SANTA FE ENERGY RESOURCES INC
10-Q, 1997-08-13
CRUDE PETROLEUM & NATURAL GAS
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================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

(MARK ONE)

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

                      FOR THE QUARTER ENDED JUNE 30, 1997

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

                         COMMISSION FILE NUMBER 1-7667

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

                         SANTA FE ENERGY RESOURCES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

          DELAWARE                                  36-2722169
  (STATE OF INCORPORATION)             (I.R.S. EMPLOYER IDENTIFICATION NO.)

                           1616 SOUTH VOSS, SUITE 1000
                              HOUSTON, TEXAS 77057
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 507-5000

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

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

       Shares of Common Stock outstanding at July 31, 1997 -- 102,817,240
================================================================================
<PAGE>
                          PART I  FINANCIAL STATEMENTS

                                                  PAGE
                                                  ----
Consolidated Statement of Operations
  Three Months and Six Months Ended June
  30, 1997 and 1996............................     2
Consolidated Balance Sheet
  June 30, 1997 and December 31, 1996..........     3
Consolidated Statement of Cash Flows
  Three Months and Six Months Ended June
  30, 1997 and 1996............................     4
Consolidated Statement of Shareholders'
  Equity
  Three Months and Six Months Ended June
  30, 1997 and 1996............................     5
Notes to Consolidated Financial
  Statements...................................     6
Management's Discussion and Analysis of
  Financial Condition
  and Results of Operations....................    12

                                        1
<PAGE>
                         SANTA FE ENERGY RESOURCES, INC.
                CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
                 (IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                        THREE MONTHS ENDED     SIX MONTHS ENDED
                                             JUNE 30,              JUNE 30,
                                       --------------------  --------------------
                                         1997       1996       1997       1996
                                       ---------  ---------  ---------  ---------
<S>                                    <C>        <C>        <C>        <C>      
Revenues
     Sales of crude oil produced.....  $   109.1  $   110.9  $   236.4  $   209.5
     Sales of natural gas produced...       30.5       24.9       67.2       49.8
     Sales of crude oil purchased....       10.3        1.2       19.9        1.2
     Other...........................       (0.1)       0.5        0.2        0.7
                                       ---------  ---------  ---------  ---------
                                           149.8      137.5      323.7      261.2
                                       ---------  ---------  ---------  ---------
Costs and Expenses
     Production and operating........       49.4       44.3      101.6       88.3
     Cost of crude oil purchased.....       10.7        1.1       21.4        1.1
     Exploration, including dry hole
       costs.........................       10.1        5.9       19.4       11.5
     Depletion, depreciation and
       amortization..................       35.5       35.1       69.1       67.4
     Impairment of oil and gas
       properties....................     --           10.4     --           10.4
     General and administrative......       10.1        7.9       17.2       13.9
     Taxes (other than income).......        6.6        6.5       14.1       12.6
     Loss (gain) on disposition of
       assets........................        0.2        0.3       (2.1)       0.5
                                       ---------  ---------  ---------  ---------
                                           122.6      111.5      240.7      205.7
                                       ---------  ---------  ---------  ---------
Income from Operations...............       27.2       26.0       83.0       55.5
     Interest income.................        0.9        0.5        1.8        1.0
     Interest expense................       (7.8)      (9.7)     (15.5)     (19.3)
     Interest capitalized............        1.9        1.2        3.5        2.5
     Other income (expense)..........       (0.2)      (0.2)      (0.3)      (0.5)
                                       ---------  ---------  ---------  ---------
Income Before Income Taxes and
  Minority Interest..................       22.0       17.8       72.5       39.2
     Income taxes
          Current....................       (0.6)      (1.9)      (5.1)      (4.0)
          Deferred...................       (7.3)       1.5      (22.7)      (5.2)
                                       ---------  ---------  ---------  ---------
Income Before Minority Interest......       14.1       17.4       44.7       30.0
     Minority Interest in Monterey
       Resources, Inc................       (1.6)    --           (4.3)    --
                                       ---------  ---------  ---------  ---------
Net Income...........................       12.5       17.4       40.4       30.0
     Preferred dividend
       requirement...................       (1.2)      (3.7)      (3.6)      (7.4)
     Convertible preferred premium...       (8.5)    --           (8.5)    --
                                       ---------  ---------  ---------  ---------
Earnings Attributable to Common
  Shares.............................  $     2.8  $    13.7  $    28.3  $    22.6
                                       =========  =========  =========  =========
Earnings Attributable to Common
  Shares Per Share
     Primary.........................  $    0.03  $    0.15  $    0.30  $    0.25
                                       =========  =========  =========  =========
Weighted Average Number of Shares
  Outstanding (in millions)..........       97.0       90.6       94.1       90.5
                                       =========  =========  =========  =========
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                        2
<PAGE>
                         SANTA FE ENERGY RESOURCES, INC.
                           CONSOLIDATED BALANCE SHEET
                            (IN MILLIONS OF DOLLARS)

