SANTA FE ENERGY RESOURCES INC, SC 13E4, 1996-10-23

SANTA FE ENERGY RESOURCES INC
SC 13E4, 1996-10-23
CRUDE PETROLEUM & NATURAL GAS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
OCTOBER 22, 1996

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 13E-4

ISSUER TENDER OFFER STATEMENT
(Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934)

SANTA FE ENERGY RESOURCES, INC.
(Name of Issuer)

SANTA FE ENERGY RESOURCES, INC.
(Name of Person(s) Filing Statement)

Convertible Preferred Stock, 7% Series,
Par Value $0.01 Per Preferred Share
(Title of Class of Securities)

802012 20 3
(CUSIP Number of Class of Securities)

Mark A. Older
Secretary
Santa Fe Energy Resources, Inc.
1616 South Voss Road, Suite No. 1000
Houston, TX 77057
(713) 507-5000
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of the Person Filing Statement)

Copy to:
G. Michael O'Leary, Esq.
Andrews & Kurth L.L.P.
Texas Commerce Tower
600 Travis, Suite 4200
Houston, TX 77002
(713) 220-4200

October 22, 1996
(Date Tender Offer First Published,
Sent or Given to Security Holders)

CALCULATION OF FILING FEE

Transaction Valuation* Amount of Filing Fee**
$110,250,000 $22,050
========================================= ======================================
* Assumes purchase of 4,500,000 Preferred Shares at $24.50 per Preferred
Share.

** Calculated based on the transaction valuation multiplied by one-fiftieth
of one percent.
<PAGE>
[ ] Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

Amount Previously Paid:
Form or Registration No.:
Filing Party:
Date Filed:
<PAGE>
ITEM 1. SECURITY AND ISSUER.

1. The name of the issuer is Santa Fe Energy Resources, Inc., a Delaware
corporation (the "Company"), which has its principal executive offices at 1616
South Voss Road, Suite No. 1000, Houston, Texas 77057 (telephone number (713)
507-5000).

2. The information set forth in the front cover page, "Introduction",
"Section 1. Background of the Transactions", "Section 2. Certain Effects of the
Proposed Spinoff; Certain Effects of the Offer", "Section 3. Purposes of the
Offer", "Section 6. Expiration Date; Extension of the Offer; Proration" and
"Section 14. Transactions and Arrangements Concerning the Preferred Shares" of
the Offer to Purchase, a copy of which is attached hereto as Exhibit (a)(1),
(the "Offer to Purchase") is incorporated herein by reference.

3. The information set forth in the "Introduction" and "Section 11.
Price Range of the Preferred Shares; Dividends" of the Offer to Purchase is
incorporated herein by reference.

4. This statement is being filed by the issuer.

ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

(a)-(b) The information set forth in "Section 1. Background of the
Transactions" and "Section 13. Source and Amount of Funds" of the Offer to
Purchase is incorporated herein by reference.

ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.

(a)-(j) The information set forth in "Section 1. Background of the
Transactions", "Section 2. Certain Effects of the Proposed Spinoff; Certain
Effects of the Offer" and "Section 3. Purposes of the Offer" of the Offer to
Purchase is incorporated herein by reference.

ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.

The information set forth in "Section 14. Transactions and Arrangements
Concerning the Preferred Shares" of the Offer to Purchase is incorporated herein
by reference.

ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE ISSUER'S SECURITIES.

The information set forth in "Section 14. Transactions and Arrangements
Concerning the Preferred Shares" of the Offer to Purchase is incorporated herein
by reference.

ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.

The information set forth in the front cover page and "Section 20. Fees
and Expenses" of the Offer to Purchase is incorporated herein by reference.

ITEM 7. FINANCIAL INFORMATION.

(a)-(b) The financial information set forth in "Section 12. Certain
Information Concerning the Company" of the Offer to Purchase is incorporated
herein by reference.
<PAGE>
ITEM 8. ADDITIONAL INFORMATION.

(a) Not applicable.

(b) The information set forth in "Section 5. Certain Legal Matters;
Regulatory and Foreign Approvals; No Appraisal Rights" of the Offer to Purchase
is incorporated herein by reference.

(c) The information set forth in "Section 2. Certain Effects of the
Proposed Spinoff; Certain Effects of the Offer" of the Offer to Purchase is
incorporated herein by reference.

(d) Not applicable.

(e) Reference is hereby made to the Offer to Purchase and the related
Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1)
and (a)(2), respectively, and incorporated in their entirety herein by
reference.

ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.

(a)(1) Form of Offer to Purchase dated October 22, 1996.

(a)(2) Form of Letter of Transmittal.

(a)(3) Form of Notice of Guaranteed Delivery.

(a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees dated October 22, 1996.

(a)(5) Form of Letter to Clients for Use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees dated October 22, 1996.

(a)(6) Letter to Shareholders dated October 22, 1996.

(a)(7) Form of Press Release dated October 22, 1996.

(a)(8) Form of Summary Advertisement dated October 23, 1996.

(a)(9) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.

(b)(1) Commitment Letter from The Chase Manhattan Bank to the Company.

(d) Not applicable.

(e) Not applicable.

(f) Not applicable.
<PAGE>
SIGNATURE

After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.

SANTA FE ENERGY RESOURCES, INC.

By: /s/ JAMES L. PAYNE
President and Chief
Executive Officer

Dated: October 22, 1996
<PAGE>
EXHIBIT (a)(1)

SANTA FE ENERGY RESOURCES, INC.

OFFER TO PURCHASE FOR CASH

UP TO 4,500,000 SHARES OF ITS OUTSTANDING CONVERTIBLE
PREFERRED STOCK, 7% SERIES, PAR VALUE $0.01 PER SHARE

$24.50 NET PER PREFERRED SHARE

THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 19, 1996, UNLESS THE OFFER IS
EXTENDED (THE "EXPIRATION DATE"). SEE SECTION 6.

Santa Fe Energy Resources, Inc., a Delaware corporation (the "Company"),
invites the holders of its Convertible Preferred Stock, 7% Series, par value
$0.01 per share (the "Preferred Shares"), to tender their Preferred Shares, at
a price of $24.50 per Preferred Share (the "Purchase Price"), net to the
seller in cash, upon the terms and subject to the conditions set forth in this
Offer to Purchase and in the related Letter of Transmittal (which together
constitute the "Offer"). The Company will purchase all Preferred Shares
validly tendered and not withdrawn up to the 4,500,000 Preferred Shares sought
(the "Amount Sought"), upon the terms and subject to the conditions of the
Offer, including the provisions relating to proration. Upon the terms and
subject to the conditions of the Offer, if more Preferred Shares than the Amount
Sought have been validly tendered and not withdrawn on or prior to the
Expiration Date, the Company will purchase Preferred Shares from each tendering
holder on a pro rata basis, subject to adjustment to avoid the purchase of
fractional Preferred Shares. Preferred Shares not purchased because of proration
will be returned.

---------------------------
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF
CONVERTIBLE PREFERRED STOCK BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO
CERTAIN OTHER CONDITIONS. SEE SECTION 10.
---------------------------

The Preferred Shares are listed for trading on the New York Stock Exchange
(the "NYSE"). On October 21, 1996, the last trading day before the Company
commenced the Offer, the closing sales price of the Preferred Shares as reported
on the NYSE Composite Tape was $23 3/8 per Preferred Share, and on September 17,
1996, the last trading day before the Company announced its intention to pursue
an offer for the Preferred Shares, the closing sales price of the Preferred
Shares as reported on the NYSE Composite Tape was $22 1/8 per Preferred Share.
Shareholders are urged to obtain a current market quotation for the Preferred
Shares.

---------------------------
The Company will pay to a Soliciting Dealer (as defined herein) a
solicitation fee of $0.20 per Preferred Share, for any Preferred Shares
tendered, accepted for payment and paid for pursuant to the Offer, subject to
certain conditions. See Section 20.
---------------------------

The Company has declared the regular quarterly dividend of $0.35 per
Preferred Share to be paid on December 2, 1996 to holders of record as of the
close of business on November 1, 1996 (the "December 1996 Dividend"). A tender
of Preferred Shares pursuant to the Offer will not deprive a shareholder of his
or her right to receive the December 1996 Dividend regardless of when such
tender is made. Holders of Preferred Shares tendered into and purchased pursuant
to the Offer will not be entitled to any dividends in respect of any later
dividend periods (or any portion thereof). The Company expects to pay the next
regular quarterly dividend for outstanding Preferred Shares on March 3, 1997 to
holders of record as of the close of business on a date to be determined by the
Company's Board of Directors.

---------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
---------------------------

THE COMPANY, ITS BOARD OF DIRECTORS AND ITS EXECUTIVE OFFICERS MAKE NO
RECOMMENDATION AS TO WHETHER ANY SHAREHOLDER SHOULD TENDER ANY OR ALL OF SUCH
SHAREHOLDER'S PREFERRED SHARES PURSUANT TO THE OFFER. EACH SHAREHOLDER MUST MAKE
ITS OWN DECISION WHETHER TO TENDER PREFERRED SHARES AND, IF SO, HOW MANY
PREFERRED SHARES TO TENDER.

---------------------------
The Dealer Manager for the Offer Is:

LEHMAN BROTHERS
---------------------------

October 22, 1996
<PAGE>
IMPORTANT

Any shareholder desiring to tender all or any portion of such shareholder's
Preferred Shares should either (1) complete the Letter of Transmittal or a
facsimile copy thereof in accordance with the instructions in the Letter of
Transmittal, mail or deliver it and any other required documents to First
Chicago Trust Company of New York (the "Depositary") or follow the procedure
for book-entry transfer set forth in Section 7, or (2) request such
shareholder's broker, dealer, commercial bank, trust company or nominee to
effect the transaction for such shareholder. Shareholders having Preferred
Shares registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact such person if they desire to tender their
Preferred Shares. Shareholders who wish to tender Preferred Shares and whose
certificates for such Preferred Shares are not immediately available should
tender such Preferred Shares by following the procedures for guaranteed delivery
set forth in Section 7.

Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal or the Notice of Guaranteed
Delivery may be directed to D.F. King & Co., Inc. (the "Information Agent") or
Lehman Brothers Inc. (the "Dealer Manager") at the addresses and telephone
numbers set forth on the back cover of this Offer to Purchase.

NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
COMPANY AS TO WHETHER SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING
PREFERRED SHARES PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
OTHER THAN THOSE CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF
TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY.

THIS OFFER TO PURCHASE MAY CONTAIN FORWARD-LOOKING STATEMENTS THAT ARE
BASED ON ASSUMPTIONS THAT IN THE FUTURE MAY PROVE NOT TO HAVE BEEN ACCURATE.
THOSE STATEMENTS, AND THE COMPANY'S BUSINESS AND PROSPECTS, ARE SUBJECT TO A
NUMBER OF RISKS, INCLUDING THE VOLATILITY OF OIL AND GAS PRICES, ENVIRONMENTAL
RISKS, OPERATING HAZARDS AND RISKS, RISKS RELATED TO EXPLORATION AND DEVELOPMENT
DRILLING, UNCERTAINTIES ABOUT ESTIMATES OF RESERVES, COMPETITION, GOVERNMENT
REGULATION, AND THE ABILITY OF THE COMPANY TO IMPLEMENT ITS BUSINESS STRATEGY.
THESE AND OTHER RISKS ARE DESCRIBED IN THE COMPANY'S REPORTS THAT ARE AVAILABLE
FROM THE SECURITIES AND EXCHANGE COMMISSION. SEE "AVAILABLE INFORMATION" AND
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."

AVAILABLE INFORMATION

The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission").
Such material filed by the Company with the Commission may be inspected by
anyone without charge at the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048 or on the Internet at
http://www.sec.gov. Copies of such material may also be obtained at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. Such
reports, proxy statements and other information concerning the Company may also
be inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005.

(ii)
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission pursuant
to the Exchange Act are hereby incorporated herein by reference:

1. the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;

2. the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996;

3. the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996; and

4. the Company's Current Report on Form 8-K, dated September 18, 1996.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act on or subsequent to the date of this Offer to Purchase
and prior to the termination of the Offer will also be deemed to be incorporated
herein by reference from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Offer
to Purchase to the extent that a statement contained herein, or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. The Company will
provide without charge to each person to whom this Offer to Purchase is
delivered, on the written request of such person, a copy of any or all the
documents incorporated herein by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Written requests should be directed to the Company at 1616
South Voss Road, Suite No. 1000, Houston, Texas 77057, Attention: Mark A. Older,
Secretary.

CERTAIN DEFINITIONS

As used herein, the following terms have the specific meanings set out:
"Bbl" means barrel, "MBbl" means thousand barrels, "MMBbl" means million
barrels, "Mcf" means thousand cubic feet, "MMcf" means million cubic feet,
"Bcf" means billion cubic feet, "BOE" means barrel of oil equivalent,
"MBOE" means thousand barrels of oil equivalent, and "MMBOE" means million
barrels of oil equivalent. Natural gas volumes are converted to barrels of oil
equivalent using the ratio of 6.0 Mcf of natural gas to 1.0 barrel of crude oil.
Unless otherwise indicated in this Offer to Purchase, natural gas volumes are
stated at the legal pressure base of the state or area in which the reserves are
located and at 60 Fahrenheit. "Finding costs" refers to costs incurred for
development, exploration and acquisition activities which add to the Company's
oil and gas reserves. "Finding costs per BOE" refers to a fraction, the
numerator of which is equal to the finding costs incurred by the Company and the
denominator of which is equal to net proved reserve additions from acquisitions,
extensions, discoveries, improved recovery and revisions, on a BOE basis.
"Improved recovery", "enhanced oil recovery" and "EOR" include all methods
of supplementing natural reservoir forces and energy, or otherwise increasing
ultimate recovery from a reservoir, such as waterfloods, thermal techniques
(including cyclic steam, steam flood and in-situ combustion operations) and CO2
(carbon dioxide) injection. "Heavy oil" or "heavy crude" is low gravity,
high viscosity crude oil. "Working interest" means an operating interest which
gives the owner the right to drill, produce and conduct operating activities on
a property and to a share of production and related expenses. "Net revenue
interest" means the percentage of production to which the owner of a working
interest is entitled. "Net acres" and "net wells" refer to the sum of the
fractional working interests owned in gross acres and gross wells, respectively.
Unless otherwise indicated, references to "reserves" means net proved reserves
and references to "wells" means gross wells. EBITDA as presented herein is
defined as the sum of income before provision for income taxes, interest,
restructuring charges, depreciation, depletion, amortization, impairments and
certain non-cash charges including gains or losses on the disposition of
properties.

(iii)
<PAGE>
TABLE OF CONTENTS

PAGE
----

AVAILABLE INFORMATION .................................................. (ii)

INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE .............................................................. (iii)

CERTAIN DEFINITIONS .................................................... (iii)

SUMMARY .................................................................... 1

INTRODUCTION ............................................................... 3

SPECIAL FACTORS ............................................................ 4

SECTION 1.
BACKGROUND OF THE TRANSACTIONS............................................ 4

SECTION 2.
CERTAIN EFFECTS OF THE PROPOSED SPINOFF; CERTAIN EFFECTS OF THE OFFER..... 7

SECTION 3.
PURPOSES OF THE OFFER..................................................... 8

SECTION 4.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................... 9

SECTION 5.
CERTAIN LEGAL MATTERS; REGULATORY AND FOREIGN APPROVALS; NO APPRAISAL
RIGHTS.................................................................... 11

THE OFFER.................................................................... 12

SECTION 6.
EXPIRATION DATE; EXTENSION OF THE OFFER; PRORATION........................ 12

SECTION 7.
PROCEDURE FOR TENDERING PREFERRED SHARES.................................. 13

SECTION 8.
WITHDRAWAL RIGHTS......................................................... 14

SECTION 9.
ACCEPTANCE FOR PAYMENT OF PREFERRED SHARES AND PAYMENT OF PURCHASE PRICE.. 15

SECTION 10.
CERTAIN CONDITIONS OF THE OFFER............................................ 16

SECTION 11.
PRICE RANGE OF THE PREFERRED SHARES; DIVIDENDS............................. 18

SECTION 12.
CERTAIN INFORMATION CONCERNING THE COMPANY................................. 19

SECTION 13.
SOURCE AND AMOUNT OF FUNDS................................................. 19

SECTION 14.
TRANSACTIONS AND ARRANGEMENTS CONCERNING THE PREFERRED SHARES.............. 19

SECTION 15.
EXTENSION OF THE TENDER PERIOD; TERMINATION................................ 20

OTHER INFORMATION............................................................ 21

SECTION 16.
CAPITALIZATION............................................................. 21

SECTION 17.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION AND OPERATING DATA. 22

SECTION 18.
MANAGEMENT................................................................. 27

SECTION 19.
RELATIONSHIP BETWEEN THE COMPANY AND MONTEREY.............................. 29

MISCELLANEOUS................................................................ 33

SECTION 20.
FEES AND EXPENSES.......................................................... 33

SECTION 21.
MISCELLANEOUS.............................................................. 34

UNAUDITED PRO FORMA FINANCIAL STATEMENTS.....................................F-1

(iv)
<PAGE>
SUMMARY

This general summary is provided solely for the convenience of holders of
Preferred Shares and is qualified in its entirety by reference to the full text
and more specific details contained in this Offer to Purchase and the related
Letter of Transmittal and any amendments hereto and thereto.

The Company............................... Santa Fe Energy Resources, Inc.

The Preferred Shares...................... Convertible Preferred Stock, 7%
Series, par value $0.01 per share.

Number of Preferred Shares................ Up to 4,500,000 Preferred Shares (the
"Amount Sought"), upon the terms
and subject to the conditions of the
Offer, including the provisions
relating to proration. Upon the terms
and subject to the conditions of the
Offer, if more Preferred Shares than
the Amount Sought have been validly
tendered and not withdrawn on or
prior to the Expiration Date, the
Company will purchase Preferred
Shares from each tendering holder on
a pro rata basis, subject to
adjustment to avoid the purchase of
fractional Preferred Shares.
Preferred Shares not purchased
because of proration will be
returned.

Purchase Price............................ $24.50 per Preferred Share, net to
the seller in cash. See Section 11.

Expiration Date of Offer.................. November 19, 1996, at 12:00 midnight,
New York City time, unless extended.
See Section 6.

How to Tender Preferred Shares............ See Section 7. For further
information, call the Information
Agent or the Dealer Manager at the
addresses and telephone numbers set
forth on the back cover of this Offer
to Purchase or consult your broker
for assistance.

Withdrawal Rights......................... Tendered Preferred Shares may be
withdrawn at any time until the
Expiration Date of the Offer and may
be withdrawn after 12:00 midnight,
New York City time, on December 18,
1996. See Section 8.

Purpose of Offer.......................... The Company is making the Offer
because it believes that the goals of
the Proposed Spinoff (as defined
herein) can be better achieved by
reducing the number of Preferred
Shares and simplifying the Company's
capital structure. Due to their
conversion feature, the Preferred
Shares create substantial uncertainty
as to the fully diluted number of
shares of Company Common Stock that
will be outstanding following the
Monterey IPO and the Distribution
(all as defined herein). As a result
of this uncertainty, the Company
believes that the continued existence
of a substantial number of Preferred
Shares could adversely affect the
successful completion of the Monterey
IPO and the Distribution. Given the
current market price of the Preferred
Shares and the factors discussed
above, the Company believes that the
purchase of the Preferred Shares
pursuant to the Offer is in the best
interest of the Company. The Board of
Directors of the Company has
authorized the Offer by a unanimous
vote.

1
<PAGE>
Market Price of Preferred Shares.......... On October 21, 1996, the last trading
day before the Company commenced the
Offer, the closing price per
Preferred Share on the NYSE Composite
Tape was $23 3/8, and on September
17, 1996, the last trading day before
the Company announced its intention
to pursue an offer for the Preferred
Shares, the closing sales price of
the Preferred Shares as reported on
the NYSE Composite Tape was $22 1/8
per Preferred Share. Shareholders are
urged to obtain a current market
quotation for the Preferred Shares.
See Section 11.

Dividends................................. The Company has declared the regular
quarterly dividend of $0.35 per
Preferred Share to be paid on
December 2, 1996 to holders of record
as of the close of business on
November 1, 1996 (the "December 1996
Dividend"). A tender of Preferred
Shares pursuant to the Offer will not
deprive a shareholder of his or her
right to receive the December 1996
Dividend regardless of when such
tender is made. Holders of Preferred
Shares tendered into and purchased
pursuant to the Offer will not be
entitled to any dividends in respect
of any later dividend periods (or any
portion thereof). The Company expects
to pay the next regular quarterly
dividend for outstanding Preferred
Shares on March 3, 1997 to holders of
record as of the close of business on
a date to be determined by the
Company's Board of Directors. See
Section 11.

Brokerage Commissions..................... Not payable by shareholders.

Stock Transfer Tax........................ None, except as provided in
Instruction 6 of the Letter of
Transmittal.

Payment Date.............................. As soon as practicable after the
Expiration Date of the Offer.

Further Information....................... Any questions or requests for
assistance and any requests for
additional copies of this Offer to
Purchase, the Letter of Transmittal
or other tender offer materials may
be directed to the Information Agent
or the Dealer Manager at their
respective telephone numbers and
addresses set forth on the back cover
of this Offer to Purchase.

2
<PAGE>
To the Holders of Preferred Shares of Santa Fe Energy Resources, Inc.:

INTRODUCTION

Santa Fe Energy Resources, Inc., a Delaware corporation (the "Company"),
invites the holders of its Convertible Preferred Stock, 7% Series, par value
$0.01 per share (the "Preferred Shares"), to tender their Preferred Shares, at
a price of $24.50 per Preferred Share (the "Purchase Price"), net to the
seller in cash, upon the terms and subject to the conditions set forth in this
Offer to Purchase and in the related Letter of Transmittal (which together
constitute the "Offer"). The Preferred Shares have a liquidation preference of
$20.00 per share, plus accrued and unpaid dividends. The Company will purchase
all Preferred Shares validly tendered and not withdrawn up to the 4,500,000
Preferred Shares sought (the "Amount Sought"), upon the terms and subject to
the conditions of the Offer, including the provisions relating to proration.
Upon the terms and subject to the conditions of the Offer, if more Preferred
Shares than the Amount Sought have been validly tendered and not withdrawn on or
prior to the Expiration Date, the Company will purchase Preferred Shares from
each tendering holder on a pro rata basis, subject to adjustment to avoid the
purchase of fractional Preferred Shares. Preferred Shares not purchased because
of proration will be returned.

THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF PREFERRED SHARES
BEING TENDERED. The Offer is, however, subject to certain other conditions. See
Section 10.

The Preferred Shares are listed and traded on the NYSE. On October 21,
1996, the last trading day before the Company commenced the Offer, the closing
sales price of the Preferred Shares as reported on the NYSE Composite Tape was
$23 3/8 per Preferred Share, and on September 17, 1996, the last trading day
before the Company announced its intention to pursue an offer for the Preferred
Shares, the closing sales price of the Preferred Shares as reported on the NYSE
Composite Tape was $22 1/8 per Preferred Share. See Section 11. SHAREHOLDERS ARE
URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE PREFERRED SHARES.

The Offer does not constitute a notice of redemption of the Preferred
Shares pursuant to the Company's Restated Certificate of Incorporation (the
"Charter"), nor does the Company intend to effect such a redemption by making
the Offer. Shareholders are not under any obligation to accept the Offer or to
remit the Preferred Shares to the Company pursuant to the Offer. In accordance
with the Certificate of Designation for the Preferred Shares (the "Certificate
of Designation"), the holders of Preferred Shares may, at their option, convert
any or all such Preferred Shares into shares of common stock of the Company, par
value $0.01 per share (the "Company Common Stock"), at a conversion rate of
1.3913 shares of Company Common Stock per Preferred Share, subject to certain
adjustments (the "Conversion Rate"). In addition, the Company may, at any time
after May 20, 1997, upon the occurrence of a "Special Conversion Event,"
convert all outstanding Preferred Shares into Company Common Stock at the
Conversion Rate then in effect, plus additional shares in respect of accrued and
unpaid dividends. A Special Conversion Event is deemed to have occurred when the
average daily closing price for a share of the Company Common Stock for 20 of 30
consecutive NYSE trading days equals or exceeds 125% of the quotient of $20.00
divided by the then applicable Conversion Rate reflecting a conversion value of
$25.00 per Preferred Share. On October 21, 1996, the last trading day before the
Company commenced the Offer, the closing sales price of the Company Common Stock
as reported on the NYSE Composite Tape was $14 5/8 per share. Upon liquidation
or dissolution of the Company, holders of the Preferred Shares are entitled to
receive a liquidation preference equal to the sum of (A) dividends accrued and
unpaid thereon to the date of final dissolution, whether or not declared,
without interest, PLUS (B) $20.00 per Preferred Share, prior to the payment of
any amounts to the holders of the Company Common Stock.

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Tendering shareholders will not be obligated to pay brokerage commissions,
solicitation fees or, subject to the Instructions to the Letter of Transmittal,
stock transfer taxes on the purchase of Preferred Shares by the Company. The
Company will pay all charges and expenses of the Depositary, Information Agent
and Dealer Manager incurred in connection with the Offer.

SPECIAL FACTORS

SECTION 1. BACKGROUND OF THE TRANSACTIONS.

THE COMPANY. The Company is engaged in the exploration, development and
production of crude oil and natural gas in the continental and offshore United
States and in certain international areas. On September 18, 1996, the Company
announced its intention to commence a series of transactions to separate its
heavy oil and other operations in California (the "Western Division") from its
other domestic and international operations. See " -- The Proposed Spinoff"
and "-- Certain Transactions Relating to the Offer, the Transfer and the
Monterey IPO." After giving effect to the Transactions and the Proposed Spinoff
(each as defined below), the Company's domestic activities will be focused in
two core areas: onshore in the Permian Basin in Texas and New Mexico and
offshore in the Gulf of Mexico. The Company's international activities will be
focused primarily in Indonesia and Argentina, with additional interests in
certain other South American, African and Asian countries.

On a pro forma basis, after giving effect to the Transactions and the
Proposed Spinoff, at December 31, 1995, the Company had worldwide proved
reserves totaling 118 MMBOE and annual revenues, EBITDA (as defined under
"Certain Definitions"), net income and production during 1995 of approximately
$231 million, $113 million, $11 million and 18 MMBOE, respectively. Oil
accounted for approximately 67% of the Company's pro forma total proved reserves
at December 31, 1995 and 50% of its pro forma 1995 production. Approximately 78%
of such reserves were domestic reserves and 22% were international reserves. On
a pro forma basis, after giving effect to the Transactions and the Proposed
Spinoff, for the nine months ended September 30, 1996, the Company had revenues,
EBITDA and production of approximately $206 million, $114 million and 15 MMBOE,
respectively. Pro forma for the Transactions and the Proposed Spinoff, as of
September 30, 1996, the Company would have had approximately $35 million in
borrowings outstanding under a new $150 million bank credit facility (the
"Company's New Facility"), $100 million of 11% Senior Subordinated Debentures
due 2004 (the "Debentures") and $390 million of shareholders' equity. The
ratio of the Company's pro forma EBITDA to net interest expense for the nine
months ended September 30, 1996 was 10.0x. Borrowings under the Company's New
Facility, which will represent the Company's only outstanding senior debt upon
consummation of the Transactions and the Proposed Spinoff, will bear interest at
a floating interest rate (estimated to be initially set at an annual rate of
approximately 6.75% based upon current rates). See "Selected Historical and Pro
Forma Financial Information and Operating Data."

OPERATING STRATEGY. After the Transactions and the Proposed Spinoff, and
without the Western Division's heavy oil operations and associated debt, the
Company will have a lower debt structure and international operations that will
more significantly influence the Company's results of operations. Set forth
below is a summary of the key elements of the Company's operating strategy
following consummation of the Transactions and the Proposed Spinoff. No
assurance can be given that the Company will be successful in its efforts to
implement such strategy or, even if so successfully implemented, that it will
favorably affect its financial condition or results of operations.

o The Company intends to continue its exploratory, development and
production activities on its properties in the Permian Basin of
western Texas and southeastern New Mexico, where the Company has an
inventory of identified exploratory and development drilling
locations. The Company has budgeted approximately $69 million to be
spent during the 18 months ending December 31, 1997 on exploration and
development activities in the Permian Basin. In addition, the Company
intends to extend its inventory of long-lived drilling projects in the
Permian Basin through selective acquisitions.

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o The Company intends to continue its exploration, development and
production activities in the shallow water areas of the Outer
Continental Shelf of the Gulf of Mexico (water depths of less than 400
feet, the "Shelf"). In addition, the Company intends to expand its
offshore operations from the Shelf into the Flex Trend area of the
Gulf of Mexico (water depths of 400 to 2,500 feet). During 1996, the
Company has acquired interests in a total of 22 offshore blocks in the
Flex Trend and plans to drill three exploratory wells on certain of
such blocks during 1997. The Company has budgeted a total of
approximately $81 million to be spent on exploration and development
activities in the Gulf of Mexico during the 18 months ending December
31, 1997.

o In addition to conducting delineation and development activities on
its international properties, the Company intends to participate in
approximately 18 gross exploratory wells in four countries during the
18 months ending December 31, 1997. The Company also intends to expand
its international activities through selective acquisitions and by
identifying additional prospects and seeking drilling concessions or
exploratory rights therefor.

THE PROPOSED SPINOFF. On September 18, 1996, the Company announced its
intention to separate its Western Division from its other domestic and
international operations located in the central United States, the Gulf of
Mexico and abroad. The initial phase of the separation will involve (i) the
contribution of substantially all of the assets and operations of the Western
Division, which include the Company's interests in the Midway-Sunset, South
Belridge, Coalinga and Kern River oil fields, to Monterey Resources, Inc.
("Monterey"), a newly-formed, wholly owned subsidiary of the Company, and the
assumption by Monterey of all the liabilities and obligations associated with
the Western Division, including $245 million of indebtedness in respect of the
Company Senior Notes (as defined below; such contribution and assumption being
referred to herein as the "Transfer"), and (ii) the initial public offering
(the "Monterey IPO") of approximately 15% of the common stock of Monterey
("Monterey Common Stock") (17% if the underwriters' over-allotment options are
exercised in full). On September 18, 1996, Monterey filed a registration
statement with the Securities and Exchange Commission (the "Commission")
relating to the proposed Monterey IPO. The second phase of the separation would
involve a pro rata distribution by the Company to its common stockholders of its
remaining ownership interest in Monterey by means of a tax-free distribution
(the "Distribution" and, collectively with the Transfer and the Monterey IPO,
the "Proposed Spinoff").

The Company's intention to pursue the Proposed Spinoff reflects the
Company's belief that its oil and gas operations have developed, over time, into
separate businesses that operate independently and have diverging capital
requirements and risk profiles. As a result, the Company's Board of Directors
has determined that dividing the Company's operations into two independent
companies would allow each to more efficiently develop its distinct resource
base and pursue separate business opportunities while providing each with
improved access to capital markets. The Board of Directors also believes that
the Monterey IPO and Proposed Spinoff would allow investors to better evaluate
each business, enhancing the likelihood that each would achieve appropriate
market recognition for its performance.

CERTAIN TRANSACTIONS RELATING TO THE OFFER, THE TRANSFER AND THE MONTEREY
IPO. On September 18, 1996, the Company announced its intention, prior to the
consummation of the Transfer and the Monterey IPO, to (i) commence the Offer and
(ii) seek certain amendments (the "Proposed Amendments") to the indenture
governing the Company's outstanding Debentures (the "Consent Solicitation").
The Company has obtained the necessary consents to amend such indenture and has
executed a supplemental indenture to reflect the Proposed Amendments.

