
liabilities and under-deliveries are recorded as assets. Production
imbalances are recorded at the lower of the sales price in effect at the
time of production or the current market value. At December 31, 1996 the
Company's liability due to gas sales in excess of its entitled share was
approximately $.8 million, and the receivable for gas sales less than the
Company's entitled share was approximately $1.2 million.

35
<PAGE>
Substantially all such amounts are anticipated to be settled with
production in future periods.

DERIVATIVE FINANCIAL INSTRUMENTS

Commodity derivatives utilized as hedges include futures and swap
contracts. In order to qualify as a hedge, price movements in the
underlying commodity derivative must be sufficiently correlated with the
hedged commodity. Settlement of gains and losses on price swap contracts
are realized monthly, generally based upon the difference between the
contract price and the average closing New York Mercantile Exchange
("NYMEX") price and are reported as a component of oil and gas revenues
and operating cash flows in the period realized. Gains or losses
attributable to the termination of a swap contract are deferred on the
balance sheet and recognized in revenue when the hedged crude oil and
natural gas is sold. There were no such deferred gains or losses at
December 31, 1996, 1995 or 1994.

Gains and losses on other derivative financial instruments that qualify as
a hedge of firmly committed or anticipated purchases and sales of oil and
gas commodities are deferred on the balance sheet and recognized in income
and operating cash flows when the related hedged transaction occurs. Gains
or losses on derivative financial instruments that do not qualify as a
hedge are recognized in income currently.

Oil and gas revenues were decreased by $2.5 million in 1996, decreased by
$.1 million in 1995 and increased by $.3 million in 1994 as a result of
such hedging activity.

EARNINGS (LOSS) PER SHARE AND STOCK - BASED COMPENSATION

Earnings (loss) per share calculations are based on the weighted average
number of common shares and common share equivalents and earnings (loss)
attributable to common stockholders. Common share equivalents include
dilutive common stock options, warrants and the Company-obligated
mandatorily redeemable convertible preferred securities of Nuevo Financing
I, ("TECONS"). The assumed conversion of the 7% Cumulative Convertible
Preferred Stock, ("7% Preferred Stock"), was anti-dilutive in 1995 and
1994.

INCOME TAXES

Deferred taxes are accounted for under the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax basis of
existing assets and liabilities. The effect on deferred taxes of a change
in tax rates is recognized in income in the period the change occurs.

STATEMENTS OF CASH FLOWS

For cash flow presentation purposes, the Company considers all highly
liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. Interest paid in cash for 1996,
1995 and 1994 was $30.6 million, $14.4 million and $11.4 million,
respectively. Income taxes paid

36
<PAGE>
(refunded) in cash for 1996, 1995 and 1994 were $1,500,000, ($909,000) and
$6,600, respectively. (See also Note 6 for certain non-cash financing
activities related to the acquisition of oil and gas properties.)

PRODUCT INVENTORY

Inventory relating to quantities of crude oil and natural gas liquids in
storage as of the balance sheet date is carried at current market pricing.
The Company recognizes revenue for Congo crude oil sales when the sale is
completed and risk of loss transfers to a third party purchaser. Crude oil
in inventory is stated at year end market prices less transportation
costs; the Company recognizes changes in the market value of inventory
from one period to the next as oil revenues.

USE OF ESTIMATES

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities as well as reserve information which
affects the depletion calculation and the computation of the full cost
ceiling limitation to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.

RECLASSIFICATIONS

Certain reclassifications of prior period statements have been made to
conform with current reporting practices.

3. ACQUISITIONS

During the last three years, the Company has made the following
acquisitions (the "Acquisitions"):

In April 1996, the Company consummated the acquisition of (i) certain
upstream oil and gas properties located onshore and offshore California
("Unocal Properties") of Union Oil Company of California ("Unocal") for an
adjusted purchase price of $480.5 million in cash and (ii) certain
California oil properties ("Point Pedernales Properties," and together
with the Unocal Properties, the "California Properties") from Torch Energy
Advisors Incorporated ("Torch") and certain of its wholly-owned
subsidiaries for a net adjusted purchase price of $35.7 million in common
stock of the Company. The acquisition of the California Properties was
effective as of October 1, 1995, and the purchase price was reduced by the
net cash flows from production between such date and closing. The
acquisition was recorded using the purchase method effective April 1, 1996
for accounting purposes. See the Company's current report on Form 8-K
filed with the Securities and Exchange Commission ("SEC") on April 23,
1996, as well as Form 8-K/A filed with the SEC on November 26, 1996.

The following table presents the unaudited pro forma results of operations
as if the acquisition of the California Properties had occurred as of the
beginning of the years ended December 31, 1996 and 1995. These pro forma
results are based on assumptions and estimates and are not necessarily
indicative of the Company's results of operations had the transaction
occurred as of the beginning of the

37
<PAGE>
years ended December 31, 1996 and 1995 or in the future (amounts in
thousands except per share data).

1996 1995
--------- ---------
Revenues.......................................... $ 381,682 $ 354,726
Net Income........................................ $ 40,935 $ 23,921
Earnings available to common stockholders......... $ 39,996 $ 22,449
Earnings per common and common equivalent share... $ 2.07 $ 1.27
Earnings per common and common equivalent share
assuming full dilution......................... $ 1.98 $ 1.27

In July 1996, the Company completed the acquisition of a package of East
Texas oil and gas properties for a net purchase price of $9.3 million in
cash. The acquisition of these properties was effective as of December 1,
1995, and the purchase price was reduced by the net cash flows from
production between such date and closing. In December 1996, the holders of
the preferential rights on these properties exercised such rights for a
cash payment of $8.0 million, acquiring approximately half of the
estimated proved reserves relating to this acquisition.

A subsidiary of Nuevo, the Nuevo Congo Company ("NCC"), along with a third
party, acquired all of the capital stock of Amoco Congo Production Company
("ACPC"), and Amoco Congo Exploration Company (collectively, the "Congo
Companies") in February 1995, for a cash purchase price of $10.8 million.
The primary asset acquired by the Company is an 18.75% interest in the
Yombo field in the People's Republic of Congo. Through an interpurchaser
agreement, Nuevo and the third party have agreed to share the combined net
operating revenues and expenses of the Congo Companies evenly.

NCC is a U.S. corporation with foreign branch operations in the Congo. The
functional currency of NCC is the U.S. Dollar and its income is taxed in
the United States. The Company's Congo investment involves risks typically
associated with investments in emerging markets such as an uncertain
political, economic, legal and tax environment, and expropriation and
nationalization of assets. The Company's investment is insured through
political risk insurance provided by the Overseas Private Investment
Corporation ("OPIC").

Cash consideration of approximately $10.8 million was paid to Amoco using
Company funds and loan proceeds prior to purchase price adjustments. The
purchase price was based on an economic effective date of December 1,
1993. The fair value of the net assets acquired follows:

Working capital, primarily cash $ 11,536
Oil and gas property 639
-----------
Total purchase price, including
acquisition costs $ 12,175
===========

The Company completed ten oil and gas property acquisitions during 1994
with an aggregate gross purchase price of $33.7 million. The acquisitions
added approximately 4,515 MBBLS of proved oil reserves and 44.0 BCF of
proved gas reserves. The acquired properties are located primarily in
Texas, Louisiana and offshore California.

38
<PAGE>
4. PRODUCTION PAYMENTS

In April 1994, the Company entered into a four-year commitment for a $30.0
million volumetric production payment for the development of certain
infill drilling locations in the Oak Hill field. The proceeds from this
agreement financed the capital expenditures for well drilling, fracturing
and completing and for surface facility installations. Each advance under
the production payment obligates the Company to deliver a fixed volume of
natural gas, based upon prevailing market conditions at the time of the
advance. During 1994, the Company received $18.4 million, committing the
Company to deliver 10.7 BCF of natural gas through December 1998. The cash
advances are reflected as deferred revenues on the Company's consolidated
balance sheets and are amortized into revenue as the natural gas volumes
are delivered. No such advances were received in 1996 or 1995.

Effective January 1, 1993 the Company sold an interest in the Oak Hill
field to Torchmark Corporation ("Torchmark"). The interest sold represents
approximately 96 BCF of estimated proved gas reserves and 287 MBBLS of
estimated proved oil reserves at December 31, 1992. Torchmark paid a
nominal amount of cash for the Oak Hill field properties and conveyed to
the Company a net profits production payment ("Oak Hill Production
Payment"). The Oak Hill Production Payment entitles the Company to receive
the net proceeds from production, limited to 90% of estimated reserves at
December 31, 1992, as well as an amount equal to 70% of the I.R.C. ss.29
Tax Credits ("Section 29 Credits") generated by production from the Oak
Hill field properties. The Company has an option to repurchase the
properties for the fair market value of the reserves based upon projected
discounted revenues from existing wells at the time of the repurchase.
During 1996, 1995 and 1994, the Company recorded revenues of $.9 million,
$1.1 million and $1.3 million, respectively, representing 70% of the
Section 29 Credits generated by the Oak Hill Production Payment.

Substantially all of the future cash flows from the Oak Hill field
properties will be paid to the Company pursuant to the Oak Hill Production
Payment. Therefore, the conveyance was not reflected as a sale. The
Company will continue to reflect revenues and the proved reserves
dedicated to the Oak Hill Production Payment as owned by the Company.

5. RELATED PARTY TRANSACTIONS

On July 9, 1990 the Company entered into an agreement with Torch (the
"Torch Agreement") whereby Torch administers certain business activities
of the Company for a monthly fee. Torch is primarily in the business of
providing management and advisory services relating to oil and gas assets
for institutional and public investors and maintains a large technical,
operating, accounting and administrative staff. The Torch Agreement
requires Torch to administer the business activities of the Company for a
monthly fee equal to the sum of one-twelfth of 2% on the first $250
million of assets and one-twelfth of 1% on assets in excess of $250
million, excluding certain gas plant facilities and cash, plus 2% of
monthly operating cash flows (as defined) during the period in which the
services are rendered. In addition, the Torch Agreement contains a
provision whereby 20% of the overhead fees on Torch operated properties
are credited against the monthly fee paid to Torch, as well as a provision
whereby the monthly fee is credited for one-twelfth of $900,000. The Torch
Agreement was amended

39
<PAGE>
effective January 1, 1996, with an initial term of three years,
automatically renewable for successive one-year periods, unless terminated
earlier. If the Company terminates the amended Torch Agreement prior to
the end of its first, second, or third year, it will be required to pay
Torch a break-up fee of $30.0 million, $25.0 million and $20.0 million,
respectively unless such termination is caused by the bankruptcy,
insolvency or dissolution of Torch, breach of the agreement by Torch or a
change in control of Torch. For the years ended December 31, 1996, 1995
and 1994, fees paid to Torch amounted to $10.2 million, $5.9 million and
$6.4 million, respectively. Additionally, in the ordinary course of
business, the Company incurs intercompany balances resulting from the
payment of costs and expenses by affiliated entities on behalf of the
Company.

J. P. Bryan, Chairman of the Board for the Company, is also Chairman of
the Board for Torch and holds a 22% interest in Torch on a fully diluted
basis as of December 31, 1996.

A subsidiary of Torch markets oil and natural gas production and natural
gas liquids from certain oil and gas properties and gas plants in which
the Company owns an interest. In 1996, 1995 and 1994 such charges were
$2.8 million, $.8 million and $.4 million, respectively.

Costs of the evaluation of potential property acquisitions are incurred by
Torch on behalf of the Company. The Company was charged $.6 million, $1.0
million and $.9 million, for these costs in 1996, 1995 and 1994,
respectively.

In consideration of the services rendered by Torch in connection with the
origination of the acquisition of the Unocal Properties, the Company
agreed to pay Torch $10.0 million in twelve equal monthly installments
after the closing of the acquisition. Additionally, 30,000 warrants were
issued to a director of the Company, as a broker's fee related to the
acquisition of the Unocal Properties.

Torch operates certain oil and gas interests owned by the Company. The
Company is charged, on the same basis as other third parties, for all
customary expenses and cost reimbursements associated with these
activities. Operator's overhead charged for these activities for the years
ended December 31, 1996, 1995 and 1994 was $8.8 million, $2.0 million and
$1.8 million, respectively.

In January 1995, the Company loaned International Testing Services, Inc.
("International Testing"), the sum of $500,000 payable with interest. This
obligation has a maturity date of May 1997. The president and a director
of International Testing is also a director of the Company.

In 1994, Nuevo paid a transaction fee of approximately $.1 million in
relation to an acquisition of an entity that is affiliated with a member
of the Board of Directors.

6. STOCKHOLDERS' EQUITY

COMMON AND PREFERRED STOCK

The Certificate of Incorporation of the Company authorizes the issuance of
up to 50,000,000 shares of common stock and 10,000,000 shares of preferred
stock, the terms, preferences, rights and restrictions of which will be
established by the Board of Directors of the Company. All shares of common
stock have equal voting

40
<PAGE>
rights of one vote per share on all matters to be voted upon by
stockholders. Cumulative voting for the election of directors is not
permitted. Certain restrictions contained in the Company's loan agreements
limit the amount of dividends which may be declared. Under the terms of
the 12 1/2% Senior Subordinated Notes described in Note 8, $232.6 million
of Nuevo's consolidated stockholders' equity was available for the payment
of dividends at December 31, 1996. Under the terms of the 9 1/2% Senior
Subordinated Notes described in Note 8, $84.7 million of Nuevo's
consolidated stockholders' equity was available for the payment of
dividends at December 31, 1996. There is no present plan to pay dividends
on common stock as the Company intends to reinvest its cash flows for the
expansion of its business and operations.

On December 23, 1996, the Company and United Investors Management Company
("United") and The 1818 Fund, L.P. ("The 1818 Fund") closed the offering
of 2,138,605 shares of Common Stock (the "Shares"). United sold 1,275,000
Shares and The 1818 Fund sold 863,605 shares. The price to the public of
the Shares was $47.50 per share. All of the Shares sold by United were
outstanding and 112 of the Shares sold by The 1818 Fund were outstanding
prior to the offering. The remaining 863,493 of the Shares sold by The
1818 Fund were issued upon conversion of the remaining 11,220 shares 7%
Preferred Stock of the Company. The Company did not receive any proceeds
from the issuance of these shares. As a result of this conversion by The
1818 Fund of its shares of 7% Preferred Stock, there are no longer any
shares of the 7% Preferred Stock outstanding.

During April 1996, the Company partially financed the acquisition of the
Unocal Properties with the proceeds from the sale to the public of
5,109,200 shares of common stock (the "Common Stock Offering"). The
purchase of the Point Pedernales Properties was financed by the issuance
to Torch of 1,275,000 shares of the Company's Common Stock valued at the
public offering price of $28.00 per share in the Common Stock Offering.

During the third quarter of 1995, the Company consummated the sale of
2,225,000 shares of common stock at an offering price of $24.25 per share.
Of the shares sold, 760,399 were newly-issued by the Company upon the
conversion of approximately 40% of the Company's 7% Preferred Stock. The
remaining 1,464,601 shares were sold by Energy Assets International
Corporation, a wholly-owned subsidiary of Torch. The Company did not
receive any proceeds from the sale of the shares.

STOCK INCENTIVE PLAN

In 1990, the Company established its 1990 Stock Option Plan (the "Stock
Option Plan"), with respect to its common stock. On March 30, 1993, the
Board of Directors adopted the Nuevo Energy Company 1993 Stock Incentive
Plan ("Stock Incentive Plan"), which was approved by the stockholders on
May 12, 1993. The purpose of the Stock Option Plan and the Stock Incentive
Plan is to provide directors and key employees of the Company and its
subsidiaries, and the officers and key employees of Torch (in their
capacity as managers under the Torch Agreement) performance incentives,
and to provide a means of encouraging stock ownership in the Company by
such persons.

The maximum number of shares subject to options under the Stock Incentive
Plan is 2,500,000 shares. Options are granted under the Stock Incentive
Plan on the basis of the optionee's contribution to the Company. No option
may exceed a term

41
<PAGE>
of more than ten years. Options granted under the Stock Incentive Plan may
be either incentive stock options or options that do not qualify as
incentive stock options. The Company's compensation committee is
authorized to designate the recipients of options, the dates of grants,
the number of shares subject to options, the option price (which may not
be less than the fair market value of the shares at the time the option is
granted), the terms of payment upon exercise of the options, and the time
during which the options may be exercised. Options granted are
exercisable, in full, six months following the date of grant.

A summary of activity in the stock option plans during 1994, 1995 and 1996
is set forth below:

WEIGHTED-
AVERAGE
OPTIONS EXERCISE
(000'S) PRICE
---------- ------
Outstanding at December 31, 1993 .............. 763,400 $15.42
---------- ------
Granted ........................... 881,000 $18.20
Exercised ......................... (10,500) $15.42
---------- ------

Outstanding at December 31, 1994 .............. 1,633,900 $16.92
---------- ------
Granted ........................... 394,750 $20.07
Exercised ......................... (188,288) $13.11
Canceled .......................... (4,525) $21.75
---------- ------

Outstanding at December 31, 1995 .............. 1,835,837 $17.97
Granted ........................... 518,100 $38.10
Exercised ......................... (587,799) $17.03
---------- ------

Outstanding at December 31, 1996 .............. 1,766,138 $24.24
========== ======

The Company had 1,505,538 options and 1,548,987 options exercisable at
December 31, 1996 and 1995, respectively. Detail of stock options
outstanding and options exercisable at December 31, 1996 follows:

Outstanding Exercisable
-------------------------------- --------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Exercise Life Exercise Exercise
Prices Number (Years) Price Number Price
-------------------------------------------------------------------------
$11.00 to $16.88 449,050 7.05 $15.93 449,050 $15.93
$17.63 to $20.88 733,063 7.64 $19.71 733,063 $19.71
$21.75 to $30.63 323,425 8.58 $26.97 323,425 $26.97
$32.00 to $49.88 260,600 9.93 $47.88 -- $47.88
--------- ---------
1,766,138 1,505,538
========= =========

The weighted-average fair value of options granted during 1996 and 1995
was $11.52 and $6.21, respectively. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions: 1996 and 1995
expected stock price

42
<PAGE>
volatility of 33.6%, and 34.6%, respectively; risk free interest rate of
6%, and average expected option lives of 3 years. Had compensation expense
for stock-based compensation been determined based on the fair value at
the date of grant, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:

1996 1995
----------- ---------
Net Income
As reported ........................ $ 33,757 $ 7,538
Pro forma .......................... $ 31,507 $ 5,860

Primary earnings per share
As reported ........................ $ 1.92 $ .66
Pro forma .......................... $ 1.79 $ .52

Fully diluted earnings per share
As reported ........................ $ 1.83 $ .66
Pro forma .......................... $ 1.71 $ .52

7. COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF NUEVO FINANCING I

On December 23, 1996, the Company and Nuevo Financing I, a statutory
business trust formed under the laws of the state of Delaware, (the
"Trust"), closed the offering of 2,300,000 Term Convertible Securities,
Series A, ("TECONS") on behalf of the Trust (the "TECONS Offering"). The
price to the public of the TECONS was $50.00 per TECONS. Distributions on
the TECONS began to accumulate from December 23, 1996 and will be payable
quarterly on March 15, June 15, September 15, and December 15, at an
annual rate of $2.875 per TECONS. Each TECONS is convertible at any time
prior to the close of business on December 15, 2026 at the option of the
holder into shares of Common Stock at the rate of .8421 shares of Common
Stock for each TECONS, subject to adjustment. The sole asset of the Trust
as the obligor on the TECONS is $115.0 million aggregate principal amount
of 5.75% Convertible Subordinated Debentures due December 15, 2026 of the
Company.

8. LONG-TERM DEBT

Long-term debt is comprised of the following at December 31, 1996 and
1995:

1996 1995
--------- ---------
12 1/2% Senior Subordinated Notes,
net of discount (a) ..................... $ 74,288 $ 74,191

9 1/2% Senior Subordinated Notes (b) ...... 160,000 --

OPIC credit facility (at 6.09% and
6.14% at December 31, 1996, and
1995, respectively, plus a
guaranty fee of 2.75%) (c) .............. 11,309 8,262

Bank credit facility (at 6.125% at
December 31, 1996) (d) .................. 40,000 --

Bank credit facility (at 7.68% at
December 31, 1995 (e) ................... -- 24,600

NuStar Credit Agreement (f) ............... 5,872 7,747

Other ..................................... 977 1,909
--------- ---------
Total debt .............................. 292,446 116,709
Less current maturities ................... (5,408) (3,677)
--------- ---------

Long-term debt ............................ $ 287,038 $ 113,032
========= =========
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<PAGE>
(a) On July 24, 1992, the Company closed the sale of $75,000,000 aggregate
principal amount of 12 1/2% Senior Subordinated Notes due June 15, 2002
(the "Notes"). The Notes are callable in June 1997 at 104% of face value.
The Notes were sold at 98.583% of face value. The Notes are redeemable, in
whole or in part, at the option of the Company, on or after June 15, 1997,
under certain conditions. The Company currently anticipates borrowing
under its Credit Facility to redeem the Notes. However, the Company's
final decision will depend upon numerous factors at the time of
redemption, including commodity prices and conditions in the capital
markets. The Company is required to make mandatory sinking fund payments
of $11,250,000, plus accrued and unpaid interest, on June 15, 2000 and
June 15, 2001, calculated to retire prior to maturity 30% of the aggregate
principal amount of the Notes originally issued. The indenture contains
covenants that, among other things, limit the Company's ability to incur
certain additional indebtedness; pay common stock dividends; purchase
capital stock; make certain other distributions; secure loans and
investments; sell assets; enter into transactions with related persons;
and merge, consolidate or transfer substantially all of its assets. The
Notes are unsecured general obligations of the Company and are
subordinated in right of payment to all existing and future senior
indebtedness of the Company. The Company also may be required, subject to
certain conditions, to offer to purchase certain of the Notes at 100% of
the principal amount plus accrued and unpaid interest, if its defined
Adjusted Consolidated Net Tangible Assets decreases to less than 125% of
indebtedness, other than subordinated indebtedness of the Company, and
non-recourse indebtedness. In the event of a defined change of control,
the Company will be required, subject to certain conditions, to offer to
purchase all outstanding Notes at a price equal to 101% of the principal
amount plus accrued and unpaid interest. The Notes are listed on the New
York Stock Exchange.