                                         JUNE 30,        DECEMBER 31,
                                           1997              1996
                                        -----------      ------------
                                        (UNAUDITED)

               ASSETS
Current Assets
     Cash and cash equivalents.......    $     41.9       $     14.6
     Accounts receivable.............          99.4            109.1
     Inventories.....................          15.5             13.6
     Other current assets............          22.8             35.2
                                        -----------      ------------
                                              179.6            172.5
                                        -----------      ------------
Properties and Equipment, at cost
     Oil and gas (on the basis of
      successful efforts
      accounting)....................       2,665.8          2,539.8
     Other...........................          36.9             34.4
                                        -----------      ------------
                                            2,702.7          2,574.2
     Accumulated depletion,
      depreciation, amortization and
      impairment.....................      (1,724.3)        (1,664.4)
                                        -----------      ------------
                                              978.4            909.8
                                        -----------      ------------
Other Assets
     Receivable under gas balancing
      arrangements...................           2.9              4.5
     Other...........................           6.3             33.2
                                        -----------      ------------
                                                9.2             37.7
                                        -----------      ------------
                                         $  1,167.2       $  1,120.0
                                        ===========      ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
     Accounts payable................    $    101.4       $    115.4
     Income taxes payable............          16.9             21.4
     Interest payable................           6.0              6.0
     Other current liabilities.......          26.2             36.6
                                        -----------      ------------
                                              150.5            179.4
                                        -----------      ------------
Long-Term Debt.......................         284.5            278.5
                                        -----------      ------------
Deferred Revenues....................           7.4              4.0
                                        -----------      ------------
Other Long-Term Obligations..........          29.5             27.5
                                        -----------      ------------
Deferred Income Taxes................          76.5             53.8
                                        -----------      ------------
Minority Interest in Monterey
  Resources, Inc.....................          31.3             30.3
                                        -----------      ------------
Commitments and Contingencies (Note
  5).................................       --               --
                                        -----------      ------------
Convertible Preferred Stock..........       --                  19.7
                                        -----------      ------------
Shareholders' Equity
     Preferred stock.................       --               --
     $.732 Series A preferred
      stock..........................       --                  91.4
     Common stock....................           1.0              0.9
     Paid-in capital.................         727.3            601.3
     Accumulated deficit.............        (138.2)          (166.5)
     Unamortized restricted stock
      awards.........................          (2.3)         --
     Foreign currency translation
      adjustment.....................          (0.3)            (0.3)
                                        -----------      ------------
                                              587.5            526.8
                                        -----------      ------------
                                         $  1,167.2       $  1,120.0
                                        ===========      ============

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

                                        3
<PAGE>
                         SANTA FE ENERGY RESOURCES, INC.
                CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
                            (IN MILLIONS OF DOLLARS)