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to prepay promptly following the Monterey IPO); (ii) Monterey will assume all
obligations and liabilities of the Company associated with the assets and
properties of the Western Division, including $245 million of indebtedness in
respect of the Company's 10.23% Series E Notes due 1997, 10.27% Series F Notes
due 1998, 10.61% Series G Notes due 2005 (the "Series E Company Senior Notes",
"Series F Company Senior Notes" and "Series G Company Senior Notes",
respectively, and the "Company Senior Notes", collectively) (the "Debt
Assumption") and (iii) the Company and Monterey will agree that under certain
circumstances Monterey will purchase from the Company the surface rights to
approximately 116 surface acres in Orange County, California (the "Olinda
Property") to be retained by the Company, which surface rights are currently
held by the Company under a contract for sale to a third party; (b) Monterey
will (i) use a portion of the net proceeds from the Monterey IPO to repay in
full the $70 million aggregate principal amount of the Series E Company Senior
Notes and Series F Company Senior Notes and accrued and unpaid interest thereon
and to pay a prepayment premium of approximately $2.5 million thereon (the
"Senior Note Repayment") and (ii) issue $175 million in aggregate principal
amount of its 10.61% Senior Notes due 2005 (the "Monterey Senior Notes") to
holders of the Series G Company Senior Notes in exchange for cancellation and
surrender of such notes, and pay a $1.3 million consent fee in connection
therewith (the "Senior Note Exchange," and together with the Debt Assumption
and the Senior Note Repayment, the "Senior Note Refinancing"); (c)(i) the
Company and Monterey will enter into a new $75 million revolving credit facility
with a group of banks (the "Monterey Credit Facility") and the Company is
expected to borrow approximately $16 million thereunder, and (ii) upon
consummation of the Monterey IPO, Monterey will repay all such indebtedness
outstanding under the Monterey Credit Facility with a portion of the net
proceeds from the Monterey IPO and the Company will cease to be an obligor under
the Monterey Credit Facility; (d) the Company will enter into the $150 million
Company's New Facility and use an estimated $100 million (consisting of cash on
hand together with funds borrowed under the Company's New Facility and assuming
4.1 million shares are tendered and purchased pursuant to the Offer) to pay the
Purchase Price of Preferred Shares to be purchased pursuant to the Offer and (e)
the Company and Monterey will enter into certain intercompany agreements
regarding corporate services, taxes, indemnification and certain other matters
as more fully described under "Relationship Between the Company and Monterey."
The transactions described above, including, without limitation, the
transactions to be effected pursuant to the agreements referred to in clause (e)
of the preceding sentence, together with the Consent Solicitation and the Offer,
are referred to herein collectively as the "Transactions."

The Company currently anticipates that, if it decides to proceed with such
transactions, subject to market and other conditions, the Transactions will be
consummated in late 1996 or early 1997. The Company has announced that after the
consummation of the Transactions, it intends to proceed with the Distribution.
The Company's final determination to effect the Distribution will require a
declaration of the Distribution by the Company's Board of Directors. Such
declaration is not expected to be made until certain conditions, many of which
are beyond the control of the Company, are satisfied, including receipt by the
Company of a favorable ruling from the Internal Revenue Service as to the
tax-free nature of the Distribution, approval of such Distribution by the
Company's stockholders and the absence of any future change in market or
economic conditions (including developments in the capital markets) or the
Company's or Monterey's business or financial condition that causes the
Company's Board of Directors to conclude that the Distribution is not in the
best interests of the Company's stockholders. Prior to the Distribution the
Company intends to redeem or convert its outstanding shares of $.732 Series A
Convertible Preferred Stock (the "DECS"). The Company does not expect the
Distribution to occur prior to June 1997. The Offer and the Transactions are not
conditioned upon a favorable tax ruling or the outcome of the proposed vote of
the Company's stockholders.

Following the consummation of the Transactions, the Company anticipates
that the business and operations of its remaining divisions (including its
Central Division, Gulf Coast Division and International Division) will be
largely unchanged. Monterey will focus its efforts on the application of
advanced production techniques to development and exploitation opportunities on
its California properties while the Company (excluding the assets and operations
of Monterey) will focus on opportunities in other areas of the United States,
the Gulf of Mexico and internationally. In addition, the $245 million principal
amount of

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Company Senior Notes will cease to be outstanding. Further, until the
Distribution, the Company will own not less than 80.1% of the outstanding common
stock of Monterey, which will be the obligor of $175 million principal amount of
Monterey Senior Notes to be issued to the former holders of the Series G Company
Senior Notes.

The Company intends to finance the Offer with cash on hand and borrowings
under the $150 million Company's New Facility to be entered into by the Company
prior to the acceptance of Preferred Shares tendered for purchase. The Company
has obtained a commitment from The Chase Manhattan Bank to provide the Company's
New Facility and the Monterey Credit Facility, subject to certain conditions.

Each of the Senior Note Exchange, the Senior Note Repayment, the Transfer
and the Monterey IPO is subject to a number of conditions. In addition, the
Offer is subject to a number of conditions, including the Senior Note Exchange
and the Senior Note Repayment. See Section 10.

See Sections 12 and 16 through 19 for certain financial and other
information regarding the Company and Monterey following the consummation of the
Transactions and the Proposed Spinoff.

SECTION 2. CERTAIN EFFECTS OF THE PROPOSED SPINOFF; CERTAIN EFFECTS OF THE
OFFER.

Following the consummation of the Offer, the holders of the Preferred
Shares that remain outstanding (the "Continuing Holders") will continue to be
entitled at any time to convert their Preferred Shares into shares of Company
Common Stock at the Conversion Rate then in effect. As of October 21, 1996, the
Conversion Rate was 1.3913 shares of Company Common Stock per Preferred Share,
or approximately $20.38 per Preferred Share based on the closing sales price of
the Company Common Stock on October 21, 1996.

If the Distribution is not consummated, the Continuing Holders would retain
their existing rights to convert such Preferred Shares into Company Common Stock
at the then applicable Conversion Rate. On the other hand, if the Distribution
is consummated and if, prior to the record date fixed for the determination of
stockholders entitled to receive shares of Monterey Common Stock in the
Distribution (the "Distribution Record Date"), a Continuing Holder elects to
convert any of its Preferred Shares into shares of Company Common Stock, such
holder would be entitled to receive, on a pro rata basis with the other holders
of Company Common Stock, shares of Monterey Common Stock distributed by the
Company in the Distribution. With respect to the Preferred Shares that remain
outstanding on the Distribution Record Date, the Conversion Rate will be
increased by multiplying the Conversion Rate then in effect by a fraction, the
numerator of which is the then-current market price of the Company Common Stock
(defined as the average closing sales price of the Company Common Stock during
the 20 consecutive trading days following the 30th trading day prior to the date
of determination) and the denominator of which is such current market price less
the fair market value of the shares of Monterey Common Stock (as determined by
the Board of Directors) distributed in the Distribution. The adjustment to the
Conversion Rate will be effective at the open of business on the day following
the Distribution Record Date.

Following the expiration of the Offer, the Company may, in its sole
discretion, determine to purchase the remaining Preferred Shares through
privately negotiated transactions, open market purchases or another tender offer
or otherwise, on such terms and at such prices as the Company may determine from
time to time, the terms of which purchases or offers could differ from those of
the Offer, except that the Company will not make any such purchases of Preferred
Shares until the expiration of 10 business days after the termination of the
Offer. Any possible future purchases of Preferred Shares by the Company will
depend on many factors, including the market prices of the Preferred Shares and
of the Company Common Stock, the Company's business and financial position,
alternative investment opportunities available to the Company, the results of
the Offer and general economic and market conditions.

In addition, the Company may, at any time after May 20, 1997, upon the
occurrence of a Special Conversion Event, elect to convert all then outstanding
Preferred Shares into Company Common Stock at the Conversion Rate then in
effect, plus additional shares of Company Common Stock in respect of accrued and
unpaid dividends, if any. A Special Conversion Event is deemed to have occurred
when the average daily closing price for a share of the Company Common Stock for
20 of 30 consecutive NYSE trading days

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equals or exceeds 125% of the quotient of $20.00 divided by the applicable
Conversion Rate (approximately $17.97 per share at a Conversion Rate of 1.3913).
The Company may increase the Conversion Rate for the Preferred Shares by any
amount for any period, provided that such period is at least 20 days, the
increase is irrevocable during such period and the Company mails notice of such
increase to the holders of Preferred Shares at least 15 days before the date
such increase takes effect. On October 21, 1996, the last trading day before the
Company commenced the Offer, the closing sales price of the Company Common Stock
as reported on the NYSE Composite Tape was $14 5/8 per share.

Following the consummation of the Offer, the Company anticipates that the
business of the Company will remain largely unchanged, except for the effects of
the Transactions as described in Section 1.

Except as disclosed in this Offer to Purchase, the Company has no present
plans or proposals that would result in (i) the acquisition by any person of
additional securities of the Company, or the disposition of securities of the
Company, (ii) an extraordinary corporate transaction, such as a merger,
reorganization, liquidation or sale or transfer of a material amount of assets,
involving the Company or any of its subsidiaries, (iii) any change in the
present Board of Directors of the Company or management of the Company,
including, but not limited to, a plan or proposal to change the number or term
of the directors, to fill any existing vacancy on the Board of Directors or to
change any material term of the employment contract of any executive officer,
(iv) any material change in the present dividend rate or policy or indebtedness
or capitalization of the Company, (v) any other material change in the Company's
corporate structure or business or (vi) any changes in the Company's Charter,
bylaws or instruments corresponding thereto or any other actions which may
impede the acquisition or control of the Company by any person.

The Offer will reduce the number of Preferred Shares that might otherwise
trade publicly and may reduce the number of holders of Preferred Shares, each of
which could adversely affect the liquidity and market value of the Preferred
Shares not purchased in the Offer. As of October 21, 1996, there were 5,000,000
issued and outstanding Preferred Shares. Following the consummation of the Offer
(assuming the number of Preferred Shares purchased in the Offer equals the
Amount Sought), there will be 500,000 Preferred Shares issued and outstanding.
The Company anticipates that there will be a sufficient number of Preferred
Shares outstanding and publicly traded following the consummation of the Offer
to ensure a continued trading market in the Preferred Shares. Based on the
published guidelines of the NYSE, the Company does not believe that its purchase
of the Amount Sought pursuant to the Offer will cause the remaining Preferred
Shares to be delisted from the NYSE, and it is not a purpose of the Offer to
cause such delisting.

The Shares are registered under the Exchange Act, which requires, among
other things, that the Company furnish certain information to its stockholders
and to the Commission and comply with the Commission's proxy rules in connection
with meetings of the Company's stockholders. The Company believes that its
purchase of the Amount Sought pursuant to the Offer will not result in the
Shares becoming eligible for deregistration under the Exchange Act, and it is
not a purpose of the Offer to cause such deregistration.

All Preferred Shares purchased by the Company pursuant to the Offer will be
retired, cancelled and thereafter returned to the status of authorized but
unissued shares of the Company's preferred stock.

SECTION 3. PURPOSES OF THE OFFER.

The Company is making the Offer because it believes that the goals of the
Proposed Spinoff can be better achieved by reducing the number of Preferred
Shares and simplifying the Company's capital structure. Due to their conversion
feature, the Preferred Shares create substantial uncertainty as to the fully
diluted number of shares of Company Common Stock that will be outstanding
following the Monterey IPO

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and the Distribution. As a result of this uncertainty, the Company believes that
the continued existence of a substantial number of Preferred Shares could
adversely affect the successful completion of the Monterey IPO and the
Distribution. Given the current market price of the Preferred Shares and the
factors discussed above, the Company believes that the purchase of the Preferred
Shares pursuant to the Offer is in the best interest of the Company. The Board
of Directors of the Company has authorized the Offer by a unanimous vote.

In particular, the Offer provides the holders of Preferred Shares with the
opportunity to sell their Preferred Shares at a 4.81% premium over the closing
sales price of the Preferred Shares on October 21, 1996 and a 10.73% premium
over the closing sales price of the Preferred Shares on September 17, 1996, the
last trading day before the Company announced its intention to pursue an offer
for the Preferred Shares. The Offer will also provide shareholders who are
considering a sale of all or a portion of their Preferred Shares the opportunity
to sell those Preferred Shares for cash without the usual transaction costs
associated with open-market sales. In addition, holders of Preferred Shares can
elect not to tender their Preferred Shares and retain all their existing rights
to convert their Preferred Shares into Company Common Stock.

SECTION 4. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.

The following summary describes certain Federal income tax consequences
relating to the Offer. The summary deals with Preferred Shares held as capital
assets within the meaning of Section 1221 of the Code, and does not address tax
consequences that may be relevant to investors in special tax situations, such
as certain financial institutions, tax-exempt organizations, life insurance
companies, dealers in securities or currencies, or shareholders holding the
Preferred Shares as part of a conversion transaction, as part of a hedge or
hedging transaction, or as a position in a straddle for tax purposes. Each
shareholder should consult its own tax advisor with regard to the Offer and the
application of Federal income tax laws, as well as the laws of any state, local
or foreign taxing jurisdiction, to its particular situation.

Under Section 302 of the Code, a sale of Preferred Shares pursuant to the
Offer will, as a general rule, be treated as a sale or exchange if the receipt
of cash upon such sale (a) results in a "complete termination" of the
shareholder's interest in the Company or (b) is "not essentially equivalent to
a dividend" with respect to the shareholder. If either of these tests is
satisfied, a tendering shareholder will recognize gain or loss equal to the
difference between the amount of cash received by the shareholder pursuant to
the Offer and the shareholder's tax basis in the Preferred Shares sold pursuant
to the Offer. Recognized gain or loss will be capital gain or loss, assuming the
Preferred Shares are held as a capital asset, which will be long-term capital
gain or loss if the Preferred Shares had been held for more than one year.

In general, in determining whether either of the tests under Section 302 of
the Code is satisfied, shareholders must take into account not only the
Preferred Shares they actually own, but also any common shares or Preferred
Shares they are deemed to own pursuant to the constructive ownership rules of
Section 318 of the Code. Pursuant to those constructive ownership rules, a
shareholder is deemed to own the common shares or Preferred Shares actually
owned, and in some cases constructively owned, by certain related individuals or
entities, and any common shares or Preferred Shares that the shareholder has the
right to acquire by exercise of an option or by conversion or exchange of a
security.

The sale of Preferred Shares pursuant to the Offer will result in a
"complete termination" of a shareholder's interest in the Company if at the
conclusion of the Offer either (a) the shareholder actually and constructively
does not own any common shares or any Preferred Shares or (b) the shareholder
actually owns no common shares or Preferred Shares and the shareholder is
eligible to waive and does effectively waive attribution of all common shares or
Preferred Shares constructively owned by the shareholder in accordance with
Section 302(c) of the Code. However, Section 302(c) only permits the waiver of
the constructive ownership rules in limited circumstances. Accordingly,
shareholders expecting to waive constructive ownership should consult their own
tax advisors regarding eligibility and procedural rules applicable to their
particular situations.

Even if the sale of Preferred Shares pursuant to the Offer fails to satisfy
the "complete termination" test, such shareholder may nevertheless satisfy the
"not essentially equivalent to a dividend" test, if the shareholder's sale of
Preferred Shares pursuant to the Offer results in a "meaningful reduction" in
the

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shareholder's proportionate interest in the Company. Whether the receipt of cash
by a shareholder results in a "meaningful reduction" will depend upon the
individual shareholder's facts and circumstances. However, if a shareholder
actually or constructively owns no common shares, it appears that the sale of
any Preferred Shares pursuant to the Offer will result in a "meaningful
reduction". It also appears that the sale of any Preferred Shares in the Offer
by a shareholder who also owns a small percentage of common shares
(substantially less than 1%, based on an Internal Revenue Service published
ruling) and who exercises no control over corporate affairs will result in a
"meaningful reduction". Shareholders expecting to rely upon the "not
essentially equivalent to a dividend" test should consult with their tax
advisors as to its application in their particular situations.

It may be possible for a tendering shareholder to satisfy one of the above
tests by contemporaneously selling or otherwise disposing of all or some of the
common shares or Preferred Shares that are actually or constructively owned by
such shareholder but which are not purchased pursuant to the Offer.
Correspondingly, a tendering shareholder may not be able to satisfy one of the
above tests because of contemporaneous acquisitions of common shares or
Preferred Shares by such shareholder or a related party whose common shares or
Preferred Shares would be attributed to such shareholder. Shareholders should
consult their tax advisors regarding the tax consequences of such sales or
acquisitions in their particular circumstances.

If neither of the tests under Section 302 is satisfied and if, as is
anticipated, the Company has sufficient earnings and profits, the tendering
shareholder will be treated as having received a dividend includible in gross
income in an amount equal to the entire amount of cash received by the
shareholder pursuant to the Offer (without regard to gain or loss, if any). In
such case, the tendering shareholder's tax basis in the Preferred Shares to be
purchased pursuant to the Offer will be added to such shareholder's tax basis in
the Preferred Shares and the common shares retained by such shareholder (or, in
the case such shareholder does not retain any common shares or Preferred Shares,
the tax basis in the Preferred Shares should be added to the related person's
tax basis in the Preferred Shares and the common shares that are constructively
owned by such shareholder).

The dividends-received deduction is subject to certain limitations, and may
not be available if the corporate shareholder does not satisfy certain holding
period requirements with respect to the Preferred Shares and common shares or if
the Preferred Shares and common shares are treated as "debt financed portfolio
stock". Generally, if a dividends-received deduction is available, it is
expected that the dividend will be treated as an "extraordinary dividend"
under Section 1059(a) of the Code, in which case such corporate shareholder's
tax basis in Preferred Shares and common shares retained by such shareholder
would be reduced, but not below zero, by the amount of the nontaxed portion of
the dividend. For this purpose, all dividends received by a shareholder within,
and having their ex-dividend date within, an 85-day period (expanded to a
365-day period in the case of dividends received in such period that in the
aggregate exceed 20% of the shareholder's adjusted tax basis in the Preferred
Shares) are aggregated and also treated as extraordinary dividends. Any amount
of the nontaxed portion of the extraordinary dividend in excess of the
shareholder's basis will generally be subject to tax upon sale or disposition of
the Preferred Shares or common shares, as the case may be. Corporate
shareholders are urged to consult their tax advisors as to the effect of Section
1059 of the Code on their tax basis in Preferred Shares.

It should be noted, however, that on March 19, 1996 President Clinton
proposed the Revenue Reconciliation Act of 1996, which contains certain
provisions that if enacted would (i) provide for immediate gain recognition on
the non-taxed portion of the extraordinary dividend that exceeds the
shareholder's basis in the Preferred Shares and (ii) reduce the
dividends-received deduction from 70% to 50% for corporate shareholders owning
less than 20% of the Company. Inasmuch as no legislative action has been taken
with respect to this proposal, it cannot be predicted whether such proposed
provisions will be enacted, and if enacted, what effective dates will apply to
these provisions.

In the case of any foreign shareholder, the Depositary will withhold United
States federal income tax at a rate of 30% from gross proceeds paid pursuant to
the Offer to the foreign shareholder or his agent, unless the foreign
shareholder establishes that such payment should be treated as a dividend
payment or the Depositary determines that a reduced rate of withholding is
applicable pursuant to a tax treaty or that an exemption from withholding is
applicable because such gross proceeds are effectively connected to the

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conduct of a trade or business by the foreign shareholder within the United
States. For this purpose, a foreign shareholder is any shareholder that is not
(i) a citizen or resident of the United States, (ii) a corporation, partnership
or other entity created or organized in or under the laws of the United States,
or (iii) any estate or trust the income of which is subject to the United States
federal income taxation regardless of its source. Without definite knowledge to
the contrary, the Depositary will determine whether a shareholder is a foreign
shareholder by reference to the shareholder's address. A foreign shareholder may
be eligible to file for a refund of such tax or a portion of such tax if such
shareholder (i) meets the "complete termination" or "not essentially
equivalent to a dividend" tests described above, (ii) is entitled to a reduced
rate of withholding pursuant to a treaty and the Depositary withheld at a higher
rate, or (iii) is otherwise able to establish that no tax or a reduced portion
of tax was due. In order to claim an exemption from withholding on the grounds
that the gross proceeds paid pursuant to the Offer are effectively connected
with the conduct of a trade or business by a foreign shareholder within the
United States or that the foreign shareholder is entitled to the benefits of a
tax treaty, the foreign shareholder must deliver to the Depositary (or other
person who is otherwise required to withhold Federal income tax) a properly
executed statement claiming such exemption or benefits on Treasury Form 4224
(Exemption from Withholding on Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) or Treasury Form 1001
(Ownership, Exemption, or Reduced Rate Certificate), respectively. Such
statements may be obtained from the Depositary. Foreign shareholders are urged
to consult their own tax advisors regarding the application of Federal income
tax withholding, including eligibility for a withholding tax reduction or
exemption and the refund procedures.

THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. EACH SHAREHOLDER IS URGED TO CONSULT SUCH SHAREHOLDER'S OWN
TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH SHAREHOLDER
(INCLUDING THE APPLICABILITY AND EFFECT OF THE CONSTRUCTIVE OWNERSHIP RULES AND
STATE, LOCAL AND FOREIGN TAX LAWS) OF THE SALE OF PREFERRED SHARES PURSUANT TO
THE OFFER.

SECTION 5. CERTAIN LEGAL MATTERS; REGULATORY AND FOREIGN APPROVALS; NO
APPRAISAL RIGHTS.

The Company is not aware of any license or regulatory permit that appears
to be material to its business that might be adversely affected by its
acquisition of the Preferred Shares as contemplated in the Offer or of any
approval or other action by any government or governmental, administrative or
regulatory authority or agency, domestic or foreign, that would be required for
the Company's acquisition or ownership of Preferred Shares pursuant to the
Offer. Should any such approval or other action be required, the Company
currently contemplates that it will seek such approval or other action. The
Company cannot predict whether it may determine that it is required to delay the
acceptance for payment of, or payment for, Preferred Shares tendered pursuant to
the Offer pending the outcome of any such matter. There can be no assurance that
any such approval or other action, if needed, would be obtained or would be
obtained without substantial conditions or that the failure to obtain any such
approval or other action might not result in adverse consequences to the
Company's business. The Company intends to make all required filings under the
Exchange Act. The Company's obligation under the Offer to accept for payment, or
make payment for, Preferred Shares is subject to certain conditions. See Section
10.

There is no shareholder vote required in connection with the Offer.

No appraisal rights are available to holders of Preferred Shares in
connection with the Offer.

11
<PAGE>
THE OFFER

SECTION 6. EXPIRATION DATE; EXTENSION OF THE OFFER; PRORATION.

Upon the terms and subject to the conditions of the Offer, the Company will
purchase all Preferred Shares validly tendered on or before the Expiration Date
(and not withdrawn in accordance with Section 8), at the Purchase Price, up to
the Amount Sought, upon the terms and subject to the conditions of the Offer,
including the provisions relating to proration described herein. Preferred
Shares not purchased because of proration will be returned. The term
"Expiration Date" means 12:00 midnight, New York City time, on Tuesday,
November 19, 1996, unless and until the Company shall have extended the period
of time during which the Offer is open, in which event the term "Expiration
Date"shall refer to the latest time and date at which the Offer, as so extended
by the Company, shall expire. For a description of the Company's right to extend
the time during which the Offer is open and to delay, terminate or amend the
Offer, see Section 10 and Section 15.

The Company expressly reserves the right, in its sole discretion, at any
time or from time to time, to extend the period of time during which the Offer
is open by giving oral or written notice of such extension to the Depositary and
making a public announcement thereof. See Section 15. There can be no assurance,
however, that the Company will exercise its right to extend the Offer.

If (a) the Company (i) increases or decreases the price to be paid for the
Preferred Shares or (ii) decreases the number of Preferred Shares being sought
and (b) the Offer is scheduled to expire at any time earlier than the tenth
business day from and including the date that notice of such increase or
decrease is first published, sent or given in the manner specified in Section
15, the Offer will be extended until the expiration of such ten business day
period. For purposes of the Offer, "business day" means any day other than a
Saturday, Sunday or Federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.

Upon the terms and subject to the conditions of the Offer, if the Amount
Sought or fewer Preferred Shares have been validly tendered and not withdrawn on
or prior to the Expiration Date, the Company will purchase all such Preferred
Shares. Upon the terms and subject to the conditions of the Offer, if more
Preferred Shares than the Amount Sought have been validly tendered and not
withdrawn on or prior to the Expiration Date, the Company will purchase from
each tendering holder a number of Preferred Shares (subject to adjustment to
avoid the purchase of fractional shares) equal to the number of Preferred Shares
validly tendered and not withdrawn by such holder on or prior to the Expiration
Date, multiplied by a fraction (the "Proration Factor") the numerator of which
is the Amount Sought and the denominator of which is the total number of
Preferred Shares validly tendered and not withdrawn on or prior to the
Expiration Date.

All Preferred Shares purchased pursuant to the Offer will be purchased at
the Purchase Price, net to the seller in cash. All Preferred Shares not
purchased pursuant to the Offer, including Preferred Shares tendered and
withdrawn or not purchased because of proration, will be returned to the
tendering shareholders at the Company's expense as promptly as practicable.

If proration of tendered Preferred Shares is required, because of the
difficulty in determining the number of Preferred Shares validly tendered
(including Preferred Shares tendered by the guaranteed delivery procedure
described in "Procedure for Tendering Preferred Shares"), the Company does not
expect that it would be able to announce the final Proration Factor or to
commence payment for any Preferred Shares purchased pursuant to the Offer until
approximately seven business days after the Expiration Date. Preliminary results
of proration will be announced by press release as promptly as practicable after
the Expiration Date. Holders of Preferred Shares may obtain such preliminary
information from the Dealer Manager or the Information Agent and may also be
able to obtain such information from their brokers.

12
<PAGE>
SECTION 7. PROCEDURE FOR TENDERING PREFERRED SHARES.

PROPER TENDER OF PREFERRED SHARES. For Preferred Shares to be properly
tendered pursuant to the Offer:

(a) the certificates for such Preferred Shares (or confirmation of
receipt of such certificates pursuant to the procedures for book-entry
transfer set forth below), together with a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) with any required
signature guarantees (or in the case of book-entry transfer, an Agent's
Message (as defined below)), and any other documents required by the Letter
of Transmittal, must be received before the Expiration Date by the
Depositary at one of its addresses set forth on the back cover of this
Offer to Purchase; or

(b) the tendering shareholder must comply with the guaranteed delivery
procedure set forth below.

A tender of Preferred Shares made pursuant to any method of delivery set
forth herein will constitute a binding agreement between the tendering
shareholder and the Company upon the terms and subject to the conditions of the
Offer.

SIGNATURE GUARANTEES AND METHOD OF DELIVERY. No signature guarantee is
required on the Letter of Transmittal if the Letter of Transmittal is signed by
the registered owner of the Preferred Shares (which term, for purposes of this
Section, includes any participant in The Depository Trust Company or the
Philadelphia Depository Trust Company (collectively, the "Book-Entry Transfer
Facilities") whose name appears on a security position listing as the owner of
the Preferred Shares) tendered therewith, and payment and delivery are to be
made directly to such registered owner at such owner's address shown on the
records of the Company, or if Preferred Shares are tendered for the account of a
bank, broker, dealer, credit union, savings association or other entity that is
a member in good standing of a recognized Medallion Signature Guarantee Program
approved by The Securities Transfer Association Inc. (each such entity being
hereinafter referred to as an "Eligible Institution"). In all other cases, all
signatures on the Letter of Transmittal must be guaranteed by an Eligible
Institution. See Instruction 1 of the Letter of Transmittal. If a certificate
representing Preferred Shares is registered in the name of a person other than
the signer of a Letter of Transmittal, or if payment is to be made, or Preferred
Shares not purchased or tendered are to be issued to a person other than the
registered owner, the receipt must be endorsed or accompanied by an appropriate
stock power, in either case signed exactly as the name of the registered owner
appears on the receipt, with the signature on the receipt or stock power
guaranteed by an Eligible Institution. In all cases, payment for Preferred
Shares tendered and accepted for payment pursuant to the Offer will be made only
after timely receipt by the Depositary of certificates for such Preferred Shares
(or a timely confirmation of a book-entry transfer of such Preferred Shares into
the Depositary's account at one of the Book-Entry Transfer Facilities), a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees (or in the case of book-entry
transfer, an Agent's Message) and any other documents required by the Letter of
Transmittal. The method of delivery of all documents, including certificates,
the Letter of Transmittal and any other required documents, is at the election
and risk of the tendering shareholder. If delivery is by mail, registered mail
with return receipt requested, properly insured, is recommended.

FEDERAL BACKUP WITHHOLDING. Unless an exemption applies under the
applicable law and regulations concerning "backup withholding" of Federal
income tax, the Depositary will be required to withhold, and will withhold, 31%
of the gross proceeds otherwise payable to a shareholder or other payee pursuant
to the Offer unless the shareholder or other payee provides such person's tax
identification number (social security number or employer identification number)
and certifies that such number is correct. Each tendering shareholder, other
than a foreign shareholder, should complete and sign the main signature form and
the Substitute Form W-9 included as part of the Letter of Transmittal, so as to
provide the information and certification necessary to avoid backup withholding,
unless an applicable exemption exists and is proved in a manner satisfactory to
the Company and the Depositary. Foreign shareholders should generally complete
and sign a Form W-8, Certificate of Foreign Status, a copy of which may be
obtained from the Depositary, in order to avoid backup withholding.

13
<PAGE>
BOOK-ENTRY DELIVERY. The Depositary will establish an account with respect
to the Preferred Shares at each of the Book-Entry Transfer Facilities for
purposes of the Offer within two business days after the date of this Offer to
Purchase. Any financial institution that is a participant in a Book-Entry
Transfer Facility's system may make book-entry delivery of the Preferred Shares
by causing such facility to transfer such Preferred Shares into the Depositary's
account in accordance with such facility's procedure for such transfer. Even
though delivery of Preferred Shares may be effected through book-entry transfer
into the Depositary's account at one of the Book-Entry Transfer Facilities, a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof), with any required signature guarantees (or in the case of book-entry
transfer, an Agent's Message) and other required documents, must, in any case,
be transmitted to and received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase prior to the Expiration Date,
or the guaranteed delivery procedure set forth below must be followed. Delivery
of the Letter of Transmittal and any other required documents to one of the
Book-Entry Transfer Facilities does not constitute delivery to the Depositary.

GUARANTEED DELIVERY. If a shareholder desires to tender Preferred Shares
pursuant to the Offer and such shareholder's certificates are not immediately
available (or the procedures for book-entry transfer cannot be completed on a
timely basis) or time will not permit all required documents to reach the
Depositary before the Expiration Date, such Preferred Shares may nevertheless be
tendered provided that all of the following conditions are satisfied:

(a) such tender is made by or through an Eligible Institution;

(b) the Depositary receives (by hand, mail or facsimile transmission), on
or prior to the Expiration Date, a properly completed and duly executed Notice
of Guaranteed Delivery substantially in the form the Company has provided with
this Offer to Purchase; and

(c) the certificates for all tendered Preferred Shares in proper form for
transfer (or confirmation of book-entry transfer of such Preferred Shares into
the Depositary's account at one of the Book-Entry Transfer Facilities), together
with a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof), with any required signature guarantees (or in the case of
book-entry transfer, an Agent's Message) and any other documents required by the
Letter of Transmittal, are received by the Depositary within five NYSE trading
days after the date of execution of such Notice of Guaranteed Delivery.

The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of the
confirmation of book-entry transfer, which states that such Book-Entry Transfer
Facility has received an express acknowledgment from the participant in such
Book-Entry Transfer Facility tendering the Preferred Shares, that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal and that the Purchaser may enforce such agreement against the
participant.

DETERMINATIONS OF VALIDITY; REJECTION OF PREFERRED SHARES; WAIVER OF
DEFECTS; NO OBLIGATION TO GIVE NOTICE OF DEFECTS. All questions as to the
validity, form, eligibility (including time of receipt) and acceptance for
payment of any tender of Preferred Shares will be determined by the Company, in
its sole discretion, which determination shall be final and binding on all
parties. The Company reserves the absolute right to reject any or all tenders it
determines not to be in proper form or the acceptance for payment of which may,
in the opinion of the Company's counsel, be unlawful. The Company also reserves
the absolute right to waive any of the conditions of the Offer and any defect or
irregularity in the tender of any particular Preferred Shares. No tender of
Preferred Shares will be deemed to be properly made until all defects or
irregularities have been cured or waived. None of the Company, the Depositary,
the Information Agent, the Dealer Manager or any other person is or will be
obligated to give notice of any defects or irregularities in tenders, and none
of them will incur any liability for failure to give any such notice.