(b) In April 1996, the Company financed a portion of the purchase price of the
Unocal Properties with the proceeds from the sale to the public of a
principal amount of $160.0 million, 9 1/2% Senior Subordinated Notes due
April 15, 2006 (the "9 1/2% Notes"). Interest on the 9 1/2% Notes will
accrue at the rate of 9 1/2% per annum and will be payable semi-annually
in arrears on April 15 and October 15. The 9 1/2% Notes are redeemable, in
whole or in part, at the option of the Company, on or after April 15,
2001, under certain conditions. The Company is not required to make
mandatory redemption or sinking fund payments with respect to the 9 1/2%
Notes. The indenture contains covenants that, among other things, limit
the Company's ability to incur additional indebtedness, limits restricted
payments, limit issuances and sales of capital stock by restricted
subsidiaries, limit dispositions of proceeds of asset sales, limit
dividends and other payment restrictions affecting restricted
subsidiaries, and restricts mergers, consolidations or sales of assets.
The 9 1/2% Notes are unsecured general obligations of the Company, and are
subordinated in right of payment to all existing and future senior
indebtedness of the Company. In the event of a defined change in control,
the Company will be required to make an offer to

44
<PAGE>
repurchase all outstanding 9 1/2% Notes at 101% of the principal amount
thereof plus accrued and unpaid interest to the date of redemption.

(c) In February 1995, in connection with the purchase of the stock of ACPC,
the Company negotiated with the OPIC and an agent bank for a non-recourse
credit facility in the amount of $25.0 million. The security for such
facility is the assets and stock of NCC. The initial drawdown on the
facility was $8.8 million to finance a portion of the purchase price. The
remaining funds under the credit facility will be used to finance 75% of a
development drilling program in the Congo. A portion of the remaining
outstanding commitment, $6.0 million, was drawn down in January 1996 to
fund the first phase of the development drilling program in the Congo. The
interest rate associated with such credit facility is the London Interbank
Offered Rate ("LIBOR") plus 20 basis points and a guaranty fee of 2.75% of
the outstanding loan balance, payable quarterly. At December 31, 1996, the
interest rate was 6.09%, plus the guarantee fee of 2.75%. The loan
agreement requires a sixteen-quarter repayment period.

(d) In April 1996, the Company negotiated a commitment from a bank group led
by NationsBank of Texas, N.A. to extend to the Company a $385.0 million
credit facility (the "Credit Facility") maturing on May 17, 2001. The
maximum borrowings that may be outstanding under the Credit Facility may
not exceed a borrowing base ("Borrowing Base") based on the present value
of the Company's oil and gas reserves based on assumptions regarding
prices, production and costs approved by the bank group. The Borrowing
Base was $289.0 million at December 31, 1996, and will be reset annually.
Sales of assets in excess of $10.0 million will trigger a requirement to
re-calculate the Borrowing Base. If amounts outstanding under the Credit
Facility exceed the Borrowing Base, as redetermined from time to time, the
Company will be required to repay such excess, and may be required to sell
assets to make such repayments. Amounts outstanding under the Credit
Facility will bear interest at a rate equal to the LIBOR plus a number of
basis points which increases as the senior indebtedness of the Company as
a percent of the Borrowing Base increases. At December 31, 1996, the
Company's interest rate under the Credit Facility is LIBOR plus .5%, or
6.125%. The Credit Facility has customary covenants including, but not
limited to, covenants with respect to the following matters: (i)
limitation on restricted payments and investments; (ii) limitation on
guarantees and indebtedness; (iii) limitation on prepayments of
subordinated indebtedness; (iv) limitation on prepayments of additional
indebtedness; (v) limitation on mergers and issuances of securities; (vi)
limitation on liens; (vii) limitation on sales of property; (viii)
limitation on transactions with affiliates; (ix) limitation on derivative
contracts; (x) limitation on acquisitions, new businesses and margin
stock; (xi) limitation with respect to certain prohibited types of
contracts and multi-employer ERISA plans; and (xii) limitation with
respect to unrestricted subsidiaries. The Company is also required to
maintain certain financial ratios and conditions, including without
limitation an EBITDA to fixed charge coverage ratio, a net worth
requirement and a funded debt to capitalization ratio. The proceeds were
used to finance a portion of the purchase price of the Unocal Properties
as well as retire the borrowings under an existing credit facility in the
amount of $27.0 million.

(e) In 1994, the Company entered into an agreement with two banks for a $40.0
million credit facility. The Company used the proceeds of this credit
facility to fund capital expenditures and for general corporate purposes.
This credit facility

45
<PAGE>
was refinanced by the Credit Facility in connection with the acquisition
of the Unocal Properties.

(f) In 1992, NuStar entered into a credit agreement with a group of lenders
whereby NuStar borrowed $12.0 million in order to finance the acquisition
of certain operating assets. Under the terms of the agreement, 80% of the
operating cash flows (as defined) of NuStar are dedicated to the repayment
of principal and interest on a quarterly basis. The indebtedness bears
interest at a fixed rate of 8.5% per annum. The credit agreement provides
that dedicated payments of operating cash flows will be increased to 100%
if certain scheduled principal reductions are not achieved during the term
of the credit agreement. Currently, 100% of NuStar's cash flows are being
utilized to service such debt. Additionally, quarterly payments totaling
7.5% of operating cash flows (as defined) are to be made to the lenders
until the principal indebtedness is repaid. Upon full repayment of
principal, 50% of future operating cash flows will be dedicated to the
lenders until a 13% rate of return is achieved, at which time payments of
5% of operating cash flows are required until a 17.5% rate of return is
achieved. Based on NuStar's estimate of future operating cash flows,
interest expense has been recorded in 1996, 1995 and 1994 using a 13%
effective interest rate. The venturers in NuStar are obligated to make
additional payments if certain gross operating margins are not exceeded
for two consecutive quarters. One such payment was required in the second
quarter of 1994 in the amount of $349,945. No such payments were required
in 1996 or 1995. The debt is secured by a full security interest in
NuStar's interest in the Benedum Plant System.

The amount of scheduled debt maturities during the next five years and
thereafter is as follows (amounts in thousands):

1997.................................. $ 5,408
1998.................................. 3,716
1999................................. 3,716
2000.................................. 11,462
2001.................................. 51,250
Thereafter ........................... 216,894
--------
Total debt............................. $292,446
========

Based upon the quoted market price, the fair value of the 12 1/2% Senior
Subordinated Notes is estimated to be $80.4 million and $81.8 million at
December 31, 1996 and 1995, respectively. The fair value of the 9 1/2%
Senior Subordinated Notes is estimated to be $167.4 million at December
31, 1996. For the NuStar credit agreement, OPIC credit facility and other
debt, for which no quoted prices are available, management believes the
carrying value of the debt materially represents the fair value of the
debt at December 31, 1996 and 1995.

46
<PAGE>
9. GUARANTOR FINANCIAL STATEMENTS

Consolidating financial statements of the Company and the Guarantor
Subsidiaries, (Rubicon Venture, Inc.; Nuevo Liquids, Inc.; Nuevo Financing
I; Bright Star Gathering, Inc.; Sierra Power Corporation, L.C.; and
Richfield Natural Gas Inc.) as guarantors of the Company's 12 1/2% Senior
Subordinated Notes due 2002, and the Company's 9 1/2% Senior Subordinated
Notes due 2006, for the years ended December 31, 1996 and 1995 are as
follows:

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 1996

(Amounts in Thousands)

GUARANTOR NUEVO
SUB- CONGO ELIMINA- CONSOLI-
NUEVO SIDIARIES COMPANY TIONS DATED
-------- -------- ------- --------- --------
Total current assets ..... $ 66,435 $102,591 $10,174 $(115,562) $ 63,638

Net property, plant and
equipment .............. 724,695 32,339 24,627 -- 781,661

Total other assets ....... 15,993 8,068 172 (5,729) 18,504
-------- -------- ------- --------- --------

Total Assets ....... $807,123 $142,998 $34,973 $(121,291) $863,803
======== ======== ======= ========= ========
Total current liabilities $ 19,624 $ 9,545 $10,931 -- $ 40,100

Long-term debt ........... 389,887 5,107 7,605 (115,561) 287,038

Deferred taxes ........... 28,654 3,478 3,021 -- 35,153

Other long-term
liabilities ............. 7,139 2,257 -- -- 9,396

Mandatorily redeemable
convertible preferred
securities of Nuevo
Financing I .............. -- 115,000 -- -- 115,000

Total stockholders equity 361,819 7,611 13,416 (5,730) 377,116
-------- -------- ------- --------- --------
Total liabilities
and stockholders'
equity ............. $807,123 $142,998 $34,973 $(121,291) $863,803
======== ======== ======= ========= ========

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<PAGE>
CONDENSED CONSOLIDATING INCOME STATEMENT

For the Year Ended December 31, 1996

(Amounts in Thousands)

GUARANTOR NUEVO CONGO
NUEVO SUBSIDIARIES COMPANY CONSOLIDATED
-------- ------- ------- --------
Revenues ............. $265,033 $40,136 $20,677 $325,846

Expenses ............. 216,995 37,890 12,833 267,718
-------- ------- ------- --------
Net Earnings Before
Income Taxes ......... 48,038 2,246 7,844 58,128

Income Taxes ......... 19,456 799 3,177 23,432
-------- ------- ------- --------
Net Earnings ......... 28,582 1,447 4,667 34,696

Dividends on
Preferred
Stock ................ 939 -- -- 939
-------- ------- ------- --------
Net Earnings Available
to Common
Stockholders ......... $ 27,643 $ 1,447 $ 4,667 $ 33,757
======== ======= ======= ========

48
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Year Ended December 31, 1996

(Amounts in Thousands)

<TABLE>
<CAPTION>
NUEVO
GUARANTOR CONGO
NUEVO SUBSIDIARIES COMPANY CONSOLIDATED
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................... $ 28,582 $ 1,447 $ 4,667 $ 34,696
Non-cash adjustments ................ 89,538 2,400 4,242 96,180

Change in assets and
liabilities ....................... 125,134 (132,817) 6,865 (818)
--------- --------- -------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES .............. 243,254 (128,970) 15,774 130,058
--------- --------- -------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to oil and gas
properties ........................ (520,378) 19,530 (19,474) (520,322)
Proceeds from sale of
properties ........................ 43,928 (28) -- 43,900
Additions to
other properties
and other ........................... (72,657) (60) -- (72,717)
--------- --------- -------- ---------
NET CASH (USED IN) PROVIDED
BY INVESTING ACTIVITIES ........... (549,107) 19,442 (19,474) (549,139)
--------- --------- -------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from borrowings ............ 402,000 -- 6,000 408,000
Proceeds from issuance of
mandatorily redeemable
convertible preferred
securities of Nuevo
Financing I ....................... -- 115,000 -- 115,000
Payments of long-term debt .......... (226,606) (2,800) (2,953) (232,359)
Other ............................... 136,471 (160) -- 136,311
--------- --------- -------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES .............. 311,865 112,040 3,047 426,952
--------- --------- -------- ---------
Net increase (decrease) in
cash & cash equivalents ........... 6,012 2,512 (653) 7,871

Cash and cash equivalents
at beginning of period ............ 690 2,722 2,353 5,765
--------- --------- -------- ---------
Cash and cash equivalents
at end of period .................. $ 6,702 $ 5,234 $ 1,700 $ 13,636
========= ========= ======== =========
</TABLE>
49
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 1995

(Amounts in Thousands)
<TABLE>
<CAPTION>
NUEVO
GUARANTOR CONGO CONSOLI-
NUEVO SUBSIDIARIES COMPANY ELIMINATIONS DATED
-------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total current assets ......................... $ 52,549 $ 2,586 $ 8,097 $(33,512) $ 29,720
Net property, plant and
equipment .................................. 213,267 48,052 6,123 -- 267,442
Total other assets ........................... 6,033 5,785 (263) (2,173) 9,382
-------- ------- -------- -------- --------
Total Assets ........................... $271,849 $56,423 $ 13,957 $(35,685) $306,544
======== ======= ======== ======== ========
Total current liabilities .................... $ 5,456 $42,715 $ (696) $(33,512) $ 13,963
Long-term debt ............................... 98,835 8,138 6,059 -- 113,032
Deferred taxes ............................... 7,837 2,745 2,344 -- 12,926
Other long-term
liabilities ................................. 9,520 2,495 -- -- 12,015

Total stockholders' equity ................... 150,201 330 6,250 (2,173) 154,608
-------- ------- -------- -------- --------
Total liabilities
and stockholders'
equity ................................ $271,849 $56,423 $ 13,957 $(35,685) $306,544
======== ======= ======== ======== ========
</TABLE>
50
<PAGE>
CONDENSED CONSOLIDATING INCOME STATEMENT

For the Year Ended December 31, 1995

(Amounts in Thousands)

GUARANTOR NUEVO CONGO CONSOLI-
NUEVO SUBSIDIARIES COMPANY DATED
------- ------- ------- --------
Revenues ...................... $83,849 $37,362 $17,516 $138,727

Expenses ...................... 76,846 36,568 11,094 124,508
------- ------- ------- --------
Net Earnings Before
Income Taxes .................. 7,003 794 6,422 14,219

Income Taxes .................. 2,569 296 2,344 5,209
------- ------- ------- --------
Net Earnings .................. 4,434 498 4,078 9,010

Dividends on Preferred Stock .. 1,472 -- -- 1,472
------- ------- ------- --------
Net Earnings Available
to Common
Stockholders ................. $ 2,962 $ 498 $ 4,078 $ 7,538
======= ======= ======= ========

51
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Year Ended December 31, 1995

(Amounts in Thousands)
<TABLE>
<CAPTION>
GUARANTOR NUEVO CONGO CONSOLI-
NUEVO SUBSIDIARIES COMPANY DATED
-------- ------- ------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................... $ 4,434 $ 498 $ 4,078 $ 9,010
Non-cash adjustments ................ 32,878 5,309 3,298 41,485

Change in assets and
liabilities ...................... (7,294) 3,115 (6,208) (10,387)
-------- ------- ------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ............. 30,018 8,922 1,168 40,108
-------- ------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to oil and gas
properties ....................... (29,759) (5,745) (6,438) (41,942)
Proceeds from sale of
properties ....................... 5,257 -- -- 5,257
Acquisition of Amoco
Congo Production
Company .......................... -- -- (639) (639)
Additions to other
properties and other ................ 2,596 (768) -- 1,828
-------- ------- ------- --------
NET CASH USED IN
INVESTING ACTIVITIES ............. (21,906) (6,513) (7,077) (35,496)
-------- ------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from borrowings ............ 9,000 -- 8,813 17,813
Payments of long-term debt .......... (17,413) (2,883) (551) (20,847)
Other ............................... 990 (250) -- 740
-------- ------- ------- --------
NET CASH (USED IN)PROVIDED
BY FINANCING ACTIVITIES .......... (7,423) (3,133) 8,262 (2,294)
-------- ------- ------- --------
Net increase (decrease) in
cash & cash equivalents .......... 689 (724) 2,353 2,318

Cash and cash equivalents
at beginning of period ........... 1 3,446 -- 3,447
-------- ------- ------- --------
Cash and cash equivalents
at end of period ................. $ 690 $ 2,722 $ 2,353 $ 5,765
======== ======= ======= ========
</TABLE>
52
<PAGE>
10. INCOME TAXES

Income tax expense (benefit) is summarized as follows:

YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
------ --------- --------
Current
Federal..................... $ 1,200 $ 16 $ (916)
State....................... 300 -- --
------- --------- --------
1,500 16 (916)
------- --------- --------
Deferred
Federal................... 17,425 4,613 (8,568)
State..................... 4,507 580 (169)
------- --------- --------
21,932 5,193 (8,737)
------- --------- --------
Total income tax ........... $23,432 $ 5,209 $ (9,653)
======= ========= ========

A deferred tax benefit related to the exercise of employee stock options
of approximately $4.7 million and $.7 million was allocated directly to
additional paid-in capital in 1996 and 1995, respectively. Such deferred
tax benefit was immaterial in 1994. The Company recorded deferred taxes of
$5.0 million in 1996 in connection with the acquisition of oil and gas
properties due primarily to the impact of California unitary state taxes
and the carry over tax basis for the properties acquired from Torch.

Total income tax differs from the amount computed by applying the Federal
income tax rate to income (loss) before income taxes and minority
interest. The reasons for these differences are as follows:

YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
---- ---- -----
Statutory Federal income tax rate ........... 35.0% 35.0% (35.0%)

Increase in tax rate resulting from:
State income taxes, net of Federal
benefit ................................. 5.4% 2.6% (.4%)
Nondeductible travel and
entertainment and other ................. .1% (1.0%) (.1%)
---- ---- -----
40.5% 36.6% (35.5%)
==== ==== =====

53
<PAGE>
The tax effects of temporary differences that result in significant portions of
the deferred income tax assets and liabilities and a description of the
financial statement items creating these differences are as follows:

AT DECEMBER 31,
------------------------
1996 1995
--------- ---------
Net operating loss
carryforwards................ $ 6,372 $ 7,402
Alternative minimum tax credit
carryforwards................ 1,437 237
Other .......................... --- 66
--------- ---------
Total deferred income
tax assets............... $ 7,809 $ 7,705
--------- ---------
Plant, property and
equipment...................... $ (37,190) $ (19,266)
State income taxes.............. (5,772) (1,365)
--------- ---------
Total deferred income tax
liabilities.............. $ (42,962) (20,631)
--------- ---------
Net deferred income tax
liability.................... $ (35,153) $ (12,926)
========= ==========

At December 31, 1996, the Company had a net operating loss carryforward for
regular tax of approximately $18.2 million which will expire in future years
beginning in 2005. The alternative minimum tax credit carryforward of $1.4
million does not expire and may be applied to reduce regular income tax to an
amount not less than the alternative minimum tax payable in any one year.
Management believes that it is more likely than not that the deferred income tax
assets, comprised primarily of the net operating loss carryforward, will be
realized in future years through the reversal of taxable temporary differences
and the annual election to capitalize intangible drilling costs during the
carryforward period.

54
<PAGE>
11. INDUSTRY SEGMENT INFORMATION

Nuevo's operations are concentrated primarily in two segments:
- Exploration and production of oil and natural gas
- Gas plant, pipelines and other facilities

AT AND FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
(Amounts in thousands) 1996 1995 1994
--------- --------- ----------
Sales to unaffiliated customers:
Oil and gas - domestic... $ 261,988 $ 85,844 $ 79,968
Oil and gas - foreign.... 20,668 17,372 --
Gas plant, pipelines and
other facilities........ 41,576 34,405 39,107
--------- --------- ----------
Total sales.......... 324,232 137,621 119,075
Other revenues........... 1,614 1,106 245
--------- --------- ----------
Total revenues....... $ 325,846 $ 138,727 $ 119,320
========= ========= ==========
Operating profit (loss) before
income taxes:
Oil and gas - domestic (1) $ 105,269 $ 28,175 $ (4,842)
Oil and gas - foreign.... 8,660 7,114 --
Gas plant, pipelines and
other facilities........ 1,742 3,585 3,101
--------- --------- ----------
115,671 38,874 (1,741)
Unallocated corporate expenses 21,369 9,266 12,955
Interest expense......... 36,174 15,389 12,560
---------- --------- ----------
Income (loss) before
income taxes............ $ 58,128 $ 14,219 $ (27,256)
========== ========= ==========
Identifiable assets:
Oil and gas - domestic(2) $ 728,174 $ 214,391 $ 225,222
Oil and gas - foreign.... 34,128 11,962 --
Gas plant, pipelines and
other facilities........ 66,329 61,446 63,542
---------- --------- ----------
828,631 287,799 288,764
Corporate assets and investments 35,172 18,745 18,456
---------- --------- ----------
Total................ $ 863,803 $ 306,544 $ 307,220
========== ========= ==========
Capital expenditures:
Oil and gas - domestic(2) $ 565,650 $ 35,504 $ 108,238
Oil and gas - foreign.... 19,607 7,077 --
Gas plant, pipelines and
other facilities........ 2,717 1,022 2,706
---------- --------- ----------
Total.................... $ 587,974 $ 43,603 $ 110,944
========== ========= ==========
Depreciation, depletion and
amortization:
Oil and gas - domestic... $ 71,803 $ 37,339 $ 35,018
Oil and gas - foreign.... 1,065 954 --
Provision for impairment of
oil and gas properties.. -- -- 34,632
Gas plant, pipelines and
other facilities........ 3,812 3,411 3,393
---------- -------- ----------
$ 76,680 $ 41,704 $ 73,043
========== ========= ==========

55
<PAGE>
(1) Oil and gas operations for 1994 include a charge for $34.6 million
to record the excess of capitalized costs over discounted future net
revenues. See Note 2.

(2) Identifiable assets and capital expenditures for 1996 include $15.0
million in costs associated with gas plant facilities in California,
which process immaterial amounts of third party gas, and whose
revenues from the sale of these liquids are included in oil and gas
revenues.

In 1996, the Company had one customer that accounted for 52% of its
revenues. In 1995, the Company had two customers that accounted for 31%
of total revenues. In 1994, one customer accounted for 19% of total
revenues.

12. CONTINGENCIES

The Company has been named as a defendant in certain lawsuits incidental
to its business. Management does not believe that the outcome of such
litigation will have a material adverse impact on the Company's operating
results or financial condition. However, these actions and claims in the
aggregate seek substantial damages against the Company and are subject to
the inherent uncertainties in any litigation. The Company is defending
itself vigorously in all such matters.

In connection with their respective acquisitions of two subsidiaries
owning interests in the Yombo field offshore West Africa (each a "Congo
subsidiary"), the Company and a wholly owned subsidiary of CMS NOMECO Oil
& Gas Co., ("CMS") agreed with the seller of the subsidiaries not to
claim certain tax losses ("dual consolidated losses") incurred by such
subsidiaries prior to the acquisitions. Pursuant to the agreement, the
Company and CMS may be liable to the seller for the recapture of dual
consolidated losses utilized by the seller in years prior to the
acquisitions if certain triggering events occur, including (i) a
disposition by either the Company or CMS of its respective Congo
subsidiary, (ii) either Congo subsidiary's sale of its interest in the
Yombo field, (iii) the acquisition of the Company or CMS by another
consolidated group or (iv) the failure of the Company or CMS's Congo
subsidiary to continue as a member of its respective consolidated group.
A triggering event will not occur, however, if a subsequent purchaser
enters into certain agreements specified in the consolidated return
regulations intended to ensure that such dual consolidated losses will
not be claimed. The Company and CMS have agreed among themselves that the
party responsible for the triggering event shall indemnify the other for
any liability to the seller as a result of such triggering event. The
Company's potential direct liability could be as much as $54.0 million if
a triggering event with respect to the Company occurs, and the Company
believes that CMS's liability (for which the Company would be jointly
liable with an indemnification right against CMS) could be as much as
$72.0 million. The Company does not expect a triggering event to occur
with respect to it or CMS and does not believe the agreement will have a
material adverse effect upon the Company.

13. FINANCIAL INSTRUMENTS

The Company periodically uses derivative financial instruments to manage
oil and natural gas price risk. For 1997, the Company is a party to
several commodity

56
<PAGE>
price swap agreements, hedging an aggregate of 23,360 MMCF of gas, at
prices ranging from $1.88 to $2.20. The Company has also purchased futures
contracts at an average price of $21.15 on 270,000 barrels for 1997, on
which the Company has a unrecognized deferred loss of $.4 million at
December 31, 1996. These energy swap agreements expose the Company to
counterparty credit risk to the extent the counterparty is unable to meet
its monthly settlement commitment to the Company. Futures contracts are
guaranteed settlement by the NYMEX and have nominal credit risk. Futures
contracts are executed through brokers and require daily margin
settlement.

DETERMINATION OF FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair value for cash, short-term investments, receivables and payables
approximates carrying value. The following table details the carrying
values and approximate fair values of the Company's other investments,
derivative financial instruments and long-term debt at December 31, 1996
and 1995.

DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ----------------------
(Amounts in thousands) CARRYING APPROXIMATE CARRYING APPROXIMATE
VALUE FAIR VALUE VALUE FAIR VALUE
--------- -------- -------- ---------
Other investments ...... $ 1,673 $ 2,558 $ 3,005 $ 3,714
Derivative Assets:
Futures contracts .... 1,000 599 -- --
Long-term debt ......... 287,038 300,526 113,032 120,641
(See Note 8)
TECONS ................. 115,000 123,349 -- --

14.SUPPLEMENTAL INFORMATION - (Unaudited)

OIL AND GAS PRODUCING ACTIVITIES:

Included herein is information with respect to oil and gas acquisition,
exploration, development and production activities, which is based on
estimates of year-end oil and gas reserve quantities and estimates of
future development costs and production schedules. Reserve quantities and
future production as of December 31, 1996 are based primarily on reserve
reports prepared by the independent petroleum engineering firms of Ryder
Scott Company and Poco Oil Company. Reserve quantities and future
production for previous years are based primarily upon reserve reports
prepared by the independent petroleum engineering firms of Miller and
Lents, Ltd., S.A. Holditch and Associates, Inc., Ryder Scott Company,
D.O.R. Engineering Inc., and Poco Oil Company. These estimates are
inherently imprecise and subject to substantial revision.

Estimates of future net cash flows from proved reserves of gas, oil,
condensate and natural gas liquids ("NGL") were made in accordance with
Statement of Financial Accounting Standard No. 69, "Disclosures about Oil
and Gas Producing Activities." The estimates are based on prices at
year-end, of $18.31 BBL for oil and $3.71 MCF for gas. Estimated future
cash inflows are reduced by estimated future development and production
costs based on year-end cost levels, assuming continuation of existing
economic conditions, and by estimated future income tax expense. Tax
expense is calculated by applying the existing statutory tax rates,
including any known future changes, to the pre-tax net cash flows, less
depreciation of the tax basis of the properties and depletion allowances
applicable to the gas, oil, condensate and NGL production. Because the

57
<PAGE>
disclosure requirements are standardized, significant changes can occur in
these estimates based upon oil and gas prices currently in effect. The
results of these disclosures should not be construed to represent the fair
market value of the Company's oil and gas properties. A market value
determination would include many additional factors including: (i)
anticipated future increases or decreases in oil and gas prices and
production and development costs; (ii) an allowance for return on
investment; (iii) the value of additional reserves, not considered proved
at the present, which may be recovered as a result of further exploration
and development activities; and (iv) other business risks.

Costs incurred (amounts in thousands) -

The following table sets forth the costs incurred in property acquisition
and development activities:

YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---------- --------- ---------
DOMESTIC
Property acquisition:
Proved properties(2)......... $ 452,603 $ --- $ 29,226
Unproved properties.......... 40,000 --- 1,550
Exploration(1)................. 9,889 9,387 7,128
Development.................... 63,158 26,117 70,334
---------- --------- ---------

$ 565,650 $ 35,504 $ 108,238
========== ========= =========
FOREIGN
Property acquisition:
Proved properties.............. $ --- $ 639 $ ---
Exploration.................... 8,844 --- ---
Development.................... 10,763 6,438 ---
---------- --------- ---------

$ 19,607 $ 7,077 $ ---
========== ========= ========
TOTAL
Property acquisition:
Proved properties............ $ 452,603 $ 639 $ 29,226
Unproved properties.......... 40,000 --- 1,550
Exploration.................... 18,733 9,387 7,128
Development.................... 73,921 32,555 70,334
---------- --------- ---------
$ 585,257 $ 42,581 $ 108,238
========== ========= =========
------------
(1) Includes capitalized internal costs directly related to exploration
activities of $2.6 million, $1.0 million and $2.7 million in 1996, 1995
and 1994, respectively.

(2) The acquisition of domestic proved properties for 1996 includes $15.0
million in costs associated with gas plant facilities in California.

58
<PAGE>
CAPITALIZED COSTS (amounts in thousands) -

The following table sets forth the capitalized costs relating to oil and
gas activities and the associated accumulated depreciation, depletion and
amortization:

YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---------- --------- ---------
DOMESTIC
Proved properties.............. $ 959,712 $ 441,309 $ 404,935
Unproved properties............ 44,661 12,414 13,284
---------- --------- ---------
Total capitalized costs........ 1,004,373 453,723 418,219

Accumulated depreciation,
depletion and amortization.... (373,297) (252,648) (209,999)
---------- -------- ---------
Net capitalized costs.......... $ 631,076 $ 201,075 $ 208,220
========== ========= =========
FOREIGN
Proved properties.............. $ 26,684 $ 7,077 $ ---
---------- --------- ---------
Total capitalized costs........ 26,684 7,077 ---

Accumulated depreciation,
depletion and amortization.... (2,019) (954) ---
---------- --------- ---------

Net capitalized costs.......... $ 24,665 $ 6,123 $ ---
========== ========= =========
TOTAL
Proved properties.............. $ 986,396 $ 448,386 $ 404,935
Unproved properties............ 44,661 12,414 13,284
---------- --------- ---------
Total capitalized costs........ 1,031,057 460,800 418,219

Accumulated depreciation,
depletion and amortization.... (375,316) (253,602) (209,999)
---------- --------- ---------
Net capitalized costs.......... $ 655,741 $ 207,198 $ 208,220
========== ========= =========

59
<PAGE>
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES (amounts in thousands)

YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---------- --------- ---------
DOMESTIC
Revenues from oil and gas
producing activities.......... $ 261,988 $ 85,844 $ 79,968
Production costs............... (84,916) (20,330) (15,160)
Depreciation, depletion
and amortization.............. (71,803) (37,339) (35,018)
Provision for impairment of
oil and gas properties........ --- --- (34,632)
Income tax benefit
(provision)................... (42,634) (10,312) 1,719
---------- -------- ---------
Results of operations from
producing activities
(excluding corporate
overhead and interest costs).. $ 62,635 $ 17,863 $ (3,123)
========== ======== ==========

FOREIGN
Revenues from oil and gas
producing activities.......... $ 20,668 $ 17,372 $ ---
Production costs............... (10,943) (9,304) ---
Depreciation, depletion
and amortization.............. (1,065) (954) ---
Provision for impairment of
oil and gas properties........ --- --- ---
Income tax benefit
(provision)................... (3,507) (2,603) ---
---------- --------- ---------
Results of operations from
producing activities
(excluding corporate
overhead and interest costs).. $ 5,153 $ 4,511 $ ---
========== ========= =========
TOTAL
Revenues from oil and gas
producing activities.......... $ 282,656 $ 103,216 $ 79,968
Production costs............... (95,859) (29,634) (15,160)
Depreciation, depletion
and amortization.............. (72,868) (38,293) (35,018)
Provision for impairment of
oil and gas properties........ --- --- (34,632)
Income tax benefit
(provision)................... (46,141) (12,915) 1,719
------- --------- ---------
Results of operations from
producing activities
(excluding corporate
overhead and interest costs).. $ 67,788 $ 22,374 $ (3,123)
========== ========= ==========

60
<PAGE>
PER UNIT SALES PRICES AND COSTS:

YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
------ -------- ------
DOMESTIC
Average sales price:
Oil (per barrel)............. $16.10 $ 15.18 $14.89
Gas (per MCF) ............... $ 2.12 $ 1.56 $ 1.90

Average production cost
per equivalent barrel........ $ 4.79 $ 2.71 $ 2.42

FOREIGN
Average sales price:
Oil (per barrel)............. $14.56 $ 13.66 $ --
Gas (per MCF) ............... $ -- $ -- $ --

Average production cost
per equivalent barrel........ $ 7.71 $ 7.31 $ --

TOTAL
Average sales price:
Oil (per barrel)............. $15.93 $ 14.68 $14.89
Gas (per MCF) ............... $ 2.12 $ 1.56 $ 1.90

Average production cost
per equivalent barrel........ $ 5.01 $ 3.38 $ 2.42

61
<PAGE>
The Company's estimated total proved and proved developed reserves of oil
and gas are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
DESCRIPTION 1996* 1995* 1994*
----------- ----------------------- ---------------------- ----------------------
Oil Gas Oil Gas Oil Gas
(MBBL) (MMCF) (MBBL) (MMCF) (MBBL) (MMCF)
-------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
DOMESTIC
Proved reserves at beginning
of year .................................. 9,700 301,311 10,852 261,115 5,961 237,758
Revisions of previous estimates ............ 5,581 (1,388) (472) 18,419 1,719 (10,894)
Extensions and discoveries ................. 3,615 18,291 2,456 58,463 1,044 19,275
Production ................................. (11,924) (34,775) (2,675) (28,913) (2,365) (23,327)
Sales of reserves in-place ................. (2,506) (30,588) (461) (7,773) (22) (5,730)
Purchase of reserves in-place .............. 161,373 141,779 -- -- 4,515 44,033
-------- -------- ------- -------- ------- --------
Proved reserves at end of year ............. 165,839 394,630 9,700 301,311 10,852 261,115
======== ======== ======= ======== ======= ========
Proved developed reserves -
Beginning of year ........................ 8,289 142,012 8,692 164,183 4,133 119,478
======== ======== ======= ======== ======= ========
End of year .............................. 122,088 236,013 8,289 142,012 8,692 164,183
======== ======== ======= ======== ======= ========
FOREIGN
Proved reserves at beginning
of year .................................. 20,826 -- -- -- -- --
Revisions of previous estimates ............ (107) -- 4,096 -- -- --
Extensions and discoveries ................. 915 -- -- -- -- --
Production ................................. (1,420) -- (1,272) -- -- --
Sales of reserves in-place ................. -- -- -- -- -- --
Purchase of reserves in-place .............. -- -- 18,002 -- -- --
-------- -------- ------- -------- ------- --------
Proved reserves at end of year ............. 20,214 -- 20,826
======== ======== ======= ======== ======= ========
Proved developed reserves - ................
Beginning of year ........................ 14,787 -- -- -- -- --
======== ======== ======= ======== ======= ========
End of year .............................. 16,727 -- 14,787 -- -- --
======== ======== ======= ======== ======= ========
TOTAL
Proved reserves at beginning
of year .................................. 30,526 301,311 10,852 261,115 5,961 237,758
Revisions of previous estimates ............ 5,474 (1,388) 3,624 18,419 1,719 (10,894)
Extensions and discoveries ................. 4,530 18,291 2,456 58,463 1,044 19,275
Production ................................. (13,344) (34,775) (3,947) (28,913) (2,365) (23,327)
Sales of reserves in-place ................. (2,506) (30,588) (461) (7,773) (22) (5,730)
Purchase of reserves in-place .............. 161,373 141,779 18,002 -- 4,515 44,033
-------- -------- ------- -------- ------- --------
Proved reserves at end of year ............. 186,053 394,630 30,526 301,311 10,852 261,115
======== ======== ======= ======== ======= ========
Proved developed reserves -
Beginning of year ........................ 23,076 142,012 8,692 164,183 4,133 119,478
======== ======== ======= ======== ======= ========
End of year .............................. 138,815 236,013 23,076 142,012 8,692 164,183
======== ======== ======= ======== ======= ========
</TABLE>
Notes:

(*) Proved reserves in 1996, 1995, and 1994 include those dedicated to the Oak
Hill Production Payment. (See Note 4).

62
<PAGE>
DISCOUNTED FUTURE NET CASH FLOWS (amounts in thousands)

The standardized measure of discounted future net cash flows and changes
therein are shown below:

YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
---------- ----------- -----------
DOMESTIC
Future cash inflows................. $4,476,523 $ 850,521 $ 561,092
Future production costs............. (1,739,219) (311,452) (189,907)
Future development costs(1)......... (309,365) (81,102) (78,111)
---------- ----------- -----------
Future net inflows before
income tax........................ 2,427,939 457,967 293,074
Future income taxes................. (736,788) (96,829) (31,416)
---------- ----------- -----------

Future net cash flows............... 1,691,151 361,138 261,658
10% discount factor................. (702,996) (124,218) (78,453)
---------- ---------- -----------
Standardized measure of
discounted future net
cash flows........................ $ 988,155 $ 236,920 $ 183,205
========== ========== ===========
FOREIGN
Future cash inflows................. $ 414,383 $ 364,444 $ ---
Future production costs............. (248,222) (192,934) ---
Future development costs............ (2,625) (6,278) ---
---------- ----------- -----------
Future net inflows before
income tax........................ 163,536 165,232 ---
Future income taxes................. (55,083) (57,869) ---
---------- ----------- -----------

Future net cash flows............... 108,453 107,363 ---
10% discount factor................. (33,659) (33,197) ---
---------- ---------- -----------
Standardized measure of
discounted future net
cash flows........................ $ 74,794 $ 74,166 $ ---
========== ========== ==========
TOTAL
Future cash inflows................. $4,890,906 $1,214,965 $ 561,092
Future production costs............. (1,987,441) (504,386) (189,907)
Future development costs............ (311,990) (87,380) (78,111)
---------- ----------- -----------
Future net inflows before
income tax........................ 2,591,475 623,199 293,074
Future income taxes................. (791,871) (154,698) (31,416)
---------- ----------- -----------
Future net cash flows............... 1,799,604 468,501 261,658
10% discount factor................. (736,655) (157,415) (78,453)
---------- ---------- -----------
Standardized measure of
discounted future net
cash flows........................ $1,062,949 $ 311,086 $ 183,205
========== ========== ==========
- ------------
(1) Includes $10.7 million of environmental and site-remediation liabilities.

63
<PAGE>
The following are the principal sources of change in the standardized measure of
discounted future net cash flows:

YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
--------- ----------- ----------
DOMESTIC
Standardized measure -
beginning of year.................. $ 236,920 $ 183,205 $ 166,430
Sales, net of production costs....... (177,072) (65,514) (64,808)
Purchases of reserves in-place....... 605,210 --- 41,482
Net change in prices and
production costs................... 505,108 58,184 (69,755)
Extensions, discoveries and improved
recovery, net of future production
and development costs.............. 38,572 51,265 20,602
Changes in estimated future
development costs.................. (29,124) 7,273 (8,361)
Development costs incurred during
the period ........................ 39,275 7,633 32,388
Revisions of quantity estimates...... 79,185 14,030 (282)
Accretion of discount................ 26,207 18,321 17,604
Net change in income taxes........... (238,071) (25,151) 9,606
Sales of reserves in-place........... (41,969) (4,691) (2,581)
Changes in production rates and
other............................... (56,086) (7,635) 40,880
--------- ----------- ----------
Standardized measure -
end of year........................ $ 988,155 $ 236,920 $ 183,205
========= ========== ==========
FOREIGN
Standardized measure -
beginning of year.................. $ 74,166 $ --- $ ---
Sales, net of production costs....... (9,725) (8,068) ---
Purchases of reserves in-place....... --- 64,524 ---
Net change in prices and
production costs................... (1,557) 35,476 ---
Extensions, discoveries and improved
recovery, net of future production
and development costs.............. 4,930 --- ---
Changes in estimated future
development costs.................. (2,386) 2,253 ---
Development costs incurred during
the period ........................ 6,278 --- ---
Revisions of quantity estimates...... (598) 24,483 ---
Accretion of discount................ 11,288 --- ---
Net change in income taxes........... 6,304 (38,713) ---
Sales of reserves in-place........... --- --- ---
Changes in production rates and
other............................... (13,906) (5,789) ---
---------- ----------- -------
Standardized measure -
end of year........................ $ 74,794 $ 74,166 $ ---
========= ========== ==========

64
<PAGE>
TOTAL
Standardized measure -
beginning of year.................. $ 311,086 $ 183,205 $ 166,430
Sales, net of production costs....... (186,797) (73,582) (64,808)
Purchases of reserves in-place....... 605,210 64,524 41,482
Net change in prices and
production costs................... 503,551 93,660 (69,755)
Extensions, discoveries and improved
recovery, net of future production
and development costs.............. 43,502 51,265 20,602
Changes in estimated future
development costs.................. (31,510) 9,526 (8,361)
Development costs incurred during
the period ........................ 45,553 7,633 32,388
Revisions of quantity estimates...... 78,587 38,513 (282)
Accretion of discount................ 37,495 18,321 17,604
Net change in income taxes........... (231,767) (63,864) 9,606
Sales of reserves in-place........... (41,969) (4,691) (2,581)
Changes in production rates and
other............................... (69,992) (13,424) 40,880
---------- ---------- ----------
Standardized measure -
end of year........................ $1,062,949 $ 311,086 $ 183,205
========== ========== ==========

65
<PAGE>
Selected quarterly financial data (amounts in thousands, except per share data)
(unaudited):

QUARTER ENDED
---------------------------------------------
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
------- ------- ------- --------
Revenues(1) ............... $34,425 $93,515 $90,911 $106,995

Operating Earnings(1) .... $12,778 $30,418 $29,115 $ 43,089

Net income(1) ............. $ 4,201 $ 7,188 $ 8,008 $ 15,299

Earnings available to common
stockholders(1) .......... $ 3,936 $ 6,924 $ 7,771 $ 15,126

Earnings per common
equivalent share(1) ...... $ .32 $ .38 $ .40 $ .75

Fully diluted earnings per
common equivalent share (1) $ .32 $ .37 $ .39 $ .73
- -----------
(1) The quarters ended June 30, September 30, and December 31, 1996 are
inclusive of activity subsequent to the acquisition of the California
Properties.

QUARTER ENDED
-------------------------------------------------
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
------- ------- ------- -------
Revenues ................... $35,085 $36,155 $32,415 $35,072

Operating Earnings ......... $ 9,861 $10,162 $ 9,007 $ 9,860

Net income ................. $ 2,183 $ 2,540 $ 1,659 $ 2,628

Earnings
attributable
to common
stockholders .............. $ 1,745 $ 2,103 $ 1,326 $ 2,364

Earnings per
common equivalent
share .................... $ .16 $ .19 $ .12 $ .20

66
<PAGE>
NUEVO ENERGY COMPANY

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item will be included in a definitive proxy
statement, pursuant to Regulation 14A, to be filed not later than 120 days
after December 31, 1996. Such information is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

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

(a) 1. and 2. Financial Statements:

See index to Consolidated Financial Statements and
Supplemental Information in Item 8, which information is
incorporated herein by reference.

3. Exhibits

(3) Articles of Incorporation and by-laws.

3.1 Certificate of Incorporation of Nuevo Energy Company
(incorporated by reference to Exhibit 3.1 to Registration Statement
on Form S-4 (No. 33-33873) filed under the Securities Act of 1933).

67
<PAGE>

3.2 By-laws of Nuevo Energy Company (incorporated by reference to
Exhibit 3.2 to Registration Statement on Form S-4 (No. 33-33873)
filed under the Securities Act of 1933).

(4) Instruments defining the rights of security holders, including
indentures.

4.1 Specimen Stock Certificate (incorporated by reference to Exhibit
4.1 to Registration Statement on Form S-4 (No. 33-33873) filed under
the Securities Act of 1933).

4.2 1990 Stock Option Plan of the Company, as amended (incorporated
by reference from Exhibit 10.8 to Form S-1 dated July 13, 1992).

4.3 Indenture dated July 24, 1992 among Nuevo Energy Company as
Issuer, various Subsidiaries, as the Guarantors, and Ameritrust
Texas National Association as the Trustee - 12 1/2% Senior
Subordinated Notes due 2002. (Incorporated by reference from Form
S-1 dated July 13, 1992).

4.4 Indenture dated April 1, 1996 among Nuevo Energy Company as
Issuer, various Subsidiaries as the Guarantors, and State Street
Bank and Trust Company as the Trustee - 9 1/2% Senior Subordinated
Notes due 2006. (Incorporated by reference from Form S-3 (No.
333-1504).

4.5 Form of Amended and Restated Declaration of Trust dated December
23, 1996, among the Company, as Sponsor, Wilmington Trust Company,
as Institutional Trustee and Delaware Trustee, and Michael D.
Watford, Robert L. Gerry, III and Robert M. King, as Regular
Trustees. (Incorporated by reference from Exhibit 4.1 to Form 8-K
filed on December 23, 1996).

4.6 Form of Subordinated Indenture dated as of November 25, 1996,
between the Company and Wilmington Trust Company, as Indenture
Trustee. (Incorporated by reference from Exhibit 4.2 to Form 8-K
filed on December 23, 1996)

4.7 Form of First Supplemental Indenture dated December 23, 1996,
between the Company and Wilmington Trust Company, as Indenture
Trustee. (Incorporated by reference from exhibit 4.3 to Form 8-K
filed on December 23, 1996).

4.8 Form of Preferred Securities Guarantee Agreement dated as of
December 23, 1996, between the Company and Wilmington Trust Company,
as Guarantee Trustee. (Incorporated by reference from Exhibit 4.4 to
Form 8-K filed on December 23, 1996).

4.9 Form of Certificate representing TECONS. (Incorporated by
reference from Exhibit 4.5 to Form 8-K filed on December 23, 1996)

4.10 1993 Stock Incentive Plan, as amended (incorporated by
reference to Exhibit 4.2 to Form S-8 (No. 333-21063) filed on
February 4, 1997).