SECTION 8. WITHDRAWAL RIGHTS.

Except as otherwise provided in this Section 8, a tender of Preferred
Shares pursuant to the Offer is irrevocable. Preferred Shares tendered pursuant
to the Offer may be withdrawn at any time before the

14
<PAGE>
Expiration Date and, unless theretofore accepted for payment by the Company, may
also be withdrawn after 12:00 midnight, New York City time, on December 18,
1996.

For a withdrawal to be effective, the Depositary must timely receive (at
one of its addresses set forth on the back cover of this Offer to Purchase) a
written, telegraphic or facsimile transmission notice of withdrawal. Such notice
of withdrawal must specify the name of the person having tendered the Preferred
Shares to be withdrawn, the number of Preferred Shares to be withdrawn and the
name of the registered owner, if different from that of the person who tendered
such Preferred Shares. If the certificates have been delivered or otherwise
identified to the Depositary, then, prior to the release of such certificates,
the tendering shareholder must also submit the serial numbers shown on the
particular certificates evidencing the Preferred Shares, and the signature on
the notice of withdrawal must be guaranteed by an Eligible Institution (except
in the case of Preferred Shares tendered by an Eligible Institution). If
Preferred Shares have been delivered pursuant to the procedure for book-entry
transfer set forth in Section 7, the notice of withdrawal must specify the name
and the number of the account at the applicable Book-Entry Transfer Facility to
be credited with the withdrawn Preferred Shares and otherwise comply with the
procedures of such facility.

All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Company, in its sole discretion,
which determination shall be final and binding on all parties. None of the
Company, the Depositary, the Information Agent, the Dealer Manager or any other
person is or will be obligated to give any notice of any defects or
irregularities in any notice of withdrawal, and none of them will incur any
liability for failure to give any such notice. A withdrawal of a tender of
Preferred Shares may not be rescinded, and Preferred Shares properly withdrawn
will thereafter be deemed not validly tendered for purposes of the Offer.
Withdrawn Preferred Shares may, however, be retendered before the Expiration
Date by again following any of the procedures described in Section 7.

SECTION 9. ACCEPTANCE FOR PAYMENT OF PREFERRED SHARES AND PAYMENT OF PURCHASE
PRICE.

Upon the terms and subject to the conditions of the Offer (including the
proration provisions of the Offer), promptly after the Expiration Date, the
Company will purchase and pay the Purchase Price for Preferred Shares (subject
to certain matters discussed in Section 6 and Section 15) validly tendered and
not withdrawn as permitted in Section 8. For purposes of the Offer, the Company
will be deemed to have accepted for payment (and thereby purchased) Preferred
Shares which are tendered and not withdrawn when, as and if it gives oral or
written notice to the Depositary of its acceptance of such Preferred Shares for
payment pursuant to the Offer.

Payment for Preferred Shares purchased pursuant to the Offer will be made
by depositing the aggregate Purchase Price therefor with the Depositary, which
will act as agent for tendering shareholders for the purpose of receiving
payment from the Company and transmitting payment to the tendering shareholders.
Notwithstanding any other provision hereof, payment for Preferred Shares
accepted for payment pursuant to the Offer will in all cases be made only after
timely receipt by the Depositary of certificates for such Preferred Shares (or a
timely confirmation by a Book-Entry Transfer Facility of book-entry transfer of
such Preferred Shares to the Depositary), a properly completed and duly executed
Letter of Transmittal (or facsimile thereof) with any required signature
guarantees (or, in the case of book-entry transfer, an Agent's Message) and any
other required documents. Under no circumstances will interest be paid on the
Purchase Price of the Preferred Shares, regardless of any delay in making such
payment.

The Company will pay any stock transfer taxes with respect to the transfer
and sale of Preferred Shares to it pursuant to the Offer. If, however, payment
of the Purchase Price is to be made to, or if certificates for Preferred Shares
not tendered or accepted for purchase are to be registered in the name of, any
person other than the registered holder, or if tendered certificates are
registered in the name of any person other than the person signing the Letter of
Transmittal, the amount of any stock transfer taxes (whether imposed on the
registered holder or such person) payable on account of the transfer to such
person will be deducted from the Purchase Price unless satisfactory evidence of
the payment of such taxes or exemption therefrom is submitted. See Instruction 6
of the Letter of Transmittal.

15
<PAGE>
ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY AND
SIGN THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL (OR, IN THE
CASE OF A FOREIGN INDIVIDUAL, FORM W-8 OBTAINABLE FROM THE TRANSFER AGENT) MAY
BE SUBJECT TO REQUIRED FEDERAL INCOME TAX WITHHOLDING OF 31% OF THE GROSS
PROCEEDS PAID TO SUCH SHAREHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE
SECTION 7.

SECTION 10. CERTAIN CONDITIONS OF THE OFFER.

Notwithstanding any other provision of the Offer, and in addition to (and
not in limitation of) the Company's right to extend or amend the Offer at any
time in its sole discretion, the Company shall not be required to accept for
payment or make payment for any Preferred Shares tendered, and may terminate or
amend the Offer, if before acceptance for payment or payment for any such
Preferred Shares any of the following shall have occurred (or shall have been
determined by the Company to have occurred):

(a) there shall have been threatened, instituted or pending any action
or proceeding by any government or governmental, regulatory or
administrative agency or authority or tribunal or any other person,
domestic or foreign, before any court or governmental, regulatory or
administrative authority, agency or tribunal, domestic or foreign, which
(i) challenges the making of the Offer, the acquisition of Preferred Shares
pursuant to the Offer or otherwise relates in any manner to the Offer; or
(ii) in the sole judgment of the Company, could materially adversely affect
the business, condition (financial or other), income, operations or
prospects of the Company and its subsidiaries, taken as a whole, or
otherwise materially impair in any way the contemplated future conduct of
the business of the Company or any of its subsidiaries or materially impair
the Offer's contemplated benefits to the Company;

(b) there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered,
amended, enforced or deemed to be applicable to the Offer or the Company or
any of its subsidiaries, by any court or any government or governmental,
regulatory or administrative authority, agency or tribunal, domestic or
foreign, which, in the Company's sole judgment, would or might directly or
indirectly (i) make the acceptance for payment of, or payment for,
Preferred Shares illegal or otherwise restrict or prohibit consummation of
the Offer; (ii) delay or restrict the ability of the Company, or render the
Company unable, to accept for payment, or pay for, Preferred Shares; (iii)
materially impair the contemplated benefits of the Offer to the Company; or
(iv) materially adversely affect the business, condition (financial or
other), income, operations or prospects of the Company and its
subsidiaries, taken as a whole, or otherwise materially impair in any way
the contemplated future conduct of the business of the Company or any of
its subsidiaries;

(c) there shall have occurred after October 23, 1996, (i) any general
suspension of trading in, or limitation on prices for, securities on any
United States national securities exchange or in the over-the-counter
market (excluding any coordinated trading halt triggered solely as a result
of a specified decrease in a market index), (ii) the declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States, (iii) the commencement of a war, armed hostilities or other
international or national crisis directly or indirectly involving the
United States, (iv) any limitation (whether or not mandatory) by any
governmental, regulatory or administrative agency or authority on, or any
event which, in the sole judgment of the Company, might affect, the
extension of credit by banks or other lending institutions in the United
States, (v) any significant decrease in the market price of the Preferred
Shares or the common shares of the Company, (vi) any change in the general
political, market, economic or financial conditions in the United States or
abroad that could, in the sole judgment of the Company, have a material
adverse effect on the Company's business, operations, prospects or the
trading in the Preferred Shares or the common shares of the Company, (vii)
in the case of any of the foregoing existing at the time of the
commencement of the Offer, a material acceleration or worsening thereof or
(viii) any decline in either the Dow Jones Industrial Average (6,090.87 at
the close of business on October 21, 1996) or the Standard and Poor's Index
of

16
<PAGE>
500 Industrial Companies (709.85 at the close of business on October 21,
1996) by an amount in excess of 15% measured from the close of business on
October 23, 1996;

(d) after October 23, 1996, any tender or exchange offer with respect
to the Preferred Shares (other than the Offer) or any other class of the
Company's equity securities, or any merger, acquisition, business
combination or other similar transaction with or involving the Company or
any subsidiary, shall have been proposed, announced or made by any person
or entity;

(e) after October 23, 1996, any change shall occur or be threatened in
the business, condition (financial or other), income, operations or
prospects of the Company and its subsidiaries taken as a whole, which, in
the sole judgment of the Company, is or may be materially adverse to the
Company;

(f) (i) any person, entity or "group" (as that term is used in
Section 13(d)(3) of the Exchange Act) shall have acquired, or proposed to
acquire, beneficial ownership of more than 5% of the Company's outstanding
common stock (other than a person, entity or group which had publicly
disclosed such ownership in a Schedule 13D or 13G (or an amendment thereto)
on file with the Commission prior to October 23, 1996), (ii) any new group
shall have been formed which beneficially owns more than 5% of the
Company's outstanding common stock or (iii) any person, entity or group
shall have filed a Notification and Report Form under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, or made a public announcement
reflecting an intent to acquire the Company or any of its subsidiaries or
any of their respective assets or securities;

(g) the Monterey IPO shall not have been consummated; or

(h) the Senior Note Repayment and the Senior Note Exchange shall not
have been consummated;

and, in the sole judgment of the Company, in any such case and regardless of the
circumstances (including any action or inaction by the Company) giving rise to
such condition, such event makes it inadvisable to proceed with the Offer or
with such acceptance for payment or payment.

The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances (including any action or
inaction by the Company) giving rise to any such condition, and any such
condition may be waived by the Company, in whole or in part, at any time and
from time to time in its sole discretion; PROVIDED, HOWEVER, that the Exchange
Act and the rules and regulations promulgated thereunder require that all
conditions to the Offer, other than those relating to the receipt of certain
necessary governmental approvals, must be satisfied or waived prior to the
Expiration Date. The Company's failure at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right; the waiver of
any such right with respect to particular facts and circumstances shall not be
deemed a waiver with respect to any other facts or circumstances; and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time. Any determination by the Company concerning the events
described above and any related judgment by the Company regarding the
inadvisability of proceeding with the acceptance for payment or payment for any
tendered Preferred Shares will be final and binding on all parties.

17
<PAGE>
SECTION 11. PRICE RANGE OF THE PREFERRED SHARES; DIVIDENDS.

The Preferred Shares are listed and traded on the NYSE. The following table
sets forth, for each period shown, the high and low sales prices of the
Preferred Shares as reported on the NYSE Composite Tape and the dividends paid
per Preferred Share.

CASH DIVIDENDS
HIGH LOW PER PREFERRED SHARE
----- ---- -------------------
1994:
1st Quarter..................... 211/2 19 $0.35
2nd Quarter..................... 20 17 3/4 $0.35
3rd Quarter..................... 20 17 3/4 $0.35
4th Quarter..................... 191/8 15 1/8 $0.35
1995:
1st Quarter..................... 19 16 1/8 $0.35
2nd Quarter..................... 191/2 18 1/4 $0.35
3rd Quarter..................... 191/2 17 1/8 $0.35
4th Quarter..................... 20 18 $0.35
1996:
1st Quarter..................... 201/2 18 3/4 $0.35
2nd Quarter..................... 217/8 19 7/8 $0.35
3rd Quarter..................... 231/4 20 $0.35
4th Quarter (through October 21,
1996)........................... 231/2 22 5/8 *

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

* The Company has declared the December 1996 Dividend to be paid on December 2,
1996 to holders of record as of the close of business on November 1, 1996.

On October 21, 1996, the last trading day before the Company commenced the
Offer, the closing sales price of the Preferred Shares as reported on the NYSE
Composite Tape was $23 3/8 per Preferred Share, and on September 17, 1996, the
last trading day before the Company announced its intention to pursue an offer
for the Preferred Shares, the closing sales price of the Preferred Shares as
reported on the NYSE Composite Tape was $22 1/8 per Preferred Share.
Shareholders are urged to obtain a current market quotation for the Preferred
Shares. As of October 15, 1996, the Company had issued and outstanding 5,000,000
Preferred Shares. As of October 15, 1996, there were approximately 1,047 record
holders of the Preferred Shares.

Holders of Preferred Shares are entitled to receive dividends at the annual
rate of $1.40 ($0.35 per quarter) per Preferred Share, and no more, fully
cumulative and payable in cash quarterly with respect to each calendar quarterly
dividend period, on or before the last day of each March, June, September and
December when, as and if declared by the Company's Board of Directors out of
funds at the time legally available therefor. Certain of the Company's credit
agreements and the indenture governing to the Debentures include covenants that
restrict the Company's ability to pay dividends on capital stock. Other than
with respect to such covenants and as may be imposed by Delaware law, there are
no contractual or legal restrictions on the Company's present or future ability
to pay such dividends, including under its Charter.

The Company has declared the December 1996 Dividend to be paid on December
2, 1996 to holders of record as of the close of business on November 1, 1996. A
tender of Preferred Shares pursuant to the Offer will not deprive a shareholder
of his or her right to receive the December 1996 Dividend regardless of when
such tender is made. Holders of Preferred Shares tendered into and purchased
pursuant to the Offer will not be entitled to any dividends in respect of any
later dividend periods (or any portion thereof). The Company expects to pay the
next regular quarterly dividend for outstanding Preferred Shares on March 3,
1997 to holders of record as of the close of business on a date to be determined
by the Company's Board of Directors.

18
<PAGE>
SECTION 12. CERTAIN INFORMATION CONCERNING THE COMPANY.

The Company is engaged in the exploration, development and production of
crude oil and natural gas in the continental and offshore United States and in
certain international areas. After giving effect to the Transactions and the
Proposed Spinoff as described above, the Company's domestic activities will be
focused in two core areas: onshore in the Permian Basin in Texas and New Mexico
and offshore in the Gulf of Mexico. The Company's international activities will
be focused primarily in Indonesia and Argentina, with additional interests in
certain other South American, African and Asian countries.

The Company was incorporated in Delaware in 1971 as Santa Fe Natural
Resources, Inc., a wholly owned subsidiary of a predecessor of Santa Fe Pacific
Corporation ("SFP"). On January 8, 1990 Santa Fe Energy Company, which
previously conducted a substantial portion of the Company's domestic exploration
and development operations, merged into the Company. The Company thereafter
changed its name to Santa Fe Energy Resources, Inc. On March 8, 1990, Company
sold 11,700,000 previously unissued shares of Company Common Stock in initial
public offerings. On December 4, 1990, SFP distributed all of the shares of
Company Common Stock held by it to its shareholders. In May 1992, Adobe
Resources Corporation was merged with and into the Company.

The Company's principal executive offices are located at 1616 South Voss,
Suite 1000, Houston, Texas 77057, and its telephone number is (713) 507-5000.

For more information on the Company and on Monterey, see "Relationship
Between the Company and Monterey."

SECTION 13. SOURCE AND AMOUNT OF FUNDS.

Assuming that the number of Preferred Shares purchased in the Offer equals
the Amount Sought, the total amount required by the Company to purchase such
Preferred Shares and pay related fees and expenses will be approximately $100
million. See Section 20. The Company anticipates that it will fund the purchase
of Preferred Shares pursuant to the Offer and the payment of related fees and
expenses from approximately $65 million of cash on hand and approximately $35
million of borrowings under the $150 million Company's New Facility to be
entered into by the Company prior to the acceptance of Preferred Shares tendered
for purchase. The Company has obtained a commitment from The Chase Manhattan
Bank to provide the Company's New Facility, subject to certain conditions,
including the approval of the Proposed Amendments.

SECTION 14. TRANSACTIONS AND ARRANGEMENTS CONCERNING THE PREFERRED SHARES.

The Preferred Shares were issued in connection with the Company's merger
with Adobe Resources Corporation, in 1992.

Based upon the Company's records and upon information provided to the
Company by its directors, executive officers and affiliates, neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any of
the directors or executive officers of the Company listed in Section 18 or any
of its subsidiaries, nor any associates of any of the foregoing, has effected
any transactions in the Preferred Shares since August 26, 1996.

Except as set forth in this Offer to Purchase, neither the Company nor, to
the best of the Company's knowledge, any of its affiliates, directors or
executive officers listed in Section 18, or any of the executive officers or
directors of its subsidiaries, is a party to any contract, arrangement,
understanding or relationship with any other person relating, directly or
indirectly, to the Offer with respect to any securities of the Company
(including, but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer of the voting of any such securities, joint
ventures, loan or option arrangements, puts or calls, guarantees of loans,
guarantees against loss or the giving or withholding or proxies, consents or
authorizations). As of October 21, 1996, neither the Company or any subsidiary
or affiliate nor, to the Company's knowledge, any of their respective directors
or executive officers, owns any of the Preferred Shares.

19
<PAGE>
SECTION 15. EXTENSION OF THE TENDER PERIOD; TERMINATION.

The Company expressly reserves the right, in its sole discretion, at any
time or from time to time and regardless of whether or not any of the events set
forth in Section 10 shall have occurred or shall be deemed by the Company to
have occurred, to extend the period of time during which the Offer is open and
thereby delay acceptance for payment of, or payment for, any Preferred Shares by
giving oral or written notice of such extension to the Depositary and making a
public announcement thereof. During any such extension, all Preferred Shares
previously tendered and not purchased or withdrawn will remain subject to the
Offer, except to the extent that such Preferred Shares may be withdrawn as set
forth in Section 8. The Company also expressly reserves the right, in its sole
discretion, to terminate the Offer, not accept for payment and not make payment
for any Preferred Shares not theretofore accepted for payment or paid for upon
the occurrence of any of the conditions specified in Section 10 by giving oral
or written notice of such termination to the Depositary and making a public
announcement thereof. Subject to compliance with applicable law, the Company
further reserves the right, in its sole discretion, and regardless of whether or
not any of the events set forth in Section 10 shall have occurred or shall be
deemed by the Company to have occurred, to amend the Offer in any respect
(including, without limitation, by decreasing or increasing the consideration
offered in the Offer to owners of Preferred Shares or by decreasing the number
of Preferred Shares being sought in the Offer). Proposed amendments to the Offer
may be made at any time or from time to time effected by public announcement
thereof, such announcement, in the case of an extension, to be issued no later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date. Any public announcement made pursuant to
the Offer will be disseminated promptly to shareholders in a manner reasonably
designed to inform shareholders of such change. Without limiting the manner in
which the Company may choose to make a public announcement, except as required
by applicable law, the Company shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by making a
release to the Dow Jones News Service.

If the Company materially changes the terms of the Offer or the information
concerning the Offer or if it waives a material condition of the Offer, the
Company will extend the Offer to the extent required by Rules 13e-4(d)(2) and
13e-4(e)(2) promulgated under the Exchange Act. These rules provide that the
minimum period during which an offer must remain open following material changes
in the terms of the offer or information concerning the offer (other than a
change in price or a change in percentage of securities sought) will depend on
the facts and circumstances, including the relative materiality of such terms or
information. The Commission has stated that, as a general rule, it is of the
view that an offer should remain open for a minimum of five business days from
the date that notice of such a material change is first published, sent or
given. If (a) the Company (i) increases or decreases the price to be paid for
Preferred Shares or (ii) decreases the number of Preferred Shares being sought
and (b) the Offer is scheduled to expire at any time earlier than the expiration
of a period ending on the tenth business day from and including the date that
notice of such increase or decrease is first published, sent or given, the Offer
will be extended until the expiration of such period of ten business days.

20
<PAGE>
OTHER INFORMATION

SECTION 16. CAPITALIZATION.

The following table sets forth the historical capitalization of the Company
on a consolidated basis as of September 30, 1996, and the adjustments thereto to
give effect to (a) the Monterey IPO and the related Transactions and,
separately, (b) the consummation of the Proposed Spinoff. The pro forma
adjustments relating to the Monterey IPO and the related Transactions give
effect to (i) the completion of the Offer assuming 4.1 million of Preferred
Shares are tendered and purchased in the Offer, (ii) the completion of the
Monterey IPO and the receipt of approximately $100 million of estimated net
proceeds therefrom and application by Monterey of $72 million of such proceeds
to repay Series E and F Company Senior Notes assumed by Monterey and (iii) the
completion of the Senior Note Exchange; and the pro forma adjustments relating
to the Proposed Spinoff give effect to (i) the Distribution, (ii) the conversion
of all outstanding DECS at a conversion rate of 0.8474 shares of Company Common
Stock per DECS and (iii) the conversion of all outstanding Preferred Shares
(assuming 4.1 million Preferred Shares are tendered and purchased in the Offer)
at a Conversion Rate of 1.785 shares of Company Common Stock per Preferred Share
(assuming the market price of Company Common Stock is $14 per share); in each
case as if such transactions had occurred on September 30, 1996. This table
should be read in conjunction with the pro forma financial statements of the
Company and the notes thereto included elsewhere in this Offer to Purchase.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-------------------------------------------------------------------------
PRO FORMA
AFTER
MONTEREY PRO FORMA
IPO AND AFTER
COMPANY PRO FORMA RELATED PRO FORMA PROPOSED
HISTORICAL ADJUSTMENTS TRANSACTIONS ADJUSTMENTS SPINOFF
---------- ----------- ------------ ----------- ---------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
SHORT-TERM DEBT:
Series E Company Senior Notes......... $ 35.0 $ (35.0)(b) $-- $ $ --
---------- ----------- ------------ ----------- ---------
LONG-TERM DEBT:
Series F Company Senior Notes......... 35.0 (35.0)(b) -- --
Series G Company Senior Notes......... 175.0 (175.0)(b) -- --
11% Senior Subordinated Debentures.... 99.4 99.4 99.4
Company's New Credit Facility......... -- 35.0(d) 35.0 35.0
Monterey Senior Notes................. -- 175.0(b) 175.0 (175.0)(i) --
16.0(a)
(16.0)(b) 4.0(h)
Monterey Credit Facility.............. -- 30.0(c) 30.0 (34.0)(i) --
---------- ----------- ------------ ----------- ---------
309.4 30.0 339.4 (205.0) 134.4
---------- ----------- ------------ ----------- ---------
Convertible Preferred Stock............. 80.0 (65.3)(d) 14.7 (14.7)(g) --
---------- ----------- ------------ ----------- ---------
SHAREHOLDERS' EQUITY:
$.732 Series A Preferred Stock........ 91.4 91.4 (91.4)(f) --
Common Stock.......................... 0.9 0.9 0.1(f) 1.0
78.0(b) 126.8(f)
Paid-in capital....................... 505.4 1.3(e) 584.7 23.0(g) 734.5
(35.5)(f)
(34.7)(d) (8.3)(g)
(3.2)(b) (15.7)(h)
Accumulated deficit................... (120.3) (0.9)(e) (159.1) (126.7)(i) (345.3)
Foreign currency translation
adjustment......................... (0.3) (0.3) (0.3)
---------- ----------- ------------ ----------- ---------
477.1 40.5 517.6 (127.7) 389.9
---------- ----------- ------------ ----------- ---------
Total Capitalization............... $ 901.5 $ (29.8) $871.7 $(347.4) $ 524.3
========== =========== ============ =========== =========
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)

21
<PAGE>
- ------------

(a) Gives effect to $16.0 million of new borrowings under the Monterey Credit
Facility by the Company prior to the Monterey IPO.

(b) Gives effect to (i) the Monterey IPO and the receipt of approximately $100
million of estimated net proceeds therefrom and the application by Monterey
of (A) $72 million of such proceeds to repay the Series E and Series F
Company Senior Notes assumed by Monterey and to pay a $2.5 million
prepayment premium in connection therewith and (B) $16.0 million of such
proceeds to repay indebtedness outstanding under the Monterey Credit
Facility; (ii) the exchange of $175 million of Monterey Senior Notes for the
$175 million principal amount of the Series G Company Senior Notes and the
payment by Monterey of a $1.3 million consent fee in connection with such
exchange; and (iii) the payment by the Company of $2.0 million in
conjunction with the Consent Solicitation.

(c) Gives effect to $30.0 million of borrowings under the Monterey Credit
Facility and the prepayment of the $30.0 million Production Payment.
Monterey intends to prepay the Production Payment in full promptly following
consummation of the Monterey IPO.

(d) Gives effect to the use of $35.0 million of new borrowings under the
Company's New Facility and $65.0 million of cash on hand to purchase an
estimated 4.1 million Preferred Shares in the Offer.

(e) Gives effect to the issuance of 0.1 million common shares upon the vesting
of certain performance units as a result of the Monterey IPO.

(f) Gives effect to the issuance of 9.1 million common shares in exchange for
the outstanding DECS at a conversion rate of 0.8474 shares of Company Common
Stock per DECS.

(g) Gives effect to the issuance of 1.6 million common shares in exchange for
the estimated 0.9 million Preferred Shares that will remain outstanding
after the Offer.

(h) Gives effect to the payment by Monterey of $4.0 million in advisory fees and
the payment by the Company of $1.0 million in expenses and a $13.1 million
tax liability related to the Distribution.

(i) Gives effect to the Distribution.

SECTION 17. SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION AND
OPERATING DATA.

The following table sets forth, for the periods indicated, selected
historical financial data and selected pro forma financial data for the Company.
The selected historical balance sheet data, the selected historical income
statement and cash flow data for the three years ended December 31, 1995 are
derived from the audited consolidated financial statements of the Company. The
selected historical financial data for the nine-month periods ended September
30, 1995 and September 30, 1996 are derived from the unaudited consolidated
financial statements of the Company and the notes thereto and, in the opinion of
management of the Company, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the Company's
results of operations and financial condition on a consolidated basis. The
selected pro forma financial data for the Company set forth below is based on
numerous assumptions and includes adjustments as explained in the notes hereto,
giving effect to the Transactions and the Proposed Spinoff as if they had
occurred on the date specified therein. All such selected historical and pro
forma financial data should be read only in conjunction with such financial
statements and notes thereto incorporated herein by reference. The following
information should not be deemed indicative of future operating results for the
Company.

In the event that the Monterey IPO and the related Transactions are
consummated, but the Proposed Spinoff is not consummated, the pro forma
financial statements of the Company will look substantially similar to the
Company's historical financial statements, with the addition of a minority
interest to reflect the Monterey IPO, and a slightly lower interest expense to
reflect the repayment in full of the $70 million aggregate principal amount of
the Series E Company Senior Notes and the Series F Company Senior Notes.

22
<PAGE>
<TABLE>
<CAPTION>
COMPANY
COMPANY HISTORICAL HISTORICAL
------------------------------------ --------------------
PRO FORMA(A) PRO FORMA(A)
YEAR ------------ NINE MONTHS -------------
ENDED YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30, ENDED
------------------------------------ DECEMBER 31, -------------------- SEPTEMBER 30,
1993 1994 1995 1995 1995 1996 1996
--------- ------------ --------- ------------ --------- --------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................... $ 436.9 $ 391.4 $ 442.0 $230.7 $ 319.4 $ 399.1 $ 205.7
--------- ------------ --------- ------------ --------- --------- -------------
Costs and expenses:
Production and operating......... 163.8 150.0 154.9 69.6 114.2 136.1(b) 59.4
Oil and gas systems and
pipelines...................... 4.2 -- -- -- -- -- --
Exploration, including dry hole
costs.......................... 31.0 20.4 23.4 21.1 17.7 16.9 15.7
Depletion, depreciation and
amortization................... 152.7 121.3 133.2 100.8 97.3 106.1 78.2
Impairment of oil and gas
properties(c).................. 99.3 -- 30.2 30.2 -- 10.4 10.4
General and administrative....... 32.3 27.3 26.9 19.6 19.9 20.3 14.5
Taxes (other than income)........ 27.3 25.8 19.2 11.3 15.2 19.4 12.6
Restructuring charges(d)......... 38.6 7.0 -- -- -- -- --
Loss (gain) on disposition of oil
and gas properties............. 0.7 (8.6) 0.3 0.3 0.3 0.5 0.5
--------- ------------ --------- ------------ --------- --------- -------------
549.9 343.2 388.1 252.9 264.6 309.7 191.3
--------- ------------ --------- ------------ --------- --------- -------------
Income (loss) from operations........ (113.0) 48.2 53.9 (22.2) 54.8 89.4 14.4
Interest, net(e)................... (32.4) (21.1) (16.0) 6.6 (21.7) (23.7) (7.1)
Other income (expense)............. (4.8) (4.0) (1.6) (1.0) (0.7) (0.7) (0.7)
--------- ------------ --------- ------------ --------- --------- -------------
Income (loss) before income
taxes............................ (150.2) 23.1 36.3 (16.6) 32.4 65.0 6.6
Income tax expense (benefit)....... 73.1 (6.0) (9.7) 3.4 (14.2) (18.5) 4.2
--------- ------------ --------- ------------ --------- --------- -------------
Net income (loss).................... (77.1) 17.1 26.6 (13.2) 18.2 46.5 10.8
Preferred dividend requirement....... (7.0) (11.7) (14.8) -- (11.1) (11.1) --
--------- ------------ --------- ------------ --------- --------- -------------
Income (loss) to common.............. $ (84.1) $ 5.4 $ 11.8 $(13.2) $ 7.1 $ 35.4 $ 10.8
========= ============ ========= ============ ========= ========= =============
Income (loss) to common per share.... $ (0.94) $ 0.06 $ 0.13 $(0.13) $ 0.08 $ 0.39 $ 0.11
Average shares outstanding
(millions)......................... 89.7 89.9 90.2 100.8 90.2 90.6 101.2
CASH FLOW DATA:
Net cash provided by operating
activities....................... 160.2 124.5 174.5 N/A 140.9 183.1 N/A
Capital expenditures............... 159.7 138.8 223.2 169.0 190.4 180.7 140.0
Net cash used in investing
activities....................... 121.4 57.7 160.8 N/A (131.7) (180.2) N/A
Net cash used in financing
activities....................... 117.8 17.9 24.8 N/A 21.1 9.6 N/A
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents.......... 4.8 53.7 42.6 N/A 41.8 35.9 0.8
Working capital (deficit).......... 6.5 31.2 49.7 N/A 15.8 9.0 (4.5)
Properties and equipment, net...... 832.7 843.0 889.5 N/A 925.7 952.2 573.2
Total assets....................... 1,076.9 1,071.4 1,064.8 N/A 1,080.4 1,126.7 667.9
Total debt......................... 449.7 354.3 344.4 N/A 344.4 344.4 134.4
Shareholders' equity............... 323.6 423.3 437.7 N/A 432.8 477.1 389.9
OTHER FINANCIAL DATA:
EBITDA(f).......................... 165.1 162.5 220.2 112.7 153.1 208.0 113.6
Ratio of EBITDA to net interest
expense(g)....................... 3.6x 5.9x 6.8x 12.3x 5.7x 7.2x 10.0x
Ratio of total debt to EBITDA(h)... 2.7x 2.2x 1.6x N/A 1.7x 1.2x 0.9x

(FOOTNOTES ON FOLLOWING PAGE)

23
<PAGE>
Ratio of earnings to combined fixed
charges and preferred
dividends(i)..................... (j) 1.0x 1.1x (j) 1.2x 1.9x 1.3x
Book value per share of common
stock............................ 3.60 4.70 4.85 N/A 4.79 5.26 3.85
</TABLE>
- ------------

(a) Pro forma for the consummation of the Transactions and the Proposed Spinoff
as if they had occurred on the first day of the applicable period, except
for the balance sheet data which assumes such transactions had occurred the
last day of the applicable period. See the Unaudited Pro Forma Condensed
Financial Statements included herein.

(b) Includes $3.2 million attributable to losses incurred under the Company's
hedging arrangements in respect of natural gas purchased by the Company as
fuel for thermal EOR operations. All such arrangements terminated on or
prior to June 30, 1996.

(d) Reflects non-recurring charges in 1993 relating to implementation of the
Company's restructuring program comprised of (i) losses on property
dispositions of $27.8 million; (ii) long-term repayment penalties and
interest of $8.6 million; and (iii) accruals for certain personnel benefits
and related costs of $2.2 million. Reflects nonrecurring charges in 1994
relating to the Company's restructuring program of $7.0 million comprised of
severance, benefits and relocation expenses.