68
<PAGE>
(10) Material Contracts.

10.1 Joint Venture Agreement dated effective as of April 1, 1992,
between Torch Energy Advisors Incorporated and JM Gas Company d/b/a/
TriStar Gas Company (incorporated by reference from Exhibit 10.13 to
Form S-1 dated July 13, 1992).

10.2 Assignment of Interest and Assumption of Liabilities in NuStar
Joint Venture, dated May 20, 1992, between Torch Energy Advisors
Incorporated and Nuevo Liquids Inc. (incorporated by reference from
Exhibit 10.14 to Form S-1 dated July 13, 1992).

10.3 Purchase and sale agreement dated April 14, 1994 between Nuevo
Energy Company, (Seller); and Beauregard Corporation (Buyer).
(Incorporated by reference from Exhibit 10.1 to form 10-Q for the
quarter ended June 30, 1994).

10.4 First Additional Production Payment dated July 1, 1994, under
the Purchase and Sale Agreement dated April 14, 1994 between Nuevo
Energy Company as Seller, and Beauregard Corporation as Buyer.
(Incorporated by reference from Exhibit 10.21 to Form 10-K for the
year ended December 31, 1994.)

10.5 Second Additional Production Payment dated December 15, 1994,
under the Purchase and Sale Agreement dated as of April 14, 1994
between Nuevo Energy Company, as Seller, and Beauregard Corporation
as Buyer. (Incorporated by reference from Exhibit 10.22 to Form 10-K
for the year ended December 31, 1994.)

10.6 Stock Purchase Agreement, dated as of June 30, 1994, among
Amoco Production Company ("APC"), Walter International Inc.
("Walter"), Walter Congo Holdings, Inc. ("Walter Holdings"), Walter
International Congo, Inc. (before the merger "Walter Congo" and
after the merger "Old Walter Congo"), Nuevo, Nuevo Holding and The
Nuevo Congo Company (before the merger, "Nuevo Congo" and after the
merger, "Old Nuevo Congo"). (Incorporated by reference from Exhibit
(2.1) to Form 8-K dated March 10, 1995)

10.7 Amendment to Stock Purchase Agreement dated as of September 19,
1994, among APC, Walter Congo, Nuevo Congo, Walter Holdings, Nuevo
Holding, Walter and Nuevo. (Incorporated by reference from Exhibit
(2.2) to Form 8-K dated March 10, 1995).

10.8 Second Amendment to Stock Purchase Agreement dated as of
October 15, 1994, among APC, Walter Congo, Nuevo Congo, Walter
Holdings, Nuevo Holding, Walter and Nuevo. (Incorporated by
reference from Exhibit (2.3) to Form 8-K dated March 10, 1995).

10.9 Third Amendment to Stock Purchase Agreement dated as of
December 2, 1994, among APC, Walter Congo, Nuevo Congo, Walter
Holdings, Nuevo Holding, Walter and Nuevo. (Incorporated by
reference from Exhibit (2.4) to Form 8-K dated March 10, 1995.

10.10 Fourth Amendment to Stock Purchase Agreement dated as of
February 23, 1995, among APC, Walter Congo, Nuevo Congo, Walter
Holdings, Nuevo Holding, Walter and Nuevo. (Incorporated by
reference from Exhibit (2.5) to Form 8-K dated March 10, 1995).

69
<PAGE>
10.11 Tax Agreement dated as of February 23, 1995, executed by APC
Amoco Congo Exploration Company ("ACEC"), Amoco Congo Production
Company ("ACPC"), Walter, Walter Holdings, Walter Congo, Nuevo,
Nuevo Holding and Nuevo Congo. (Incorporated by reference from
Exhibit (2.6) to Form 8-K dated March 10, 1995).

10.12 Agreement and Plan of Merger executed by Nuevo Congo, Nuevo
Holding and APC dated February 24, 1995. (Incorporated by reference
from Exhibit (2.7) to Form 8-K dated March 10, 1995).

10.13 Finance Agreement dated as of December 28, 1994, among Nuevo
Holding, Nuevo Congo and The Overseas Private Investment Corporation
("OPIC"). (Incorporated by reference from Exhibit (2.8) to Form 8-K
dated March 10, 1995.

10.14 Subordination Agreement dated December 28, 1994, among Nuevo
Congo, Nuevo Holding, Walter Congo, Walter Holdings and APC.
(Incorporated by reference from Exhibit (2.9) to Form 8-K dated
March 10, 1995).

10.15 Guaranty covering the obligations of Nuevo Congo and Walter
Congo under the Stock Purchase Agreement dated February 24, 1995,
executed by Walter and Nuevo. (Incorporated by reference from
Exhibit (2.10) to Form 8-K dated March 10, 1995).

10.16 Inter-Purchaser Agreement dated as of December 28, 1994, among
Walter, Old Walter Congo, Walter Holdings, Nuevo, Old Nuevo Congo
and Nuevo Holding. (Incorporated by reference from (2.11) to Form
8-K dated March 10, 1995).

10.17 Latent ORRI Contract dated February 25, 1995, among Walter,
Walter Holdings, Walter Congo, Nuevo, Nuevo Holding and Nuevo Congo.
(Incorporated by reference from Exhibit (2.12) to Form 8-K dated
March 10, 1995).

10.18 Latent Working Interest Contract dated February 25, 1995,
among Walter, Walter Holdings, Walter Congo, Nuevo, Nuevo Holding
and Nuevo Congo. (Incorporated by reference form Exhibit (2.13) to
Form 8-K dated March 10, 1995).

10.19 Loan agreement dated April 1, 1996 between Nuevo Energy
Company (Borrower) and certain subsidiaries and NationsBank of
Texas, N.A. (Administrative Agent), Morgan Guaranty Trust Company of
New York (Documentation Agent) and certain lenders. (Incorporated by
reference from Exhibit 10.1 to Form S-3 (No. 333-1504).

10.20 Warrant Certificate No. W-001 dated April 9, 1996 between
Nuevo Energy Company and John Hall authorizing the purchase of
120,000 shares of Nuevo Common Stock.

10.21 Asset Purchase Agreement dated as of February 16, 1996 between
Nuevo Energy Company, the Purchaser, and Union Oil Company of
California as Seller (incorporated by reference from Exhibit 2.1 to
Form S-3 (No. 333-1504).

70
<PAGE>
10.22 Administrative Services Agreement among the Company and Torch
Energy Advisors Incorporated as amended through January 1, 1996.

10.23 Asset Purchase Agreement dated as of April 4, 1997, by and
among Torch California Company and Express Acquisition Company, as
Sellers, and Nuevo Energy Company, as Purchaser (incorporated by
reference from Exhibit 2.2 to Form S-3 (No. 333-1504)).

(22) Subsidiaries of the Registrant

(23) Consents of experts and counsel:

23.1 Consent of KPMG Peat Marwick LLP

(b) Reports on Form 8-K:

1. Report filed on Form 8-K on December 23, 1996 regarding the sale of
2,300,000 shares of $2.875 Term Convertible Securities, Series A (TECONS).

71
<PAGE>
SIGNATURES
- --------------------------------------------------------------------------------

Pursuant to the requirements of Section 13 or 15(d) 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.

NUEVO ENERGY COMPANY
(Registrant)

Date: MARCH 5, 1997 By:/S/ MICHAEL D. WATFORD
Michael D. Watford
President, Chief Executive
Officer and Chief Operating
Officer

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

By:/s/ J. P. BRYAN Date: MARCH 5, 1997
J.P. Bryan
Chairman of the Board of
Directors

By:/s/ ROBERT L. GERRY, III Date: MARCH 5, 1997
Robert L. Gerry, III
Director and Vice Chairman

By:/s/ ROBERT M. KING Date: MARCH 5, 1997
Robert M. King
Senior Vice President,
Chief Financial Officer
(Principal Financial Officer)

By:/s/ SANDRA KRAEMER Date: MARCH 5, 1997
Sandra Kraemer
Controller (Principal
Accounting Officer)

By:/s/ GARY R. PETERSEN Date: MARCH 5, 1997
Gary R. Petersen
Director

By:/s/ THOMAS D. BARROW Date: MARCH 5, 1997
Thomas D. Barrow
Director

By:/s/ JOHN B. CONNALLY, III Date: MARCH 5, 1997
John B. Connally, III
Director

By:
Isaac Arnold, Jr.
Director

By:/s/ JAMES T. HACKETT Date: MARCH 5, 1997
James T. Hackett
Director

By:/s/ ROBERT H. ALLEN Date: MARCH 5, 1997
Robert H. Allen
Director

By:/s/ MICHAEL D. WATFORD Date: MARCH 5, 1997
Michael D. Watford
President, Chief
Executive Officer
and Chief Operating Officer

By:/s/ MICHAEL LONG Date: MARCH 5, 1997
Michael Long
Director

EXHIBIT 10.20

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

WARRANT

NUEVO ENERGY COMPANY
a Delaware Corporation
(the "Company")

To Purchase 120,000

Shares of the Company's Common Stock

issued to

John M. Hall,

(the "Warrantholder")

April 9, 1996

This Warrant and any Shares acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933, as
amended, and may not be transferred, sold or otherwise disposed of in the
absence of such registration or an exemption therefrom under such Act.
This Warrant and such Shares may be transferred only in compliance with
the conditions specified in this Warrant.

================================================================================
<PAGE>
NUEVO ENERGY COMPANY

Warrant

No. W-002 April 9, 1996

NUEVO ENERGY COMPANY, a Delaware corporation (the "Company"), for value
received, hereby certifies that John M. Hall (the "Purchaser"), or registered
assigns, is entitled to purchase from the Company 120,000 duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock, $.01 par
value (the "Common Stock"), at any time or from time to time prior to 5:00 p.m.,
Houston, Texas, time, on the Expiration Date, all subject to terms, conditions
and adjustments set forth in this Warrant.

Certain capitalized terms used in this Warrant are defined in Article VII;
unless otherwise specified, references to an "Exhibit" mean one of the exhibits
attached to this Warrant, references to an "Article" mean one of the articles in
this Warrant and references to a "Section" mean one of the sections of this
Warrant. This Warrant is one of the Warrants (the "Warrants") issued pursuant to
the letter agreement dated February 23, 1996, between John M. Hall and the
Company entitling the holders to receive warrants to purchase an aggregate of
150,000 shares of Common Stock.

ARTICLE I. EXERCISE OF WARRANT

Section 1.1. MANNER OF EXERCISE. (a) Subject to Subsection (b) of this
Section 1.1, this Warrant may be exercised by the holder hereof, in whole or in
part, during normal business hours on any Business Day, by surrender of this
Warrant to the Company at its office maintained pursuant to subdivision (a) of
Section 6.2, accompanied by a subscription in substantially the form attached to
this Warrant (or a reasonable facsimile thereof) duly executed by such holder
and accompanied by payment, in cash or by certified or official bank check
payable to the order of the Company in the amount obtained by multiplying (i)
the number of shares of Common Stock (without giving effect to any adjustment
thereof) designated in such subscription by (ii) the Warrant Price, and such
holder shall thereupon be entitled to receive the number of duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock (or Other
Securities) determined as provided in Articles II through IV.

(b) In lieu of delivering the number of shares of Common Stock calculated
under subsection (a) of this Section 1.1, The
<PAGE>
Company may, at its election, and shall if requested by the holder of this
Warrant, issue to the holder of this Warrant upon exercise a number of duly
authorized, validly issued, fully paid and non-assessable shares of Common Stock
equal to the following, rounded to the nearest whole share: the quotient of (i)
the product of (x) the number of shares of Common Stock to be delivered under
such subsection (a) multiplied by the Market Price of the Common Stock on the
date of exercise minus (y) the amount the holder is required to pay to the
Company under such subsection (a) upon such exercise, divided by (ii) the Market
Price of the Common Stock on the date of exercise. If the Company delivers
shares of Common Stock under this subsection (b), then the holder shall not be
required to make any payment in connection with the exercise of this Warrant.

Section 1.2. WHEN EXERCISE EFFECTIVE. Each exercise of this Warrant shall
be deemed to have been effected immediately prior to the close of business on
the Business Day on which this Warrant shall have been surrendered to the
Company as provided in Section 1.1, and at such time the Person or Persons in
whose name or names any certificate or certificates for shares of Common Stock
(or Other Securities) shall be issuable upon such exercise as provided in
Section 1.3 shall be deemed to have become the holder or holders of record
thereof.

Section 1.3. DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable
after each exercise of this Warrant, in whole or in part, and in any event
within five Business Days thereafter, the Company, at its expense (including the
payment by it of any applicable issue taxes), will cause to be issued in the
name of and delivered to the holder hereof, subject to Article V, as such holder
(upon payment by such holder of any applicable transfer taxes) may direct, the
following:

(a) CERTIFICATES. A certificate or certificates for the number of
duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such holder shall be entitled
upon such exercise plus, in lieu of any fractional share to which such
holder would otherwise be entitled, cash in an amount equal to the same
fraction of the Closing Price per share on the Business Day next preceding
the date of such exercise.

-2-
<PAGE>
(b) WARRANT. In case such exercise is in part only, a new Warrant or
Warrants of like tenor dated the date hereof, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock equal
(without giving effect to any adjustment thereof) to the number of such
shares called for on the face of this Warrant minus the number of such
shares designated by the holder upon such exercise as provided in Section
1.1.

ARTICLE II. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE

Section 2.1. GENERAL; WARRANT PRICE. The number of shares of Common Stock
which the holder of this Warrant shall be entitled to receive upon each exercise
hereof shall be determined by multiplying the number of shares of Common Stock
which would otherwise (but for the provisions of this Article II) be issuable
upon such exercise, as designated by the holder hereof pursuant to Section 1.1,
by a fraction (a) the numerator of which is the Initial Price and (b) the
denominator of which is the Warrant Price in effect at the effective time of
such exercise (as provided in Section 1.2). The "Warrant Price" shall initially
be the Initial Price, shall be adjusted and readjusted from time to time as
provided in this Article II and, as so adjusted or readjusted, shall remain in
effect until a further adjustment or readjustment thereof is required by this
Article II.

Section 2.2. ADJUSTMENT OF WARRANT PRICE.

(1) In case the Company shall pay or make a dividend or other distribution
on its Common Stock exclusively in Common Stock (or Other Securities) or shall
pay or make a dividend or other distribution on any other class of capital stock
of the Company which dividend or distribution includes Common Stock (or Other
Securities), the Warrant Price in effect at the opening of business on the day
next following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Warrant Price by a fraction of which the numerator shall be the number of shares
of Common Stock (or Other Securities) outstanding at the close of business on
the date fixed for such determination and the denominator shall be the sum of
such number of shares and the total number of shares constituting such dividend
or other distribution, such reduction to become effective immediately after the
opening of business on the day next following the date fixed for such
determination. For the purposes of this Section 2.2, the number of shares of
Common Stock (or Other Securities) at any time

-3-
<PAGE>

outstanding shall not include shares held in the treasury of the Company.

(2) In case the Company shall pay or make a dividend or other distribution
on its Common Stock (or Other Securities) consisting exclusively of, or shall
otherwise issue to all holders of its Common Stock (or Other Securities),
rights, warrants or options entitling the holders thereof to subscribe for or
purchase shares of Common stock at a price per share less than the Market Price
per share of the Common Stock (or Other Securities) on the date fixed for the
determination of stockholders entitled to receive such rights, warrants or
options, the Warrant Price in effect at the opening of business on the day
following the date fixed for such determination shall be reduced by multiplying
such Warrant Price by a fraction of which the numerator shall be the number of
shares of Common Stock (or Other Securities) outstanding at the close of
business on the date fixed for such determination plus the number of shares of
Common Stock (or Other Securities) which the aggregate of the offering price of
the total number of shares of Common Stock (or Other Securities) so offered for
subscription or purchase would purchase at such Market Price and the denominator
shall be the number of shares of Common Stock (or Other Securities) outstanding
at the close of business on the date fixed for such determination plus the
number of shares of Common Stock (or Other Securities) so offered for
subscription or purchase, such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination.

(3) In case outstanding shares of Common Stock (or Other Securities) shall
be subdivided into a greater number of shares of Common Stock (or Other
Securities), the Warrant Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall each be
proportionately reduced, and, conversely, in case outstanding shares of Common
Stock (or Other Securities) shall be combined into a smaller number of shares of
Common Stock (or Other Securities), the Warrant Price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.

(4) Subject to the last sentence of this paragraph (4), in case the
Company shall, by dividend or otherwise, distribute to all holders of its Common
Stock (or Other Securities) evidences of

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<PAGE>
its indebtedness, shares of any class of capital stock, securities, cash or
property (excluding any rights, warrants or options referred to in paragraph (2)
of this Section 2.2, any dividend or distribution paid exclusively in cash and
any dividend or distribution referred to in paragraph (1) of this Section 2.2),
the Warrant Price shall be reduced by multiplying the Warrant Price in effect
immediately prior to the effectiveness of the Warrant Price reduction
contemplated by this paragraph (4) by a fraction of which the numerator shall be
the Market Price per share of the Common Stock (or Other Securities) on the date
of such effectiveness less the fair market value (as determined in good faith by
the Board of Directors, whose determination shall be conclusive and shall, in
the case of securities being distributed for which prior thereto there is an
actual or when issued trading market, be no less than the value determined by
reference to the average of the closing prices in such market over the period
specified in the succeeding sentence), on the date of such effectiveness, of the
portion of the evidences of indebtedness, shares of capital stock, securities,
cash and property so distributed applicable to one share of Common Stock (or
Other Securities) and the denominator of which shall be the Market Price per
share of Common Stock (or Other Securities), such reduction to become effective
immediately prior to the opening of business on the day next following the later
of (a) the date fixed for the payment of such distribution and (b) the date 10
days after the notice relating to such distribution is given pursuant to Section
4.3 (such later date of (a) and (b) being referred to as the "Reference Date").
If the Board of Directors determines the fair market value of any distribution
for purposes of this paragraph (4) by reference to the actual or when issued
trading market for any securities comprising such distribution, it must in doing
so consider the prices in such market over the same period used in computing the
Market Price per share. For purposes of this paragraph (4), any dividend or
distribution that includes shares of Common Stock (or Other Securities) or
rights, warrants or options to subscribe for or purchase shares of Common Stock
(or Other Securities) shall be deemed instead to be (a) a dividend or
distribution of the evidences of indebtedness, cash, property, shares of capital
stock or securities other than such shares of Common Stock (or Other Securities)
or such rights, warrants or options (making any Warrant Price reduction required
by this paragraph (4)) immediately followed by (b) a dividend or distribution of
such shares of Common Stock (or Other Securities) or such rights, warrants or
options (making any further Warrant Price reduction required by paragraph (1) or
(2) of this Section 2.2, except (i) the Reference Date of such dividend or
distribution as defined in this paragraph (4) shall be substituted

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<PAGE>
as "the date fixed for the determination of stockholders entitled to receive
such dividend or other distribution", "the date fixed for the determination of
stockholders entitled to receive such rights, warrants or options" and "the date
fixed for such determination" within the meaning of paragraphs (1) and (2) of
this Section 2.2 and (ii) any shares of Common Stock (or Other Securities)
included in such dividend or distribution shall not be determined "outstanding
at the close of business on the date fixed for such determination" within the
meaning of paragraph (1) of this Section 2.2).

(5) In case the Company shall, by dividend or otherwise, make a
distribution to all holders of its Common Stock (or Other Securities)
exclusively in cash in an aggregate amount that, together with the aggregate
amount of any other distributions to all holders of its Common Stock (or Other
Securities) made exclusively in cash within the 365 days preceding the date of
payment of such distribution and in respect of which no Warrant Price adjustment
pursuant to this paragraph (5) has been made, exceeds 12.5% of the product of
the Market Price per share of the Common Stock (or Other Securities) on the date
fixed for stockholders entitled to receive such distribution times the number of
shares of Common Stock (or Other Securities) outstanding on such date, the
Warrant Price shall be reduced by multiplying the Warrant Price in effect
immediately prior to the effectiveness of the Warrant Price reduction
contemplated by this paragraph (5) by a fraction of which the numerator shall be
the Market Price per share of the Common Stock (or Other Securities) on the date
of such effectiveness less the amount of cash so distributed applicable to one
share of Common Stock (or Other Securities) and the denominator shall be such
Market Price per share of the Common Stock (or Other Securities), such reduction
to become effective immediately prior to the opening of business on the later of
(a) the day following the date fixed for the payment of such distribution and
(b) the date 10 days after the notice relating to such distribution is given.

(6) The Company may make such reductions in the Warrant Price, in addition
to those required by paragraphs (1), (2), (3), (4), and (5) of this Section, as
it considers to be advisable in order that any event treated for Federal income
tax purposes as a division of stock or stock rights shall not be taxable to the
recipients.

(7) No adjustment in the Warrant Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Warrant
Price; provided, however, that any

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<PAGE>
adjustments which by reason of this paragraph (7) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.

ARTICLE III. CONSOLIDATION, MERGER, ETC.

Section 3.1. ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE OF ASSETS,
REORGANIZATION, ETC. In case the Company after the date hereof (a) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other Securities
(other than a capital reorganization or reclassifica tions for which adjustment
in the Warrant Price is provided in Section 2.2), then, and in the case of each
such transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the holder of this Warrant,
upon the exercise hereof at any time after the consummation of such transaction,
shall be entitled to receive (at the aggregate Warrant Price in effect at the
time of such consummation for all Common Stock or Other Securities issuable upon
such exercise immediately prior to such consummation), in lieu of the shares of
Common Stock or Other Securities issuable upon such exercise prior to such
consummation, the amount of securities, cash or other property to which such
holder would actually have been entitled as a shareholder upon such consummation
if such holder had exercised the rights represented by this Warrant immediately
prior thereto; provided, however, that if the transaction described in clauses
(a) through (d) hereof provides an election to receive cash, Common Stock or
Other Securities or property, the holder of this Warrant shall, within 10
business days following written request from the Company, notify the Company of
the election such holder would have made had he been a stockholder of the
Company which notice shall govern the consideration to be received upon exercise
of the Warrant, and if no such notice is received within such 10 business days,
the Company in its discretion may determine the consideration to which the
holder of a Warrant is entitled as if the holder had made any of such elections.

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<PAGE>
Section 3.2. ASSUMPTION OF OBLIGATIONS. Notwithstanding anything contained
in this Warrant to the contrary, the Company will not effect any of the
transactions described in clauses (a) through (d) of Section 3.1 unless, prior
to the consummation thereof, each Person (other than the Company) which may be
required to deliver any stock, securities, cash or property upon the exercise of
this Warrant as provided herein shall assume, by written instrument delivered
to, and reasonably satisfactory to, the holder of this Warrant, (a) the
obligations of the Company under this Warrant (and if the Company shall survive
the consummation of such transaction, such assumption shall be in addition to,
and shall not release the Company from, any continuing obligations of the
Company under this Warrant), (b) the obligations of the Company under the
Registration Rights Agreement and (c) the obligation to deliver to such holder
such shares of stock, securities, cash or property as, in accordance with the
foregoing provisions of this Article III, such holder may be entitled to
receive.

ARTICLE IV. OTHER PROVISIONS CONCERNING DILUTION

Section 4.1. NO IMPAIRMENT. The Company (a) will not permit the par value
of any shares of stock receivable upon the exercise of this Warrant to exceed
the amount payable therefor upon such exercise, (b) will take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock on the
exercise of the Warrant from time to time outstanding, and (c) will not take any
action which results in any adjustment of the Warrant Price if the total number
of shares of Common Stock (or Other Securities) issuable after the action upon
the exercise of the Warrant would exceed the total number of shares of Common
Stock (or Other Securities) then authorized by the Company's certificate of
incorporation and available for the purpose of issuance upon such exercise.

Section 4.2. ACCOUNTANT'S AND COMPANY'S REPORT AS TO ADJUSTMENTS. In each
case of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable upon the exercise of this Warrant, the Company at its
expense will promptly compute such adjustment or readjustment in accordance with
the terms of this Warrant and cause independent certified public accountants of
recognized national standing (which may be the regular auditors of the Company)
selected by the Company to verify such computation (other than any computation
of the fair value of property as determined in good faith by the Board of
Directors of

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<PAGE>
the Company) and prepare a report setting forth such adjustment or readjustment
and showing in reasonable detail the method of calculation thereof and the facts
upon which such adjustment or readjustment is based, including a statement of
(a) the consideration received or to be received by the Company for any
securities issued or sold or deemed to have been issued, (b) the number of
shares of Common Stock outstanding or deemed to be outstanding, and (c) the
Warrant Price in effect immediately prior to such issue or sale and as adjusted
and readjusted (if required by Article II) on account thereof. The Company will
forthwith mail a copy of each such report to each holder of a Warrant and will,
upon the written request at any time of any holder of a Warrant, furnish to such
holder a like report setting forth the Warrant Price at the time in effect and
showing in reasonable detail the manner in which it was calculated.

Section 4.3. NOTICES OF CORPORATE ACTION. In the event that any of the
following occurs,

(a) any taking by the Company of a record of the holders of Common
Stock (or Other Securities) for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, or
any right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive any
other right, or

(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any
consolidation or merger involving the Company and any other Person or any
transfer of all or substantially all the assets of the company to any
other Person, or

the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date as of which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange

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<PAGE>

their shares of Common Stock (or Other Securities) for the securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 10 days prior to the date
therein specified.

Section 4.4. AVAILABILITY OF INFORMATION. The Company will cooperate with
each holder of any Warrant, Other Security or Restricted Security in supplying
such information as may be reasonably requested by such holder to complete and
file any information reporting forms presently or hereafter required by the
Commission to report such holders beneficial ownership of Common Stock (or Other
Securities) or as a condition to the availability of an exemption from the
provisions of the Securities Act for the sale of any Restricted Securities.

Section 4.5. RESERVATION OF STOCK, ETC. The Company will at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of the Warrant. All shares of Common Stock
(or Other Securities) issuable upon exercise of the Warrant shall be duly
authorized and, when issued upon such exercise, shall be validly issued and, in
the case of shares, fully paid and non-assessable with no liability on the part
of the holders thereof.

ARTICLE V. RESTRICTIONS ON TRANSFER

Section 5.1. RESTRICTIVE LEGENDS. Except as otherwise permitted by this
Article V, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:

"This Warrant and any shares acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933, as
amended, and may not be transferred, sold or otherwise disposed of in the
absence of such registration or an exemption therefrom under such Act.
This Warrant and such Shares may be transferred only in compliance with
the conditions specified in this Warrant."

Except as otherwise permitted by this Article V, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any

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<PAGE>

such Common Stock (or Other Securities), shall be stamped or otherwise imprinted
with a legend in substantially the following form:

"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and may not be transferred in the absence
of such registration or an exemption therefrom under such Act."

Section 5.2. NOTICE OF PROPOSED TRANSFER; OPINIONS OF COUNSEL. Prior to
any transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act, the holder thereof
will give written notice to the Company of such holder's intention to effect
such transfer and to comply in all other respects with this Section 5.2. Each
such notice (a) shall describe the manner and circumstances of the proposed
transfer and (b) shall include an opinion of legal counsel addressed to the
Company, in form and substance reasonably satisfactory to the Company, to the
effect that such transfer does not violate the Securities Act of 1933 and
applicable state securities laws.

Section 5.3. TERMINATION OF RESTRICTIONS. The restrictions imposed by this
Article V upon the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities when such securities shall
have been sold pursuant to an effective registration statement under the
Securities Act or otherwise become freely transferable by the holder thereof.

Section 5.4. PIGGYBACK REGISTRATIONS.

(a) RIGHT TO PIGGYBACK REGISTRATION. Whenever the Company proposes
to register any of its Common Stock or Other Securities ("Common Equity
Securities") in a Qualified Registration, whether or not for sale for its own
account, the Company shall give prompt written notice (the "Piggyback Notice")
to the holders of Registrable Securities of its intention to effect such
registration. Upon written request of any holder of Registrable Securities made
within 10 days after delivery of any Piggyback Notice (which request shall
specify the Registrable Securities requested to be included in such Qualified
Registration by such holder), the Company shall, subject to Sections 5.4(b) and
5.4(c), use its reasonable efforts to include in such Qualified Registration all
Registrable Securities that the holders have so requested be included in such
Qualified Registration, to permit the disposition by such holders of such
Registrable Securities;

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<PAGE>

provided, however, that (1) if, at any time after giving the Piggyback Notice
and before the effective date of the registration statement filed in connection
with such Qualified Registration, the Company determines for any reason not to
register such Common Equity Securities (other than the Registrable Securities
requested to be included therein pursuant to this Section 5.4), the Company, at
its election, may give written notice of such determination to all holders of
Registrable Securities requesting the inclusion of their Registrable Securities
therein and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (without prejudice,
however, to the future rights of the Holders under this Section 5.4); (2) if, at
any time after giving the Piggyback Notice and before the effective date of the
registration statement filed in connection with such Qualified Registration, the
Company determines for any reason to delay such registration of the Common
Equity (other than the Registrable Securities requested to be included therein
pursuant to this Section 5.4), the Company shall be permitted to delay the
registration of such Registrable Securities for the same period as the delay in
registering such other Common Equity Securities; and (3) the Company shall not
be required to effect any registration pursuant to this Section 5.4(a) unless it
shall have received reasonable assurances that the Holders of any Registrable
Securities included therein will pay any expenses required to be paid by them as
provided in Section 5.4(d). As used herein, the term "Piggyback Registration"
shall mean any registration of Registrable Securities requested pursuant to this
Section 5.4(a).

(b) PRIORITY ON PIGGYBACK REGISTRATIONS. If a Piggyback Registration
is an underwritten offering and the managing underwriter thereof advises the
Company in writing that, in its opinion, the number of shares of Registrable
Securities requested or proposed to be included in such offering exceeds the
number that can be sold in such offering without adversely affecting the
offering, including the price of the securities offered, the Company shall
include in such registration, to the extent that such may be included in such
registration without adversely affecting the offering, including the price of
the securities offered, in the opinion of such managing underwriter (1) first,
Common Equity Securities proposed to be sold by the Company; and (2) second, any
Common Equity Securities initially proposed to registered by the Company for the
accounts of other persons pursuant to the exercise of demand registration rights
if such securities must be included to prevent a breach of any applicable
registration rights agreement between the Company and any such person, (3)
third, any Common Equity Securities proposed

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<PAGE>

to be registered by the Company for the accounts of parties to that certain
Registration Rights Agreement between the Company and The 1818 Fund, L.P. dated
May 28, 1992 and the Registration Rights Agreement between the Company and Torch
Energy Advisors Incorporated, dated April 9, 1996, and (4) fourth, such Common
Securities requested to be included in such registration pursuant to this
Warrant.

(c) SELECTION OF UNDERWRITERS. If any Piggyback Registration is an
underwritten offering, the Company shall have the sole right to select the
managing underwriter or underwriters thereof.

(d) EXPENSES. The Company shall pay all expenses in connection with
piggyback registrations effected pursuant to this Section, other than the
expenses of counsel to the holder of Warrants and discounts, commissions and
other underwriting fees, provided, however, that if the Company is not
registering shares for sale by it, the holder of Warrants shall pay all such
expenses of registration pro rata with the other persons registering securities
in such Piggyback Registration based upon the number of shares sold in such
Piggyback Registration.

ARTICLE VI. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS

Section 6.1. OWNERSHIP OF WARRANTS. The Company may treat the person in
whose name any Warrant is registered on the register kept at the office of the
Company maintained pursuant to subdivision (a) of Section 6.2 as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary,
except that, if and when any Warrant is properly assigned in blank, the Company
may (but shall not be obligated to) treat the bearer thereof as the owner of
such Warrant for all purposes, notwithstanding any notice to the contrary.
Subject to Article V, a Warrant, if properly assigned, may be exercised by a new
holder without a new Warrant first having been issued.

Section 6.2. OFFICE, TRANSFER AND EXCHANGE OF WARRANTS.

(a) OFFICE. The Company will maintain an office in where notices,
presentations and demands in respect of this Warrant may be made upon it.
Such office shall be maintained at 1331 Lamar, Suite 1600, Houston, Texas
77010, until such time as the Company shall notify each holder of the
Warrant of any change of location of such office.

(b) NEW WARRANT. Upon the surrender of any Warrant,

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<PAGE>

properly endorsed, for registration of transfer or for exchange at the
office of the Company maintained pursuant to subdivision (a) of this
Section 6.2, the Company at its expense will (subject to compliance with
Article V, if applicable) execute and deliver to or upon the order of the
holder thereof a new Warrant or Warrants of like tenor, in the name of
such holder or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct, calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock called for
on the face or faces of the Warrant or Warrants so surrendered.

Section 6.3. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant
held by a Person other than Purchaser or any institutional investor, upon
delivery of indemnity reasonably satisfactory to the Company in form and amount
or, in the case of any such mutilation, upon surrender of such Warrant for
cancellation at the office of the Company maintained pursuant to subdivision (a)
of Section 6.2, the Company at its expense will execute and deliver, in lieu
thereof, a new Warrant of like tenor.

ARTICLE VII. DEFINITIONS

As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:

BUSINESS DAY: Any day other than a Saturday or a Sunday or a day on which
commercial banking institutions in the State of Texas are authorized by law to
be closed. Any reference to "days" (unless Business Days are specified) shall
mean calendar days.

CLOSING PRICE: On any date specified herein, the amount per share of the
Common Stock, equal to (a) the last sale price of such Common Stock, regular
way, on such date or, if no such sale takes place on such date, the average of
the closing bid and asked prices thereof on such date, in each case as
officially reported on the principal national securities exchange on which such
Common Stock is then listed or admitted to trading, or (b) if such Common Stock
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security by the NASD, the last
trading price of the Common Stock on such date, or (c) if there shall have been
no trading on such date or if the Common Stock is not so designated, the average
of the closing bid and asked prices of the Common Stock on such date

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<PAGE>

as shown by the NASD automated quotation system, or (d) if such Common Stock is
not then listed or admitted to trading on any national exchange or quoted in the
over-the-counter market, the fair value thereof determined in good faith by the
Board of Directors of the Company as of a date which is within 20 days of the
date as of which the determination is to be made.

COMMISSION: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act.

COMMON STOCK: As defined in the introduction to this Warrant, such term to
include (i) any stock into which such Common Stock shall have been changed or
any stock resulting from any reclassification of such Common Stock, (ii) all
other stock of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to
preference and (iii) all stock appreciation rights, phantom stock and similar
contract rights the holders of which are entitled to payments based on or
determined by reference to the value of the Common Stock, dividends payable with
respect to Common Stock, or liquidating distributions payable with respect to
Common Stock.

COMPANY: As defined in the introduction to this Warrant.

EXCHANGE ACT: The Securities Exchange Act of 1934, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.

EXPIRATION DATE: April 4, 2001, unless terminated earlier pursuant to
Article III.

INITIAL PRICE: $28.00.

MARKET PRICE: per share of Common Stock on any date in question shall mean
the average of the daily Closing Prices for the 10 consecutive Trading Days
ending on the day before the in question.

NASD: The National Association of Securities Dealers, Inc.

OTHER SECURITIES: Any stock (other than Common Stock) and other securities
of the Company or any other Person (corporate or otherwise) which the holder of
the Warrant at any time shall be

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<PAGE>

entitled to receive, or shall have received upon the exercise of the Warrant, in
lieu of or in addition to Common Stock.

PERSON: Any corporation, association, partnership, joint venture, trust,
estate, organization, business, individual, government or political subdivision
thereof or governmental agency.

PURCHASER: John M. Hall

QUALIFIED REGISTRATION: A registration statement of the Company under the
Securities Act on a form that permits the sale of Registrable Securities,
excluding, however, a registration statement (1) on Form s-$ or S-8 or any
successor or similar form, (2) relating to any capital stock of the Company or
options, warrants of other rights to acquire any such capital stock issued or to
be issued primarily to directors, officers or employees of the Company, (3)
filed pursuant to Rule 145 under the Securities Act or any successor or similar
provision, (4) relating to any employee benefit plan or interests therein, (5)
relating to any preferred stock or debt securities of the Company or (6)
relating to any sale of securities for other than cash.

REGISTRABLE SECURITIES: Common Stock or Other Securities received or
receivable upon exercise of the Warrants.

RESTRICTED SECURITIES: All of the following: (a) any Warrants bearing the
applicable legend or legends referred to in Section 5.1, (b) any shares of
Common Stock (or Other Securities) which have been issued upon the exercise of
Warrants and which are evidenced by a certificate or certificates bearing the
applicable legend or legends referred to in such section and (c) unless the
context otherwise requires, any shares of Common Stock (or Other Securities)
which are at the time issuable upon the exercise of Warrants and which, when so
issued, will be evidenced by a certificate or certificates bearing the
applicable legend or legends referred to in such section.

SECURITIES ACT: The Securities Act of 1933, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.

TRADING DAY: Any Monday, Tuesday, Wednesday, Thursday or Friday, other
than any day on which securities are not traded on the applicable securities
exchange or in the applicable securities market.

TRANSFER: Any sale, assignment, pledge or other disposition

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<PAGE>

of any security, or of any interest therein, which could constitute a "sale" as
that term is defined in section 2(3) of the Securities Act.

WARRANT PRICE: As defined in Section 2.1 of this Warrant.

ARTICLE VIII. MISCELLANEOUS

Section 8.1. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. The holder of this
Warrant and all subsequent holders thereof hereby agree that except to the
extent set forth herein, no provision of this Warrant shall be construed as
conferring upon the holder hereof any rights as a stockholder of the Company or
as imposing any obligation on such holder to purchase any securities or as
imposing any liabilities on such holder as a stockholder of the Company, whether
such obligation or liabilities are asserted by the Company or by creditors of
the Company.

Section 8.2. NOTICES. All notices and other communications under this
Warrant shall be in writing and shall be mailed by registered or certified mail,
return receipt requested, addressed (a) if to any holder of any Warrant, to the
registered address of such holder as set forth in the register kept at the
principal office of the Company, or (b) if the Company, to the attention of its
President at its office maintained pursuant to subdivision (a) of Section 6.2,
provided that the exercise of any Warrant shall be effective in the manner
provided in Article I.

Section 8.3. MISCELLANEOUS.

(a) This Warrant may be amended, waived, discharged or terminated
and the Company may take any action herein required to be performed by it,
only if the Company shall have obtained the written consent to such
amendment, action or omission to act, of the holder or holders of Warrants
entitling such holders to purchase 51% or more by number of shares of the
total number of shares of Common Stock issuable pursuant to the Warrants
or any assignees thereof.

(b) THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.

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<PAGE>

NUEVO ENERGY COMPANY

By:_______________________
Name:_____________________
Title:____________________

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<PAGE>

FORM OF SUBSCRIPTION

To ___________________________:

The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases _________* shares of Common Stock of
Nuevo Energy Company, and herewith makes payment of $___________ therefor, and
requests that the certificates for such shares be issued in the name of, and
delivered to ___________________________, whose address is
_________________________________________.

Dated: (Signature must conform in all
respects to name of holder as
specified on the face or Warrant)

____________________________
(Street Address)

____________________________
(City) (State) (Zip Code)

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

*Insert the number of shares called for on the face of this Warrant
(or, in the case of a partial exercise, the portion thereof as to which
this Warrant is being exercised), in either case without making any
adjustment for additional shares of Common Stock or any other stock or
other securities or property or cash which, pursuant to the adjustment
provisions of this Warrant, may be delivered upon exercise. In the case of
a partial exercise, a new Warrant or Warrants will be issued and
delivered, representing the unexercised portion of the Warrant, to the
holder surrendering the Warrant.

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<PAGE>

FORM OF ASSIGNMENT

[To be executed only upon transfer of Warrant]

For value received, the undersigned registered holder of the within
Warrant hereby sells, assigns and transfers unto _________________ the right
represented by such Warrant to purchase shares of Common Stock of Nuevo Energy
Company to which such Warrant relates, and appoints
_________________________________ as its duly authorized and empowered
attorney-in-fact to make such transfer on the books of maintained for such
purpose, with full power of substitution in the premises.

Dated: (Signature must conform in all
respects to name of holder as
specified on the face or Warrant)

____________________________
(Street Address)

____________________________
(City) (State) (Zip Code)

Signed in the presence of:

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

-20-

EXHIBIT 10.22

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

AMENDED AND RESTATED
ADMINISTRATIVE SERVICES AGREEMENT

by and between

TORCH ENERGY ADVISORS INCORPORATED

and

NUEVO ENERGY COMPANY

January 1, 1996

================================================================================
<PAGE>

TABLE OF CONTENTS

PAGE

ARTICLE I. DEFINITIONS......................................................2
Section 1.1 DEFINED TERMS..............................................2
Section 1.2 CONSTRUCTION...............................................4
Section 1.3 REFERENCES.................................................5

ARTICLE II. APPOINTMENT OF TORCH............................................5
Section 2.1 APPOINTMENT................................................5
Section 2.2 ACCEPTANCE.................................................5
Section 2.3 LEGAL OWNERSHIP RETAINED IN THE COMPANY....................5
Section 2.4 DUTIES RETAINED BY THE COMPANY.............................5
Section 2.5 FUTURE ACTIVITIES..........................................5
Section 2.6 FOREIGN ACTIVITIES.........................................6

ARTICLE III. STATUS OF TORCH................................................6

ARTICLE IV. AUTHORITY AND RESPONSIBILITY OF TORCH...........................6
Section 4.1 GENERAL....................................................6
Section 4.2 COMPLIANCE WITH LAWS.......................................6
Section 4.3 COMPLIANCE WITH OBLIGATIONS................................7
Section 4.4 REQUIRED COMPANY APPROVAL..................................7
Section 4.5 RESOLUTION COMMITTEE.......................................8

ARTICLE V. ADMINISTRATIVE SERVICES..........................................8
Section 5.1 PROVISION OF ADMINISTRATIVE SERVICES.......................8
Section 5.2 ADMINISTRATIVE SERVICES FEE................................9
Section 5.3 COMPUTATION OF ADMINISTRATIVE SERVICES FEE................10
Section 5.4 AUDIT REPORT..............................................10
Section 5.5 COMPANY'S PERFORMANCE.....................................10
Section 5.6 INTERNAL TIME.............................................10
Section 5.7 PAYMENT OF OUT-OF-POCKET EXPENSES.........................10

ARTICLE VI. MARKETING......................................................11

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<PAGE>

ARTICLE VII. OPERATIONS....................................................11
Section 7.1 OPERATIONS................................................11
Section 7.2 PT. PEDERNALES OPERATIONS.................................11
Section 7.3 CALIFORNIA ASSETS OPERATIONS..............................12
Section 7.4 RECORD OPERATORSHIP.......................................13

ARTICLE VIII. PERSONNEL ADMINISTRATION.....................................13
Section 8.1 GENERAL...................................................13
Section 8.2 EMPLOYEES.................................................13
Section 8.3 CONSULTANTS AND OTHERS....................................13

ARTICLE IX. FINANCIAL ADMINISTRATION.......................................14
Section 9.1 BUDGETS...................................................14
Section 9.2 CASH MANAGEMENT...........................................14

ARTICLE X. CONTRACTS.......................................................14
Section 10.1 CONTRACTS...............................................14
Section 10.2 PURCHASES FOR THE ACCOUNT OF THE COMPANY................14
Section 10.3 AFFILIATE TRANSACTIONS..................................15

ARTICLE XI. INDEMNITIES....................................................15
Section 11.1 INDEMNIFICATION BY TORCH................................15
Section 11.2 INDEMNIFICATION BY THE COMPANY..........................15
Section 11.3 NON-ASSUMPTION OF LIABILITIES...........................16
Section 11.4 EXPRESS NEGLIGENCE......................................16

ARTICLE XII. ACCESS TO INFORMATION, BOOKS AND RECORDS; CONFIDENTIALITY;
POWER OF ATTORNEY.....................................................17
Section 12.1 ACCESS TO BOOKS AND RECORDS.............................17
Section 12.2 CONFIDENTIALITY.........................................17

ARTICLE XIII. CONFLICTS OF INTEREST AND GOOD FAITH.........................17
Section 13.1 OTHER ACTIVITIES........................................17

ARTICLE XIV. REPRESENTATIONS AND WARRANTIES................................17
Section 14.1 REPRESENTATIONS AND WARRANTIES OF TORCH.................17
Section 14.2 REPRESENTATIONS AND WARRANTIES OF COMPANY...............19

ARTICLE XV. TERM AND TERMINATION OF AGREEMENT..............................20
Section 15.1 INITIAL TERM............................................20
Section 15.2 TERMINATION.............................................20