(e) Historical amounts are net of capitalized interest of $4.3 million, $3.6
million and $5.8 million in the years 1993, 1994, and 1995, respectively,
and $4.3 million and $3.7 million in the nine months ended September 30,
1995 and 1996, respectively. Pro forma amounts are net of capitalized
interest of $5.1 million in the year 1995 and $2.8 million in the nine
months ended September 30, 1996. Historical amounts include interest income
in the years 1993, 1994 and 1995 of $9.1 million, $2.8 million and $10.7
million, respectively, and $2.0 million and $1.5 million in the nine months
ended September 30, 1995 and 1996, respectively. Pro forma amounts include
interest income of $10.7 million in the year 1995 and $1.5 million in the
nine months ended September 30, 1996.

(f) EBITDA as presented herein is defined as the sum of income before provision
for income taxes, interest, depreciation, depletion, amortization,
impairments and certain non-cash charges including gains or losses on the
disposition of properties. EBITDA, as presented herein, is used as a measure
in the Company's New Facility and provides information regarding the
Company's ability to service and incur debt. Because the Company's New
Facility contains other financial measures, covenants and limitations
(including mandatory principal repayments), EBITDA does not represent funds
available for discretionary use. EBITDA should not be considered in
isolation or as a substitute for net income, cash flow provided by operating
activities or other income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity. Further, EBITDA, as presented herein, may not be
comparable to similarly titled measures reported by other companies.

(g) EBITDA divided by interest expense (before deducting capitalized interest).

(h) The ratios for the nine-month periods are calculated using an annualized
EBITDA.

(i) For the purpose of calculating such ratios, (i) earnings consist of income
(loss) before income taxes plus fixed charges and (ii) fixed charges consist
of interest expense (including amortization of deferred debt issuance
costs), certain rental expenses and the amount of pre-tax earnings required
to cover preferred stock dividend requirements.

(j) Earnings for the year ended December 31, 1993 were insufficient to cover
combined fixed charges and preferred dividends by $166.0 million. Pro forma
earnings for the year ended December 31, 1995 were insufficient to cover
fixed charges by $21.7 million.

24
<PAGE>
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
COMPANY COMPANY HISTORICAL
HISTORICAL --------------------
------------------------------- PRO FORMA(A)
PRO FORMA(A) NINE MONTHS -------------
YEAR ENDED ------------- ENDED NINE MONTHS
DECEMBER 31, YEAR ENDED SEPTEMBER 30, ENDED
------------------------------- DECEMBER 31, -------------------- SEPTEMBER 30,
1993 1994 1995 1995 1995 1996 1996
--------- --------- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Daily average production
Crude oil and liquids (MBbls/d).... 66.7(b) 65.7 66.3 24.5 65.6 73.5 27.4
Natural gas (MMcf/d)............... 165.4(b) 136.6 150.0 144.7 146.6 165.8 162.2
Total production (MBOE/d).......... 94.3(b) 88.5 91.3 48.6 90.0 101.1 54.4
Average realized sales prices
Crude oil and liquids ($/Bbls):
Unhedged......................... 12.93 12.41 14.05 14.99 14.24 16.16 17.56
Hedged........................... 12.93 12.41 14.15 15.27 14.41 15.50 16.20
Natural gas ($/Mcf):
Unhedged......................... 2.03 1.75 1.44 1.46 1.36 2.06 2.09
Hedged........................... 1.89 1.73 1.43 1.45 1.36 1.73 1.75
Average costs and expenses per
BOE (in dollars)
Production and operating (c)....... 4.76 4.65 4.65 3.92 4.65 4.88 3.98
Exploration, including dry holes... 0.90 0.63 0.70 1.19 0.72 0.61 1.05
Depletion, depreciation and
amortization(d)(e)............... 4.44 3.76 3.96 5.61 3.96 3.83 5.24
General and administrative(f)...... 0.94 0.85 0.81 1.10 0.81 0.67 0.86
Taxes (other than income)(g)....... 0.79 0.80 0.58 0.63 0.62 0.70 0.84
Interest expense, net (h).......... 1.30 1.08 0.93 0.44 0.89 0.85 0.47
Average production costs (including
related production, severance and
ad valorem taxes) per BOE (in
dollars)........................... 5.39 5.30 5.15 4.48 5.20 5.50 4.64
Average finding cost per BOE (in
dollars)........................... 4.40 3.61 4.18 5.72 N/A N/A N/A
Gross wells drilled.................. 303 218 351 124 299 276 85
</TABLE>
- ------------

(a) Pro forma for the consummation of the Transactions and the Proposed Spinoff
as if they had occurred on the first day of the applicable period. See the
Unaudited Pro Forma Financial Statements included herein.

(b) Includes production attributable to properties sold in the fourth quarter of
1993 of 4.1 MBbls/d of crude oil and liquids and 21.7 MMcf/d of natural gas
(7.7 MBOE/d).

(d) Historical amounts exclude the effect of impairments of producing oil and
gas properties of $2.89 per BOE in 1993, $0.91 per BOE in 1995 and $0.38 per
BOE in the first nine months of 1996. Pro forma amounts exclude the effect
of such impairments of $1.70 per BOE in 1995 and $0.70 per BOE in the first
nine months of 1996.

(e) Historical amounts exclude the effect of an unproved property writedown of
$0.03 per BOE in 1995 and pro forma amounts exclude the effect of such
writedown of $0.06 in 1995.

(f) Historical amounts exclude the effect of a charge with respect to the
abandonment of an office lease of $0.06 per BOE in the first nine months of
1996 and pro forma amounts exclude $0.11 per BOE with respect to such charge
in the first nine months of 1996.

(g) Includes production, severance and ad valorem taxes.

(h) Reflects interest expense less amounts capitalized and interest income.
Historical amounts exclude the effects of (i) the benefit of a Federal
income tax audit refund and revised tax sharing agreement with the Company's
former parent of $0.36 per BOE in 1993; (ii) the benefit of adjustments to
provisions made in prior periods with respect to interest on certain Federal
income tax audit adjustments of $0.07 per BOE in 1994; (iii) the benefit of
adjustments to provisions for potential state income tax obligations of
$0.36 per BOE in 1994 and $0.15 per BOE in 1995; (iv) the benefit of an
adjustment to certain financing costs recorded in a prior period of $0.05
per BOE in 1995; and (v) the benefit of a Federal income tax audit refunded
of $0.25 per BOE in 1995. Pro forma amounts exclude the effects of (i) the
benefit of adjustments to provisions for potential state income tax
obligations of $0.28 per BOE in 1995; (ii) the benefit of an adjustment to
certain financing costs recorded in a prior period of $0.08 per BOE in 1995;
and (iii) the benefit of a Federal income tax audit refund of $0.47 per BOE
in 1995.

25
<PAGE>
SUMMARY OIL AND GAS RESERVE INFORMATION

The following table sets forth summary information with respect to the
Company's estimated proved oil and gas reserves as of each of the periods
indicated (excluding reserves attributable to the Western Division to be
transferred to Monterey). At December 31, 1995, the Company (including the
Western Division) had estimated proved reserves of 320 MMBOE. In connection with
the Transactions, the Company will transfer the Western Division's properties to
Monterey, which properties had estimated proved reserves at September 1, 1996,
of 214 MMBOE. The estimates of proved reserves and present value of estimated
future net cash flows have been prepared by Ryder Scott.

PRO FORMA
-------------------------------
AS OF DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
Proved reserves at year-end
Crude oil and liquids
(MMBbls)....................... 64 67 79
Natural gas (Bcf)............... 251 229 233
Proved reserves (MMBOE)......... 106 105 118
Proved developed reserves
(MMBOE)........................ 83 83 95
Present value of estimated future net
cash flows before income taxes
(millions of dollars).............. 400.7 417.0 602.8
Average year-end sales prices(1):
Oil ($/Barrel).................. 11.80 15.29 17.76
Natural gas ($/Mcf)............. 2.19 1.60 1.84
Reserve replacement ratio(2)......... 151% 102% 174%
Reserve-to-production ratio (in
years)(3)............................ 5.8 6.2 6.7

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

(1) Pro forma average realized sales prices (unhedged) for the nine months ended
September 30, 1996 were $17.56 per barrel and $2.09 per Mcf.

(2) The reserve replacement ratio is a percentage determined on a BOE basis by
dividing the estimated reserves added during a year from exploitation,
development and exploration activities, acquisitions of proved reserves and
revisions of previous estimates, excluding property sales, by the oil and
gas produced during that year.

(3) The reserve-to-production ratio is calculated on a BOE basis by dividing the
total estimated proved reserves at year-end by the total production during
the year.

26
<PAGE>
SECTION 18. MANAGEMENT.

DIRECTORS AND EXECUTIVE OFFICERS

The current directors and executive officers of the Company and their ages
(as of February 1, 1996) and positions are listed below.

NAME AGE POSITION
- ------------------------------------ --- -------------------------------------
*James L. Payne..................... 58 Chairman of the Board, President and
Chief Executive Officer
*Hugh L. Boyt....................... 50 Senior Vice President -- Production
Jerry L. Bridwell.................. 52 Senior Vice President -- Exploration
and Land
Michael J. Rosinski................ 50 Senior Vice President -- Marketing
and Environmental
*R. Graham Whaling.................. 41 Senior Vice President and Chief
Financial Officer
E. Everett Deschner................ 55 Vice President -- Reservoir
Engineering and Evaluation
*C. Ed Hall......................... 53 Vice President -- Public Affairs
Charles G. Hain, Jr................ 49 Vice President -- Human and Data
Resources
David L. Hicks..................... 46 Vice President -- Law and General
Counsel
John R. Womack..................... 57 Vice President -- Business
Development
Marc J. Shapiro.................... 48 Director
William E. Greehey................. 59 Director
*Robert F. Vagt..................... 48 Director
Melvyn N. Klein.................... 54 Director
Allan V. Martini................... 68 Director
*Michael A. Morphy.................. 63 Director
Reuben F. Richards................. 66 Director
Kathryn D. Wriston................. 56 Director
*Craig Huff......................... 31 Director

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

* Four of the Company's directors (Messrs. Huff, Morphy, Vagt and Payne) and two
of the Company's executive officers (Messrs. Boyt and Payne) will also be
directors of Monterey. Messrs. Whaling and Hall are expected to resign as
executive officers of the Company prior to the closing of the Monterey IPO.
The Company has been advised by three of its directors (Messrs. Huff, Morphy
and Vagt) that they will resign their positions as directors of the Company
prior to or concurrently with the consummation of the Monterey IPO. Mr. Boyt
has advised the Company that he intends to resign as a director of Monterey
concurrently with the Proposed Spinoff.

The business experience of the above officers and directors for the past
five years is described below. Unless otherwise stated, all offices were held
with Santa Fe Energy Company prior to its merger with the Company in 1990. Each
executive officer holds office until his successor is elected or appointed or
until his earlier death, resignation or removal.

JAMES L. PAYNE has served as a director of the Company since 1986. Mr.
Payne has been Chairman of the Board, President and Chief Executive Officer of
the Company since June 1990. Mr. Payne was President of Santa Fe Energy Company,
a predecessor in interest of the Company from January 1986 to January 1990 when
he became President of the Company. From 1982 to January 1986 Mr. Payne was
Senior Vice President -- Exploration and Land of Santa Fe Energy Company. Mr.
Payne is also a director of Pool Energy Services Co. (oilfield services).

HUGH L. BOYT has been Senior Vice President -- Production since March 1,
1990. From 1989 until March 1990, Mr. Boyt served as Corporate Production
Manager.

JERRY L. BRIDWELL has been Senior Vice President -- Exploration and Land
since 1986.

27
<PAGE>
MICHAEL J. ROSINSKI has been Senior Vice President -- Marketing and
Environmental since January 1996. From January 1995 until January 1996 Mr.
Rosinski served as Senior Vice President -- Administration and from September
1992 until January 1995 he served as Vice President and Chief Financial Officer.
Prior to joining the Company, Mr. Rosinski was with Tenneco Inc. and its
subsidiaries for 24 years. From 1990 until August 1992 he was Executive Director
of Investor Relations.

R. GRAHAM WHALING has been Senior Vice President and Chief Financial
Officer since January 1995. Mr. Whaling was with First Boston Corporation from
1989 until he joined the Company. While with First Boston Corporation Mr.
Whaling served in various capacities including Vice President, Corporate Finance
from 1991 to 1994 and Director, Corporate Finance from 1994 to 1995.

E. EVERETT DESCHNER has been Vice President -- Engineering and Evaluation
since April 1990.

C. ED HALL has been Vice President -- Public Affairs since March 1991.

CHARLES G. HAIN, JR. has been Vice President -- Human and Data Resources
since 1994 and was Vice President -- Employee Relations from 1988 until 1994.

DAVID L. HICKS has been Vice President -- Law and General Counsel since
March 1991.

JOHN R. WOMACK has been Vice President -- Business Development since 1987.

MARC J. SHAPIRO has served as a director since 1990. Mr. Shapiro has been
Chairman and Chief Executive Officer of Texas Commerce Bank National Association
("Texas Commerce Bank") (banking) since 1987, and a member of the Management
Committee of Chemical Banking Corporation since December 1991. Mr. Shapiro is
also a director of Browning-Ferris Industries, Burlington Northern Santa Fe
Corporation and a trustee of Weingarten Realty Investors.

WILLIAM E. GREEHEY has been a director since 1991. Mr. Greehey has been
Chairman of the Board and director of Valero Energy Corporation ("Valero")
(refining and marketing, gas transmission and processing) since 1983. From 1983
to June 30, 1996, Mr. Greehey was also Chief Executive Officer of Valero. Mr.
Greehey is also a director of Weatherford-Enterra.

ROBERT F. VAGT has been a director since 1992. Mr. Vagt has been President
and Chief Operating Officer of Seagull Energy Corporation since October 1996.
Mr. Vagt was Chairman of the Board, President, Chief Executive Officer and
director of Global Natural Resources, Inc. (oil and gas exploration and
production) from May 1992 until October 1996; President and Chief Operating
Officer of Adobe Resources Corporation ("Adobe") (oil and gas exploration and
production) from November 1990 to May 1992; Executive Vice President of Adobe
from August 1987 to October 1990; Senior Vice President of Adobe from October
1985 to August 1987.

MELVYN N. KLEIN has been a director since 1993. Mr. Klein is Attorney and
Counselor at Law; private investor; the sole stockholder of a general partner in
GKH Partners, L.P. Mr. Klein is also a principal of Questor Management Company,
and director of Anixter International, Bayou Steel Corporation (specialty steel
manufacturer) and Savoy Pictures Entertainment, Inc. (distributor of motion
pictures).

ALLAN V. MARTINI has been a director since 1990. Mr. Martini has been
Retired Vice President Exploration/Production and director of Chevron
Corporation (petroleum operations) since August 1988. Mr. Martini served in that
position from July 1986 until his retirement.

MICHAEL A. MORPHY has been a director since 1990. For the past five years,
Mr. Morphy has been the retired Chairman and Chief Executive Officer of
California Portland Cement Company. Mr. Morphy is also a director of Cyprus Amax
Minerals Co. and Santa Fe Pacific Pipelines, Inc.

REUBEN F. RICHARDS has been a director since 1992. Mr. Richards has been
Chairman of the Board, Terra Industries Inc. (agribusiness) since December 1982;
Chief Executive Officer thereof from December 1982 to May 1991 and President
thereof from July 1983 to May 1991; Chairman of the Board, Engelhard Corporation
(specialty chemicals, engineered materials and precious metals management
services) from May 1985 to December 1994 and director thereof since prior to
1990; Chairman of the Board, Minorco (U.S.A.) Inc. ("Minorco (USA)"), from May
1990 to March 1996 and Chief Executive Officer and

28
<PAGE>
President from February 1994 to March 1996. Mr. Richards is also a director of
Ecolab, Inc. (cleaning and sanitizing products), Engelhard Corporation, Potlatch
Corporation (forest products), and Minorco.

KATHRYN D. WRISTON has been a director since 1990. For the past five years,
Ms. Wriston has been director of various corporations and organizations,
including Northwestern Mutual Life Insurance Company and a Trustee of the
Financial Accounting Foundation.

CRAIG HUFF has been a director since 1996. Mr. Huff has been a partner in
Ziff Brothers Investments since 1993. Prior to joining Ziff Brothers, Mr. Huff
received a degree from the Harvard Business School in 1993.

SECTION 19. RELATIONSHIP BETWEEN THE COMPANY AND MONTEREY.

OWNERSHIP OF MONTEREY. The Company owns all of the currently outstanding
Monterey Common Stock and after the Monterey IPO will own approximately 85% of
the outstanding Monterey Common Stock (approximately 83% if the underwriters'
over-allotment option is exercised in full). Through its ability to elect all
directors of Monterey, the Company will control all matters affecting Monterey,
including any determination with respect to acquisition or disposition of
Monterey assets, future issuance of Monterey Common Stock or other securities of
Monterey and any dividends payable on the Monterey Common Stock. The Company
will also control Monterey's exploration, development, capital, operating and
acquisition budgets.

Pursuant to Rule 144 promulgated under the Securities Act, the Company may
not, prior to the expiration in August 1998 of the two year holding period
required by Rule 144, sell any of the Monterey Common Stock it owns without
registration under the Securities Act.

Monterey has agreed that upon the request of the Company, Monterey will
register under the Securities Act and applicable state securities laws the sale
of the shares of Monterey Common Stock owned by the Company which the Company
requests to be registered.

PROPOSED SPINOFF. The Company has announced that after the consummation of
the Transactions, it intends to distribute pro rata to its common stockholders
all of the shares of Monterey Common Stock that it owns by means of a tax-free
distribution. The Company's final determination to effect the Distribution will
require a declaration of the Distribution by the Company's Board of Directors.
Such declaration is not expected to be made until certain conditions, many of
which are beyond the control of the Company, are satisfied, including; (i)
receipt by the Company of a favorable ruling from the Internal Revenue Service
as to the tax-free nature of the Distribution; (ii) approval of such
Distribution by the Company's stockholders; and (iii) the absence of any future
change in market or economic conditions (including developments in the capital
markets), or the Company's or Monterey's business and financial condition that
causes the Company's Board of Directors to conclude that the Distribution is not
in the best interest of the Company's stockholders. Prior to the Distribution
the Company intends to redeem or convert its outstanding shares of DECS. The
Company does not expect the Distribution to occur prior to June 1997. The Offer
and the Transactions are not conditioned upon a favorable tax ruling or the
outcome of the proposed vote of the Company's stockholders.

Monterey has agreed to indemnify the Company if at any time during the
one-year period after the Proposed Spinoff is effected, Monterey takes certain
actions the effects of which result in the Proposed Spinoff being taxable to the
Company or, if certain legislation is enacted and is applicable to the Proposed
Spinoff, such longer period as is required under such legislation for the
Proposed Spinoff to be tax-free to the Company (the "Restricted Period"). See
" -- Contractual Arrangements -- Spinoff Tax Indemnity Agreement."

CONTRACTUAL ARRANGEMENTS

SPINOFF TAX INDEMNITY AGREEMENT. To protect the Company from Federal and
state income taxes, penalties, interest and additions to tax that would be
incurred by it if the Proposed Spinoff by the Company were determined to be a
taxable event, the Company and Monterey will enter into the Agreement Concerning
Taxes and Tax Indemnification Upon Spinoff (the "Spinoff Tax Indemnity
Agreement")

29
<PAGE>
pursuant to which Monterey will agree to indemnify the Company with respect to
tax liabilities resulting primarily from actions taken by Monterey at any time
during the Restricted Period. Monterey has also agreed that, unless it obtains
an opinion of counsel or a supplemental ruling from the Internal Revenue Service
that such action will not adversely affect the qualification of the Proposed
Spinoff as tax-free, Monterey will not merge or consolidate with another
corporation, liquidate or partially liquidate, sell or transfer all or
substantially all of its assets or redeem or otherwise repurchase any of its
stock or issue additional shares of Monterey's capital stock except pursuant to
employee benefit or compensation plans during such Restricted Period.

Monterey has retained the right to contest, at its expense, any
determination by taxing authorities that the Proposed Spinoff has failed to
qualify as tax-free by reason of an action by Monterey; PROVIDED, HOWEVER, that
if, either at the commencement or during the course of any proceeding
challenging the tax-free nature of the Proposed Spinoff, Monterey is or becomes
unable to pay the indemnified amounts if the taxing authorities were successful
and Monterey fails to furnish a guarantee or performance bond satisfactory to
the Company in an amount equal to the indemnified liability being asserted by
the taxing authority, the Company may assume the defense of any such challenge,
at Monterey's expense, and may compromise, concede or settle the taxing
authorities' claim. The Company's assumption of the conduct of such defense
would not relieve Monterey of its financial responsibility to the Company under
this agreement. The indemnity agreement will apply if the Proposed Spinoff
occurs prior to December 31, 1997.

CONTRIBUTION AGREEMENT. Pursuant to the Contribution Agreement, the
Company will contribute to Monterey substantially all of the assets and
properties of the Western Division, subject to retention by the Company of (i)
the Production Payment, (ii) the surface rights to the Olinda Property and (iii)
the Company's interests in various properties that are burdened by an overriding
royalty interest held by a royalty trust formed by the Company in 1992 (the
"Excluded Assets"). The Production Payment represents in the aggregate
approximately 20% of 1995 net sales proceeds from the Midway-Sunset field and
the annual amortization thereof represents 7% of such net sales proceeds. The
effective date of the asset contribution effected pursuant to the Contribution
Agreement is expected to be November 1, 1996. Except as set forth in the
Contribution Agreement, the Company is not making any representation or warranty
(including any representation or warranty of title, merchantability or fitness
for a particular purpose) to Monterey as to the assets, business or liabilities
contributed to or assumed by Monterey pursuant to the Contribution Agreement.
All such assets will be contributed to Monterey in their present condition. The
Company is not making any representation or warranty to Monterey as to consents
or approvals required to transfer such assets to Monterey or as to the legal
sufficiency of any assignment, document or instrument delivered or filed to
convey title to any properties contributed to Monterey. In addition, Monterey
will assume the liabilities and obligations associated with the Western
Division, even if attributable to periods prior to the contribution date,
including the $245 million of indebtedness in respect of the Company Senior
Notes and interest thereon from and after October 1, 1996, and Monterey will
agree to release the Company from any liability or contribution obligation in
respect of the Monterey Credit Facility. Pursuant to the Contribution Agreement,
(a) Monterey will assume, and agree to indemnify and hold harmless the Company
from and against all liabilities and obligations of the Company relating to the
contributed assets and properties, even if attributable to periods prior to the
contribution date, including (i) any litigation pending or threatened as of the
consummation of the Monterey IPO or that arises in the future and involves any
costs incurred after the consummation of the Monterey IPO, (ii) environmental
liabilities, including any costs or expenses incurred after the consummation of
the Monterey IPO at any of the OII Site, the Santa Fe Springs Site and the
Eastside Site, and (iii) any costs or liabilities that may arise after the
consummation of the Monterey IPO that are attributable to any property or
interest therein located in California and formerly owned or operated by the
Western Division or its predecessors (other than the Excluded Assets); and (b)
the Company will agree to indemnify and hold Monterey harmless from and against
any costs or liabilities relating to assets or operations of the Company
(whether or not currently owned or operated by the Company) to the extent not
attributable to the Western Division (other than the Excluded Assets). The
Company is retaining the surface rights to the Olinda Property because the
property is currently under contract for sale to a third party. The contract
provides for the Company to receive a purchase price of $15.5

30
<PAGE>
million in cash together with a $5.5 million and a $3.5 million note, both of
which are secured by a first lien on the property. Pursuant to the Contribution
Agreement, Monterey is obligated to purchase such notes from the Company at face
value after the close of the sale and will be required to incur approximately
$3.5 million in site improvement costs. If the sale of the Olinda Property has
not been consummated by August 1, 1997, Monterey is obligated, under the terms
of the Contribution Agreement, to purchase, and the Company is obligated to
sell, such surface rights for $23 million in cash. Monterey does not believe
that the Company's retention or subsequent sale and development of the surface
of the Olinda Property will have a material effect on Monterey's ongoing
operations on such property. Upon the execution and delivery of the Contribution
Agreement, Monterey and the Company intend to file deeds, bills of sale and
specific conveyances in the appropriate real property records of California to
reflect the contribution and conveyance to Monterey of the real property
interests effected pursuant to the Contribution Agreement.

SERVICES AGREEMENT. The Company provides various administrative and
financial services to
Monterey, including administration of certain employee benefit plans, access to
telecommunications, corporate legal assistance and certain other corporate staff
and support services. Concurrently with the closing of the Monterey IPO, the
Company and Monterey intend to enter into a Corporate Services Agreement to
formalize this existing arrangement. The agreement is intended to be flexible
(for example, on short notice Monterey may take responsibility for some or all
of the services currently being provided by the Company) and may be easily
terminated by either party on 30 days' notice. As a result, no assurance is
given that this service arrangement will be maintained for any specific period
in the future. Whether the Company continues to provide some or all of these
services will depend on many factors, including the continuing agreement of the
parties on the appropriate amounts of compensation and reimbursement, the
ability of Monterey to provide the services for itself and the continued
willingness of the Company to provide the services. The agreement provides that
Monterey will pay the Company a monthly fee for certain listed services at
specified rates. The total monthly fee for all listed services is $120,000.
Because the Services Agreement was not the result of arm's-length negotiations,
costs charged thereunder may exceed costs otherwise available from an
unaffiliated third party. The Services Agreement is terminable by either party
on 30 days' notice and payments to the Company thereunder are expected to
decline as Monterey assumes full responsibility during 1997 for each of the
services covered by such agreement.

TAX ALLOCATION AGREEMENT. After consummation of the Monterey IPO, Monterey
will continue to be included in the consolidated Federal income tax return filed
by the Company as the common parent for itself and its subsidiaries. Consistent
therewith and pursuant to the Tax Allocation Agreement, Monterey has agreed to
pay the Company an amount approximating the Federal income tax liability and
state and local tax liability it would have paid if it and its subsidiaries were
a separate consolidated group. This amount will be payable regardless of whether
the Company consolidated group, as a whole, has any current Federal, state or
local tax liability. In determining amounts payable to the Company in accordance
with the foregoing formula, Monterey and its subsidiaries may only take into
account their carryforwards of losses and credits to reduce amounts they would
otherwise owe if they were a separate consolidated group. Accordingly, there are
circumstances in which Monterey and its subsidiaries may receive no compensation
for the current use of their carryforwards of losses or credits by other members
of the Company group. If Monterey or its subsidiaries cease to be members of the
Company consolidated group, the Tax Allocation Agreement will continue to apply
to prior periods, and additional payments to the Company could be required if
there is an audit or similar adjustment subsequently made that impacts the
computation of amounts to be paid to the Company as described above. In
addition, if Monterey and its subsidiaries cease to be members of the Company
consolidated group, they would forfeit any future rights to compensation or
credit from the Company for the utilization of their carryforwards by members of
the Company group.

REGISTRATION RIGHTS AND INDEMNIFICATION AGREEMENT. Concurrently with the
consummation of the Monterey IPO, Monterey will enter into a Registration Rights
and Indemnification Agreement with the Company pursuant to which the Company has
the right to require Monterey to effect three registrations under the Securities
Act of all or any part of the shares of Monterey Common Stock owned by the
Company and to bear the expenses of such registration. No such registration may
be required by the Company prior to the expiration of the 180-day period
following the date of the Monterey prospectus. In addition, the

31
<PAGE>
Registration Rights and Indemnification Agreement gives the Company the right to
include its shares of Monterey Common Stock in any registration of shares of
Common Stock initiated by Monterey following the Monterey IPO. The Registration
Rights and Indemnification Agreement also contains provisions whereby the
Company and Monterey agree to indemnify each other and their respective
subsidiaries as well as their respective directors, officers, employees, agents
and representatives for certain costs and liabilities relating to violations of
Federal and state securities laws in connection with the Monterey IPO, the
Proposed Spinoff or any such registration of shares of Monterey Common Stock
owned by the Company.

ASSUMPTION BY MONTEREY OF HOURLY RETIREMENT PLANS. The Company sponsors
two retirement plans covering union employees (the "Hourly Plans"). One Hourly
Plan provides benefits that are based on a stated amount for each year of
service. The Company annually contributes amounts which are actuarially
determined to provide the plan with sufficient assets to meet future benefit
payment requirements. The second Hourly Plan is a defined contribution plan
whereby the Company matches employee contributions up to $.60 per hour worked.
Employees may make unmatched supplemental contributions of up to an additional
$1.50 per hour worked. Prior to or concurrently with consummation of the
Monterey IPO, Monterey will assume sponsorship of the Hourly Plans from the
Company.

EMPLOYMENT AGREEMENTS. In connection with the Transactions, Monterey will
enter into employment agreements with the following individuals who will serve
as executive officers of Monterey: R. Graham Whaling, David B. Kilpatrick,
Jeffrey B. Williams, C. Ed Hall, Lou E. Shuflin and Terry L. Anderson. Under the
terms of such contracts, Mr. Whaling's annual salary will be $325,000 with a
potential bonus of 100% of such amount, Mr. Kilpatrick's annual salary will be
$210,000 with a potential bonus of 80% of such amount. Mr. Williams' annual
salary will be $160,000 with a potential bonus of 70% of such amount, Mr. Hall's
annual salary will be $125,000 with a potential bonus of 50% of such amount, Mr.
Shuflin's annual salary will be $147,000 with a potential bonus of 50% of such
amount and Mr. Anderson's annual salary will be $130,000 with a potential bonus
of 50% of such amount.

CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. The nature of the
respective businesses of the Company and Monterey is such as to give rise to
conflicts of interest between the two companies. Conflicts could arise, for
example, with respect to allocation of capital, dividends, incurrence of
indebtedness, tax matters, financial commitments, registration rights,
administration of benefit plans, service arrangements, potential acquisitions of
businesses or oil and gas properties, the issuance of additional shares of
voting securities or the election of directors.

Monterey will own all of the Company's oil and gas properties in
California, except for the Company's interests in certain properties being
retained by the Company, including the Production Payment (which will be
canceled upon the satisfaction of amounts due thereunder). Monterey has advised
the Company that it does not currently intend to engage in the exploration and
production of natural gas, natural gas liquids or hard minerals outside of
California. Circumstances may arise in the future, however, that would cause
Monterey to engage in the exploration and production of oil and gas in
competition with the Company. Although the Company will control all matters
affecting Monterey (through its ability to elect all the directors of Monterey)
until the consummation of the Proposed Spinoff, there are no restrictions,
contractual or otherwise, on Monterey's engaging in such activities prior to or
after the consummation of the Proposed Spinoff. Accordingly, if Monterey changes
its current strategy, or makes an acquisition, it may compete with the Company.

Monterey and the Company and its affiliates have in the past entered into
intercompany transactions and agreements incident to their respective
businesses, and, in addition to the Transactions, Monterey and the Company may
be expected to enter into transactions and agreements from time to time in the
future. The Company intends that the terms of any future transactions and
agreements between Monterey and the Company will be on terms at least as
favorable to the Company as it could obtain from third parties.

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<PAGE>
MISCELLANEOUS

SECTION 20. FEES AND EXPENSES.

The Company has retained First Chicago Trust Company of New York as
Depositary, D.F. King & Co., Inc. as Information Agent and Lehman Brothers Inc.
as Dealer Manager in connection with the Offer. The Information Agent and Dealer
Manager will assist shareholders who request assistance in connection with the
Offer and may request brokers, dealers and other nominee shareholders to forward
materials relating to the Offer to beneficial owners. The Company has agreed to
pay the Dealer Manager, upon acceptance for payment of Preferred Shares pursuant
to the Offer, a fee of $0.15 per Preferred Share purchased in the Offer. The
Dealer Manager will also be reimbursed by the Company for its reasonable out-
of-pocket expenses, including attorneys' fees. The Dealer Manager has rendered,
is currently rendering and is expected to continue to render various investment
banking and other advisory services to the Company. It has received, and will
continue to receive, customary compensation from the Company for such services.
The Depositary and Information Agent will receive reasonable and customary
compensation for their services in connection with the Offer and will also be
reimbursed for reasonable out-of-pocket expenses, including attorneys' fees. The
Company has agreed to indemnify the Depositary, Information Agent and Dealer
Manager against certain liabilities in connection with the Offer, including
certain liabilities under the Federal securities laws. Neither the Depositary
nor the Information Agent has been retained to make solicitations, and none of
the Depositary, Information Agent or Dealer Manager has been retained to make
recommendations, in their respective roles as Depositary, Information Agent and
Dealer Manager.