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<PAGE>

Section 15.3 EFFECTS OF TERMINATION..................................22
Section 15.4 TERMINATION OF MARKETING AGREEMENT AND THE OPERATING
AGREEMENT.......................................................23
Section 15.5 RIGHTS UPON TERMINATION.................................23

ARTICLE XVI. MISCELLANEOUS.................................................24
Section 16.1 RELATIONSHIP OF PARTIES.................................24
Section 16.2 NO THIRD PARTY BENEFICIARIES............................24
Section 16.3 NOTICES.................................................25
Section 16.4 GOVERNING LAW...........................................25
Section 16.5 ASSIGNMENT..............................................25
Section 16.6 WAIVER OF BREACH........................................25
Section 16.7 ENFORCEMENT.............................................25
Section 16.8 ADDITIONAL ASSURANCES...................................25
Section 16.9 FORCE MAJEURE...........................................26
Section 16.10 SEVERABILITY............................................26
Section 16.11 ARTICLE AND SECTION HEADINGS............................26
Section 16.12 DISCRETIONARY TERMS.....................................26
Section 1613 AMENDMENTS AND CONTRACT EXECUTION.......................26
Section 16.14 INVESTMENT POLICY.......................................26
Section 16.15 PERIODIC MEETINGS.......................................26
Section 16.16 ARBITRATION.............................................27
Section 16.17 COMPANY STOCK...........................................28

ATTACHMENTS: Exhibit "A"

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<PAGE>

AMENDED AND RESTATED
ADMINISTRATIVE SERVICES AGREEMENT

THIS AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT (this
"Agreement") is entered into effective as of the 1st day of January, 1996, by
and between TORCH ENERGY ADVISORS INCORPORATED, a Delaware corporation
("Torch"), and NUEVO ENERGY COMPANY, a Delaware corporation ("Nuevo" or "
Company"),

W I T N E S S E T H:

WHEREAS, Torch is primarily engaged in the business of providing
management and advisory services relating to oil and gas assets for corporate
and other institutional investors; and

WHEREAS, the Company is primarily engaged in the oil and gas business,
including the acquisition, development and exploration and production of oil and
gas properties and in the acquisition and ownership of gas processing plants and
gathering facilities; and

WHEREAS, in order to maximize shareholder value and in an effort to manage
its affairs in a more cost effective and efficient manner and to achieve the
lowest quartile general and administrative costs for the Company, the Company
desires to retain Torch to provide certain management, administrative and
support services to the Company, and Torch desires to render such services to
the Company, all upon the terms and conditions hereinafter set forth; and

WHEREAS, Torch, Nuevo and Energy Assets International Corporation ("EAIC")
executed a Management Agreement dated as of July 9, 1990 (as amended by the
Amendment to Management Agreement dated June 1, 1991, the Second Amendment to
Management Agreement dated May 1, 1992 and the Third Amendment to Management
Agreement dated January 1, 1995, the "Original Management Agreement"); and

WHEREAS, Torch and Nuevo desire to amend and restate the Original
Management Agreement for various purposes, including, without limitation, to
withdraw EAIC as a "Manager" thereunder;

NOW, THEREFORE, for and in consideration of the mutual covenants and
promises contained herein and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree to
amend and restate the Original Management Agreement in its entirety as follows:

<PAGE>

ARTICLE I. DEFINITIONS

Section 1.1 DEFINED TERMS. For the purpose of this Agreement, the
following terms shall have the meaning ascribed thereto below unless otherwise
specified or clearly required by the context in which such term is used:

AFFILIATES. "Affiliates" means, with respect to a Person, any person that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such Person, and the term
"control" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management, activities or policies of any
Person or entity, whether through the ownership of voting securities, by
contract, employment or otherwise.

AGREEMENT. "Agreement" means this Administrative Services Agreement, as
modified from time to time by any duly adopted amendments.

ASSET MAINTENANCE ACTIVITIES. "Asset Maintenance Activities" means all
activities of the Company incident to the operation, maintenance, upgrading,
renewal or reconstruction of the assets used in the Business.

BARHAM RANCH. "Barham Ranch" means the oil and gas properties located in
Santa Barbara County, California and operated by TOC.

BENEDUM GAS PLANT. "Benedum Gas Plant" means the Benedum natural gas
processing plant located in Benedum, Texas and all other assets (including
natural gas gathering systems) related thereto.

BOOK VALUE OF TOTAL ASSETS. "Book Value of Total Assets" as of any date,
means the book value of the total assets of the Company, other than cash and
cash equivalents (e.g. marketable securities), the Benedum Gas Plant, the Yombo
Field, and other assets excluded under Sections 2.5 or 2.6, at the end of each
month during such period determined on a consolidated basis in accordance with
generally accepted accounting principles consistently applied.

BRIGHT STAR SYSTEM. "Bright Star System" means the 150 mile, low pressure
gas gathering system located in Leon and Houston Counties, Texas.

BUSINESS. "Business" means all business activities of the Company as such
Business is now conducted or, subject to Section 2.5 and 2.6, may hereafter be
conducted in the future

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<PAGE>

including, without limitation, all Investment Activities, Financing Activities
and Asset Maintenance Activities.

CALIFORNIA ASSETS. "California Assets" means all interests of the Company
in Pt. Pedernales and the Unocal Assets.

CHANGE OF CONTROL. "Change of Control" means any person or group of
persons shall have acquired beneficial ownership as such term is defined under
Section 13(d) of the Securities Exchange Act of 1934 of more than 50% of the
outstanding common stock of Torch or all or substantially all of the assets or
business of Torch.

COMMENCEMENT DATE. "Commencement Date" means the date when the closing of
the Company's acquisition of the Unocal Assets is consummated.

COMPANY. "Company" means collectively Nuevo Energy Company and the
Subsidiaries.

EFFECTIVE DATE. "Effective Date" means January 1, 1996.

FINANCING ACTIVITIES. "Financing Activities" means all activities of the
Company incident to the financing of its Business, including borrowing,
repayment, restructuring, renewal and compromise of indebtedness, and the
creation, issuance, redemption or repurchase, conversion, or exchange of capital
stock.

ILLINI CARRIER. "Illini Carrier" means the natural gas transmission system
located in the Metro-East St. Louis area.

INVESTMENT ACTIVITIES. "Investment Activities" means all activities of the
Company incident to the acquisition or disposition of its assets.

MARKETING ACTIVITIES. "Marketing Activities" means all activities of the
Company incident to the marketing of the Company's oil, natural gas liquids and
natural gas production from the Business.

MIDSTREAM ASSETS. "Midstream Assets" means gas processing plants, gas
storage facilities, gathering systems and pipelines; this shall include, without
limitation, the Benedum Gas Plant, the Bright Star System, Illini Carrier,
Panola Rusk Pipeline, Richfield Gas Storage Facility and West Delta Pipeline,
but excluding any processing plants, gathering systems or pipelines located in
California.

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<PAGE>

OPERATING CASH FLOW. "Operating Cash Flow" means, as calculated for any
period the sum of the following for the Company on a consolidated basis in
accordance with generally accepted accounting principles: net income plus all
noncash expenses included as a reduction of net income including, but not
limited to, depreciation, depletion and amortization, deferred income taxes,
amortization of financing costs, minority interest (net of tax) and asset
writeoffs and writedowns, excluding Operating Cash Flow attributable to the
business activities of the Company related to the Yombo Field and any other
operations excluded under Section 2.5 or 2.6.

PANOLA RUSK PIPELINE. "Panola Rusk Pipeline" means the 30 mile, 16 inch
intrastate pipeline located in Panola and Rusk Counties, Texas.

PERSON. "Person" means any of the following, an individual, corporation,
partnership, limited partnership, joint venture, unincorporated association,
trust, estate, or other incorporated or unincorporated entity.

PT. PEDERNALES. "Pt. Pedernales" means the Pt. Pedernales and Lompoc oil
and gas properties located in California and all assets related thereto.

RICHFIELD GAS STORAGE FACILITY. "Richfield Gas Storage Facility" means
that certain gas storage reservoir facility located in Morton County, Kansas.

SUBSIDIARIES. "Subsidiaries" means Rubicon Venture, Inc., The Rubicon
Company, L.P., Nuevo Liquids Inc., Nuevo California Company, Richfield Natural
Gas, Inc., Bright Star Partnership, Bright Star Gathering, Inc., NuStar Joint
Venture, Richfield Gas Storage System and Greenwood Gas Gathering System, as
well as any entity which becomes an Affiliate of the Company acquired or formed
by the Company after the date hereof.

TERM OF AGREEMENT. "Term of Agreement" means the period from the Effective
Date until this Agreement is terminated or otherwise expires pursuant to Article
XV hereof.

UNOCAL ASSETS. "Unocal Assets" means all oil and gas producing properties
acquired or to be acquired by the Company from Union Oil Company of California
(or a related entity) ("Unocal") pursuant to the Asset Purchase Agreement
between the Company and Unocal dated February 16, 1996.

WEST DELTA PIPELINE. "West Delta Pipeline" means the 17 mile pipeline
located in Federal Waters Offshore Louisiana connected to West Delta 152 Block.

YOMBO FIELD. "Yombo Field" means the Yombo oil production properties
located in the People's Republic of Congo and all other assets related thereto.

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<PAGE>

Section 1.2 CONSTRUCTION. Whenever the context requires, the gender of all
words used herein shall include the masculine, feminine and neuter, and the
number of all words shall include the singular and plural.

Section 1.3 REFERENCES. Unless otherwise specified, the references herein
to "Sections", "Subsections" or "Articles" refer to the sections, subsections or
articles in this Agreement.

ARTICLE II. APPOINTMENT OF TORCH

Section 2.1 APPOINTMENT. The Company hereby appoints Torch to render the
services herein described with respect to the Business on behalf of, and for the
account of, the Company, pursuant to and as set forth in this Agreement. The
Company shall at all times have and retain ultimate control over its business
and operations. The services provided by Torch under this Agreement are not to
include those services provided by Torch Operating Company under the Operating
Agreement or Torch Energy Marketing, Inc. under the Marketing Agreement.

Section 2.2 ACCEPTANCE. Torch hereby accepts the appointment and agrees to
perform the duties and obligations herein imposed in a prudent manner,
consistent with generally accepted standards for businesses similar to the
Business.

Section 2.3 LEGAL OWNERSHIP RETAINED IN THE COMPANY. Torch shall not take
title to any properties owned of record or beneficially by the Company during
the Term of Agreement. Cash and cash equivalents may be invested by Torch for
the account of the Company, all of which will be segregated on the books and
records of Torch as provided in Section 9.2. Any addition to the assets of the
Company purchased, leased, or otherwise acquired with the Company's funds or
securities shall be acquired in the name of the Company.

Section 2.4 DUTIES RETAINED BY THE COMPANY. The Company shall remain
responsible for (i) making all decisions required of the Company under this
Agreement, (ii) such other duties as shall be specifically identified in writing
by the Company to Torch and (iii) authorizing (in its discretion) and executing
all agreements, contracts, and other documents in connection with its Business.

Section 2.5 FUTURE ACTIVITIES. The Business subject to this Agreement
shall include all of the assets and activities of the Company located or
conducted in the United States and adjacent waters, as now owned or conducted or
as may be owned or conducted in the future. With respect to the Company's assets
and activities located in the Yombo Field, the Business shall include services
substantially similar to those performed prior to the Commencement Date.

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<PAGE>

Provided, however, in the event the Company acquires an asset or begins
performing an activity outside the oil and gas business or scope of Torch's
normal course of business (e.g. residential real estate acquisition and
development), the Company may request that such new assets or activity be
excluded from the Business. If, in Torch's reasonable opinion, such asset or
activity is in the normal course of Torch's and the Company's business, Torch
may submit the question of whether or not the asset or activity should be part
of the Business to the Resolution Committee as contemplated by Section 4.5, the
decision of which shall be final and binding. If the asset or activity is agreed
or determined not to be within the normal course of business, the book value of,
and operating cash flow attributable to, such asset or activity shall not be
included in the calculation of the Administrative Services Fee under Section
5.2.

Section 2.6 FOREIGN ACTIVITIES. The Company and Torch contemplates that
activities outside the United States and its adjacent waters will be part of the
Business. Provided, however, that because of the unique character of such assets
and activities, Torch and the Company agree to negotiate in good faith toward a
specific arrangement whereby any foreign assets or activities acquired by the
Company would be subject to the services provided under this Agreement. It is
understood by both the Company and Torch that this may result in fees that are
higher or lower than those that would be charged under this Agreement.

ARTICLE III. STATUS OF TORCH

Torch shall render services hereunder as the Company's agent to the extent
specifically provided herein or as further delegated from time to time by the
Company and accepted in writing by Torch. The relationship created by this
Agreement is one of principal and agent, and nothing to the contrary shall be
inferred from this Agreement.

ARTICLE IV. AUTHORITY AND RESPONSIBILITY OF TORCH.

Section 4.1 GENERAL. As agent for the Company, Torch shall have the
authority and the responsibility to render the services in connection with the
day-to-day operations of the Business herein described. As agent for and as
requested by the Company, Torch agrees, to the extent that adequate funds are
made available to Torch, to render services hereunder in a prudent manner,
consistent with generally accepted standards for businesses similar to the
Business. Except as set forth in Sections 6.3, Torch shall have no obligation to
advance funds for the account of the Company or to pay any sums of its own in
connection with the performance of the actions which it is authorized to take
hereunder. Torch's management and activities under this Agreement shall be
specifically subject to the terms hereof and the general control, direction and
supervision of the Company.

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<PAGE>

Section 4.2 COMPLIANCE WITH LAWS. Torch shall use reasonable efforts to
insure full compliance with federal, state and municipal laws, ordinances,
regulations and orders relative to the use, operation, development and
maintenance of the Business. Torch shall use reasonable efforts to remedy any
violation of any such law, ordinance, rule, regulation or order which comes to
its attention. If the violation is one for which the Company might be subject to
penalty, Torch shall promptly notify the Company of such violation to allow
actions to be made to remedy the violation, and Torch shall transmit promptly to
the Company a copy of any citation or other communication received by Torch
setting forth any such violation.

Section 4.3 COMPLIANCE WITH OBLIGATIONS. Torch, to the extent such matters
are reasonably within its control, shall use reasonable efforts to cause
compliance with all terms and conditions contained in any contract, agreement,
judicial, administrative or governmental order, lease, mortgage, deed of trust
or other contractual or security instrument affecting the Business; PROVIDED,
however, that, except as otherwise set forth herein, Torch shall not be required
to make any payment or incur any liability on account thereof. Torch shall
promptly notify the Company of any violation of any covenant in such instruments
or agreements.

Section 4.4 REQUIRED COMPANY APPROVAL. The Company's President or Chief
Executive Officer (the "President") must approve the following matters in
writing before they are undertaken by Torch for the account of the Company, and,
notwithstanding any other provisions hereof, none of the following shall be
undertaken without the prior approval of the President:

(a) the issuance of any capital stock or security convertible into or
exchangeable for such capital stock;

(b) the approving of capital leases or approving or making of capital
expenditures in excess of $250,000;

(c) the borrowing of funds (other than trade accounts payable incurred
in the ordinary course of the Business), including the incurrence of
Out-of-Pocket Expenses and third party costs by Torch associated
with such borrowing;

(d) the pledge, hypothecation or other encumbrance of any asset of the
Company;

(e) the acquisition or disposition of any material asset of the Company,
other than in the ordinary course of business or as contemplated
herein, including the incurrence of Out-of-Pocket Expenses and third
party costs by Torch associated with such acquisition or
disposition, provided, however, Torch may incur (and be entitled to
reimbursement for) up to $5,000.00 per transaction in Out-of-Pocket

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<PAGE>

Expenses, third party legal, engineering and other professional fees
without the prior approval of the Company; and

(f) the initiation or compromise of any litigation matter (or settling
of any single claim).

Notwithstanding any provision of this Agreement to the contrary, Torch shall
have no authority to take any action that will contravene the Company's
Certificate of Incorporation or Bylaws.

Section 4.5. RESOLUTION COMMITTEE. Torch under Section 2.5, and either the
Company or Torch under Section 2.6 and 15.4, may request the formation of a
committee ("Resolution Committee") to determine any of the matters provided for
in such sections. The Resolution Committee shall have five members, one person
selected by Torch, one member of the Company's Board of Directors selected by
the Company (which member may be an officer or employee of the Company) and
three Members of the Company's Audit Committee selected by such Audit Committee.
Each of Torch and the Company agree to select the members of the Committee to be
selected by them within ten (10) business days of the request to form the
Resolution Committee, and shall advise the other party of their respective
selections. Any determination made by the Resolution Committee shall be made by
a majority of the members thereof, and shall be given to the Company and Torch
in writing. The Company and Torch shall provide the members of the Resolution
Committee with such information as they may reasonably request. The members of
the Resolution Committee shall have no liability to Torch or the Company for
decisions made by the Committee, and shall be indemnified by Torch and the
Company for any liabilities, costs, damages and other amounts (including
reasonable legal fees and expenses) arising out of serving on such committee.

ARTICLE V. ADMINISTRATIVE SERVICES

Section 5.1 PROVISION OF ADMINISTRATIVE SERVICES. Torch shall provide
Administrative Services to the Company, subject to the general approval and
direction of the Company. Administrative Services shall mean the following:

(a) providing the Company with such office space, computers, equipment,
facilities and ordinary supplies as may be required for the
reasonable conduct of the Business;

(b) performing any or all of the management and administrative services
as may be required for the reasonable conduct of the Business,
including, without limitation, human resources, audit, accounting,
tax, land, communications, investor relations,

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<PAGE>

information technology, geological, geophysical, insurance, payroll,
legal and financial services;

(c) performing and/or managing evaluation services as may be reasonably
required in connection with prospective acquisitions of properties
and assets by the Company, including, without limitation,
acquisition screening and due diligence;

(d) making such arrangements with and employing, at the expense and for
the benefit of the Company, such accountants, attorneys, banks,
transfer agents, custodians, underwriters, engineers, technical
consultants, insurance companies and other persons as may from time
to time be requested by the Company or may reasonably be necessary
to render services hereunder;

(e) at the request of the Company, analyzing reports, economic data and
other information relating to the Business and periodically
reporting to the executive officers or the Board of Directors of the
Company all such information obtained and analyzed, including making
recommendations with respect thereto;

(e) maintenance activities, including overseeing and managing the
interests of the Company in the various partnerships, joint
ventures, companies and other entities which the Company has an
interest in, and reporting to the executive officers of the Company
any significant fact or matter which relates to such interests;

(f) providing the Company, at its request, with relevant information for
assessing the value of, or making decisions with respect to the
acquisition, funding, management or disposition of, existing or
future assets or investments of the Company; and

(g) advising the executive officers of the Company of any potential
investments satisfying the criteria set forth on Exhibit "A".

The Company acknowledges that Torch routinely uses third party consultants
to perform many of the activities outlined in this Section 5.1 and that Torch
will continue to retain such consultants at the Company's expense, with the
Company's approval. The Company may instruct Torch to retain a specific third
party consultant not currently retained by Torch or not to use a specific
consultant. In that event, if Torch does not agree that the use of such
recommended consultant or the failure to use Torch's recommended consultant is
advisable, Torch may decline to perform the requested service.

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Section 5.2 ADMINISTRATIVE SERVICES FEE. The Company shall pay a monthly
fee to Torch for the Administrative Services provided to the Company in respect
to its Business ("Administrative Services Fee"). The Administrative Services Fee
shall equal (a) 2% of Operating Cash Flow during such month, plus (b)
one-twelfth (1/12th) of 2% of the Book Value of Total Assets at the end of such
month up to and including $250,000,000.00, plus (c) one-twelfth (1/12th) of 1%
of the Book Value of Total Assets at the end of such month above
$250,000,000.00, less (d) one-twelfth (1/12th) of $900,000.00. The
Administrative Services Fee shall be due and payable in arrears within ten (10)
days of the end of each month.

Section 5.3 COMPUTATION OF ADMINISTRATIVE SERVICES FEE.

(a) The Company shall estimate the Administrative Services Fee based on
its unaudited monthly financial statements. In the event that the year end audit
of the Company's accounts results in an adjustment to any of the components used
to compute the Administrative Services Fee, the Company shall promptly recompute
such fee and, if the amount paid to Torch was less than the amount actually
owed, promptly pay such difference to Torch. If any such year-end adjustment
causes the fee paid to Torch to be in excess of the amount actually owed, Torch
shall promptly refund such excess.

(b) In the event that the Company acquires or disposes of a material asset
during any month, the Book Value of Total Assets component of the Administrative
Services Fee shall be recomputed to reflect the amount of time that the Company
owned such asset during such month.

(c) The Administrative Services Fee shall be reduced by twenty percent
(20%) of all monthly overhead operating, drilling, construction and similar fees
which Torch or TOC collects during the relevant month from the Company in its
performance of operating the Company's assets pursuant to the operating
agreements applicable to such assets (excluding any fees Torch collects from the
Company related to the California Assets or the Midstream Assets).

Section 5.4 AUDIT REPORT. If requested by Torch, the Company shall cause
its independent auditors to prepare a report to Torch indicating that the
computation of the Administrative Services Fee by the Company was accurate.

Section 5.5 COMPANY'S PERFORMANCE. The Company may begin performing (at
its own expense) any of the Administrative Services without the assistance of
Torch by requesting in writing that Torch no longer provide such Administrative
Service. Provided, however, there shall be no reduction in the Administrative
Services Fee on account of the Company's performance of Administrative Services
unless otherwise agreed to by Torch and the Company.

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<PAGE>

Section 5.6 INTERNAL TIME. Torch shall pay all of its own internal
personnel and equipment/facility costs with respect to activities performed
under this Agreement, without reimbursement from the Company.

Section 5.7 PAYMENT OF OUT-OF-POCKET EXPENSES. In addition to the
Administrative Services Fee, Torch shall pay all out-of-pocket expenses of Torch
and its employees, agents and consultants including the following: travel, food,
lodging, entertainment and similar expenses, as well as any out of the ordinary
business supplies ("Out-of-Pocket Expenses"), pursuant to the policies and
procedures established by Torch for the payment or reimbursement of such costs
with respect to activities conducted by the Company under this Agreement.
Transportation costs shall be charged to the Company at commercial rates in the
event Torch's employees, agents or consultants use transportation supplied by
Torch. The Company shall reimburse Torch, within thirty days after the end of
each month during the Term of Agreement, for all such Out-of-Pocket Expenses
paid by Torch on behalf of the Company or in connection with the business of the
Company during such month.

ARTICLE VI. MARKETING

The Company shall retain Torch Energy Marketing, Inc. ("TEMI") to handle
all Marketing Activities under that certain Marketing Agreement dated as of the
Commencement Date, by and between the Company and TEMI (the "Marketing
Agreement"). The Marketing Agreement shall not be in full force and effect until
the Commencement Date.

ARTICLE VII. OPERATIONS

Section 7.1 OPERATIONS. The Company shall continue to retain Torch
Operating Company ("TOC") under that certain Agreement for Contract Operations
dated as of November 11, 1991, by and between the Company and TOC (the
"Operating Agreement") to operate its oil and gas producing properties until the
expiration of this Agreement. Torch shall cause TOC to review the Operating
Agreement with the Company and to amend the Operating Agreement if necessary to
accurately reflect the activities performed by TOC thereunder.

TOC and/or Torch currently operates all of the Company's Midstream Assets
for the Company's benefit. TOC shall continue to receive and retain any
operator's overhead from the Company, and any third party participants,
associated with the Midstream Assets without credit or reimbursement to the
Company.

Section 7.2 PT. PEDERNALES OPERATIONS. Pt. Pedernales shall continue to be
operated by TOC under the applicable joint operating agreements between all
joint interest owners. Provided, however, notwithstanding Section 7.1 above,
effective as of January 1, 1996, the

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Company shall not be required to pay TOC any share of operator's overhead under
such joint operating agreements on both the interest the Company owned in Pt.
Pedernales prior to the Commencement Date, and any share of operator's overhead
on the interest in Pt. Pedernales which it acquires from Torch California
Company, Torch Inland Company or Express Acquisition Company. TOC shall
reimburse the Company for any operator's overhead it collects from other joint
interest owners at Pt. Pedernales after January 1, 1996. In consideration of
TOC's services under the Operating Agreement with respect to Pt. Pedernales from
January 1, 1996 until the Commencement Date, the Company shall reimburse TOC its
actual costs associated with such operations (including, without limitation,
lease operating expenses, insurance, utility fees, office expenses, employee
salaries, bonuses and burdens and Out-of-Pocket Expenses) and shall pay TOC a
monthly fee of $16,700.00 (prorated for any partial month). To the extent Torch
has not been reimbursed for such cost or has not been paid any such fees prior
to the Commencement Date, the Company will remit such payments to Torch within
thirty (30) days of the Commencement Date.

Section 7.3 CALIFORNIA ASSETS OPERATIONS. The Company anticipates
acquiring the Unocal Assets. After the Commencement Date, notwithstanding the
above Sections 7.1 and 7.2, all of the Company's interest in the California
Assets shall be operated by TOC under the Operating Agreement; provided,
however, Section 2.04 of the Operating Agreement shall not apply to the
California Assets and the following shall be substituted in its place:

"In consideration of TOC's services under the Operating Agreement with
respect to the California Assets, the Company shall reimburse TOC its
costs associated with any TOC operations in California (including, without
limitation, lease operating expenses, insurance, utility fees, office
expenses, employee salaries, bonuses paid to TOC Field/Non-Exempt
Employees (such bonuses to be subject to the approval of the Company) and
burdens, and Out-of-Pocket Expenses) and shall pay TOC a monthly fee of
$166,666.00 (prorated for any partial month). TOC shall annually prepare
and submit to the Company for its approval a budget for TOC's operations
in California. Notwithstanding anything above to the contrary, bonuses
paid by TOC to its California Office Supervisory Employees shall be
handled as follows:

An officer of Torch shall meet with the Company's Chief Executive
Officer annually to make recommendations to the Compensation
Committee regarding the bonuses to be paid to TOC Office Supervisory
Employees in California. Upon approval of the bonuses by the
Compensation Committee, the Company shall be required to reimburse
TOC fifty percent of the cost of such bonus payments. The Company
and Torch agree that it is the intent of

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both parties to pay bonuses based on the performance of those TOC
California Office Supervisory Employees.

Office Supervisory Employees shall mean exempt employees (those
employees who are exempt from the provisions of the Fair Labor
Standards Act) working in TOC office locations in California;
Field/Non-Exempt Employees shall mean all employees (whether exempt
or non-exempt) working in TOC field locations in California and all
non-exempt (those employees who are not exempt from the provisions
of the Fair Labor Standards Act) employees working in TOC office
locations in California.

The Company shall reimburse TOC within thirty days after the end of each
month during the Term of Agreement for all costs incurred by TOC during
such month and shall pay TOC the monthly fee for each month within ten
days after the end of such month during the Term of Agreement. TOC shall
be entitled to receive and retain operator's overhead from other joint
interest owners in any properties located in California and operated by
TOC as of January 1, 1996, but shall give a reasonable credit or
reimbursement to the Company for services performed by TOC in connection
with such properties."

Section 7.4 RECORD OPERATORSHIP. As soon as reasonably possible after a
written request from the Company, Torch shall execute, acknowledge and deliver,
or cause TOC to execute, acknowledge and deliver, such instruments and take such
other action as may be reasonably necessary to transfer record operatorship and
operating authority to the Company under applicable governmental regulations and
third party operating agreements for all or a portion of the Company's oil and
gas properties, at the Company's sole expense. Notwithstanding such transfer of
record operations, TOC shall continue to operate the Company's oil and gas
properties in accordance with this Agreement and the Operating Agreement.

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ARTICLE VIII. PERSONNEL ADMINISTRATION

Section 8.1 GENERAL. Torch shall have in its employ or available to it at
all times during the Term of Agreement a sufficient number of personnel to
enable it to properly and adequately manage, operate, maintain, and account for
the Business as herein provided. All matters pertaining to the employment,
supervision, compensation, promotion and discharge of any employees or personnel
of Torch are the responsibility of Torch, which is in all respects the employer
of any such employees. All such employment arrangements are solely Torch's
concern and, other than as set forth in Article VI hereof, the Company shall
have no liability with respect thereto.

Section 8.2 EMPLOYEES. Torch shall determine the number and qualifications
of employees needed in the operation of the Business and shall consult with the
Company regarding its employee policies.

Section 8.3 CONSULTANTS AND OTHERS. Except as otherwise provided herein
and in accordance with Section 5.1, Torch shall have the power and authority to
retain and pay as independent contractors, on behalf of and for the account of
the Company, lawyers, accountants, engineers, contractors, technical
consultants, architects, and others in connection with the conduct of the
Business.

ARTICLE IX. FINANCIAL ADMINISTRATION

Section 9.1 BUDGETS. Torch will provide the Company with all data
necessary to prepare its operating budgets in a timely manner. Within 30 days
after the end of each fiscal year of the Company during the Term of Agreement,
the Company shall prepare and submit to Torch, a budget (a "Budget") for the
operation of the Business for the ensuing year, setting forth anticipated
income, operating expenses and anticipated capital expenditures. Such proposed
Budget shall include an explanation of anticipated changes in asset utilization,
payroll rates and positions, non-wage costs increases and other items expected
to differ significantly from the previous year. Such Budget shall serve as a
guide for the operation of the Business in the ordinary course of the Company's
business during the periods covered thereby. Torch shall employ reasonable
efforts to ensure that the actual costs of managing and operating the Business
shall not exceed the approved Budget either in total or in any one accounting
category.

Section 9.2 CASH MANAGEMENT. Torch shall implement a cash management
system for the cash and cash equivalents of the Company. Torch may invest the
funds of the Company in common investments with the cash and cash equivalents of
Torch and its Affiliates, provided, that Torch shall maintain accurate records
segregating the cash and cash equivalents of the Company from those of Torch and
its Affiliates.

ARTICLE X. CONTRACTS

Section 10.1 CONTRACTS. The management of the Business by Torch shall
include negotiating, administering and terminating contracts, by and on behalf
of the Company, in the ordinary course of Business. All such contracts shall be
executed by duly authorized officers of the Company.

Section 10.2 PURCHASES FOR THE ACCOUNT OF THE COMPANY.

(a) Day-to-day operation of the Business shall include the purchase (or
lease) of such equipment, supplies and other goods necessary for the efficient
operation of the Business.

(b) Purchases shall be made only at reasonable costs pursuant to the
"prudent buyer" principle. Torch is not a merchant, as that term is defined in
the Uniform Commercial Code, and makes no warranty, express or implied,
including, without limitation, that of fitness for a particular purpose, for any
item purchased for the administration of the Business or on behalf of the
Company.

(c) In order to facilitate the performance by Torch of its obligations
hereunder, the Company agrees to make available, upon the request of Torch, such
additional amounts as may be needed, in the good faith judgment of Torch to
render services hereunder.

Section 10.3 AFFILIATE TRANSACTIONS. Torch shall not make or cause the
Company to make any contract with or purchase or sell goods or services from
Torch or any Affiliate of Torch or any entity with which Torch has any agreement
or understanding except in accordance with procedures established by the
independent members of the Board of Directors of the Company.

ARTICLE XI. INDEMNITIES

Section 11.1 INDEMNIFICATION BY TORCH. Torch shall protect, indemnify,
defend and hold harmless the Company and its officers, directors, shareholders
and Affiliates from any and all threatened or actual claims, demands, causes of
action, suits, proceedings (formal or informal), losses, damages, fines,
penalties, liabilities, costs and expenses of any nature, including attorneys'
fees and court costs, sustained or incurred by or asserted against the Company
or its Affiliates by any person, firm, corporation, governmental authority,
partnership or other entity by reason of or arising out of: (i) any breach of
this Agreement by Torch, its Affiliates, agents, or employees; or (ii) any act
of fraud, willful misconduct or gross negligence of Torch and its Affiliates or
any of its respective employees, or acts or omission outside the

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scope of Torch's authorized duties and responsibilities contained herein. In
case any action or proceeding shall be brought against the Company or its
Affiliates in respect of which the indemnification contemplated by this Section
11.1 may be sought against Torch, Torch, upon the receipt of notice from the
Company, shall defend such action or proceeding by counsel reasonably
satisfactory to the Company and Torch, and Torch shall pay for all expenses
therefor unless such action or proceeding is resisted and defended by counsel
for any carrier of public liability insurance that benefits the Company or
Torch. The Company shall promptly give written notice to Torch when a claim is
made against the Company for which indemnity is owed to the Company by Torch
pursuant to this Section 11.1. Torch shall participate at its own expense in
defense of such claims, but the Company shall have the right to employ its own
separate counsel. The Company shall assist Torch in the defense of any claim for
which Torch owes indemnification hereunder and is undertaking to provide a
defense, by making available to Torch such records and personnel as may be
reasonably requested in the defense of such claim.

Section 11.2 INDEMNIFICATION BY THE COMPANY. The Company hereby agrees to
indemnify, defend, and hold harmless Torch and its officers, directors,
shareholders, employees, agents and Affiliates from any and all threatened or
actual claims, demands, causes of action, suits, proceedings (formal or
informal), losses, damages, fines, penalties, liabilities, costs and expenses of
any nature, including attorneys' fees and court costs, sustained or incurred by
or asserted against Torch or its Affiliates, officers, directors, employees and
agents by any person, firm, corporation, governmental authority, partnership or
other entity by reason of or arising out of: (i) the conduct of the Company,
other than conduct by or at the direction of Torch; (ii) the conduct of the
Business or the provision of services by Torch pursuant to this Agreement,
except to the extent Torch indemnifies the Company under the foregoing Section
11.1; or (iii) that certain Guaranty to be executed by Torch in favor of Union
Oil Company of California and Unocal California Pipeline Company. In case any
action or proceeding shall be brought against Torch in respect to which the
indemnity contemplated by this Section 11.2 may be sought against the Company,
Torch shall give notice of such action to the Company, and the Company shall
defend such action or proceeding by counsel reasonably satisfactory to the
Company and Torch, and the Company shall pay for all expenses therefor unless
such action or proceeding is resisted and defended by counsel for any carrier of
public liability insurance that benefits the Company or Torch. Torch shall
promptly give written notice to the Company when a claim is made against Torch
for which indemnity is owed to Torch by the Company pursuant to this Section
11.2. The Company shall participate in defense of such claims, but Torch shall
have the right to employ its own separate counsel, and Torch shall assist the
Company in the defense of any claim for which the Company owes indemnification
hereunder and is undertaking to provide a defense, by making available to the
Company such records and personnel of Torch as may be reasonably requested.

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Section 11.3 NON-ASSUMPTION OF LIABILITIES. Torch shall not, by entering
into this Agreement, assume or become liable for any of the obligations, debts
or other liabilities of the Company in existence or arising on or after the date
hereof. Other than with respect to any damages caused by the fraud, willful
misconduct or gross negligence of Torch in rendering services hereunder, and
except as provided in Section 11.1, Torch shall not, by providing management
services to the Company, assume or become liable for any of the obligations,
debts or other liabilities of the Company.

Section 11.4 EXPRESS NEGLIGENCE. THE INDEMNIFICATION, RELEASE AND
ASSUMPTION PROVISIONS PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER
OR NOT THE LOSSES, COSTS, EXPENSES AND DAMAGES IN QUESTION AROSE SOLELY OR IN
PART FROM THE ACTIVE, PASSIVE OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR
OTHER FAULT OF ANY INDEMNIFIED PARTY. THE COMPANY AND TORCH ACKNOWLEDGE THAT
THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.

ARTICLE XII. ACCESS TO INFORMATION, BOOKS AND RECORDS;
CONFIDENTIALITY; POWER OF ATTORNEY

Section 12.1 ACCESS TO BOOKS AND RECORDS. Torch and its duly authorized
representatives shall have complete access to the Company's offices, facilities
and records wherever located, in order to discharge Torch's responsibilities
hereunder. All records and materials furnished to Torch by the Company in
performance of this Agreement shall at all times during the Term of Agreement
remain the property of the Company. The Company and its duly authorized
representatives shall have complete access to records and other information
concerning the Company used by Torch in performance of its duties hereunder.

Section 12.2 CONFIDENTIALITY. For at least two years after the Term of
Agreement, Torch agrees to keep confidential all non-public information
concerning the Company acquired by Torch or its Affiliates during the Term of
Agreement. For the purpose of this Section 12.2, confidential information shall
not include any information available to or otherwise disclosed by the Company
to third parties generally. Nothing in this Section 12.2 shall prohibit any
announcement or disclosure by a Party that such Party determines is required to
be disclosed by applicable law or court order or is necessary to be disclosed in
connection with litigation.

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ARTICLE XIII. CONFLICTS OF INTEREST AND GOOD FAITH

Section 13.1 OTHER ACTIVITIES. The Company acknowledges that Torch and its
Affiliates own, manage and/or operate assets that compete directly with the
business of the Company and may own, manage and/or operate additional business
and assets in the future that may compete with the business of the Company, and
the Company agrees that Torch shall have no liability or accountability to the
Company for any such competing activities or interests or any profits or value
generated therefrom. The obligation of Torch to refer investment opportunities
to the Company is attached as Exhibit "A" and incorporated herein by reference.

ARTICLE XIV. REPRESENTATIONS AND WARRANTIES

Section 14.1 REPRESENTATIONS AND WARRANTIES OF TORCH. Torch represents and
warrants to the Company as follows:

(a) Torch has the full power and authority to conduct its business and
perform its obligations and consummate the transactions contemplated
hereunder.

(b) This Agreement has been duly executed and delivered by Torch.

(c) This Agreement is valid and legally binding obligation of Torch
enforceable against Torch in accordance with its terms, and the
Company is entitled to the benefits thereof.

(d) Torch is not in default with respect to any order, writ, injunction,
decree or demand of any court or any governmental authority, or in
the payment of any indebtedness for borrower money or under the
terms or provisions of any agreement or instrument evidencing or
securing any such indebtedness.

(e) No representation or warranty of Torch contained in this Agreement
and no statement of Torch contained in any monthly or interim
request for funds, certificate, schedule, list, financial statement
or other instrument furnished to the Company pursuant to this
Agreement contains, or will contain, any untrue statement of
material facts, or omits, or will omit, to state a material fact
necessary to make the statements contained herein or therein not
misleading.

(f) There are no actions, suits, proceedings or governmental
investigations or inquiries pending or threatened against Torch or
to which Torch is a party or which any property of Torch is subject,
which, if determined adversely to Torch,

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would materially affect the operations or financial position of
Torch or its ability to perform hereunder.

(g) Torch is validly existing and in good standing under the laws of the
State of Delaware and Torch possesses all licenses, consents,
approvals, authorizations and qualifications the absence of which
would, individually or in the aggregate, materially adversely affect
the business or properties of Torch.

(h) Neither the execution and delivery of this Agreement, nor the
performance or compliance with the terms and conditions hereof,
conflict with, or will result in a breach by Torch of, or constitute
a default under, or result in the creation of any lien, charge or
encumbrance upon, any asset of Torch pursuant to any of the terms,
conditions or provisions of (i) the Certificate of Incorporation or
Bylaws of Torch, (ii) any mortgage, deed of trust, lease, contract,
agreement or other instrument to which Torch is a party or by which
Torch may be bound or affected, or (iii) any writ, order, judgment,
decree, statute, ordinance, regulation or any other restriction of
any kind or character, to which Torch is subject, or by which Torch
may be bound or affected.

(i) All covenants, agreements, representations and warranties made by
Torch in this Agreement, shall survive the execution and deliver of
this Agreement.

Section 14.2 REPRESENTATIONS AND WARRANTIES OF COMPANY. The Company
represents and warrants to Torch as follows:

(a) The Company has the full power and authority to conduct its business
and perform all its obligations and consummate the transactions
contemplated hereunder.

(b) This Agreement has been duly executed and delivered by the Company.

(c) This Agreement is the valid and legally binding obligation of the
Company enforceable against the Company in accordance with its
terms, and Torch are entitled to the benefits thereof.

(d) The Company is not in default with respect to any order, writ,
injunction, decree or demand of any court or any governmental
authority, or in the payment of any indebtedness for borrowed money
or under the terms or provisions of any agreement or instrument
evidencing or securing any such indebtedness.

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<PAGE>

(e) No representation or warranty of the Company contained in this
Agreement or other instrument furnished by the Company to Torch
pursuant to this Agreement contains, or will contain, any untrue
statement of material fact, or omits, or will omit, to state a
material fact necessary to make the statements contained herein or
therein not misleading.

(f) There are no actions, suits, proceedings or governmental
investigations or inquiries pending or threatened against the
Company or to which the Company is a party or to which any property
of the Company is subject, which if determined adversely to the
Company, would materially affect the operations or financial
position of the Company, except for those which the Company has to
date disclosed to Torch.

(g) The Company is duly incorporated and validly existing and in good
standing under the laws of the State of Delaware and the Company
possesses all licenses, consents, approvals, authorizations and
qualifications (including qualifications to do business as a foreign
corporation) the absence of which would individually or in the
aggregate, materially adversely affect the business or properties of
the Company.

(h) Neither the execution and delivery of this Agreement, nor the
performance or compliance with the terms and conditions hereof,
conflict with, or will result in a breach by the Company of, or
constitute a default under, or result in the creation of any lien,
charge or encumbrance upon, any asset of the Company pursuant to any
of the terms, conditions or provisions of (i) the Certificate of
Incorporation or Bylaws of the Company, (ii) any mortgage, deed of
trust, lease, contract, agreement or other instrument to which the
Company is a party or by which the Company may be bound or affected,
or (iii) any writ, order, judgment, decree, statute, ordinance,
regulation or any other restriction of any kind or character, to
which the Company is subject, or by which the Company may be bound
or affected.

(i) All covenants, agreements, representations and warranties made by
the Company in this Agreement, shall survive the execution and
deliver of this Agreement.

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ARTICLE XV. TERM AND TERMINATION OF AGREEMENT

Section 15.1 INITIAL TERM. The initial term of this Agreement shall be for
a 3-year period beginning on the Effective Date ("Initial Term"). Thereafter,
this Agreement shall automatically renew for successive one-year periods until
terminated by either party in accordance with the provisions of this Article XV.
Provided, however, this Agreement shall not be effective, and the relationship
of the parties shall continue to be governed by the Original Management
Agreement, until the Commencement Date. In the event the Company does not
consummate its acquisition of the Unocal Assets, this Agreement shall have no
force or effect, except that Section 5.2 of the Original Management Agreement
shall be deleted and the Section 5.2 contained in this Agreement, with related
definitions, shall be substituted therein effective January 1, 1996.

Section 15.2 TERMINATION. This Agreement shall be terminated on the first
to occur of the following:

(a) In the event the parties shall mutually agree in writing, this
Agreement may be terminated on the terms and dates stipulated
therein.

(b) Subject to Section 15.3, prior to the expiration of the Initial
Term, the Company may, with or without cause, terminate this
Agreement on the first day of any month during the term of this
Agreement by giving to Torch at least one month's advance written
notice of its intent to terminate, whereupon this Agreement shall
terminate on the future date specified in such notice.

(c) Subject to Section 15.3, after the expiration of the Initial Term,
the Company may, with or without cause, terminate this Agreement on
the first day of any month during the term of this Agreement by
giving Torch at least 12 months' advance written notice of its
intent to terminate, whereupon this Agreement shall terminate on the
future date specified in such notice. Subject to Section 15.3, on
and after January 1, 2000, Torch may, with or without cause,
terminate this Agreement on the first day of any month during the
term of this Agreement by giving the Company at least 12 months'
advance written notice of its intent to terminate, whereupon this
Agreement shall terminate on the future date specified in such
notice.

(d) Subject to events of force majeure (as provided in Section 16.9
hereof), in the event either party shall fail to discharge any of
its material obligations hereunder, in the Marketing Agreement or
the Operating Agreement, including, without limitation, the
obligation to render services in connection with the Business in a

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prudent manner, or shall commit a material breach of this Agreement,
the Marketing Agreement or the Operating Agreement and such failure,
default or breach shall continue for a period of thirty (30) days
after the other party has served written notice of such default,
this Agreement may then be terminated at the option of the
non-breaching party by written notice thereof to the breaching
party.

(e) The Company shall have the right to terminate this Agreement
following the dissolution or termination of the corporate existence
of Torch or cessation on Torch's part to continue to do business.

(f) The Company shall have the right to terminate this Agreement if
there is instituted by or against Torch any proceedings under the
Bankruptcy Reform Act of 1978, as amended, under any other
bankruptcy law, or under any other law for the relief of debtors now
or hereafter existing, or a receiver is appointed for all or
substantially all of the assets of Torch and such proceeding is not
dismissed or such receiver is not discharged, as the case may be,
within thirty (30) days thereafter.