The Company will pay to a Soliciting Dealer (as defined herein) a
solicitation fee of $0.20 per Preferred Share for any Preferred Shares tendered,
accepted for payment and paid for pursuant to the Offer. For purposes of this
Section 20, "Soliciting Dealer" includes (i) any broker or dealer in
securities, including the Dealer Manager in its capacity as a broker or dealer,
who is a member of any national securities exchange or of the NASD, (ii) any
foreign broker or dealer not eligible for membership in the NASD who agrees to
conform to the NASD's Conduct Rules in soliciting tenders outside the United
States to the same extent as though it were an NASD member, or (iii) any bank or
trust company, any one of whom has solicited and obtained a tender pursuant to
the Offer. No such fee shall be payable to a Soliciting Dealer in respect of
Preferred Shares registered in the name of such Soliciting Dealer unless (i)
such Preferred Shares are held by such Soliciting Dealer as nominee and such
Preferred Shares are being tendered for the benefit of one or more beneficial
owners identified on the Letter of Transmittal or on the Notice of Solicited
Tenders (included in the materials provided to brokers and dealers) or (ii) such
Preferred Shares are being tendered for the benefit of the Soliciting Dealer and
such Soliciting Dealer certifies on the Letter of Transmittal or on the Notice
of Solicited Tenders that such Preferred Shares was acquired by the Soliciting
Dealer (x) after the announcement of the Offer, (y) at a price not in excess of
the Purchase Price and (z) from a holder solicited by the Soliciting Dealer. For
purposes of clause (z), "solicited"shall mean direct contact (other than the
mailing of the tender offer materials) with the holder relating to the tender of
Preferred Shares beneficially owned by the holder that resulted in the purchase
by the Soliciting Dealer of such Preferred Shares. No such fee shall be payable
to a Soliciting Dealer with respect to the tender of Preferred Shares by a
holder unless the Letter of Transmittal accompanying such tender designates such
Soliciting Dealer as such in the box captioned "Solicited Tenders" or the
Notice of Solicited Tenders accompanying such tender designates such Soliciting
Dealer. No such fee shall be payable to the Soliciting Dealer with respect to
the tender of Preferred Shares by the holder of record, for the benefit of the
beneficial owner, unless the beneficial owner has designated such Soliciting
Dealer. No such fee shall be payable to a Soliciting Dealer unless the
Soliciting Dealer returns a Notice of Solicited Tenders to the Depositary within
five business days after the Expiration Date. No such fee shall be payable to a
Soliciting Dealer if such Soliciting Dealer is required for any reason to
transfer the amount of such fee to a depositing holder (other than itself). No
broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent
of the Company, the Depositary, the Information Agent or the Dealer Manager for
purposes of the Offer.

The Company will pay (or cause to be paid) any stock transfer taxes on its
purchase of Preferred Shares, except as otherwise provided in Instruction 6 of
the Letter of Transmittal.

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<PAGE>
Assuming all Preferred Shares up to the Amount Sought are tendered pursuant
to the Offer, it is estimated that the expenses incurred by the Company in
connection with the Offer will be approximately as set forth below. The Company
will be responsible for paying all such expenses.

Dealer Manager's fees................ $ 675,000
Solicitation fees.................... 900,000
Printing and mailing fees............ 75,000
Filing fees.......................... 22,050
Legal, accounting and miscellaneous
fees................................. 200,000
------------
Total........................... $ 1,872,050
============

SECTION 21. MISCELLANEOUS.

The Offer is not being made to, nor will the Company accept tenders from,
owners of Preferred Shares in any jurisdiction in which the Offer or its
acceptance would not be in compliance with the laws of such jurisdiction. The
Company is not aware of any jurisdiction where the making of the Offer or the
tender of Preferred Shares would not be in compliance with applicable law. If
the Company becomes aware of any jurisdiction where the making of the Offer or
the tender of Preferred Shares is not in compliance with any applicable law, the
Company will make a good faith effort to comply with such law. If, after such
good faith effort, the Company cannot comply with such law, the Offer will not
be made to (nor will tenders be accepted from or on behalf of) the holders of
Preferred Shares residing in such jurisdiction. In any jurisdiction in which the
securities, blue sky or other laws require the Offer to be made by a licensed
broker or dealer, the Offer will be deemed to be made on the Company's behalf by
Lehman Brothers or one or more registered brokers or dealers licensed under the
laws of such jurisdiction.

Santa Fe Energy Resources, Inc.

October 22, 1996

<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS

SANTA FE ENERGY RESOURCES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(IN MILLIONS OF DOLLARS, EXCEPT AS NOTED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------------------------------------
PRO FORMA
AFTER
MONTEREY PRO FORMA
IPO AND AFTER
PRO FORMA RELATED PRO FORMA PROPOSED
HISTORICAL ADJUSTMENTS TRANSACTIONS ADJUSTMENTS SPINOFF(A)
---------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues............................. $399.1 -- $399.1 $(193.4)(f) $ 205.7
---------- ----------- ------------ ----------- ---------
Costs and Expenses
Production and operating........ 136.1 -- 136.1 (76.7)(f) 59.4
Exploration, including dry hole
costs......................... 16.9 -- 16.9 (1.2)(f) 15.7
Depletion, depreciation &
amortization.................. 106.1 -- 106.1 (27.9)(f) 78.2
Impairment of oil and gas
properties.................... 10.4 -- 10.4 -- 10.4
General and administrative...... 20.3 1.0(b) 21.3 (6.8)(f) 14.5
Taxes (other than income)....... 19.4 -- 19.4 (6.8)(f) 12.6
Loss on disposition of assets... 0.5 -- 0.5 -- 0.5
---------- ----------- ------------ ----------- ---------
309.7 1.0 310.7 (119.4) 191.3
---------- ----------- ------------ ----------- ---------
Income from Operations............... 89.4 (1.0) 88.4 (74.0) 14.4
Interest, net................... (23.7) 2.0(c) (21.7) 14.6(f) (7.1)
Other income (expense).......... (0.7) -- (0.7) -- (0.7)
---------- ----------- ------------ ----------- ---------
Income Before Income Taxes........... 65.0 1.0 66.0 (59.4) 6.6
Income tax expense.............. (18.5) (0.3)(g) (18.8) 23.0(g) 4.2
Minority interest in Monterey
Resources..................... -- (5.4)(d) (5.4) 5.4(f) --
---------- ----------- ------------ ----------- ---------
Net income (Loss).................... 46.5 (4.7) 41.8 (31.0) 10.8
Preferred dividend
requirement................... (11.1) 4.3(e) (6.8) 6.8(h) --
---------- ----------- ------------ ----------- ---------
Earnings (Loss)...................... $ 35.4 $(0.4) $ 35.0 $ (24.2) $ 10.8
========== =========== ============ =========== =========
Earnings per share (in dollars)...... $ 0.39 $ 0.39 $ 0.11
========== ============ =========
Average shares outstanding
(millions)......................... 90.6 90.6 10.7(i) 101.3
========== ============ =========== =========
</TABLE>
F-1
<PAGE>
SANTA FE ENERGY RESOURCES, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
PRO FORMA
AFTER
MONTEREY PRO FORMA
IPO AND AFTER
PRO FORMA RELATED PRO FORMA PROPOSED
HISTORICAL ADJUSTMENTS TRANSACTIONS ADJUSTMENTS SPINOFF
---------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets: $ 16.0(a)
8.6(b)
30.0(c) $ (14.1)(h)
Cash and cash equivalents....... $ 35.9 (65.0)(d) $ 25.5 (10.6)(i) $ 0.8
Accounts receivable............. 92.0 92.0 (40.4)(i) 51.6
Other current assets............ 32.7 32.7 (2.8)(i) 29.9
---------- ------------ ---------
160.6 150.2 82.3
---------- ------------ ---------
Properties and Equipment, at cost:
Oil and gas (successful efforts
accounting)................... 2,496.3 2,496.3 (1,004.9)(i) 1,491.4
Other................................ 40.0 40.0 (21.2)(i) 18.8
---------- ------------ ---------
2,536.3 2,536.3 1,510.2
Accumulated depletion,
depreciation, amortization and
impairment.................... (1,584.1) (1,584.1) 647.1(i) (937.0)
---------- ------------ ---------
952.2 952.2 573.2
---------- ------------ ---------
Other Assets......................... 13.9 13.9 (1.5)(i) 12.4
---------- ----------- ------------ ----------- ---------
$ 1,126.7 $ (10.4) $ 1,116.3 $ (448.4) $ 667.9
========== =========== ============ =========== =========
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable................ $ 79.2 $ 79.2 $ (21.1)(i) $ 58.1
Current portion of long-term
debt.......................... 35.0 $ (35.0)(b) -- --
Other current liabilities....... 37.4 (0.4)(e) 37.0 (8.3)(i) 28.7
---------- ------------ ---------
151.6 116.2 86.8
---------- ------------ ---------
16.0(a)
(51.0)(b)
30.0(c) 4.0(h)
Long-term Debt....................... 309.4 35.0(d) 339.4 (209.0)(i) 134.4
---------- ------------ ---------
Long-Term Obligations................ 32.6 32.6 (4.1)(i) 28.5
---------- ------------ ---------
(1.8)(h)
Deferred Income Taxes................ 76.0 (0.8)(b) 75.2 (45.1)(i) 28.3
---------- ------------ ---------
(0.6)(h)
Minority Interest in Monterey
Resources.......................... -- 20.6(b) 20.6 (20.0)(i) --
---------- ------------ ---------
Convertible Preferred Stock.......... 80.0 (65.3)(d) 14.7 (14.7)(g) --
---------- ------------ ---------
Shareholders' Equity:
$.732 Series A preferred
stock......................... 91.4 91.4 (91.4)(f) --
Common stock.................... 0.9 0.9 0.1(f) 1.0
78.0(b) 126.8(f)
Paid-in capital................. 505.4 1.3(e) 584.7 23.0(g) 734.5
(35.5)(f)
(34.7)(d) (8.3)(g)
(3.2)(b) (15.7)(h)
Accumulated deficit............. (120.3) (0.9)(e) (159.1) (126.7)(i) (345.3)
Foreign currency transaction
adjustment.................... (0.3) (0.3) (0.3)
---------- ------------ ---------
477.1 517.6 389.9
---------- ----------- ------------ ----------- ---------
$ 1,126.7 $ (10.4) $ 1,116.3 $ (448.4) $ 667.9
========== =========== ============ =========== =========
</TABLE>
F-2
<PAGE>
SANTA FE ENERGY RESOURCES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------------
PRO FORMA
AFTER PRO FORMA
MONTEREY IPO AFTER
PRO FORMA AND RELATED PRO FORMA PROPOSED
HISTORICAL ADJUSTMENTS TRANSACTIONS ADJUSTMENTS SPINOFF(A)
---------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues............................. $442.0 -- $ 442.0 $(211.3)(f) $ 230.7
---------- ----------- ------------ ----------- ---------
Costs and Expenses
Production and operating........ 154.9 -- 154.9 (85.3)(f) 69.6
Exploration, including dry hole
costs......................... 23.4 -- 23.4 (2.3)(f) 21.1
Depletion, depreciation &
amortization.................. 133.2 -- 133.2 (32.4)(f) 100.8
Impairment of oil and gas
properties.................... 30.2 -- 30.2 -- 30.2
General and administrative...... 26.9 1.7(b) 28.6 (9.0)(f) 19.6
Taxes (other than income)....... 19.2 -- 19.2 (7.9)(f) 11.3
Loss on disposition of assets... 0.3 -- 0.3 -- 0.3
---------- ----------- ------------ ----------- ---------
388.1 1.7 389.8 (136.9) 252.9
---------- ----------- ------------ ----------- ---------
Income from Operations............... 53.9 (1.7) 52.2 (74.4) (22.2)
Interest, net........................ (16.0) 2.6(c) (13.4) 20.0(f) 6.6
Other income (expense).......... (1.6) -- (1.6) 0.6(f) (1.0)
---------- ----------- ------------ ----------- ---------
Income Before Income Taxes........... 36.3 0.9 37.2 (53.8) (16.6)
Income tax expense.............. (9.7) (0.2)(g) (9.9) 13.3(g) 3.4
Minority interest in Monterey
Resources..................... -- (4.9)(d) (4.9) 4.9(f) --
---------- ----------- ------------ ----------- ---------
Net income (Loss).................... 26.6 (4.2) 22.4 (35.6) (13.2)
Preferred dividend
requirement................... (14.8) 5.7(e) (9.1) 9.1(h) --
---------- ----------- ------------ ----------- ---------
Earnings (loss)................. $ 11.8 $ 1.5 $ 13.3 $ (26.5) $ (13.2)
========== =========== ============ =========== =========
Earnings per share (in
dollars)...................... $ 0.13 $ 0.15 $ (0.13)
========== ============ =========
Average shares outstanding
(millions).................... 90.2 90.2 10.7(i) 100.9
========== ============ =========== =========
</TABLE>
F-3
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

The unaudited pro forma condensed statements of operations of Santa Fe
Energy Resources, Inc. (the "Company") for the nine months ended September 30,
1996 and the year ended December 31, 1995, and the unaudited pro forma condensed
balance sheet as of September 30, 1996 (collectively the "Pro Forma Financial
Statements") have been prepared from the historical financial statements of the
Company. The Pro Forma Financial Statements are based on numerous assumptions
and include the adjustments as explained in Note 2 below. The unaudited pro
forma condensed statements of operations for the nine months ended September 30,
1996 and the year ended December 31, 1995 have been prepared as if the
transactions described below had occurred as of January 1, 1995. The unaudited
pro forma condensed balance sheet has been prepared as if the transactions
described below had occurred as of September 30, 1996.

On September 18, 1996, the Company announced its intention to separate its
oil and gas operations located in the western United States (the "Western
Division") from its other domestic and international operations located in the
central United States, the Gulf of Mexico and abroad. The initial phase of the
separation will involve (i) the contribution of substantially all of the assets
and operations of the Western Division to Monterey Resources, Inc.
("Monterey"), a newly-formed, wholly owned subsidiary of the Company, and the
assumption by Monterey of all the liabilities and obligations associated with
the Western Division, including $245 million of indebtedness in respect of the
Company Senior Notes (as defined below; such contribution and assumption being
referred to herein as the "Transfer") and (ii) the initial public offering
(the "Monterey IPO") of approximately 15% of the common stock of Monterey (the
"Monterey Common Stock") (17% if the underwriters' over-allotment options are
exercised in full). On September 18, 1996, Monterey filed a registration
statement with the Securities and Exchange Commission (the "Commission")
relating to the proposed Monterey IPO. The second phase of the separation would
involve a pro rata distribution by the Company to its common stockholders of the
Company's remaining ownership interest in Monterey by means of a tax-free
distribution (the "Distribution" and collectively with the Transfer and the
Monterey IPO, the "Proposed Spinoff").

In connection with the Transfer, the Monterey IPO and the Offer, the
following transactions will occur: (a) the Company and Monterey will enter into
a contribution and conveyance agreement (the "Contribution Agreement"),
pursuant to which, among other things, the Transfer will occur, resulting in (i)
substantially all of the assets and operations of the Western Division being
contributed to Monterey, subject to the retention by the Company of a production
payment (the "Production Payment") in an aggregate amount of $30 million with
respect to certain properties in the Midway-Sunset field, which Production
Payment will be prepayable in whole or in part without penalty by Monterey at
any time or from time to time (and which Monterey intends to prepay promptly
following the Monterey IPO); and (ii) Monterey assuming all obligations and
liabilities of the Company associated with the assets and properties of the
Western Division, including $245 million of indebtedness in respect of the
Company's 10.23% Series E Notes due 1997, 10.27% Series F Notes due 1998, 10.61%
Series G Notes due 2005 (the "Series E Company Senior Notes", "Series F
Company Senior Notes" and "Series G Company Senior Notes", respectively, and
the "Company Senior Notes", collectively) (the "Debt Assumption"); (b)
Monterey will (i) use a portion of the net proceeds from the Monterey IPO to
repay in full the $70 million aggregate principal amount of the Series E Company
Senior Notes and Series F Company Senior Notes and accrued and unpaid interest
thereon and to pay a prepayment premium of approximately $2.5 million thereon
(the "Senior Note Repayment") and (ii) issue $175 million in aggregate
principal amount of its 10.61% Senior Notes due 2005 (the "Monterey Senior
Notes") to holders of the Series G Company Senior Notes in exchange for
cancellation and surrender of such notes, and Monterey will pay a $1.3 million
consent fee in connection therewith (the "Senior Note Exchange," and together
with the Debt Assumption and the Senior Note Repayment, the "Senior Note
Refinancing"); (c)(i) the Company and Monterey will enter into a new $75
million revolving credit facility with a group of banks (the "Monterey Credit
Facility") and the Company is expected to borrow approximately $16 million
thereunder, which will be assumed by Monterey in

F-4
<PAGE>
accordance with the Contribution Agreement, and (ii) upon consummation of the
Monterey IPO, Monterey will repay all such indebtedness outstanding under the
Monterey Credit Facility with a portion of the net proceeds from the Monterey
IPO and the Company will cease to be an obligor under the Monterey Credit
Facility; (d) the Company will enter into a new $150 million bank credit
facility (the "Company's New Facility") and use an estimated $100 million
(comprised of $65 million of cash on hand and $35 million of borrowings under
the Company's New Facility and assuming 4.1 million shares are tendered and
purchased pursuant to the Offer) to pay the Purchase Price of Preferred Shares
to be purchased pursuant to the Offer and (e) the Company and Monterey will
enter into certain intercompany agreements regarding corporate services, taxes,
indemnification and certain other matters as more fully described under
" -- Relationship Between the Company and Monterey." The transactions
described above, including, without limitation, the transactions to be effected
pursuant to the agreements referred to in clause (e) of the preceding sentence,
together with the Consent Solicitation and the Offer, are referred to herein
collectively as the "Transactions."

The pro forma adjustments relating to the Monterey IPO and related
Transactions give effect to (i) the completion of the Offer (assuming the number
of Preferred Shares purchased in the Offer equals the Amount Sought), (ii) the
completion of the Monterey IPO and the receipt of approximately $100 million of
estimated net proceeds therefrom and the application by Monterey of $72 million
of such proceeds to repay the Series E and Series F Company Senior Notes assumed
by Monterey and (iii) the completion of the Senior Note Exchange; and the pro
forma adjustments relating to the Proposed Spinoff give effect to (i) the
Distribution, (ii) the conversion of all outstanding shares of the Company's
$.732 Series A Convertible Preferred Stock ("DECS") at a conversion rate of
0.8474 shares of Company Common Stock per DECS and (iii) the conversion of all
outstanding Preferred Shares (assuming 4.1 million Preferred Shares are tendered
and purchased in the Offer equals the Amount Sought) at a Conversion Ratio of
1.785 shares of Company Common Stock per Preferred Share (assuming the market
price of Company Common Stock is $14 per share).

The Pro Forma Financial Statements do not reflect the proposed sale of the
Olinda Property by the Company. If the sale is completed in its present form,
the Company would receive total proceeds of approximately $24 million and would
recognize a pre-tax gain of approximately $12 million.

(2) PRO FORMA ADJUSTMENTS

UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED
SEPTEMBER 30, 1996 AND THE YEAR ENDED DECEMBER 31, 1995

(a) The unaudited pro forma condensed statement of operations does not
reflect the following nonrecurring charges which are directly related
to the Transactions: (i) a $2.5 million ($1.5 million after tax)
prepayment premium in connection with the retirement of the Series E
Company Senior Notes and the Series F Company Senior Notes, (ii) a
$1.3 million ($0.8 million after tax) consent fee in connection with
the assumption of the Series G Company Senior Notes by Monterey, and
(iii) $2.0 million ($1.2 million after tax) in Consent Payments. Pro
forma earnings per share do not reflect the effect of premiums paid
with respect to the Offer, the conversion of outstanding Preferred
Shares not purchased in the Offer and the conversion of the DECS,
since such charges are nonrecurring.

(b) To reflect the estimated incremental direct and indirect general and
administrative expenses associated with the operations of Monterey as
a stand alone entity. This estimate includes additional salaries and
benefits, investor reporting and communications, annual costs of
computer hardware and telecommunications systems, annual computer
software licenses and maintenance, separate insurance and other costs.

(c) Gives effect to (i) the reduction in interest expense due to the
retirement of the Series E Company Senior Notes and the Series F
Company Senior Notes ($5.4 million for the nine months ended September
30, 1996, and $7.2 million for the year ended December 31, 1995) and
(ii) the increase in interest expense related to the $35 million in
new borrowings under the Company's New

F-5
<PAGE>
Facility ($1.8 million for the nine months ended September 30, 1996
and $2.5 million for the year ended December 31, 1995).

(d) Gives effect to the minority shareholders' interest in the earnings of
Monterey that is attributable to the ownership by the public of
approximately 15% of Monterey's stock following the Monterey IPO.

(e) Gives effect to the reduction in preferred dividends due to the
purchase of 4.1 million Preferred Shares in the Offer.

(f) Gives effect to the Distribution.

(g) Gives effect to the income tax effects of the pro forma adjustments.

(h) Gives effect to the reduction in preferred dividends due to the
issuance of 1.6 million shares of common stock in exchange for the
remaining 0.9 million outstanding Preferred Shares and the issuance of
9.1 million shares of common stock in exchange for the 10.7 million
outstanding shares of DECS.

(i) Gives effect to the issuance of 1.6 million shares of common stock in
exchange for the 0.9 million Preferred Shares outstanding after the
Offer and the issuance of 9.1 million shares of common stock in
exchange for the 10.7 million outstanding shares of DECS.

UNAUDITED PRO FORMA CONDENSED BALANCE SHEET AT SEPTEMBER 30, 1996

(a) Gives effect to $16.0 million of new borrowings under the Monterey
Credit Facility.

(b) Gives effect to the Monterey IPO and the use of a portion of the
proceeds to (i) retire the Series E Company Senior Notes, the Series F
Company Senior Notes and $16.0 million outstanding under the Monterey
Credit Facility and (ii) pay a $2.5 million prepayment premium in
connection with the retirement of the Series E Company Senior Notes
and Series F Company Senior Notes, a $1.3 million consent fee in
connection with the assumption of the Series G Company Senior Notes by
Monterey and $2.0 million in Consent Payments.

(c) Gives effect to $30.0 million of borrowings under the Monterey Credit
Facility and the repayment of the $30.0 million Production Payment.
Monterey intends to prepay the Production Payment in full promptly
following consummation of the Monterey IPO.

(d) Gives effect to the use of $35 million of new borrowings under the
Company's New Facility and $65.0 million cash on hand to purchase 4.1
million Preferred Shares in the Offer.

(e) Gives effect to the issuance of 0.1 million shares of common stock
upon the vesting of certain performance units as a result to the
Monterey IPO.

(f) Gives effect to the issuance of 9.1 million shares of common stock in
exchange for the 10.7 million outstanding shares of DECS.

(g) Gives effect to the issuance of 1.6 million shares of common stock in
exchange for the 0.9 million Preferred Shares that are estimated to
remain outstanding after the Offer.

(h) Gives effect to the payment by Monterey of $4.0 million in advisory
fees and the payment by the Company of $1.0 million in expenses and a
$13.1 million tax liability related to the Distribution.

(i) Gives effect to the Distribution.

F-6
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates for
Preferred Shares and any other required documents should be sent or delivered by
each shareholder of the Company or such shareholder's broker, dealer, commercial
bank or trust company to the Depositary at one of its addresses set forth below.

The Depositary for the Offer is:

FIRST CHICAGO TRUST COMPANY OF NEW YORK

BY MAIL:
Tenders & Exchanges
P.O. Box 2569-Suite 4660-SFER
Jersey City, New Jersey
07303-2569

BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT COURIER:
(201) 222-4720 Tenders & Exchanges
or 14 Wall Street, Suite 4680-SFER
(201) 222-4721 8th Floor
(for Eligible Institutions Only) New York, New York 10005

FACSIMILE CONFIRMATIONS ONLY:

(201) 222-4707

Any questions or requests for assistance may be directed to the
Information Agent or the Dealer Manager at their respective telephone numbers
and addresses listed below. Requests for additional copies of this Offer to
Purchase, the Letter of Transmittal or other tender offer materials may be
directed to the Information Agent or Dealer Manager, and such copies will be
furnished promptly at the Company's expense. Shareholders may also contact
their broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Offer.

The Dealer Manager for the Offer is:

LEHMAN BROTHERS INC.

Three World Financial Center
200 Vesey Street
New York, NY 10285
(800) 438-3242
Attention: Roy D. Henriksson

The Information Agent for the Offer is:

D.F. KING & CO., INC.

77 Water Street
New York, NY 10005
(800) 290-6429 (Toll-Free)

<PAGE>
EXHIBIT (a)(2)

LETTER OF TRANSMITTAL
TO ACCOMPANY
SHARES OF CONVERTIBLE PREFERRED STOCK,
7% SERIES, PAR VALUE $0.01 PER SHARE OF

SANTA FE ENERGY RESOURCES, INC.

TENDERED PURSUANT TO THE OFFER TO PURCHASE, DATED
OCTOBER 22, 1996, FOR UP TO 4,500,000 SHARES
AT PURCHASE PRICE OF $24.50 PER PREFERRED SHARE

THE OFFER PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 19, 1996, UNLESS THE
OFFER IS EXTENDED.

TO: FIRST CHICAGO TRUST COMPANY OF NEW YORK, DEPOSITARY

BY MAIL: BY HAND OR OVERNIGHT COURIER:
Tenders & Exchanges Tenders & Exchanges
P.O. Box 2569-Suite 4660-SFER 14 Wall Street, 8th Floor
Jersey City, New Jersey Suite 4680-SFER
07303-2569 New York, New York 10005
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------
DESCRIPTION OF PREFERRED SHARES TENDERED
SEE INSTRUCTIONS
- ------------------------------------------------------------------------------------------------------------
PREFERRED SHARES TENDERED
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (ATTACH ADDITIONAL SIGNED LIST IF
(PLEASE FILL IN EXACTLY AS NAME(S) APPEAR(S) ON CERTIFICATE(S)) NECESSARY)
- ------------------------------------------------------------------------------------------------------------
NUMBER OF
PREFERRED SHARES NUMBER OF
CERTIFICATE REPRESENTED BY PREFERRED SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
------------------------------------ -----------------

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

------------------------------------ -----------------
------------------------------------ -----------------
TOTAL PREFERRED SHARES
- ------------------------------------------------------------------------------------------------------------ ------------------
* NEED NOT BE COMPLETED BY SHAREHOLDERS DELIVERING PREFERRED SHARES BY BOOK-ENTRY TRANSFER.
** UNLESS OTHERWISE INDICATED, IT WILL BE ASSUMED THAT ALL PREFERRED SHARES REPRESENTED BY CERTIFICATES DELIVERED
TO THE DEPOSITARY ARE BEING TENDERED. SEE INSTRUCTION 4.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.

DO NOT SEND ANY CERTIFICATES TO LEHMAN BROTHERS, TO D.F. KING & CO., INC.
OR TO THE COMPANY.

THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THE LETTER OF TRANSMITTAL IS COMPLETED.

This Letter of Transmittal can be used only if (a) certificates for
Preferred Shares (as defined below) are to be delivered with it or (b) Preferred
Shares are being delivered concurrently by book-entry transfer to the account
maintained by the Depositary at The Depository Trust Company or the Philadelphia
Depository Trust Company (collectively, the "Book-Entry Transfer Facilities")
as set forth under "The Offer -- Procedure for Tendering Preferred Shares" in
the Offer to Purchase (as defined below).

Shareholders who cannot deliver the certificates for their Preferred Shares
to the Depositary prior to the Expiration Date (as defined in the Offer to
Purchase), or who cannot complete the procedure for book-entry transfer on a
timely basis, or who cannot deliver a Letter of Transmittal and all other
required documents to the Depositary prior to the Expiration Date, in any such
case, must tender their Preferred Shares pursuant to the guaranteed delivery
procedure set forth under "The Offer -- Procedure for Tendering Preferred
Shares" in the Offer to Purchase. See Instruction 2. The name(s) and
address(es) of the registered holder(s) should be printed below, if they are not
already printed below, exactly as they appear on the Preferred Shares tendered
herewith. The number of Preferred Shares that the registered holder(s) wish(es)
to tender should be indicated in the appropriate boxes below.

(BOXES BELOW FOR USE BY ELIGIBLE INSTITUTION ONLY)

[ ] CHECK HERE IF TENDERED PREFERRED SHARES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER
FACILITIES AND COMPLETE THE FOLLOWING:

Name of Tendering Institution........................................
CHECK BOX OF BOOK-ENTRY TRANSFER FACILITY:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account No...........................................................
Transaction Code No..................................................

[ ] CHECK HERE IF TENDERED PREFERRED SHARES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND
COMPLETE THE FOLLOWING:

Name(s) of Tendering Shareholder(s):.................................
Date of Execution of Notice of Guaranteed Delivery...................
Name of Institution which Guaranteed Delivery........................
If delivery is by book-entry transfer:
Name of Tendering Institution:.......................................
CHECK BOX OF BOOK-ENTRY TRANSFER FACILITY:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number.......................................................
Transaction Code Number..............................................

NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE>
Ladies and Gentlemen:

The undersigned hereby tenders to Santa Fe Energy Resources, Inc., a
Delaware corporation (the "Company"), the above-described Preferred Shares,
par value $0.01 per share (the "Preferred Shares"), pursuant to the Company's
offer to purchase at a price of $24.50 per Preferred Share (the "Purchase
Price"), net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated October 22, 1996 (the
"Offer to Purchase"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which together constitute the "Offer"). The Company
will purchase all Preferred Shares validly tendered and not withdrawn up to the
4,500,000 Preferred Shares sought upon the terms and subject to the conditions
of the Offer, including provisions relating to proration. Preferred Shares not
purchased because of proration will be returned. See "The Offer -- Expiration
Date; Extension; Proration, and -- Certain Conditions of the Offer" in the
Offer to Purchase.

Subject to, and effective upon, acceptance for payment of and payment for
the Preferred Shares tendered herewith in accordance with the terms and subject
to the conditions of the Offer (including, if the Offer is extended or amended,
the terms or conditions of any such extension or amendment), the undersigned
hereby sells, assigns and transfers to or upon the order of the Company all
right, title and interest in and to all the Preferred Shares that are being
tendered hereby, or orders the registration of such Preferred Shares delivered
by book-entry transfer, that are purchased pursuant to the Offer and hereby
irrevocably constitutes and appoints the Depositary the true and lawful agent
and attorney-in-fact of the undersigned with respect to such Preferred Shares,
with full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest), to:

(a) deliver certificates for such Preferred Shares, or transfer
ownership of such Preferred Shares on the account books maintained by any
of the Book-Entry Transfer Facilities, together, in any such case, with all
accompanying evidences of transfer and authenticity, to or upon the order
of the Company, upon receipt by the Depositary, as the undersigned's agent,
of the Purchase Price with respect to such Preferred Shares; (b) present
certificates for such Preferred Shares for registration and transfer on the
books of the Company; and (c) receive all benefits and otherwise exercise
all rights of beneficial ownership of such Preferred Shares, all in
accordance with the terms of the Offer.