(g) The Company shall have the right to terminate this Agreement if
Torch shall (i) become insolvent, (ii) generally fail to, or admit
in writing its inability to, pay debts as they become due, (iii)
make a general assignment for the benefit of creditors, (iv) apply
for, consent to or acquiesce in the appointment of a trustee,
receiver or other custodian.

(h) The Company shall have the right to terminate this Agreement if a
substantial portion of the assets or properties of Torch shall be
seized or taken by order of a governmental or judicial authority, if
any order of attachment, garnishment, or any other writ shall be
issued against Torch or any of its assets, or if any other lawful
creditor's remedy shall be asserted or exercised with respect
thereof.

(i) The Company shall have the right to terminate this Agreement in the
event a Change of Control occurs without the Company's consent, such
consent not to be withheld unreasonably.

The Company may exercise its right to terminate this Agreement under
paragraphs (e) through (i) of this Section 15.2 by giving Torch not less than
thirty (30) and not more than one hundred eighty (180) days written notice of
such termination in which case this Agreement shall terminate on the date
specified in such notice.

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<PAGE>

Section 15.3 EFFECTS OF TERMINATION. The termination of this Agreement in
accordance with the provisions of this Article XV shall have the following
effects:

(a) Except for the mutual indemnities, covenants or other provisions
herein that by their terms expressly extend beyond the Term of
Agreement, the Parties' obligations hereunder are limited to the
Term of Agreement.

(b) In the event this Agreement is terminated for any reason, Torch
shall immediately deliver possession to the Company of all assets,
books and records of the Company in Torch's possession and shall
provide the Company with copies of all assets, books and records
(including electronic copies in the format requested by the Company
and reasonably within Torch's capability) relating to the businesses
of the Company in Torch's possession.

(c) Upon a termination of this Agreement, the Marketing Agreement and/or
the Operating Agreement (for whatever cause), the Company shall pay
to Torch the amount of any and all costs and expenses accrued to the
date of such termination which are payable by the Company to Torch
in accordance with the provisions hereof.

(d) Upon termination of this Agreement, the Marketing Agreement and/or
the Operating Agreement by the Company, the Company shall reimburse
Torch for all reasonable amounts incurred by Torch in connection
with its activities under this Agreement. Without limiting the
foregoing, the Company shall (i) hire or pay all reasonable costs of
terminating all of Torch's employees used to conduct the Company's
Business, (ii) lease, sublease or reimburse Torch for all or a
portion of the rental of any facilities or equipment used by Torch
under the Agreement which use was discontinued or reduced by
termination of this Agreement, and (iii) succeed to or indemnify
Torch for any insurance, bonds, contracts or agreements entered into
by Torch relating to the Business.

(e) In addition to any other requirement in this Article XV, if the
Company terminates this Agreement upon the expiration of the Initial
Term, other than pursuant to Section 15.2(d),(e), (f), (g), (h) or
(i), the Company shall pay to Torch a fee equal to one year's fee
under this Agreement, the Operating Agreement and the Marketing
Agreement (the "Break-up Fee"), provided that no such fee will be
payable if a fee is payable under subsection (f) of this Section
15.3. The Break-up Fee shall be calculated based on the total fee
paid for the twelve months immediately preceding the date this
Agreement terminates and shall be payable on the termination date.

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<PAGE>

(f) In addition to any other requirement in this Article XV, in the
event the Company terminates this Agreement (i) prior to the
expiration of the first year of the Initial Term, other than
pursuant to Section 15.2(d), (e), (f), (g), (h) or (i), the Company
shall pay to Torch a fee of $30,000,000.00; (ii) during the second
year of the Initial Term, other than pursuant to Section 15.2(d),
(e), (f), (g), (h), or (i), the Company shall pay to Torch a fee of
$25,000,000.00; or (iii) during the third year of the Initial Term,
other than pursuant to Section 15.2 (d), (e), (f), (g), (h) or (i),
the Company shall pay to Torch a fee of $20,000,000.00.

Section 15.4 TERMINATION OF THE MARKETING AGREEMENT AND THE OPERATING
AGREEMENT. Notwithstanding anything herein, in the Marketing Agreement or in the
Operating Agreement to the contrary, in the event the Company is not reasonably
satisfied with the performance of TEMI under the Marketing Agreement or TOC
under the Operating Agreement, the Company may terminate the applicable
agreement by giving TEMI or TOC, as appropriate, three (3) months' advance
written notice of its intent to terminate. The Company acknowledges that the
fees payable under this Agreement and the Marketing Agreement and Operating
Agreement are interdependent, and agrees that the amount of such fees under the
Marketing Agreement or Operating Agreement or the Company's ability to receive
similar services for a lower fee shall not constitute a reason to terminate this
Agreement. Furthermore, such termination shall not impair the effectiveness of
this Agreement or any other agreement between Torch and the Company. The Company
hereby acknowledges that as of the date hereof, it is satisfied with Torch's,
TEMI's and TOC's performance hereunder, under the Operating Agreement and under
the Marketing Agreement and is unaware of any reason it would have to exercise
such termination option. In the event TOC or TEMI disputes the company's ability
to trigger the above termination option, they may request that the Resolution
Committee formed under Section 4.5 determine whether or not the Company
terminates the Marketing Agreement or the Operating Agreement because the
Company was not reasonably satisfied with the performance of TEMI or TOC as
provided above. The decision of the Resolution Committee shall be final and
binding upon Torch and the Company.

Section 15.5. RIGHTS UPON TERMINATION. Torch agrees that promptly after it
receives notice of termination of this Agreement, Torch shall provide the
Company access to all books, records and other documents in Torch's possession
or within its control regarding the Company's business, and shall provide, at
the Company's expense, copies (including electronic copies in the format
requested by the Company and reasonably within Torch's capability) of all files
and other information regarding the Company's operations within Torch's
possession or control. Within the later of sixty (60) days prior to termination
hereunder by Nuevo or sixty (60) days following notice of termination hereunder
by Nuevo, Torch shall also identify to the Company those employees of Torch or
its Affiliates which the Company will be required to hire or pay

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<PAGE>

reasonable severance under Section 15.3(d), and will permit the Company to meet
and negotiate with such personnel for the purpose of hiring any such personnel
as the Company may elect to hire following the termination of this Agreement.
Torch will provide the Company with all relevant employment files and other
information about such employees requested by the Company and as permitted by
applicable law, provided that prior to releasing any such information, Torch
shall receive an indemnification reasonably satisfactory to it covering Nuevo's
use of such information. Torch agrees to cooperate in good faith with the
Company following the notice of termination of this Agreement in order to permit
the Company to succeed to and perform the services provided by Torch under this
Agreement.

ARTICLE XVI. MISCELLANEOUS

Section 16.1 RELATIONSHIP OF PARTIES. This Agreement does not create a
partnership, joint venture or association; nor does this Agreement, or the
operations hereunder, create the relationship of lessor and lessee or bailor and
bailee. Nothing contained in this Agreement or in any agreement made pursuant
hereto shall ever by construed to create a partnership, joint venture or
association, or the relationship of lessor and lessee or bailor and bailee, or
to impose any duty, obligation or liability that would arise therefrom with
respect to either or both of the Parties except as otherwise expressly provided
in this Agreement or any agreement made pursuant hereto. Specifically, but not
by way of limitation, except as otherwise expressly provided for herein, nothing
contained herein shall be construed as imposing any responsibility on Torch for
the debts or obligation of the Company or any of its Affiliates. It is expressly
understood that Torch is hereby engaged by the Company to manage the Business
only as an agent of the Company. Subject to the terms of this Agreement, Torch
and its Affiliates shall have the right to render similar services for other
business entities and persons, including its own, whether or not engaged in the
same business as the Company.

Section 16.2 NO THIRD PARTY BENEFICIARIES. Except to the extend a third
party is expressly given rights herein, any agreement to pay an amount and any
assumption of liability herein contained, expressed or implied, shall be only
for the benefit of the parties and their respective legal representatives,
successors and assigns, and such agreement or assumption shall not injure to the
benefit of the obligors of any indebtedness of any party whomsoever, it being
the intention of the parties hereto that no person or entity shall be deemed a
third party beneficiary of this Agreement except to the extent a third party is
expressly given rights herein.

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<PAGE>

Section 16.3 NOTICES. Any notice, demand, or communication required,
permitted, or desired to be given hereunder shall be deemed effectively given
when personally delivered or mailed by prepaid certified mail, return receipt
requested, addressed as follows:

(i) if to the Company to:

Nuevo Energy Company
1331 Lamar
Suite 1600
Houston, Texas 77010
Attn: President

(ii) if to Torch, to:
Torch Energy Advisors Incorporated
1221 Lamar
Suite 1600
Houston, Texas 77010
Attn: President

or to such other address and to the attention of such other person or officer as
either Party may designate by written notice pursuant to this Section 16.3.

Section 16.4 GOVERNING LAW. THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED
IN AND SHALL BE INTERPRETED, CONSTRUED AND ENFORCED PURSUANT TO AND IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

Section 16.5 ASSIGNMENT. No assignment of this Agreement or any of the
rights or obligations set forth herein by either party shall be valid without
the specific written consent of the other party.

Section 16.6 WAIVER OF BREACH. The waiver by either party of a breach or
violation of any provision of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach of the same or any other
provision hereof.

Section 16.7 ENFORCEMENT. In the event either party shall resort to legal
action to enforce the terms and provisions of this Agreement, the prevailing
party may recover from the other party the costs of such action including,
without limitation, reasonable attorneys' fees.

Section 16.8 ADDITIONAL ASSURANCES. The provisions of this Agreement shall
be self-operative and shall not require further accord between the parties
except as may herein

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<PAGE>

specifically be provided to the contrary; provided, however, that upon the
request of either party, the other party shall execute such additional
instruments and take such additional actions as shall be necessary to effectuate
this Agreement.

Section 16.9 FORCE MAJEURE. Neither party shall be liable nor deemed to be
in default for any delay or failure of performance under this Agreement or other
interruption of service or employment resulting directly or indirectly from acts
of God, civil or military authority, acts of public enemy, war, accidents,
fires, explosions, earthquakes, floods, failure of transportation, strikes or
other war, interruptions by either party's employees or agent or any similar or
dissimilar cause beyond the reasonable control of either party.

Section 16.10 SEVERABILITY. In the event any provisions of this Agreement
is held to be unenforceable for any reason, such provision shall be severable
from this Agreement if it is capable of being identified with and apportioned to
reciprocal consideration or to the extent that it is a provision that is not
essential and the absence of which would not have prevented the parties from
entering into this Agreement. The unenforceability of a provision that has been
performed shall not be grounds for invalidation of this Agreement under
circumstances in which the true controversy between the parties does not involve
such provision.

Section 16.11 ARTICLE AND SECTION HEADINGS. The articles and section
headings contained in this Agreement are for reference purposes only and shall
not effect in any way the meaning or interpretation of this Agreement.

Section 16.12 DISCRETIONARY TERMS. Determination of "necessary",
"appropriate" and other discretionary terms as used herein shall be according to
the judgment and discretion of the respective parties in accordance with
generally accepted standards of the oil and gas industry.

Section 16.13 AMENDMENTS AND CONTRACT EXECUTION. This Agreement supersedes
all previous contracts between the parties and constitutes the entire Agreement
between the parties with respect to the subject matter of this Agreement. No
oral statement or prior written material not specifically incorporated herein
shall be of any force and effect, and no changes in or additions to this
Agreement shall be recognized unless incorporated herein by amendment, such
amendment to become effective on the date stipulated therein.

Section 16.14 INVESTMENT POLICY. The Investment Policy and Procedures is
attached hereto as Exhibit "A".

Section 16.15 PERIODIC MEETINGS. At the Company's request, Torch will meet
with the executive officers of the Company to discuss any questions the
executive officers of the Company might have regarding the performance of
Administrative Services and the costs and

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<PAGE>

expenses relative thereto. Torch and Company agree to negotiate diligently and
in good faith to resolve any issues presented at the periodic meetings.

Section 16.16. ARBITRATION. The parties hereto agree to the following:

(a) Any controversy or claim arising out of or relating to this
Agreement, or the breach hereof, shall be settled by arbitration in
accordance with such rules as may be agreed upon by the parties
hereto, or failing agreement, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the
"AAA") as such rules may be modified herein.

(b) An award rendered in connection with an arbitration pursuant to this
section shall be final and binding, and judgment upon such an award
may be entered and enforced in any court of competent jurisdiction.

(c) The forum for arbitration under this section shall be Houston,
Harris County, Texas and the governing law for such arbitration
shall be laws of the State of Texas.

(d) Either of the parties hereto shall have the right to commence an
arbitration by sending a notice to the other which shall state INTER
ALIA: (i) the amount of the controversy (ii) the nature of the
controversy and (iii) that party's nominee, if any, for arbitrator.

(e) Arbitration under this section shall be conducted by a single
arbitrator selected by negotiations between an authorized attorney
for each party. If after a period of 30 days from the demand for
arbitration no single arbitrator is selected, then such single
arbitrator shall be selected in accordance with Rule 13 of the AAA
Commercial Arbitration Rules (as amended). In connection with the
selection of such single arbitrator, consideration shall be given to
familiarity with the oil and gas business and experience in dispute
resolution between parties, as a judge or otherwise.

(f) If the arbitrator cannot continue to serve, a successor shall be
selected by the procedures set forth in Section 16.16(e) hereof.

(g) The arbitrator shall be guided, but not bound, by the Federal Rules
of Evidence and by the procedural rules, including discovery
provisions, of the Federal Rules of Civil Procedure. Any discovery
shall be limited to information directly

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<PAGE>

relevant to the controversy or claim in arbitration. The
arbitrator's ruling on discovery and procedural matters shall be
binding on the parties.

(h) The parties shall each be responsible for their own costs and
expenses, except for the fees and expenses of the arbitrator, which
shall be shared equally by the parties hereto.

Section 16.17 COMPANY STOCK. Torch will acquire shares of Company common
stock as of the Commencement Date. For so long as Torch continues to own such
Company common stock and this Agreement remains in full force and effect, Torch
agrees to vote all of its shares of Company stock in accordance with the
Company's instructions. Provided however, such instructions are made by
two-thirds (2/3) of the Company Board of Directors.

-29-
<PAGE>

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their respective duly authorized representatives as of the day and year first
above written.

TORCH ENERGY ADVISORS INCORPORATED

By: ___________________________________________
Name: Douglas L. Foshee
Title: President & Chief Operating Officer

NUEVO ENERGY COMPANY

By: ___________________________________________
Name: Michael D. Watford
Title: President

WITHDRAWAL AS A MANAGER
ACKNOWLEDGED AND AGREED TO
this ____ day of January, 1996.

ENERGY ASSETS INTERNATIONAL CORPORATION

By: _____________________________
Name: ___________________________
Title: __________________________

-30-
<PAGE>

EXHIBIT "A"

Nuevo Energy Company

Bellwether Exploration Company

Torch Energy Advisors Incorporated

Investment Policies and Procedures

Affiliated Transactions

Torch Energy Advisors Incorporated ("Torch") currently renders services in
connection with the day to day affairs of Nuevo Energy Company ("Nuevo") and
Bellwether Exploration Company ("Bellwether") pursuant to management agreements
("Agreements"). The Agreements contemplate that Torch may generate prospects and
other investment opportunities (collectively, "Investments") in the ordinary
course of its business, and will offer to Nuevo and Bellwether the opportunity
to purchase all or a portion of the Investments.

Torch and its affiliates also render oil and gas management and advisory
services to institutional investors under contractual arrangements, and act as
general partner or managing partner of limited partnerships and general
partnerships that invest in oil and gas assets (such contractual arrangements or
partnerships currently existing or formed in the future are referred to as the
"Institutional Programs"). The Institutional Programs have agreements with Torch
or its affiliates regarding the parameters for Investments which the
Institutional Programs will make. It is anticipated that future Institutional
Programs shall also have specified parameters.

It is the policy of Nuevo and Bellwether to participate in those
Investments brought to it by Torch that are not within the investment parameters
of the Institutional Programs. Nuevo and Bellwether are aware of the current
investment parameters of the Institutional Programs, and Torch will provide
Nuevo and Bellwether access to any investment parameters for Institutional
Programs formed in the future. Nuevo and Bellwether further are aware that Torch
is obligated to offer to the Institutional Programs Investments that are within
their respective investment parameters.

Torch shall offer all Investments (i) that are not within the investment
parameters of the Institutional Programs and (ii) that the Institutional
Programs elect not to pursue, to Nuevo and Bellwether, if the Investment is
within the scope of Nuevo's or Bellwether's business.

<PAGE>

As between Nuevo and Bellwether, Torch will determine whether to make an
opportunity available to Nuevo or Bellwether based on the following:

(a) If the Investment is located in Nuevo's Area of Exclusive Interest,
Torch will offer the Investment first to Nuevo. Nuevo's Areas of
Exclusive Interest are (i) if the Investment is an oil and gas
property acquisition, those geographic areas in which Nuevo owns (at
the time of the proposed Investment) properties (1) that produce
from the same formation and (2) that had a present value of
discounted future net cash flows in excess of $5,000,000
attributable to estimated proved reserves (prepared in accordance
with Securities and Exchange Commission rules) as of the end of the
immediately preceding year (which may be on a pro forma basis
assuming any acquisitions during the year) or is in a geographic
area where Nuevo has a significant acreage position and (ii) if the
Investment is not a property acquisition, the immediate geographic
area in which Nuevo has assets with a book value of over $1,000,000.

(b) If the Investment is located in Bellwether's Areas of Exclusive
Interest, Torch will offer the Investment first to Bellwether.
Bellwether's Areas of Exclusive Interest are (i) if the Investment
is an oil and gas property acquisition, those geographic areas in
which Bellwether owns (at the time of the proposed Investment)
properties that (1) that produce from the same formation and (2)
that had a discounted present value of future net cash flows in
excess of $500,000 attributable to estimated proved reserves
(prepared in accordance with Securities and Exchange Commission
rules) as of the end of the immediately preceding year (which may be
on a pro forma basis assuming any acquisitions during the year) and
(ii) if the Investment is not a property acquisition, the immediate
geographic area in which Bellwether has assets with a book value of
over $100,000.

(c) All Investments outside of the Areas of Exclusive Interest will be
offered jointly to Nuevo and Bellwether. Unless Nuevo and Bellwether
otherwise agree among themselves, Nuevo will be entitled to purchase
an undivided 80% interest in each Investment and Bellwether will be
entitled to purchase an undivided 20% interest in each Investment.
With respect to assets that form part of an Investment which are not
capable of division, Torch will allocate such assets between Nuevo
and Bellwether in a manner deemed fair and reasonable by Torch,
whose decision shall be final and binding.

Page 2 of Exhibit "A"
<PAGE>

Torch shall offer Investments to Nuevo or Bellwether by notifying the
executive employees of Nuevo or Bellwether who are not employees of Torch, by
any course of conduct deemed acceptable to Nuevo and Bellwether, and Nuevo and
Bellwether shall accept or reject such offers orally or in writing. If Torch,
Nuevo or Bellwether requests a written confirmation of an offer or acceptance
from the another party, such other party shall deliver it promptly. Neither
Nuevo nor Bellwether shall have any responsibility or liability for Torch's
determination to offer or not offer an Investment to an Institutional Program.

At the request from time to time of Nuevo or Bellwether, Torch shall make
available information regarding the Investments not offered to Nuevo or
Bellwether, subject to any confidentiality arrangements regarding such
information. The executive management of Nuevo and Bellwether who are not
employees of Torch shall follow a policy of reviewing with the members of their
respective boards of directors who are not employees of Torch, on a quarterly
basis, all Investments proposed by Torch, the Investments of Torch not offered
to Nuevo or Bellwether, and the performance of Torch during such quarter. Torch
understands that the Bellwether Agreement may be terminated by such independent
committee.

Except as contemplated in that certain agreement dated effective March 31,
1994, between Nuevo and Bellwether, pursuant to which Bellwether is entitled to
certain prospects generated by a subsidiary of Nuevo, Nuevo shall have no right
to participate in an Investment generated by Bellwether, and Bellwether shall
have no right to participate in an Investment generated by Nuevo.

Torch agrees not to acquire for its own account (other than pursuant to
the Institutional Programs) any Investment that is in an Area of Exclusive
Interest of Nuevo or Bellwether without the prior consent of Nuevo or
Bellwether, as the case may be. Such Consent shall be given by approval of the
directors of Nuevo or Bellwether who are not employees of Torch.

Page 3 of Exhibit "A"

EXHIBIT 22
NUEVO ENERGY COMPANY

SUBSIDIARIES OF THE REGISTRANT

NAME STATE OF INCORPORATION

Rubicon Venture, Inc. Delaware

Nuevo Liquids, Inc. Texas

Bright Star Gathering, Inc. Texas

Sierra Power Corporation, L.C. Texas

Richfield Natural Gas, Inc. Kansas

Nuevo Congo Company Delaware

The Congo Holding Company Delaware

Nuevo Financing I Delaware

EXHIBIT 23.1

The Board of Directors
Nuevo Energy Company:

We consent to incorporation by reference in the registration statement (No.
33-43329) on Form S-8, registration statement (No. 33-70108) on Form S-8,
registration statement (No. 333-21063) on Form S-8 and registration statement
(No. 333-16231) on Form S-3 of Nuevo Energy Company of our report dated
February 21, 1997, relating to the consolidated balance sheets of Nuevo Energy
Company and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996,
which report appears in the December 31, 1996 annual report on Form 10-K of
Nuevo Energy Company.

KPMG PEAT MARWICK LLP

Houston, Texas
March 10, 1997

<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,636
<SECURITIES> 0
<RECEIVABLES> 37,595
<ALLOWANCES> 0
<INVENTORY> 2,731
<CURRENT-ASSETS> 63,638
<PP&E> 1,174,638
<DEPRECIATION> (392,977)
<TOTAL-ASSETS> 863,803
<CURRENT-LIABILITIES> 40,100
<BONDS> 0
115,000
0
<COMMON> 199
<OTHER-SE> 376,911
<TOTAL-LIABILITY-AND-EQUITY> 863,803
<SALES> 324,232
<TOTAL-REVENUES> 325,846
<CGS> 131,275
<TOTAL-COSTS> 267,989
<OTHER-EXPENSES> 100,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,174
<INCOME-PRETAX> 57,857
<INCOME-TAX> 23,432
<INCOME-CONTINUING> 34,696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,757
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 1.83

</TABLE>