The undersigned hereby represents and warrants that:

(a) the undersigned has full power and authority to tender, sell,
assign and transfer the Preferred Shares tendered hereby;

(b) when and to the extent the Company accepts the Preferred Shares
for purchase, the Company will acquire good, marketable and unencumbered
title to the Preferred Shares, free and clear of all security interests,
liens, charges, encumbrances, conditional sales agreements or other
obligations relating to their sale or transfer, and not subject to any
adverse claim;

(c) on request, the undersigned will execute and deliver any
additional documents deemed by the Depositary or the Company to be
necessary or desirable to complete the sale, assignment and transfer of the
Preferred Shares tendered hereby; and

(d) the undersigned has read and agrees to all the terms of the Offer.
The undersigned understands that tenders of Preferred Shares pursuant to
any one of the procedures described under "The Offer -- Procedure of
Tendering Preferred Shares" in the Offer to Purchase and in the
instructions hereto will constitute an agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Offer,
including the undersigned's representation and warranty that (i) the
undersigned has a net long position in the Preferred Shares being tendered
within the meaning of Rule 14e-4 promulgated under the Securities Exchange
Act of 1934, as amended, and (ii) the tender of such Preferred Shares
complies with Rule 14e-4. The Company's acceptance for payment of Preferred
Shares tendered pursuant to the Offer will constitute a binding agreement
between the undersigned and the Company upon the terms and subject to the
conditions of the Offer.

All authority herein conferred, or agreed to be conferred, shall survive
the death or incapacity of the undersigned, and any obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Except as stated in the Offer, this
tender is irrevocable.

The undersigned recognizes that under certain circumstances set forth in
the Offer to Purchase, the Company may terminate or amend the Offer or may not
be required to accept for payment any of the Preferred Shares tendered herewith.
In either event, the undersigned understands that certificates for any Preferred
Shares not tendered or not purchased will be returned to the undersigned.

Unless otherwise indicated under "Special Payment Instructions", please
issue the check for the Purchase Price and/or return or issue the
certificates(s) evidencing any Preferred Shares not tendered, not accepted for
payment or for which payment is not made in the name(s) of the registered
holder(s) appearing under "Description of Preferred Shares Tendered."
Similarly, unless otherwise indicated under "Special Delivery Instructions",
please mail the check for the Purchase Price and/or the receipt(s) evidencing
any Preferred Shares not tendered, not accepted for payment or for
<PAGE>
which payment is not made (and accompanying documents, as appropriate) to the
address of the registered holder(s) appearing under "Description of Preferred
Shares Tendered." In the event that both the "Special Delivery Instructions"
and "Special Payment Instructions" are completed, please issue the check for
the Purchase Price and/or issue or return the receipt(s) evidencing any
Preferred Shares not tendered, not accepted for payment or for which payment is
not made in the names(s) of, and deliver said check and/or receipt(s) to, the
person or persons so indicated. In the case of book-entry delivery of Preferred
Shares, please credit the account maintained at the Book-Entry Transfer Facility
indicated above with any Preferred Shares not accepted for payment or for which
payment is not made. The undersigned recognizes that the Company has no
obligation pursuant to the "Special Payment Instructions" to transfer any
Preferred Shares from the name(s) of the registered holder(s) thereof if the
Company does not accept for payment or make payment for any of the Preferred
Shares so tendered.
- ---------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4, 5, 6 AND 7)
To be completed ONLY if the check for the aggregate
Purchase Price of Preferred Shares purchased and/or
certificates for Preferred Shares not tendered or not
purchased are to be issued in the name of someone
other than the undersigned.

Issue [ ] check and/or
[ ] certificates to:

Name..................................................
(PLEASE PRINT)

Address...............................................

......................................................

......................................................
(INCLUDE ZIP CODE)

......................................................
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
- ---------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 7)

To be completed ONLY if the check for the aggregate
Purchase Price of Preferred Shares purchased and/or
certificates for Preferred Shares not tendered or not
purchased are to be mailed to someone other than the
undersigned or to the undersigned at an address other
than that shown below the undersigned's name.
Issue [ ] check and/or
[ ] certificates to:
Name..................................................
(PLEASE PRINT)
Address...............................................
......................................................
......................................................
(INCLUDE ZIP CODE)

- ---------------------------------------------------------------------------
<PAGE>
SOLICITED TENDERS
(SEE INSTRUCTION 9)

The Company will pay to any Soliciting Dealer, as defined in Instruction
9, a solicitation fee of $0.20 per Preferred Share, for each Preferred Share
tendered, accepted for payment and paid for pursuant to the Offer.

The undersigned represents that the Soliciting Dealer which solicited and
obtained this tender is:

Name of Firm:_____________________________________________________________
(PLEASE PRINT)
Name of Individual Broker or Financial Consultant:
Identification Number (if known):_________________________________________

Address:__________________________________________________________________
(INCLUDE ZIP CODE)

The following to be completed ONLY if customer's Preferred Shares held in
nominee name are tendered.

NAME OF BENEFICIAL OWNER NUMBER OF PREFERRED SHARES TENDERED
(ATTACH ADDITIONAL LIST IF NECESSARY)

The acceptance of compensation by such Soliciting Dealer will constitute a
representation by it that: (i) it has complied with the applicable requirements
of the Securities Exchange Act of 1934, as amended, and the applicable rules and
regulations thereunder, in connection with such solicitations; (ii) it is
entitled to such compensation for such solicitation under the terms and
conditions of the Offer to Purchase; (iii) in soliciting tenders of Preferred
Shares, it has used no soliciting materials other than those furnished by the
Company; and (iv) if it is a foreign broker or dealer not eligible for
membership in the National Association of Securities Dealers, Inc. (the "NASD"),
it has agreed to conform to the NASD's Conduct Rules in making solicitations to
the same extent as though it were an NASD member.

The payment of compensation to any Soliciting Dealer is dependent on such
Soliciting Dealer returning a Notice of Solicited Tenders to the Depositary.

SOLICITING DEALERS SEEKING PAYMENT OF A FEE FOR PREFERRED SHARES
BENEFICIALLY OWNED BY SUCH SOLICITING DEALER MUST COMPLETE THE CERTIFICATION
BELOW.
- --------------------------------------------------------------------------------
CERTIFICATION BY TENDERING SOLICITING DEALERS
(SEE INSTRUCTION 9)

The undersigned Soliciting Dealer hereby certifies that the Preferred
Shares tendered hereby were acquired by the Soliciting Dealer (x) after the
announcement of the Offer, (y) at a price not in excess of the Purchase Price
(as defined herein) and (z) from a holder solicited by the Soliciting Dealer.
For purposes of clause (z), "solicited" shall mean direct contact (other than
the mailing of the tender offer materials) with the holder relating to the
tender of Preferred Shares beneficially owned by the holder that resulted in the
purchase by the Soliciting Dealer of such Preferred Shares.

_____________________________________
NAME OF SOLICITING DEALER

By:__________________________________
NAME:
TITLE:
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SIGN HERE
(SEE INSTRUCTIONS 1 AND 5)
PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW) SIGN
HERE

X ......................................................................

X ......................................................................
SIGNATURE(S) OF OWNER(S)

Name(s): ...............................................................

Capacity (Full Title): .................................................
(PLEASE PRINT)

Address: ...............................................................

........................................................................
(INCLUDE ZIP CODE)

Area Code and Telephone Number: ........................................

Tax Identification or Social Security No.: .............................

DATED:..................................................................

(Must be signed by registered holder(s) exactly as name(s) appear(s) on
Preferred Share Certificate(s) or on a security position listing or be person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by a trustee, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or other person acting in a
fiduciary or representative capacity, please provide the necessary information.
See Instruction 5.)

GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5)

Authorized Signature: ..................................................

Name: ..................................................................

Name of Firm: ..........................................................

Address: ...............................................................

........................................................................
(INCLUDE ZIP CODE)

Area Code and Telephone Number: ........................................

Dated: .................................................................
- -------------------------------------------------------------------------------

NOTE: REMAINDER OF THIS LETTER OF TRANSMITTAL MUST BE
COMPLETED BY SIGNING THE SUBSTITUTE FORM W-9 BELOW.
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER

1. GUARANTEE OF SIGNATURES

Except as otherwise provided below, all signatures on this Letter of
Transmittal must be guaranteed by a firm which is an "Eligible Institution"
(as defined in the Offer to Purchase). Signatures on this Letter of Transmittal
need not be guaranteed if (a) this Letter of Transmittal is signed by the
registered owner of the Preferred Shares (which term, for purposes of this
document, shall include any participant in one of the Book-Entry Transfer
Facilities whose name appears on a security position listing as the owner of
Preferred Shares) tendered herewith and such holder(s) has not completed either
of the boxes entitled "Special Payment Instructions" or "Special Delivery
Instructions" on this Letter of Transmittal or (b) such Preferred Shares are
tendered for the account of an Eligible Institution. See Instruction 5.

2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES

This Letter of Transmittal is to be used only if (a) certificates for
Preferred Shares are to be forwarded herewith or (b) delivery of Preferred
Shares are to be made by book-entry transfer pursuant to the procedures set
forth in Section 7 of the Offer to Purchase. Certificates for all physically
delivered Preferred Shares or a confirmation of a book-entry transfer of all
Preferred Shares delivered electronically into the Depositary's account at one
of the Book-Entry Transfer Facilities, together in each case with a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) with
any required signature guarantees (or in the case of a book-entry transfer, an
Agent's Message (as defined below)), and any other documents required by this
Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth on the front page of this Letter of Transmittal by the
Expiration Date (as defined in the Offer to Purchase). Delivery of documents to
one of the Book-Entry Transfer Facilities does not constitute delivery to the
Depositary.

Shareholders who cannot deliver the certificates for their Preferred Shares
to the Depositary prior to the Expiration Date or who cannot complete the
procedure for book-entry transfer on a timely basis or who cannot deliver a
Letter of Transmittal and all other required documents to the Depositary by the
Expiration Date must tender their Preferred Shares pursuant to the guaranteed
delivery procedure set forth in Section 7 of the Offer to Purchase. Pursuant to
such procedure: (a) such tender must be made by or through an Eligible
Institution, (b) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Company must be received (by
hand, mail or facsimile transmission) by the Depositary by the Expiration Date
and (c) the certificates for all physically delivered Preferred Shares, in
proper form for transfer (or a confirmation of a book-entry transfer of such
Preferred Shares into the Depositary's account at one of the Book-Entry Transfer
Facilities), together with a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and any required signature guarantees (or
in the case of book-entry transfer, an Agent's Message) and any other documents
required by this Letter of Transmittal, must be received by the Depositary
within five New York Stock Exchange trading days after the date of execution of
such Notice of Guaranteed Delivery, all as provided in Section 7 of the Offer to
Purchase.

The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of the
confirmation of book-entry transfer, which states that such Book-Entry Transfer
Facility has received an express acknowledgment from the participant in such
Book-Entry Transfer Facility tendering the Preferred Shares that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal and that the Purchaser may enforce such agreement against the
participant.

THE METHOD OF DELIVERY OF PREFERRED SHARES, THIS LETTER OF TRANSMITTAL AND
ANY OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING
SHAREHOLDER. IF DELIVERY IS MADE BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED.

No alternative, conditional, or contingent tenders will be accepted, and no
fractional Preferred Shares will be purchased. By executing this Letter of
Transmittal (or facsimile thereof), each tendering shareholder waives any right
to receive any notice of the acceptance of such shareholder's tender.

3. INADEQUATE SPACE

If the space provided in the box captioned "Description of Preferred
Shares Tendered" is inadequate, the certificate numbers and/or the number of
Preferred Shares should be listed on a separate signed schedule and attached to
this Letter of Transmittal.

4. PARTIAL TENDERS AND UNPURCHASED PREFERRED SHARES

Partial tenders are not applicable to shareholders who deliver Preferred
Shares by book-entry transfer. If fewer than all the Preferred Shares
represented by any certificate delivered to the Depositary are to be tendered,
fill in the
<PAGE>
number of Preferred Shares that are to be tendered in the box entitled "Number
of Preferred Shares Tendered." If such Preferred Shares are purchased, a new
certificate for the remainder of the Preferred Shares represented by the old
certificate will be sent to and in the name of the registered holder(s) (unless
otherwise provided by such holder(s) having completed either of the boxes
entitled "Special Payment Instructions" or "Special Delivery Instructions"
on this Letter of Transmittal) as promptly as practicable following the
expiration or termination of the Offer. All Preferred Shares represented by the
certificate(s) listed and delivered to the Depositary will be deemed to have
been tendered unless otherwise indicated.

5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS

a. If this Letter of Transmittal is signed by the registered holder(s) of
the Preferred Shares tendered herewith, the signature(s) must correspond with
the name(s) as written on the face of the certificate without any change
whatsoever.

b. If any of the Preferred Shares tendered herewith are registered in the
names of two or more joint owners, each such owner must sign this Letter of
Transmittal.

c. If any of the Preferred Shares tendered herewith are registered in
different names on different certificates, it will be necessary to complete,
sign and submit as many separate Letters of Transmittal as there are different
registrations of certificates.

d. If this Letter of Transmittal is signed by the registered holder(s) of
the Preferred Shares tendered herewith, no endorsements of certificates or
separate stock powers are required unless payment is to be made, and/or the
certificates for Preferred Shares not tendered or not purchased are to be
issued, in the name(s) of any person(s) other than the registered holder(s). If
this Letter of Transmittal is signed by a person other than the registered
holder(s) of the Preferred Shares tendered herewith, however, the certificates
must be endorsed or accompanied by appropriate stock powers, in either case,
signed exactly as the name(s) of the registered holder(s) appear(s) on the
certificates for such Preferred Shares. Signature(s) on any such certificates or
stock powers must be guaranteed by an Eligible Institution. See Instruction 1.

e. If this Letter of Transmittal or any certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such proper evidence satisfactory to the Company of the authority of
such person so to act must be submitted.

6. STOCK TRANSFER TAXES

The Company will pay any stock transfer taxes with respect to the transfer
and sale of Preferred Shares to it or its order pursuant to the Offer. If,
however, payment of the Purchase Price is to be made to, or if certificates for
Preferred Shares not tendered or accepted for purchase are to be registered in
the name of any person other than the registered holder, or if tendered
certificates are registered in the name of any person other than the person(s)
signing this Letter of Transmittal, the amount of any stock transfer taxes
(whether imposed on the registered holder or such person) payable on account of
the transfer to such person will be deducted from the Purchase Price unless
satisfactory evidence of the payment of such taxes or exemption therefrom is
submitted.

7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS

If the check for the Purchase Price of any Preferred Shares purchased is to
be issued to, or any Preferred Shares not tendered or not purchased is to be
returned in the name of, a person other than the person(s) signing this Letter
of Transmittal or if the check or any certificates for Preferred Shares not
tendered or not purchased are to be mailed to someone other than the person(s)
signing this Letter of Transmittal or to the person(s) signing this Letter of
Transmittal at an address other than that shown in the box entitled
"Description of Preferred Shares Tendered" , the boxes entitled "Special
Payment Instructions" and/or "Special Delivery Instructions" on this Letter
of Transmittal should be completed.

8. LOST, STOLEN OR DESTROYED CERTIFICATES

Any shareholder whose certificates have been lost, stolen or destroyed
should contact the Transfer Agent, First Chicago Trust Company of New York, at
(201) 324-1644 or at the address shown on this Letter of Transmittal for special
instructions.

9. SOLICITED TENDERS

The Company will pay to a Soliciting Dealer (as defined herein) a
solicitation fee of $0.20 per Preferred Share, for any Preferred Shares
tendered, accepted for payment and paid for pursuant to the Offer. For purposes
of this Instruction 9, "Soliciting Dealer" includes (i) any broker or dealer
in securities, including the Dealer Manager in its capacity as a dealer or
broker, who is a member of any national securities exchange or of the NASD, (ii)
any foreign broker or dealer not eligible for membership in the NASD who agrees
to conform to the NASD's Conduct Rules in soliciting tenders outside the United
States to the same extent as though it were an NASD member, or (iii) any bank or
trust company,
<PAGE>
any one of whom has solicited and obtained a tender pursuant to the Offer. No
such fee shall be payable to a Soliciting Dealer in respect of Preferred Shares
registered in the name of such Soliciting Dealer unless (i) such Preferred
Shares are held by such Soliciting Dealer as nominee and such Preferred Shares
are being tendered for the benefit of one or more beneficial owners identified
on the Letter of Transmittal or on the Notice of Solicited Tenders (included in
the materials provided to brokers and dealers) or (ii) such Preferred Shares are
being tendered for the benefit of the Soliciting Dealer and such Soliciting
Dealer certifies on the Letter of Transmittal or on the Notice of Solicited
Tenders that such Preferred Shares were acquired by the Soliciting Dealer (x)
after the announcement of the Offer, (y) at a price not in excess of the
Purchase Price and (z) from a holder solicited by the Soliciting Dealer. For
purposes of clause (z), "solicited"shall mean direct contact (other than the
mailing of the tender offer materials) with the holder relating to the tender of
Preferred Shares beneficially owned by the holder that resulted in the purchase
by the Soliciting Dealer of such Preferred Shares. No such fee shall be payable
to a Soliciting Dealer with respect to the tender of Preferred Shares by a
holder unless the Letter of Transmittal accompanying such tender designates such
Soliciting Dealer as such in the box captioned "Solicited Tenders" or the
Notice of Solicited Tenders accompanying such tender designates such Soliciting
Dealer. No such fee shall be payable to a Soliciting Dealer with respect to the
tender of Preferred Shares by the holder of record, for the benefit of the
beneficial owner, unless the beneficial owner has designated such Soliciting
Dealer. No such fee shall be payable to a Soliciting Dealer unless the
Soliciting Dealer returns a Notice of Solicited Tenders to the Depositary within
five (5) business days after expiration of the Offer. No such fee shall be
payable to a Soliciting Dealer if such Soliciting Dealer is required for any
reason to transfer the amount of such fee to a depositing holder (other than
itself). No broker, dealer, bank, trust company or fiduciary shall be deemed to
be the agent of the Company, the Depositary or the Dealer Manager for purposes
of the Offer.

10. FEDERAL INCOME TAX WITHHOLDING

Except as provided below under "Important Tax Information", each
tendering shareholder is required to provide the Depositary with a correct
Taxpayer Identification Number ("TIN") on Substitute Form W-9, which is
provided under "Important Tax Information" below. Failure to provide the
information on the form may subject the tendering shareholder to a $50 penalty
and 31% Federal backup withholding tax may be imposed on the payments made to
the shareholder or other payee with respect to Preferred Shares purchased
pursuant to the Offer. For further information concerning backup withholding and
instructions for completing the Substitute Form W-9, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9."

11. WITHHOLDING ON FOREIGN SHAREHOLDERS

The Depositary will withhold federal income tax equal to 30% of the gross
payments payable to a foreign shareholder unless the Depositary determines that
a reduced rate of withholding or an exemption from withholding is applicable.
For this purpose, a foreign shareholder is any shareholder that is not (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof or (iii) any estate or trust, the income of
which is subject to United States federal income taxation regardless of the
source of such income. The Depositary will determine a shareholder's status as a
foreign shareholder and eligibility for a reduced rate of, or an exemption from,
withholding by reference to the shareholder's address and to any outstanding
certificates or statements concerning eligibility for a reduced rate of, or
exemption from, withholding unless facts and circumstances indicate that
reliance is not warranted. A foreign shareholder who has not previously
submitted the appropriate certificates or statements with respect to a reduced
rate of, or exemption from, withholding for which such shareholder may be
eligible should consider doing so in order to avoid over-withholding. A foreign
shareholder may be eligible to obtain a refund of tax withheld if such
shareholder meets one of the two tests for capital gain or loss treatment
described in Section 4 of the Offer to Purchase or is otherwise able to
establish that no tax or a reduced amount of tax was due.

12. IRREGULARITIES

All questions as to the number of Preferred Shares to be accepted and the
validity, form, eligibility (including time of receipt) and acceptance for
payment of any tender of Preferred Shares will be determined by the Company, in
its sole discretion, and its determination shall be final and binding on all
parties. The Company reserves the absolute right to reject any or all tenders it
determines not to be in proper form or the acceptance of or payment for which
may, in the opinion of the Company's counsel, be unlawful. The Company also
reserves the absolute right to waive any of the conditions of the Offer or any
defect or irregularity in the tender of any particular Preferred Shares. No
tender of Preferred Shares will be deemed to be properly made until all defects
and irregularities have been cured or waived. Unless waived, any defects or
irregularities in connection with tenders must be cured within such time as the
Company shall determine. None of the Company, the Dealer Manager, the
Depositary, the Information Agent nor any other person is or will be obligated
to give notice of any defects or irregularities in tenders, and none of them
will incur any liability for failure to give such notice.
<PAGE>
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES

Requests for assistance or additional copies of the Offer to Purchase and
this Letter of Transmittal may be obtained from the Information Agent or Dealer
Manager at their respective addresses or telephone numbers set forth below.

IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE
HEREOF (TOGETHER WITH CERTIFICATES FOR PREFERRED SHARES OR CONFIRMATION OF
BOOK-ENTRY TRANSFER OF PREFERRED SHARES AND ALL OTHER REQUIRED DOCUMENTS) OR A
NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE
APPLICABLE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE).

IMPORTANT TAX INFORMATION

Under U.S. federal income tax law, a shareholder whose tendered Preferred
Shares are accepted for payment is required to provide the Depositary with such
shareholder's correct TIN on Substitute Form W-9 below. If the Depositary is not
provided with the correct TIN, the Internal Revenue Service may subject the
shareholder or other payee to a $50 penalty. In addition, payments that are made
to such shareholder or other payee with respect to Preferred Shares purchased
pursuant to the Offer may be subject to 31% backup withholding.

Certain shareholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements and should indicate their status by writing "exempt" across the
face of the Substitute Form W-9. In order for a foreign individual to qualify as
an exempt recipient, the shareholder must submit a Form W-8, signed under
penalties of perjury, attesting to that individual's exempt status. A Form W-8
can be obtained from the Depositary. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
more instructions.

If backup withholding applies, the Depositary is required to withhold 31%
of any such payments made to the shareholder or other payee. Backup withholding
is not an additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.

The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering shareholder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 2 is checked,
the shareholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below Part 2 in order to avoid backup
withholding. Notwithstanding that the box in Part 2 is checked and the
Certificate of Awaiting Taxpayer Identification Number is completed, the
Depositary will withhold 31% on all payments made prior to the time a properly
certified TIN is provided to the Depositary.

PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8

To avoid backup withholding on payments that are made to a shareholder with
respect to Preferred Shares purchased pursuant to the Offer, the shareholder is
required to notify the Depositary of his or her correct TIN by completing the
Substitute Form W-9 attached hereto certifying that the TIN provided on
Substitute Form W-9 is correct and that (1) the shareholder has not been
notified by the Internal Revenue Service that he or she is subject to federal
income tax backup withholding as a result of failure to report all interest or
dividends or (2) the Internal Revenue Service has notified the shareholder that
he or she is no longer subject to federal income tax backup withholding. Foreign
shareholders must submit a properly completed Form W-8 in order to avoid the
applicable backup withholding; provided, however, that backup withholding will
not apply to foreign shareholders subject to 30% (or lower treaty rate)
withholding on gross payments received pursuant to the Offer.
<PAGE>
WHAT NUMBER TO GIVE THE DEPOSITARY

The shareholder is required to give the Depositary the TIN (e.g., social
security number or employer identification number) of the record owner of the
Preferred Shares or of the last transferee appearing on the transfers attached
to, or endorsed on, the certificates evidencing the Preferred Shares. If the
Preferred Shares are registered in more than one name or is not registered in
the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK
- ------------------------------------------------------------------------------------------------------------------------------
Social Security
Number OR Employer
Identification
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX Number
FORM W-9 AT RIGHT AND CERTIFY BY SIGNING AND DATING ____________________
Department of the Treasury BELOW. TIN
Internal Revenue Service
Name (Please Print)_______________________________ PART 2 --
Address___________________________________________ Awaiting TIN [ ]
City State Zip Code_______________________________

PART 3 -- CERTIFICATION -- UNDER PENALTIES OF PERJURY, I CERTIFY THAT: (1) the
number shown on this form is my correct taxpayer identification number (or a
TIN has not been issued to me but I have mailed or delivered an application to
receive a TIN or intend to do so in the near future), (2) I am not subject to
backup withholding either because I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or the IRS has
notified me that I am no longer subject to backup withholding, and (3) all
other information provided on this form is true, correct and complete.

PAYOR'S REQUEST FOR SIGNATURE_____________________________ DATE __________________________ , 1996
TAXPAYER IDENTIFICATION You must cross out item (2) above if you have been notified by the IRS that
NUMBER (TIN) AND you are currently subject to backup withholding because of underreporting
CERTIFICATION interest or dividends on your tax return.

NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE
FOLLOWING ENCLOSED CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF THE
SUBSTITUTE FORM W-9.

CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER

I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a Taxpayer Identification Number by the
time of payment, 31% of all payments of the purchase price made to me will be
withheld until I provide a number.

SIGNATURE _____________________________________ DATE ________________ , 1996
</TABLE>
<PAGE>
THE DEALER MANAGER FOR THE OFFER IS:

LEHMAN BROTHERS
3 World Financial Center
New York, New York 10285
(800) 438-3242
Attention: Roy D. Henriksson

THE INFORMATION AGENT IS:

D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(800) 290-6429 (Toll Free)

<PAGE>
EXHIBIT (a)(3)

NOTICE OF GUARANTEED DELIVERY
FOR

SANTA FE ENERGY RESOURCES, INC.

OFFER TO PURCHASE FOR CASH OF UP TO 4,500,000 SHARES
OF ITS OUTSTANDING CONVERTIBLE
PREFERRED STOCK, 7% SERIES, PAR VALUE $0.01 PER SHARE

This form or a facsimile hereof must be used to accept the Offer (as
defined below) if: (a) certificates for shares of Convertible Preferred Stock,
7% Series, par value $0.01 per share (the "Preferred Shares"), of Santa Fe
Energy Resources, Inc., a Delaware corporation (the "Company"), cannot be
delivered to the Depositary prior to the Expiration Date (as defined in Section
6 of the Company's Offer to Purchase, dated October 22, 1996 (the "Offer to
Purchase")); or (b) the procedure for book-entry transfer (set forth in Section
7 of the Offer to Purchase) cannot be completed on a timely basis; or (c) the
Letter of Transmittal (or a facsimile thereof) and all other required documents
cannot be delivered to the Depositary prior to the Expiration Date. This form,
properly completed and duly executed, may be delivered by hand, mail or
facsimile transmission to the Depositary. See "The Offer -- Procedure for
Tendering Preferred Shares" in the Offer to Purchase.

THE ELIGIBLE INSTITUTION WHICH COMPLETES THIS FORM MUST COMMUNICATE THE
GUARANTEE TO THE DEPOSITARY AND MUST DELIVER THE LETTER OF TRANSMITTAL AND
CERTIFICATES FOR SHARES TO THE DEPOSITARY WITHIN THE TIME SHOWN HEREIN. FAILURE
TO DO SO COULD RESULT IN A FINANCIAL LOSS TO SUCH ELIGIBLE INSTITUTION.

TO: FIRST CHICAGO TRUST COMPANY OF NEW YORK, DEPOSITARY

BY MAIL: BY FACSIMILE TRANSMISSION:
Tenders & Exchanges (201) 222-4720
P.O. Box 2569-Suite 4660-SFER or
Jersey City, New Jersey (201) 222-4721
07303-2569 (for Eligible Institutions Only)
FACSIMILE CONFIRMATIONS ONLY:
(201) 222-4707

BY HAND OR OVERNIGHT COURIER:
Tenders & Exchanges
14 Wall Street, 8th Floor
Suite 4680-SFER
New York, New York 10005

DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.

This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible
Institution" (as defined in the Offer to Purchase) under the instructions
thereto, such signature guarantee must appear in the applicable space provided
in the signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:

The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Offer to Purchase and the related Letter of
Transmittal (which together constitute the "Offer"), receipt of which is
hereby acknowledged, the number of Preferred Shares specified below pursuant to
the guaranteed delivery procedure set forth in "The Offer -- Procedure for
Tendering Preferred Shares" in the Offer to Purchase.

================================================================================
Number of Preferred Shares tendered:
---------------------------------
Certificate Nos.
(if available):
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
If Preferred Shares will be delivered by book-entry
transfer:
Name of Tendering Institution: --------------------------------------

Check Box of Book-Entry Transfer Facility:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account No. -----------------------------------------------------

Transaction Code No. ------------------------------------------------

SIGN HERE

- ---------------------------------------------------------------------
SIGNATURE(S)

- ---------------------------------------------------------------------
NAME(S) OF RECORD HOLDER(S) (PLEASE PRINT)

- ---------------------------------------------------------------------
ADDRESS

- ---------------------------------------------------------------------
ZIP CODE

- ---------------------------------------------------------------------
AREA CODE AND TELEPHONE NO.

================================================================================
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)

The undersigned, an "Eligible Institution", guarantees (a) that the
above-named person(s) "own(s)" the Preferred Shares tendered hereby within the
meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended, (b)
that such tender of Preferred Shares complies with Rule 14e-4 and (c) to deliver
to the Depositary either the certificates representing the Preferred Shares
tendered hereby, in proper form for transfer, or confirmation of the book-entry
transfer of such Preferred Shares into the Depositary's account at The
Depository Trust Company or Philadelphia Depository Trust Company, in any such
case together with a properly completed and duly executed Letter(s) of
Transmittal (or facsimile(s) thereof), with any required signature guarantees
(or an Agent's Message (as defined in the Offer to Purchase)) and any other
required documents within five New York Stock Exchange trading days after the
date of execution of this notice.

Name of Firm: Authorized Signature:
-------------------------- -------------------
Address: Name:
------------------------------- -----------------------------------
City, State, Zip Code: Title:
----------------- -----------------------------------
Area Code and Telephone No.:
---------------
Dated: , 1996
--------------------------------

DO NOT SEND STOCK CERTIFICATES WITH THIS FORM. YOUR STOCK CERTIFICATES MUST
BE SENT WITH THE LETTER OF TRANSMITTAL.
<PAGE>
EXHIBIT (a)(4)
SANTA FE ENERGY RESOURCES, INC.

OFFER TO PURCHASE FOR CASH
OF UP TO
4,500,000 SHARES OF ITS OUTSTANDING
CONVERTIBLE PREFERRED STOCK, 7% SERIES,
PAR VALUE $0.01 PER SHARE

THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 19, 1996, UNLESS THE OFFER
IS EXTENDED.

October 22, 1996

To Brokers, Dealers, Commercial
Banks, Trust Companies and
Other Nominees:

We have been appointed Dealer Manager by Santa Fe Energy Resources, Inc., a
Delaware corporation (the "Company"), in connection with its invitation to
holders of its outstanding shares of Convertible Preferred Stock, 7% Series, par
value $0.01 per share (the "Preferred Shares"), to tender their Preferred
Shares, at a price of $24.50 per Preferred Share (the "Purchase Price"), net
to the seller in cash, upon the terms and subject to the conditions set forth in
the Company's Offer to Purchase, dated October 22, 1996 (the "Offer to
Purchase"), and in the related Letter of Transmittal (which together constitute
the "Offer"). The Company will purchase any and all Preferred Shares validly
tendered and not withdrawn up to the 4,500,000 Preferred Shares sought, upon the
terms and subject to the conditions of the Offer, including the provisions
relating to proration. Preferred Shares not purchased because of proration will
be returned. See "The Offer -- Expiration Date; Extension of the Offer;
Proration, and -- Certain Conditions of the Offer" in the Offer to Purchase.

We are asking you to contact your clients for whom you hold Preferred
Shares registered in your name (or in the name of your nominee) or who hold
Preferred Shares registered in their own names. Please bring the Offer to their
attention as promptly as possible.

The Company will pay to a Soliciting Dealer (as defined herein) a
solicitation fee of $0.20 per Preferred Share, for any Preferred Shares
tendered, accepted for payment and paid for pursuant to the Offer. For purposes
of this letter, "Soliciting Dealer" includes (i) any broker or dealer in
securities, including the Dealer Manager in its capacity as a broker or dealer,
who is a member of any national securities exchange or of the National
Association of Securities Dealers, Inc. (the "NASD"), (ii) any foreign broker
or dealer not eligible for membership in the NASD who agrees to conform to the
NASD's Conduct Rules in soliciting tenders outside the United States to the same
extent as though it were an NASD member, or (iii) any bank or trust company, any
one of whom has solicited and obtained a tender pursuant to the Offer. No such
fee shall be payable to a Soliciting Dealer in respect of Preferred Shares
registered in the name of such Soliciting Dealer unless (i) such Preferred
Shares are held by such Soliciting Dealer as nominee and such Preferred Shares
are being tendered for the benefit of one or more beneficial owners identified
on the Letter of Transmittal or the Notice of Solicited Tenders, or (ii) such
Preferred Shares are being tendered for the benefit of the Soliciting Dealer and
such Soliciting Dealer certifies on the Letter of Transmittal or the Notice of
Solicited Tenders that such Preferred Shares were acquired by the Soliciting
Dealer (x) after the announcement of the Offer, (y) at a price not in excess of
the Purchase Price and (z) from a holder solicited by the Soliciting Dealer. For
purposes of clause (z), "solicited" shall mean direct contact (other than the
mailing of the tender offer materials) with the holder relating to the tender of
Preferred Shares beneficially owned by the holder that resulted in the purchase
by the Soliciting Dealer of such Preferred Shares. No such fee shall be payable
to a Soliciting Dealer with respect to the tender of Preferred Shares by a
holder unless the Letter of Transmittal accompanying such tender designates such
Soliciting Dealer as such in the box captioned "Solicited Tenders" or the
Notice of Solicited Tenders accompanying such tender designates such Soliciting
Dealer. No such fee shall be payable to a Soliciting Dealer with respect to the
tender of Preferred Shares by the holder of record, for the benefit of the
beneficial owner, unless the beneficial owner has designated such Soliciting
Dealer. No such fee shall be payable to a Soliciting Dealer if such Soliciting
Dealer is required for any reason to transfer the amount of such fee to a
depositing holder (other than itself). No broker, dealer, bank, trust company or
fiduciary shall be deemed to be the agent of the Company, the Depositary or the
Dealer Manager for purposes of the Offer.
<PAGE>
The Company, upon request, will reimburse you for customary handling and
mailing expenses incurred by you in forwarding any of the enclosed materials to
your clients. The Company will pay all stock transfer taxes applicable to its
purchase of Preferred Shares pursuant to the Offer, subject to Instruction 6 of
the Letter of Transmittal.

In order for a Soliciting Dealer to receive a solicitation fee, the
Depositary must have received from such Soliciting Dealer a properly completed
and duly executed Notice of Solicited Tenders in the form attached hereto (or
facsimile thereof) within five business days after expiration of the Offer.

For your information and for forwarding to your clients for whom you hold
Preferred Shares registered in your name or in the name of your nominee, we are
enclosing the following documents:

1. The Offer to Purchase dated October 22, 1996;

2. The Letter of Transmittal for your use and for the information of
your clients, together with Guidelines for Certification of Taxpayer Number
on a Substitute Form W-9 providing information relating to backup federal
income tax withholding;

3. A letter to shareholders of the Company from its President and
Chief Executive Officer;

4. A Notice of Guaranteed Delivery to be used to accept the Offer if
the Preferred Shares and all other required documents cannot be delivered
to the Depositary by the applicable Expiration Date (as defined in the
Offer to Purchase);

5. A form of letter that may be sent to your clients for whose
accounts you hold Preferred Shares registered in your name or in the name
of your nominee, with space provided for obtaining such clients'
instructions and designation of Soliciting Dealer with regard to the Offer;

6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9, providing
information relating to backup federal income tax withholding; and

7. A return envelope addressed to the Depositary.

WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE 12:00
MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 19, 1996, UNLESS THE OFFER IS
EXTENDED.

Any inquiries you may have with respect to the Offer should be addressed
to, and additional copies of the enclosed materials may be obtained from, the
Information Agent or the Dealer Manager at the addresses and telephone numbers
set forth on the back cover of the enclosed Offer to Purchase.

Very truly yours,
Lehman Brothers

NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY PERSON THE AGENT OF THE COMPANY, THE INFORMATION AGENT, THE DEALER
MANAGER OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY
DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE
OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND STATEMENTS CONTAINED
THEREIN.
<PAGE>
NOTICE OF SOLICITED TENDERS

List below the number of Preferred Shares tendered by each beneficial owner
whose tender you have solicited. All Preferred Shares beneficially owned by a
beneficial owner, whether in one account or several, and in however many
capacities, must be aggregated for purposes of completing the tables below. Any
questions as to what constitutes beneficial ownership should be directed to the
Depositary. If the space below is inadequate, list the Preferred Shares in a
separate signed schedule and affix the list to this Notice of Solicited Tenders.
Please do not complete the sections of the table headed "TO BE COMPLETED ONLY
BY DEPOSITARY."

ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO THE DEPOSITARY AT
THE ADDRESS SET FORTH ON THE BACK COVER OF THE OFFER TO PURCHASE. ALL QUESTIONS
CONCERNING THE NOTICES OF SOLICITED TENDERS SHOULD BE DIRECTED TO THE
INFORMATION AGENT AT THE TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THE
OFFER TO PURCHASE. ALL NOTICES OF SOLICITED TENDERS MUST BE RECEIVED BY THE
DEPOSITARY WITHIN THREE BUSINESS DAYS AFTER THE EXPIRATION DATE.

TO BE TO BE
COMPLETED BY COMPLETED
THE SOLICITING ONLY BY
DEALER DEPOSITARY
-------------------------------------- ------------------
NUMBER OF NUMBER OF
PREFERRED SHARES V.O.I. CERTIFICATE PREFERRED SHARES
BENEFICIAL OWNERS TENDERED NUMBER NUMBER ACCEPTED
- -------------------- ----------------- ------ ----------- ------------------
No. 1...............
No. 2...............
No. 3...............
No. 4...............
No. 5...............
No. 6...............
No. 7...............
No. 8...............
No. 9...............
No. 10..............
Total..........

FEE PER
BENEFICIAL OWNERS PREFERRED SHARE
- -------------------- ------------------
No. 1...............
No. 2...............
No. 3...............
No. 4...............
No. 5...............
No. 6...............
No. 7...............
No. 8...............
No. 9...............
No. 10..............
Total..........

All questions as to the validity, form and eligibility (including time of
receipt) of Notices of Solicited Tenders will be determined by the Depositary,
in its sole discretion, which determination will be final and binding. Neither
the Depositary nor any other person will be under any duty to give notification
of any defects or irregularities in any Notice of Solicited Tenders or incur any
liability for failure to give such notification.

The undersigned hereby confirms that: (i) it has complied with the
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the applicable rules and regulations thereunder, in connection with such
solicitation; (ii) it is entitled to such compensation for such solicitation
under the terms and conditions of the Offer to Purchase; (iii) in soliciting
tenders of Preferred Shares, it has used no soliciting materials other than
those furnished by the Company; and (iv) if it is a foreign broker or dealer not
eligible for membership in the NASD, it has agreed to conform to the NASD's
Conduct Rules in making solicitations.

- ------------------------------------- -----------------------------------------
PRINTED FIRM NAME ADDRESS

- ------------------------------------- -----------------------------------------
AUTHORIZED SIGNATURE CITY, STATE AND ZIP CODE

- ------------------------------------- -----------------------------------------
NAME AND TITLE AREA CODE AND TELEPHONE NUMBER
<PAGE>
EXHIBIT (a)(5)

SANTA FE ENERGY RESOURCES, INC.
OFFER TO PURCHASE FOR CASH OF UP TO 4,500,000 SHARES OF ITS OUTSTANDING
CONVERTIBLE
PREFERRED STOCK, 7% SERIES, PAR VALUE $0.01 PER SHARE

THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 19, 1996, UNLESS THE
OFFER IS EXTENDED.

October 22, 1996

To Our Clients:

Enclosed for your consideration are the Offer to Purchase dated October 22,
1996, and the related Letter of Transmittal (which together constitute the
"Offer"), in connection with the Offer by Santa Fe Energy Resources, Inc., a
Delaware corporation (the "Company"), to purchase up to 4,500,000 shares (the
"Amount Sought") of its outstanding Convertible Preferred Stock, 7% Series,
par value $0.01 per share (the "Preferred Shares"), at a price of $24.50 per
Preferred Share, net to seller in cash, upon the terms and subject to the
conditions of the Offer, including the provisions relating to proration. Upon
the terms and subject to the conditions of the Offer, if more Preferred Shares
than the Amount Sought have been validly tendered and not withdrawn on or prior
to the expiration of the Offer, the Company will purchase Preferred Shares from
each tendering holder on a pro rata basis, subject to adjustment to avoid the
purchase of fractional Preferred Shares. Preferred Shares not purchased because
of proration will be returned.. See "The Offer -- Expiration Date; Extension of
the Offer; Proration" in the Offer to Purchase.

WE ARE THE HOLDER OF RECORD OF PREFERRED SHARES HELD FOR YOUR ACCOUNT. A
TENDER OF SUCH PREFERRED SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD
AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU
FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER PREFERRED SHARES
HELD BY US FOR YOUR ACCOUNT.

We request instructions as to whether you wish us to tender any or all of
the Preferred Shares held by us for your account, upon the terms and subject to
the conditions set forth in the Offer to Purchase and the Letter of Transmittal.
We also request that you designate, in the box captioned "Solicited Tenders",
any Soliciting Dealer who solicited your tender of Preferred Shares.

Your attention is invited to the following:

1. The Company will purchase all Preferred Shares validly tendered and not
withdrawn up to the Amount Sought, upon the terms and subject to the conditions
of the Offer, including the provisions relating to proration, as described in
Section 6 of the Offer to Purchase.

2. The Offer, proration period and withdrawal rights expire at 12:00
midnight, New York City time, on Tuesday, November 19, 1996, unless the Offer is
extended. Your instructions to us should be forwarded to us in ample time to
permit us to submit a tender on your behalf by the expiration of the Offer. If
you would like to withdraw your Preferred Shares that we have tendered, you can
withdraw them so long as the Offer remains open or at any time after December
18, 1996, if they have not theretofore been accepted for payment.

3. The Offer is not conditioned upon any minimum number of Preferred
Shares being tendered. The Offer is, however, subject to certain other
conditions, as described in Section 10 of the Offer to Purchase.

4. Any stock transfer taxes applicable to the sale of Preferred Shares to
the Company pursuant to the Offer will be paid by the Company, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.

If you wish to have us tender any or all of your Preferred Shares, please
so instruct us by completing, executing and returning to us the attached
instruction form. An envelope to return your instructions to us is enclosed. If
you authorize tender of your Preferred Shares, all such Preferred Shares will be
tendered unless otherwise specified on the attached instruction form. Your
instructions should be forwarded to us in ample time to permit us to submit a
tender on your behalf by the expiration of the Offer.

The offer is not being made to, nor will tenders be accepted from or on
behalf of, holders of Preferred Shares in any jurisdiction in which the making
of the offer or acceptance thereof would not be in compliance with the laws of
such jurisdiction. In those jurisdictions the laws of which require that the
offer be made by a licensed broker or dealer, the Offer shall be deemed to be
made on behalf of the Company by one or more registered brokers or dealers
licensed under the laws of such jurisdiction.
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH
OF UP TO 4,500,000 SHARES OF OUTSTANDING
CONVERTIBLE PREFERRED STOCK, 7% SERIES, PAR VALUE $0.01 PER SHARE
OF
SANTA FE ENERGY RESOURCES, INC.

The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated October 22, 1996, and the related Letter of Transmittal
(which together constitute the "Offer") in connection with the invitation by
Santa Fe Energy Resources, Inc., a Delaware corporation (the "Company"), to
the holders of its outstanding Convertible Preferred Stock, 7% Series, par value
$0.01 per share (the "Preferred Shares"), to tender their Preferred Shares,
for purchase at a price of $24.50 per Preferred Share, net to the seller in
cash, upon the terms and subject to the conditions of the Offer, including the
provisions relating to proration.

This will instruct you to tender to the Company the number of Preferred
Shares indicated below which are held by you for the account of the undersigned,
upon the terms and subject to the conditions of the Offer.

H By checking this box, all Preferred Shares held for the account of the
undersigned, including fractional Preferred Shares, will be tendered. If fewer
than all Preferred Shares are to be tendered, please indicate below the
aggregate number of Preferred Shares to be tendered. (Unless otherwise
indicated, it will be assumed that all Preferred Shares held for the account of
the undersigned are to be tendered.)

Number of Preferred Shares to be Tendered: Preferred Shares

Please designate in the box below any Soliciting Dealer who solicited your
tender:
- --------------------------------------------------------------------------------
SOLICITED TENDERS

The undersigned represents that the Soliciting Dealer who solicited and obtained
this tender is:
Name of Firm: .............................................................
(PLEASE PRINT)
Name of Individual Broker or Financial Consultant: ........................
Identification Number (if known): .........................................
Address: ..................................................................
...........................................................................
(INCLUDE ZIP CODE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SIGN HERE
Signature(s): ............................................................
Name(s): .................................................................
Address(es): .............................................................
Social Security
or Taxpayer ID No.: ......................................................
Dated: ...................................................................
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT (a)(6)

[LETTERHEAD OF SANTA FE ENERGY RESOURCES, INC.]

October 22, 1996

Dear Shareholder:

Santa Fe Energy Resources, Inc. (the "Company") is offering to purchase
up to 4,500,000 shares (the "Amount Sought") of its outstanding Convertible
Preferred Stock, 7% Series, par value $0.01 per share (the "Preferred
Shares"). The offer gives shareholders the opportunity to sell their Preferred
Shares without the usual transaction costs associated with a market sale. The
enclosed Offer to Purchase and the Letter of Transmittal are being provided to
help you understand the terms of the Company's offer. I encourage you to read
carefully these materials before making any decision with respect to the offer.

The Company will purchase all of the Preferred Shares that are properly
tendered (and are not withdrawn), up to the Amount Sought, subject to the terms
and conditions set forth in the enclosed Offer to Purchase, including the
provisions relating to proration, at the purchase price, net to the selling
shareholder in cash. Upon the terms and subject to the conditions of the offer,
if more Preferred Shares than the Amount Sought have been validly tendered and
not withdrawn on or prior to the expiration date, the Company will purchase
Preferred Shares from each tendering holder on a pro rata basis, subject to
adjustment to avoid the purchase of fractional Preferred Shares.

Preferred Shares that have been tendered and not purchased pursuant to the
offer, including Preferred Shares not purchased because of proration, will be
returned to the shareholder.

If you do not wish to sell your Preferred Shares you do not need to take
any action.

If you wish to tender your Preferred Shares, the instructions on how to do
so are explained in detail in the enclosed materials.

The Company has declared the regular quarterly dividend of $0.35 per
Preferred Share to be paid on December 2, 1996 to holders of record as of the
close of business on November 1, 1996 (the "December 1996 Dividend"). A tender
of Preferred Shares pursuant to the Offer will not deprive a shareholder of his
or her right to receive the December 1996 Dividend regardless of when such
tender is made. Holders of Preferred Shares tendered into and purchased pursuant
to the Offer will not be entitled to any dividends in respect of any later
dividend for the Preferred Shares on March 3, 1997 to holders of record as of
the close of business on a date to be determined by the Company's Board of
Directors.

The Company, its Board of Directors and its Executive Officers make no
recommendation to shareholders whether to tender any or all of their Preferred
Shares.

Sincerely,
James L. Payne
President and Chief Executive Officer
<PAGE>
EXHIBIT (a)(7)

SANTA FE ENERGY
RESOURCES, INC.

N E W S (NYSE:SFR)

Media Contact: C. Ed Hall 1616 South Voss, Suite 1000
Analyst Contact: Kathy E. Hager Houston, Texas 77057
713/507-5000

SANTA FE ENERGY FILES TENDER OFFER FOR PREFERRED STOCK

Houston, Texas, October 22, 1996.

Santa Fe Energy Resources (NYSE:SFR) announced today that it has commenced an
offer to purchase up to 4.5 million shares of its outstanding Convertible
Preferred Stock, 7% Series, (NYSE:SFRpr) par value $0.01 per share, at a price
of $24.50 per Preferred Share, net to the seller in cash. Shares of the
Convertible Preferred Stock closed trading at $22.125 per share on September 17,
1996, the day prior to Santa Fe's announced intention of such an offer, and
closed yesterday at $23.375 per share. Santa Fe will purchase all Preferred
Shares validly tendered and not withdrawn up to the 4.5 million Preferred Shares
sought, upon the terms and subject to the conditions of the offer, including the
provisions relating to proration. Upon the terms and subject to the conditions
of the offer, if more Preferred Shares than the 4.5 million Preferred Shares
sought have been validly tendered and not withdrawn on or prior to the
expiration of the offer, the Company will purchase Preferred Shares from each
tendering holder on a pro rata basis, subject to adjustment to avoid the
purchase of fractional Preferred Shares. Preferred Shares not purchased,
including those not purchased because of proration, will be returned to the
stockholder at Santa Fe's expense. The offer begins today, October 22, 1996, and
is subject to the terms and conditions described in the offering materials,
which are being mailed to record holders of the Preferred Shares.

The Company has declared the regular quarterly dividend of $0.35 per Preferred
Share to be paid on December 2, 1996, to holders of record as of the close of
business on November 1, 1996. A tender of Preferred Shares pursuant to the offer
will not deprive a shareholder of his or her right to receive that dividend
regardless of when such tender is made. Holders of Preferred Shares tendered
into and purchased pursuant to the offer will not be entitled to any dividends
in respect to any later dividend periods (or any portion thereof).

The Company is making the offer because it believes that the goals of the
proposed spin-off of the Company's heavy oil and other operations conducted in
the State of California by the Company's Western Division can be better achieved
by reducing the number of Preferred Shares and simplifying the Company's capital
structure. For a more detailed description of the Proposed spin-off and the
purposes of the offer, see the offering materials. The Board of Directors of the
Company has authorized the offer by a unanimous vote.

The offer, proration period and withdrawal rights will expire at 12:00 midnight,
EST, on Tuesday, November 19, 1996, unless the offer is extended. The offer is
not conditioned upon any minimum number of Preferred Shares being tendered. The
offer is, however, subject to certain other conditions. The offering materials
contain important information that should be read carefully before any decision
is made with respect to the offer.

The Company will pay to a Soliciting Dealer a solicitation fee of $0.20 per
Preferred Share, for any Preferred Shares tendered, accepted for payment and
paid for pursuant to the offer, subject to certain conditions.

The Dealer Manager for the offer is Lehman Brothers Inc. and the Information
Agent is D.F. King & Co., Inc. Any questions may be directed to either the
Dealer Manager at (800) 438-3242 or the Information Agent at (800) 290-6429
(toll free).

Santa Fe also announced it has filed a supplement to the indenture relating to
the $100 million principal amount of the 11% Senior Subordinated Debentures due
2004, so as to permit the Monterey transactions and the proposed spin-off.

Santa Fe Energy Resources is an independent oil and gas exploration and
production company with headquarters in Houston, Texas. It has production in the
United States, Argentina and Indonesia with additional exploration activities in
several other regions of the world. Its common stock is traded on the New York
Stock Exchange under the symbol SFR.
<PAGE>
EXHIBIT (a)(8)

This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Preferred Shares. The Offer is made solely by the Offer to Purchase
dated October 22, 1996, and the related Letter of Transmittal. The Offer is
being made to all holders of Preferred Shares, provided that the Offer is not
being made to, nor will the Company accept tenders from or on behalf of, holders
of Preferred Shares in any jurisdiction in which making or accepting the Offer
would violate that jurisdiction's laws. In those jurisdictions whose securities,
blue sky or other laws require the Offer to be made by a licensed broker or
dealer, the Offer shall be deemed to be made on the Company's behalf by Lehman
Brothers or one or more registered brokers or dealers licensed under the laws of
such jurisdictions.

Notice of Offer to Purchase for Cash
by
Santa Fe Energy Resources, Inc.
Of Up To 4,500,000 Shares Of Its
Outstanding Convertible Preferred Stock,
7% Series, Par Value $0.01 Per Share,
at
$24.50 per Preferred Share

The Company will purchase all Preferred Shares validly tendered and not
withdrawn upon the terms and subject to the conditions of the Offer, including
the provisions relating to proration. Upon the terms and subject to the
conditions of the Offer, if more than 4,500,000 Preferred Shares (the "Amount
Sought") have been validly tendered and not withdrawn on or prior to the
Expiration Date, the Company will purchase Preferred Shares from all tendering
holders on a pro rata basis, subject to adjustment to avoid the purchase of
fractional Preferred Shares. See "The Offer--Expiration Date; Extension of the
Offer; Proration," and "Certain Conditions of the Offer" in the Offer to
Purchase.

THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 19, 1996, UNLESS THE
OFFER IS EXTENDED. Such time and date, or the latest time and date as to
which the Offer is extended is referred to herein as the "Expiration Date."
The Company will give oral or written notice of any extension to the
Depositary and make a public announcement thereof.

The Company, its Board of Directors and its executive officers make no
recommendation as to whether any holder should tender any or all of such
shareholder's Preferred Shares pursuant to the Offer. Each holder must make its
own decision whether to tender Preferred Shares and, if so, how many Preferred
Shares to tender.

The Company is making the Offer because it believes that the goals of the
proposed spinoff of the Company's heavy oil and other operations conducted in
the State of California by the Company's Western Division can be better achieved
by reducing the number of Preferred Shares and simplifying the Company's capital
structure. Due to their conversion feature, the Preferred Shares create
substantial uncertainty as to the fully diluted number of shares of the common
stock of the Company that will be outstanding following the Proposed Spinoff (as
defined in the Offer to Purchase). As a result of this uncertainty, the Company
believes that the continued existence of a substantial number of Preferred
Shares could adversely affect the successful completion of the Proposed Spinoff.
For a more detailed description of the Proposed Spinoff and the purposes of the
Offer, see the Offer to Purchase. Given the current market price of the
Preferred Shares and the factors discussed above, the Company believes that the
purchase of the Preferred Shares pursuant to the Offer is in the best interest
of the Company. The Board of Directors of the Company has authorized the Offer
by a unanimous vote.

The Offer is not conditioned upon any minimum number of Preferred Shares
being tendered. The Offer is, however, subject to certain other conditions.

The Company will pay to a Soliciting Dealer (as defined in the Offer to
Purchase) a solicitation fee of $0.20 per Preferred Share for any Preferred
Shares tendered, accepted for payment and paid for pursuant to the Offer,
subject to certain conditions set forth in the Offer to Purchase and the Letter
of Transmittal.

Tenders of Preferred Shares made pursuant to the Offer may be withdrawn at
any time prior to the Expiration Date. Thereafter, such tenders are irrevocable,
except that they may be withdrawn after December 18, 1996 unless theretofore
accepted for payment as provided in the Offer to Purchase. For a withdrawal to
be effective, a written or facsimile transmission notice of withdrawal must be
timely received by the Depositary at one of the addresses or facsimile numbers
set forth on the back cover of the Offer to Purchase and must specify the name
of the person who tendered the Preferred Shares to be withdrawn and the number
of Preferred Shares to be withdrawn. If the Preferred Shares to be withdrawn
have been delivered to the Depositary, a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution (as defined in the Offer to
Purchase) (except in the case of Preferred Shares tendered by an Eligible
Institution) must be submitted prior to the release of such Preferred Shares. In
addition, such notice must specify, in the case of Preferred Shares tendered by
delivery of certificates, the name of the registered holder (if different from
that of the tendering shareholder) and the serial numbers shown on the
particular certificates evidencing the Preferred Shares to be withdrawn or, in
the case of Preferred Shares tendered by book-entry transfer, the name and
number of the account at one of the Book-Entry Transfer Facilities (as defined
in the Offer to Purchase) to be credited with the withdrawn Preferred Shares and
the name of the registered holder (if different from the name of such accounts).
Withdrawals may not be rescinded, and Preferred Shares withdrawn will thereafter
be deemed not validly tendered for purposes of the Offer. However, withdrawn
Preferred Shares may be retendered by again following one of the procedures
described under "The Offer-Procedure for Tendering Preferred Shares" in the
Offer to Purchase at any time prior to the Expiration Date.

The Company will be deemed to have accepted for payment (and thereby
purchased) Preferred Shares that are validly tendered prior to the applicable
Expiration Date and not withdrawn as, if and when it gives oral or written
notice to the Depositary of its acceptance for payment of Preferred Shares
tendered.

The information required to be disclosed by Rule 13e-4(d)(1) under the
Securities Exchange Act of 1934, as amended, is contained in the Offer to
Purchase and is incorporated herein by reference.

Copies of the Offer to Purchase and the related Letter of Transmittal are
being mailed to record holders of Preferred Shares and will be furnished to
brokers, banks and similar persons whose names, or the names of whose nominees,
appear on the Company's shareholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of Preferred Shares.

THE OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION THAT SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE
OFFER.

Any questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective telephone numbers and addresses
listed below. Requests for additional copies of the Offer to Purchase, the
Letter of Transmittal or other tender offer materials may be directed to the
Information Agent or the Dealer Manager, and such copies will be furnished
promptly at the Company's expense. Holders of Preferred Shares may also contact
their broker, dealer, commercial bank or trust company for assistance concerning
the Offer.

The Dealer Manager for the Offer is:
Lehman Brothers
3 World Financial Center
New York, New York 10285
(800) 438-3242
Attention: Roy D. Henriksson

The Information Agent for the Offer is:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
(800) 290-6429 (Toll-Free)

October 23, 1996
<PAGE>
EXHIBIT (a)(9)

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 1

SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE
PURPOSE OF FORM. -- A person who is required to file an information return with
the IRS must obtain your correct TIN to report income paid to you, real estate
transactions, mortgage interest you paid, the acquisition or abandonment of
secured property, or contributions you made to an IRA. Use Form W-9 to furnish
your correct TIN to the requester (the person asking you to furnish your TIN)
and, when applicable, (1) to certify that the TIN you are furnishing is correct
(or that you are waiting for a number to be issued), (2) to certify that you are
not subject to backup withholding, and (3) to claim exemption from backup
withholding if you are an exempt payee. Furnishing your correct TIN and making
the appropriate certifications will prevent certain payments from being subject
to backup withholding.

Note: If a requester gives you a form other than a W-9 to request your TIN, you
must use the requester's form.

HOW TO OBTAIN A TIN. -- If you do not have a TIN, apply for one immediately. To
apply, get Form SS-5, Application for a Social Security Card (for individuals),
from your local office of the Social Security Administration, or Form SS-4,
Application for Employer Identification Number (for businesses and all other
entities), from your local IRS office.

To complete Form W-9 if you do not have a TIN, write "Applied for" in the
space for the TIN in Part 1 (or check box 2 of Substitute Form W-9), sign and
date the form, and give it to the requester. Generally, you must obtain a TIN
and furnish it to the requester by the time of payment. If the requester does
not receive your TIN by the time of payment, backup withholding, if applicable,
will begin and continue until you furnish your TIN to the requester.

Note: Writing "Applied for" (or checking box 2 of the Substitute Form W-9) on
the form means that you have already applied for a TIN OR that you intend to
apply for one in the near future.

As soon as you receive your TIN, complete another Form W-9, include your TIN,
sign and date the form, and give it to the requester.

WHAT IS BACKUP WITHHOLDING? -- Persons making certain payments to you after 1992
are required to withhold and pay to the IRS 31% of such payments under certain
conditions. This is called "backup withholding". Payments that could be
subject to backup withholding include interest, dividends, broker and barter
exchange transactions, rents, royalties, nonemployee compensation, and certain
payments from fishing boat operators, but do not include real estate
transactions.

If you give the requester your correct TIN, make the appropriate certifications,
and report all your taxable interest and dividends on your tax return, your
payments will not be subject to backup withholding. Payments you receive will be
subject to backup withholding if:

1. You do not furnish your TIN to the requester, or

2. The IRS notifies the requester that you furnished an incorrect TIN,
or

3. You are notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and dividends on
your tax return (for reportable interest and dividends only), or

4. You do not certify to the requester that you are not subject to
backup withholding under 3 above (for reportable interest and dividend
accounts opened after 1983 only), or

5. You do not certify your TIN. This applies only to reportable
interest, dividend, broker, or barter exchange accounts opened after 1983,
or broker accounts considered inactive in 1983.

Except as explained in 5 above, other reportable payments are subject to backup
withholding only if 1 or 2 above applies. Certain payees and payments are exempt
from backup withholding and information reporting. See Payees and Payments
Exempt From Backup Withholding, below, and Example Payees and Payments under
Specific Instructions, below, if you are an exempt payee.

PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. -- The following is a list
of payees exempt from backup withholding and for which no information reporting
is required. For interest and dividends, all listed payees are exempt except
item (9). For broker transactions, payees listed in (1) through (13) and a
person registered under the Investment Advisers Act of 1940 who regularly acts
as a broker are exempt. Payments subject to reporting under sections 6041 and
6041A are generally exempt from backup withholding only if made to payees
described in items (1) through (7), except a corporation that provides medical
and health care services or bills and collects payments for such services is not
exempt from backup withholding or information reporting. Only payees described
in items (2) through (6) are exempt from backup withholding for barter exchange
transactions, patronage dividends, and payments by certain fishing boat
operations.

(1) A corporation. (2) An organization exempt from tax under section 501(a), or
an IRA, or a custodial account under section 403(b)(7). (3) The United States or
any of its agencies or instrumentalities. (4) A state, the District of Columbia,
a possession of the United States, or any of their political subdivisions or
instrumentalities. (5) A foreign government or any of its political
subdivisions, agencies, or instrumentalities. (6) An international organization
or any of its agencies or instrumentalities. (7) A foreign central bank of
issue. (8) A dealer in securities or commodities required to register in the
United States or a possession of the United States. (9) A futures commission
merchant registered with the Commodity Futures Trading Commission. (10) A real
estate investment trust. (11) An entity registered at all times during the tax
year under the Investment Company Act of 1940. (12) A common trust fund operated
by a bank under section 584(a). (13) A financial institution. (14) A middleman
known in the investment community as a nominee or listed in the most recent
publication of the American Society of Corporate Secretaries, Inc., Nominee
List. (15) A trust exempt from tax under section 664 or described in section
4947.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2

Payments of dividends and patronage dividends generally not subject to backup
withholding include the following:

o Payments to nonresident aliens subject to withholding under section
1441.

o Payments to partnerships not engaged in a trade or business in the
United States and that have at least one nonresident partner.

o Payments of patronage dividends not paid in money.

o Payments made by certain foreign organizations.

Payments of interest generally not subject to backup withholding include the
following:

o Payments of interest on obligations issued by individuals.

Note: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct TIN to the payer.

o Payments of tax-exempt interest (including exempt-interest dividends
under section 852).

o Payments described in section 6049(b)(5) to nonresident aliens.

o Payment on tax-free covenant bonds under section 1451.

o Payments made by certain foreign organizations.

o Mortgage interest paid by you.

Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045,
6049, 6050A, and 6050N, and their regulations.

PENALTIES

FAILURE TO FURNISH TIN. -- If you fail to furnish your correct TIN to a
requester, you will be subject to a penalty of $50 for each such failure unless
your failure is due to reasonable cause and not to willful neglect.

CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make
a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.

CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.

MISUSE OF TINS. -- If the requester discloses or uses TINs in violation of
Federal law, the requester may be subject to civil and criminal penalties.

SPECIAL INSTRUCTIONS -- NAME. -- If you are an individual, you must generally
provide the name shown on your Social Security card. However, if you have
changed your last name, for instance, due to marriage, without informing the
Social Security Administration of the name change, please enter your first name,
the last name shown on your Social Security card, and your new last name.

If you are a sole proprietor, you must furnish your individual name and either
the SSN or EIN. You may also enter your business name or "doing business as"
name on the business name line. Enter your name(s) as shown on your Social
Security card and/or as it was used to apply for your EIN on Form SS-4.

SIGNING THE CERTIFICATION

1. INTEREST, DIVIDEND, BROKER AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984
AND BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. You are required to furnish
your correct TIN, but you are not required to sign the certification.

2. INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983
AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item 2 in the certification before signing the form.

3. REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross out
item 2 of the certification.

4. OTHER PAYMENTS. You are required to furnish your correct TIN, but you are
not required to sign the certification unless you have been notified of an
incorrect TIN. Other payments include payments made in the course of the
requester's trade or business for rents, royalties, goods (other than bills for
merchandise), medical and health care services, payments to a nonemployee for
services (including attorney and accounting fees), and payments to certain
fishing boat crew members.

5. MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, OR IRA CONTRIBUTIONS. You are required to furnish your correct TIN,
but you are not required to sign the certification.

6. EXEMPT PAYEES AND PAYMENTS. If you are exempt from backup withholding, you
should complete this form to avoid possible erroneous backup withholding. Enter
your correct TIN in Part 1, write "EXEMPT" in the block in Part II, and sign
and date the form. If you are a nonresident alien or foreign entity not subject
to backup withholding, give the requester a complete Form W-8, Certificate of
Foreign Status.

7. TIN "APPLIED FOR." Follow the instructions under How To Obtain a TIN on
page 1, and sign and date this form.

SIGNATURE. -- For a joint account, only the person whose TIN is shown in Part I
should sign.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 3

PRIVACY ACT NOTICE. -- Section 6109 requires you to furnish your correct TIN to
persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, or contributions you made to an
IRA. The IRS uses the numbers for identification purposes and to help verify the
accuracy of your tax return. You must provide your TIN whether or not you are
required to file a tax return. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
TIN to a payer. Certain penalties may also apply.

WHAT NAME AND NUMBER TO GIVE THE REQUESTER

- ------------------------------------------------------------------------------
GIVE THE SSN OR,
IF APPLICABLE, EIN OF
FOR THIS TYPE OF ACCOUNT:
- ------------------------------------------------------------------------------

1. Individual The individual

2. Two or more individuals (joint The actual owner of
account) the account or,
if combined funds,
the first individual
on the account(1)

3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)

4. a. The usual revocable savings The grantor-trustee(1)
trust (grantor is also trustee)
b. So-called trust account that The actual owner(1)
is not a legal or valid trust
under state law

5. Sole proprietorship The owner(3)

6. A valid trust, estate or pension Legal entity(4)
trust

7. Corporate The corporation

8. Association, club, religious, The organization
charitable, educational, or other
tax-exempt organization

9. Partnership The partnership

10. A broker or registered nominee The broker or nominee

11. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state or
local government, school district
or prison) that receives
agriculture program payments

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

(1) List first and circle the name of the person whose number you furnish.

(2) Circle the minor's name and furnish the minor's SSN.

(3) Show your individual name. You may also enter your business name. You may
use your SSN or EIN.

(4) List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the TIN of the personal representative or trustee
unless the legal entity itself is not designated in the account title).

NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
EXHIBIT (b)(1)

CHASE SECURITIES INC.
707 Travis Street, 8-TCBN-96
Houston, TX 77002-8096

SANTA FE ENERGY RESOURCES, INC.
$150 MILLION SENIOR REVOLVING CREDIT FACILITY
COMMITMENT LETTER

October 21, 1996

Santa Fe Energy Resources, Inc.
1616 South Voss, Suite 10000
Houston, Texas 77057

Attention: Mr. R. Graham Whaling, Senior Vice President and Chief Financial
Officer

Ladies and Gentlemen:

You have advised The Chase Manhattan Bank ("Chase") and Chase Securities
Inc. ("CSI") that Santa Fe Energy Resources, Inc., a Delaware corporation
("SFER", the "Borrower" or "YOU"), plans a series of transactions, two of
which would involve (i) the transfer of all SFER's western assets, including
SFER's interest in the Midway, Sunset, Belridge, Coalinga and Kern River oil
fields, to Monterey Resources, Inc. ("MONTEREY"), a new subsidiary to be
formed by SFER at or prior to the Public Offering (as hereinbelow defined), and
(ii) a public offering by Monterey of up to 19.9% of its common stock (the
"PUBLIC OFFERING"). In that connection, you have requested that CSI agree to
structure, arrange and syndicate a new senior credit facility for SFER in an
aggregate amount of up to $150 million (the "FACILITY"), and that Chase commit
to provide the entire principal amount of the Facility and to serve as
administrative agent for the Facility.

CSI is pleased to advise you that it is willing to act as exclusive advisor
and arranger for the Facility.

Furthermore, Chase is pleased to advise you of (a) its commitment to
provide the entire amount up to $150 million of the Facility, and (b) its
agreement to assemble a syndicate of financial institutions identified by CSI
and Chase in consultation with you, to provide commitments for the Facility, in
each case upon the terms and subject to the conditions set forth or referred to
in this commitment letter (this "COMMITMENT LETTER") and in the Summary of
Terms and Conditions attached hereto as Exhibit A (the "TERM SHEET").

It is agreed that Chase will act as the sole and exclusive Administrative
Agent, and that CSI will act as the sole and exclusive advisor and arranger, for
the Facility, and each will, in such capacities, perform the duties and exercise
the authority customarily performed and exercised by it in such roles. You agree
that no other agents, co-agents or arrangers will be appointed, no other titles
will be awarded and no compensation other than that expressly contemplated by
the Term Sheet and the Fee Letter referred to below will be paid in connection
with the Facility unless you and we shall so agree.

CSI intends to syndicate the Facility to a group of financial institutions
(together with Chase, the "LENDERS") identified by us in consultation with
you. CSI intends to commence syndication efforts promptly upon the execution of
this Commitment Letter, and you agree actively to assist CSI in completing a
syndication satisfactory to it. Such assistance shall include (a) your using
commercially reasonable efforts to ensure that the syndication efforts benefit
materially from your existing lending relationships, (b) direct contact between
senior management and advisors of the Borrower and the proposed Lenders, (c)
assistance in the preparation of a Confidential Information Memorandum and other
marketing materials to be used in connection with the syndication and (d) the
hosting, with CSI, of one or more meetings of prospective Lenders.
<PAGE>
SANTA FE ENERGY RESOURCES, INC.
October 21, 1996

Subject to consultation with you from time to time, CSI will manage all
aspects of the syndication, including decisions as to the selection of
institutions to be approached and when they will be approached, when their
commitments will be accepted, which institutions will participate, the
allocations of the commitments among the Lenders and the amount and distribution
of fees among the Lenders. To assist CSI in its syndication efforts, you agree
promptly to prepare and provide to CSI and Chase all information with respect to
the Borrower and the other transactions contemplated hereby and by the Term
Sheet and the Fee Letter referred to below, including all financial information
and projections (the "PROJECTIONS"), as we may reasonably request in
connection with the arrangement and syndication of the Facility. You hereby
represent and covenant that (a) all information other than the Projections (the
"INFORMATION") that has been or will be made available to Chase or CSI by you
or any of your representatives is or will be, when furnished, complete and
correct in all material respects and does not or will not, when furnished,
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not materially
misleading in light of the circumstances under which such statements are made
and (b) the Projections that have been or will be made available to Chase or CSI
by you or any of your representatives have been or will be prepared in good
faith based upon reasonable assumptions. You understand that in arranging and
syndicating the Facility we may use and rely on the Information and Projections
without independent verification thereof. You hereby acknowledge and consent
that CSI may share the Confidential Information Memorandum, the Information and
any other information or matters relating to the Borrower or the transactions
contemplated hereby with affiliates of CSI, including Texas Commerce Bank
National Association, and Chase, and that such affiliates may likewise share
information relating to the Borrower or such transactions with CSI.

As consideration for Chase's commitment hereunder and CSI's agreement to
perform the services described herein, SFER agrees, to pay or to cause the
Borrower to pay to Chase the nonrefundable fees set forth in Annex I to the Term
Sheet and in the Fee Letter dated the date hereof and delivered herewith (the
"FEE LETTER").

Chase's commitment hereunder and CSI's agreement to perform the services
described herein are subject to (a) there not occurring or becoming known to us
any material adverse condition or material adverse change in or affecting the
business, operations, property, condition (financial or otherwise) or prospects
of the Borrower and its subsidiaries, taken as a whole, (b) our completion of
and satisfaction in all respects with a due diligence investigation of the
Borrower and its subsidiaries, (c) our not becoming aware after the date hereof
of any information or other matter affecting the Borrower and its subsidiaries,
or the transactions contemplated hereby which is inconsistent in a material and
adverse manner with any such information or other matter disclosed to us prior
to the date hereof, (d) there not having occurred a material disruption of or
material adverse change in financial, banking or capital market conditions that,
in our judgment, could materially impair the syndication of the Facility, (e)
our satisfaction that prior to and during the syndication of the Facility there
shall be no competing offering, placement or arrangement of any debt securities
or bank financing by or on behalf of the Borrower or any affiliate thereof
excluding the $75,000,000 Revolving Credit Facility contemplated by Monterey,
(f) the negotiation, execution and delivery on or before November 30, 1996 of
definitive documentation with respect to the Facility satisfactory to Chase and
its counsel and (g) the other conditions set forth or referred to in the Term
Sheet.

You agree to indemnify and hold harmless Chase, CSI, their affiliates and
their respective officers, directors, employees, advisors, and agents (each, an
"INDEMNIFIED PERSON") from and against any and all losses, claims, damages and
liabilities (the "Losses") to which any such Indemnified Person may become
subject arising out of or in connection with this Commitment Letter, the Term
Sheet, the Fee Letter, the Facility, the use of the proceeds thereof, the
Initial Public Offering or any related transaction or any claim, litigation,
investigation or proceeding relating to any of the foregoing, regardless of
whether any Indemnified Person is a party thereto, and to reimburse each
Indemnified Person upon demand for any legal or other expenses incurred in
connection with investigating or defending any of the foregoing, PROVIDED

2
<PAGE>
SANTA FE ENERGY RESOURCES, INC.
October 21, 1996
that the foregoing indemnity will not apply to Losses or related expenses to the
extent they arise from the willful misconduct or gross negligence of any
Indemnified Person. YOU AGREE THAT THE INDEMNITY CONTAINED IN THE PRECEDING
SENTENCE EXTENDS TO AND IS INTENDED TO COVER LOSSES AND RELATED EXPENSES ARISING
OUT OF THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF AN INDEMNIFIED PERSON.
In addition, you agree to reimburse Chase, CSI and their affiliates on demand
for all out-of-pocket expenses (including due diligence expenses, syndication
expenses, travel expenses, and reasonable fees, charges and disbursements of
counsel) incurred in connection with the Facility and any related documentation
(including this Commitment Letter, the Term Sheet, the Fee Letter and the
definitive financing documentation) or the administration, amendment,
modification or waiver thereof. No Indemnified Person shall be liable for any
indirect or consequential damages in connection with the matters described in
this Commitment Letter or its activities related to the facility.

This Commitment Letter shall not be assignable by you without the prior
written consent of Chase and CSI (and any purported assignment without such
consent shall be null and void), is intended to be solely for the benefit of the
parties hereto and is not intended to confer any benefits upon, or create any
rights in favor of, any person other than the parties hereto. This Commitment
Letter may not be amended or waived except by an instrument in writing signed by
you, Chase and CSI. This Commitment Letter may be executed in any number of
counterparts, each of which shall be an original, and all of which, when taken
together, shall constitute one agreement. Delivery of an executed signature page
of this Commitment Letter by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof. This Commitment Letter
(together with the Term Sheet) and the Fee Letter are the only agreements that
have been entered into among us with respect to the Facility and set forth the
entire understanding of the parties with respect thereto. THIS COMMITMENT LETTER
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.

This Commitment Letter is delivered to you on the understanding that
neither this Commitment Letter, the Term Sheet or the Fee Letter nor any of
their terms or substance shall be disclosed, directly or indirectly, to any
other person except (a) to your officers, Senior Note Holders, agents and
advisors who are directly involved in the consideration of this matter, or (b)
as may be compelled in a judicial or administrative proceeding or as otherwise
required by law including such disclosure requirements for documents filed with
the SEC and information furnished to security holders of SFER or prospective
security holders of Monterey (in which case you agree to inform us promptly
thereof).

The reimbursement, indemnification and confidentiality provisions contained
herein and in the Fee Letter shall remain in full force and effect regardless of
whether definitive financing documentation shall be executed and delivered and
notwithstanding the termination of this Commitment Letter or Chase's commitment
hereunder; PROVIDED, that your obligations under this Commitment Letter, other
than those arising under the fourth, fifth, sixth and twelfth paragraphs hereof,
shall automatically terminate and be superseded by the provisions of the
definitive documentation relating to the Facility upon the initial funding
thereunder, and you shall automatically be released from all liability in
connection therewith at such time.

THIS COMMITMENT LETTER, THE ATTACHED TERM SHEET, THE FEE LETTER AND ALL
EXHIBITS, SCHEDULES AND OTHER ATTACHMENTS HERETO AND THERETO CONSTITUTE A "LOAN
AGREEMENT" AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

If the foregoing correctly sets forth our agreement, please indicate your
acceptance of the terms hereof and of the Term Sheet and the Fee Letter by
returning to us executed counterparts hereof and of the Fee Letter not later
than 5:00 p.m., Houston, Texas time, on October 25, 1996. Chase's commitment and
CSI's

3
<PAGE>
SANTA FE ENERGY RESOURCES, INC.
October 21, 1996
agreements herein will expire at such time in the event Chase has not received
such executed counterparts in accordance with the immediately preceding
sentence.

Chase and CSI are pleased to have been given the opportunity to assist you
in connection with this important financing.

Very truly yours,
THE CHASE MANHATTAN BANK
By: /s/ MARY JO WOODFORD
Name: MARY JO WOODFORD
Title: VICE PRESIDENT

CHASE SECURITIES, INC.
By: /s/ GEORGE M. SERICE
Name: GEORGE M. SERICE
Title: VICE PRESIDENT

Accepted and agreed to as of
the date first above written by:
SANTA FE ENERGY RESOURCES, INC.
By: /s/ R. GRAHAM WHALING
Name: R. Graham Whaling
Title: SR. V.P. AND C.F.O.

4
<PAGE>
Confidential Santa Fe Energy Resources, Inc.
- --------------------------------------------------------------------------------

EXHIBIT A:
SANTA FE ENERGY RESOURCS, INC.
OCTOBER 1996
SUMMARY OF TERMS AND CONDITIONS

BORROWER: Santa Fe Energy Resources, Inc. (the "BORROWER")

LENDERS: Chase Manhattan Bank ("Chase") and other financial
institutions (collectively, the "LENDERS").
Commitments several and not joint.

AGENT: Chase.

ARRANGER FOR THE
CREDIT FACILITY: Chase Securities Inc. ("CSI").

CREDIT FACILITY: Five-Year Revolving Senior Credit Facility (the
"CREDIT FACILITY") in the amount of up to
$150,000,000, with a Letter of Credit ("L/C") sublimit
of $30,000,000 (the loans thereunder, the "LOANS");
PROVIDED that no Loans shall be made to the extent
such Loans and outstanding Letters of Credit would
exceed the Available Borrowing Base.

EXISTING CREDIT FACILITY: The Second Amended and Restated Revolving Credit
Agreement dated as of April 1, 1995, among Santa Fe
Energy Resources, Inc., Texas Commerce Bank National
Association, NationsBank of Texas, N.A. and the Banks.

AVAILABILITY: The Credit Facility shall be available on a revolving
basis during the period commencing on the Closing Date
and ending on the date which is five years from the
Closing Date (the "TERMINATION DATE") subject to
satisfaction of Conditions Precedent.

INITIAL BORROWING BASE: $225,000,000.

INITIAL AVAILABLE
BORROWING BASE: $150,000,000.

MATURITY DATE: The Termination Date, subject to acceleration and
prepayment provisions.

USE OF PROCEEDS: Proceeds from the Credit Facility will be used for
general corporate purposes and not for purposes which
would violate any law, rule or regulation.

INTEREST RATE: Loans shall bear interest at a rate per annum equal to
one of the following, as selected by the Borrower:

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<PAGE>
Confidential Santa Fe Energy Resources, Inc.
- --------------------------------------------------------------------------------

(a) The higher of (i) the rate of interest publicly
announced by Chase as its prime rate in effect at its
principal office in New York City and (ii) the Federal
Funds Effective Rate in effect on such day plus 1/2 of
1% (such higher rate, the "ABR"; Loans bearing
interest based upon such rate, "ABR LOANS") in each
case plus the Applicable Margin (the ABR is not
intended to be the lowest rate charged by Chase to its
borrowers); or
(b) The rate at which eurodollar deposits for one,
two, three or six months (as selected by the Borrower)
are offered by Chase in the interbank eurodollar
market in the approximate amount of the requested
borrowing (the "EURODOLLAR RATE"; Loans bearing
interest based upon such rate, "EURODOLLAR LOANS") in
each case plus the Applicable Margin.

APPLICABLE MARGIN: See Schedule I.

FEES: See Schedule I.

INTEREST PAYMENT DATES: In the case of ABR Loans, the last day of each
calendar quarter. In the case of Eurodollar Loans, on
the last day of each relevant interest period and, in
the case of any interest period longer than three
months, on each successive date three months after the
first day of such interest period.

DEFAULT RATE: During an Event of Default, all Loans and Letter of
Credit liabilities will bear interest at 2% above the
rate otherwise applicable thereto. Any overdue
interest or other amounts will bear interest at a rate
per annum equal to the ABR plus 2%.

AMORTIZATION: Loans and Letter of Credit liabilities shall be
payable in full on the Maturity Date.

INTEREST RATE BASIS: 360 days (365/366 days in the case of ABR Loans based
on the prime rate) for actual days elapsed.

OPTIONAL PREPAYMENTS: Prepayments will be permitted at any time without
penalty (except for breakage and related costs
associated with prepayments of Eurodollar Loans).

MANDATORY PREPAYMENTS: If on any date the aggregate outstanding principal
amount of the Loans and Letter of Credit liabilities
exceeds the Available Borrowing Base then applicable,
the Borrower shall be required by each of 90 and 180
days after such date to either (a) make a mandatory
prepayment to the Lenders in the amount of at least
50% or the remainder of such excess, or (b) take such
steps as may be approved by the Agent to increase the
Borrowing Base by at least 50% or the remainder of
such excess. Also, any amounts drawn under Letters of
Credit must be immediately repaid.

YIELD PROTECTION: The financing agreements will contain customary
provisions relating to increased costs, capital
adequacy protection, withholding and other taxes and
illegality.

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[LOGO] CHASE Chase Securities Inc.
2
<PAGE>
Confidential Santa Fe Energy Resources, Inc.
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BORROWING BASE: Loans plus the outstanding Letter of Credit
Liabilities under the Credit Facility will be
permitted up to the Available Borrowing Base. The
Available Borrowing Base is the lesser of (i) the
Credit Facility Amount, or (ii) the Borrowing Base
less Other Liabilities. "Other Liabilities" excludes
the Borrower's existing $100,000,000 subordinated debt
but otherwise includes the aggregate amount of (i) any
other allowable Senior or Subordinated Debt plus (b)
any liabilities for Other Letters of Credit. The
Initial Borrowing Base will be $225 million and the
Initial Available Borrowing Base will be $150 million.
The Borrowing Base will determined by the Agent in its
sole discretion in accordance with its customary
practices and approved by the Required Lenders (66
2/3%). After the closing Date, the Agent will
determine a Borrowing Base on an annual basis and will
determine the Available Borrowing Base (i) on a
quarterly basis; (ii) when new Other Liabilities in
excess of $10 million are assumed; and (iii) on the
date each Loan is requested. Both the Borrower and the
Required Lenders will have the right to call for one
additional determination between scheduled
determinations. To Assist the Agent in setting the
Borrowing Base, the Borrower will furnish a report
(the "Reserve Report") prepared by an Approved
Petroleum Engineer to the Agent no later than 45 days
after (Date) of each year in a form reasonably
satisfactory to the Agent. To assist the Agent in
determining the Available Borrowing Base, the Borrower
will report to the Agent its total Other Liabilities
(i) on a quarterly basis; (ii) when new Other
Liabilities in excess of $10 million are assumed; and
(iii) on the date each Loan is requested.

BORROWING BASE ASSETS: Oil and gas properties in which the Borrower and
Restricted Subsidiaries (together, the "Combined
Group") has an ownership, leasehold or other interest.

COLLATERAL: Unsecured.

CONDITIONS PRECEDENT TO The Credit Agreement shall contain such conditions
CLOSING: precedent to Closing as the Agent may deem appropriate
for this transaction including, without limitation,
the following:

a) Corporate Action, authority and status: receipt of
organizational documents.
b) Incumbency.
c) Duly executed and delivered credit documents.
d) Opinion of counsel to the Borrower.
e) Receipt of counterparts from the Lenders.
f) Any necessary consents.
g) Obligations to make loans subject to additional
conditions precedent substantially the same as
those in the existing SFER credit agreement.
h) Other documents as the Agent may reasonably
request.
i) Cancellation of the existing $125 million Santa Fe
Energy Resources, Inc. facility.

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[LOGO] CHASE Chase Securities Inc.
3
<PAGE>
Confidential Santa Fe Energy Resources, Inc.
- --------------------------------------------------------------------------------

REPRESENTATIONS AND The Credit Agreement shall contain such
WARRANTIES: representations and warranties as the Agent deems
appropriate for this transaction, including, without
limitation, the following:

1. Corporate existence, authority and status.
2. Information:
o company prepared financials for CGI
o no undisclosed material contingent
liabilities or long term commitments
o no Material Adverse Change
3. No undisclosed litigation, which if adversely
determined, would cause a Material Adverse Change
(MAC).
4. No breach of law or other agreements or documents.
5. All necessary corporate power and authority.
6. All approvals and consents obtained.
7. Regulations, G, T, U and X.
8. ERISA.
9. Payment of taxes.
10. Environmental Matters.
11. Good and defensible title.
12. Investment Company Act, PUHCA.

AFFIRMATIVE COVENANTS: The Credit Agreement shall contain affirmative
covenants, with respect to the Combined Group, as the
Agent deems appropriate including, without limitation:

1. Financial statements and certificates:
o Quarterly and yearly financials with
certificates
o Notification of Default or condition which
would cause MAC, litigation of $5 million or
more, regulatory proceedings which would
cause MAC
o ERISA notices and information
2. Annual independent engineering report and
semi-annual Borrower-prepared update.
3. Right to inspection of properties.
4. Environmental compliance.
5. Payment of taxes.
6. Maintenance of insurance, subject to
self-insurance of no more than $10,000,000 (with
certificate specifying details of such insurance).
7. ERISA.

FINANCIAL COVENANTS: The Credit Agreement shall contain financial
covenants, with respect to the Combined Group, as the
Agent deems appropriate including:

a) Maximum Debt to Capitalization of 60%.
b) Four quarter rolling EBITDA to Total Debt Interest
Coverage of at least 3.0 to 1.0.
c) Total Senior Debt to four quarter rolling Adjusted
EBITDA ratio not to exceed 3.0 to 1.0. "Adjusted
EBITDA" shall be defined as EBITDA less dividends
paid during the four quarter rolling period.

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[LOGO] CHASE Chase Securities Inc.
4
<PAGE>
Confidential Santa Fe Energy Resources, Inc.
- --------------------------------------------------------------------------------

NEGATIVE COVENANTS: The Credit Agreement shall contain negative covenants
with respect to the Combined Group as the Agent deems
appropriate including, without limitation,
restrictions on:

1. Additional indebtedness, other than Senior and
Subordinated Debt having a weighted average
maturity of at least seven years from the date of
issuance and having no conditions more onerous
than this facility. Other exceptions to the
prohibition on additional indebtedness include
secured indebtedness allowed by paragraph 2 in
this Negative Covenant section and up to $25
million, in the aggregate, of other senior
unsecured debt. Other Letters of Credit (issued
outside of this Credit Facility) are allowed and
will be included in "Other Liabilities" as
defined in the Borrowing Base section of the Term
Sheet. The issuance of any additional
indebtedness must not cause a prospective
Available Borrowing Base deficiency or covenant
violation.

2. Permitted liens substantially the same as in the
Existing Credit Facility.

3. Permitted asset sales substantially the same as
in the Existing Credit Facility, however, assets
sales which, in the aggregate, exceed $20 million
between yearly determinations will trigger the
right of the Agent to call for an additional,
immediate Borrowing Base determination.

4. Transactions with affiliates.

5. Restricted payment language substantially the
same as in the Borrower's existing subordinated
debt indenture.

6. Restrictions on mergers and sale of assets.

7. Sale and leaseback transactions.

8. Restrictions on activities of Restricted
Subsidiaries.

EVENTS OF DEFAULT: The Credit Agreement shall contain events of default
as the Agent deems appropriate including, without
limitation:

1. Nonpayment or principal when due.

2. Nonpayment of interest, fees or other amounts
within applicable grace periods.

3. Cross default ($10,000,000).

4. Adverse judgment, in the aggregate, in excess of
$10,000,000.

5. Inaccuracy of representations and warranties.

6. Failure to make any mandatory prepayment.

7. Bankruptcy, insolvency, etc.

8. Change of Control.

9. Tax Indemnification Agreement required payment of
$5,000,000 or more.

10. Violation of convenants (subject to 30 day grace
in the case of certain affirmative covenants).

11. ERISA defaults including failure to pay when due
an amount in excess of $10,000,000 under ERISA.

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[LOGO] CHASE Chase Securities Inc.
5
<PAGE>
Confidential Santa Fe Energy Resources, Inc.
- --------------------------------------------------------------------------------

ASSIGNMENTS AND PARTICIPATIONS: Each Lender will have the right to assign to
one or more eligible assignees all or a
portion of its rights and obligations under
the Loan Documents, with the consent, not to
be unreasonably withheld, of the Agent and
the Borrower. Minimum aggregate assignment
level of $10,000,000. The assignee shall pay
to the Agent an administrative fee of $2,500.

Each Lender will also have the right, without
consent of the Borrower, to assign, as
security, all or part of its rights under the
Loan Documents to any Federal Reserve Bank.

Each Lender will have the right to sell
participations in its rights and obligations
under the Loan Documents, subject to
customary restrictions on the participants'
voting rights.

The Lenders may at any time without the
consent of the Borrower grant participations
in, or sell, assign or otherwise transfer all
or any part of, its loans, commitments and
other rights and duties to one or more other
financial institutions approved by the
Borrower, which approval shall not be
unreasonably withheld. Participants will have
the same benefits as the Lenders with respect
to yield protection and increased cost
provisions.

COUNSEL TO THE AGENT: Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.

GOVERNING LAW/JURISDICTION: State of New York, submission to New York
jurisdiction and waiver of jury trial.

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[LOGO] CHASE Chase Securities Inc.
6
<PAGE>
Confidential Santa Fe Energy Resources, Inc.
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EXPENSES; INDEMNITY: THE COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION,
THE FEES AND EXPENSES OF COUNSEL TO THE AGENT AND THE
AGENT'S OUT-OF-POCKET EXPENSES) ARISING IN CONNECTION
WITH THE PREPARATION, EXECUTION AND DELIVERY OF THE
DOCUMENTATION RELATING TO THE CREDIT FACILITY SHALL BE
FOR THE ACCOUNT OF THE BORROWER. IN ADDITION, THE
BORROWER WILL INDEMNIFY, PAY AND HOLD HARMLESS THE
AGENT AND THE LENDERS (AND THEIR RESPECTIVE DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS) AGAINST ANY LOSS,
LIABILITY, COST OR EXPENSE INCURRED IN RESPECT OF THE
FINANCING CONTEMPLATED HEREBY OR THE USE OR THE
PROPOSED USE OF PROCEEDS THEREOF, INCLUDING
ENVIRONMENTAL MATTERS.

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[LOGO] CHASE 7 Chase Securities Inc.
<PAGE>
Confidential Santa Fe Energy Resources, Inc.
- --------------------------------------------------------------------------------

SCHEDULE I

APPLICABLE MARGINS/
COMMITMENT FEES/
LETTER OF CREDIT FEES:

DEBT/ADJUSTED EBITDA

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
LEVEL II LEVEL III
(is greater (is greater
LEVEL I than) 1.5 than) 2.0
(is less than (is less than (is less than LEVEL IV
or equal to) or equal to) or equal to) (is greater
1.5 2.0 2.5 than) 2.5

Libor Margin 50.0 bps 75.0 bps 100.0 bps 125.0 bps
ABR Margin 0 bps 0 bps 0 bps 0 bps
Commitment Fee 20 bps 25 bps 30 bps 35 bps
Letter of Credit Fee (p.a.) 50.0 bps 75.0 bps 100.0 bps 125.0 bps
</TABLE>

The Letter of Credit Fee will correspond with the
applicable Letter of Credit Fee in the above pricing
grid, subject to a minimum fee of $600. In addition,
TCB will receive a 1/8 of 1% fronting fee as
consideration for capital costs incurred for retaining
the full amount of the Letter of Credit on its books.

COMMITMENT FEES: The Commitment Fees illustrated above will be applied
to the difference between (a) the lesser of (i) the
Credit Facility Amount, or (ii) the Borrowing Base
minus (b) the aggregate Loans and Letter of Credit
Liabilities outstanding under the Credit Facility.

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[LOGO] CHASE Chase Securities Inc.
8
<PAGE>
CHASE SECURITIES INC.
707 Travis Street, 8-TCBN-96
Houston, TX 77002-8096

Santa Fe Energy Resources, Inc.
$150 million Senior Revolving Credit Facility
Fee Letter

October 21, 1996

Santa Fe Energy Resources, Inc.
1616 South Voss, Suite 10000
Houston, Texas 77057

Attention: Mr. R. Graham Whaling, Senior Vice President and Chief
Financial Officer

Ladies and Gentlemen:

Reference is made to the Commitment Letter dated the date hereof (including
the attached Term Sheet, the "COMMITMENT LETTER") between us and you regarding
the transactions described therein. Capitalized terms used but not defined
herein are used with the meanings assigned to them in the Commitment Letter.
This letter agreement is the Fee Letter referred to in the Commitment Letter.

As consideration for CSI's agreement to arrange the Facility and Chase's
commitment under the Commitment Letter, you agree to pay the following fees:

(i) an arrangement fee (the "ARRANGEMENT FEE") in an amount equal to
$350,000, which fee will be payable to CSI and will be due on the
date on which the documentation evidencing the Facility is executed
(the "CLOSING DATE").

(ii) an annual administration fee in an amount equal to $50,000 per year,
which fee will be payable to Chase on the Closing Date and annually
in advance on each anniversary thereof prior to the maturity or early
termination of the Facility and the payment in full of all amounts
owing thereunder.

In addition, Chase and the other Lenders shall be paid the other fees specified
in the Commitment Letter.

CHASE SECURITIES INC. IS A MEMBER NASD/SIPC, AND IS A WHOLLY-OWNED SUBSIDIARY OF
THE CHASE MANHATTAN CORPORATION.

<PAGE>
Santa Fe Energy Resources, Inc.
October 21, 1996

All fees payable hereunder and under the Commitment Letter shall be paid in
immediately available funds and shall be in addition to reimbursement of Chase's
and CSI's out-of-pocket expenses. You agree that Chase and CSI may, in their
sole discretion, share all or a portion of any of the fees payable pursuant to
this Fee Letter with any of the other Lenders.

It is understood and agreed that this Fee Letter shall not constitute or
give rise to any obligation to provide any financing; such an obligation will
arise only to the extent provided in the Commitment Letter if accepted in
accordance with its terms. This Fee Letter may not be amended or waived except
by an instrument in writing signed by Chase, CSI and you. THIS FEE LETTER SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK. This Fee Letter may be executed in any number of counterparts, each of
which shall be an original, and all of which, when taken together, shall
constitute one agreement. Delivery of an executed signature page of this Fee
Letter by facsimile transmission shall be effective as delivery of a manually
executed counterpart hereof.

You agree that this Fee Letter and its contents are subject to the
confidentiality provisions of the Commitment Letter.

Please confirm that the foregoing is our mutual understanding by signing an
returning to us an executed counterpart of this Fee Letter, together with the
portion of the Arrangement Fee payable upon your acceptance of the Commitment
Letter.

Very truly yours,
THE CHASE MANHATTAN BANK
By /s/ MARY JO WOODFORD

NAME: MARY JO WOODFORD
TITLE: VICE PRESIDENT

CHASE SECURITIES INC.
By /s/ GEORGE M. SERICE

NAME: GEORGE M. SERICE
TITLE: VICE PRESIDENT

Accepted and agreed to as of
the date first above written:

By /s/ R. GRAHAM WHALING

NAME: R. GRAHAM WHALING
TITLE: SENIOR VICE PRESIDENT AND C.F.O.

-2-