<TABLE>
<CAPTION>
                                        THREE MONTHS ENDED     SIX MONTHS ENDED
                                             JUNE 30,              JUNE 30,
                                       --------------------  --------------------
                                         1997       1996       1997       1996
                                       ---------  ---------  ---------  ---------
<S>                                    <C>        <C>        <C>        <C>      
Operating Activities:
     Net income......................  $    12.5  $    17.4  $    40.4  $    30.0
     Adjustments to reconcile net
       income to net cash provided by
       operating activities:
          Depletion, depreciation and
             amortization............       35.5       35.1       69.1       67.4
          Impairment of oil and gas
             properties..............     --           10.4     --           10.4
          Deferred income taxes......        7.3       (1.5)      22.7        5.2
          Net loss (gain) on
             disposition of assets...        0.2        0.3       (2.1)       0.5
          Exploratory dry hole
             costs...................        3.2        1.1        8.3        1.4
          Minority interest in
             Monterey Resources,
             Inc.....................        1.6     --            4.3     --
          Other......................        1.4        0.9        2.4        1.4
     Changes in operating assets and
       liabilities:
          Decrease (increase) in
             accounts receivable.....       17.0       (4.3)       9.7       (0.3)
          Decrease (increase) in
             inventories.............       (2.1)      (2.0)      (1.9)      (1.2)
          Increase (decrease) in
             accounts payable........       (7.6)      (4.5)      (1.3)       9.5
          Increase (decrease) in
             interest payable........        1.9       (9.2)    --         --
          Increase (decrease) in
             income taxes payable....       (8.4)       1.3       (4.5)       1.4
          Net change in other assets
             and liabilities.........       (9.4)      14.2       29.3        0.8
                                       ---------  ---------  ---------  ---------
Net Cash Provided by Operating
  Activities.........................       53.1       59.2      176.4      126.5
                                       ---------  ---------  ---------  ---------
Investing Activities:
     Capital expenditures, including
       exploratory dry hole costs....      (57.6)     (45.3)    (117.7)     (84.4)
     Acquisitions of producing
       properties....................       (3.2)     (18.3)     (34.7)     (35.3)
     Net proceeds from sales of
       properties....................        0.3        0.1        2.9        0.4
                                       ---------  ---------  ---------  ---------
Net Cash Used in Investing
  Activities.........................      (60.5)     (63.5)    (149.5)    (119.3)
                                       ---------  ---------  ---------  ---------
Financing Activities:
     Issuance of common stock........        0.5        0.9        1.6        0.9
     Net change in long-term debt....       10.0     --            6.0     --
     Cash dividends paid.............       (4.8)      (3.7)      (7.2)      (7.4)
                                       ---------  ---------  ---------  ---------
Net Cash Used in Financing
  Activities.........................        5.7       (2.8)       0.4       (6.5)
                                       ---------  ---------  ---------  ---------
Net Cash Provided in the Period......       (1.7)      (7.1)      27.3        0.7
Cash and Cash Equivalents at
  Beginning of Period................       43.6       50.4       14.6       42.6
                                       ---------  ---------  ---------  ---------
Cash and Cash Equivalents at End of
  Period.............................  $    41.9  $    43.3  $    41.9  $    43.3
                                       =========  =========  =========  =========
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                        4
<PAGE>
                         SANTA FE ENERGY RESOURCES, INC.
           CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
                        (SHARES AND DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
                                               $.732
                                             SERIES A
                                            CONVERTIBLE                                                                 FOREIGN
                                          PREFERRED STOCK    COMMON STOCK                              UNAMORTIZED     CURRENCY
                                          ---------------   ---------------   PAID-IN    ACCUMULATED    RESTRICTED    TRANSLATION
                                          SHARES   AMOUNT   SHARES   AMOUNT   CAPITAL      DEFICIT     STOCK AWARDS   ADJUSTMENT
                                          ------   ------   ------   ------   --------   -----------   ------------   -----------

<S>                                       <C>      <C>      <C>      <C>      <C>        <C>           <C>            <C>
Balance at December 31, 1996............    10.7   $91.4      91.0    $0.9     $ 601.3     $(166.5)       $--            $(0.3)
  Issuance of common stock
     Employee stock compensation and
       savings plans....................    --      --         0.4    --           6.6      --              (2.9)        --
     Redemption of Convertible Preferred
       Stock, 7% Series.................    --      --         2.3    --          28.1        (8.5)       --             --
     Redemption of $.732
       Series A Preferred Stock.........   (10.7)  (91.4 )     9.1     0.1        91.3      --            --             --
  Amortization of restricted stock
   awards...............................    --      --        --      --         --         --               0.6         --
  Net income............................    --      --        --      --         --           40.4        --             --
  Dividends declared....................    --      --        --      --         --           (3.6)       --             --
                                          ------   ------   ------   ------   --------   -----------   ------------   -----------
Balance at June 30, 1997................    --     $--       102.8    $1.0     $ 727.3     $(138.2)       $ (2.3)        $(0.3)
                                          ======   ======   ======   ======   ========   ===========   ============   ===========

Balance at December 31, 1995............    10.7   $91.4      90.3    $0.9     $ 501.4     $(155.7)       $--            $(0.3)
  Issuance of common stock
     Employee stock compensation and
       savings plans....................    --      --         0.3    --           3.2      --            --             --
  Net income............................    --      --        --      --         --           30.0        --             --
  Dividends declared....................    --      --        --      --         --           (7.4)       --             --
                                          ------   ------   ------   ------   --------   -----------   ------------   -----------
Balance at June 30, 1996................    10.7   $91.4      90.6    $0.9     $ 504.6     $(133.1)       $--            $(0.3)
                                          ======   ======   ======   ======   ========   ===========   ============   ===========
</TABLE>
                                              TOTAL
                                          SHAREHOLDERS'
                                              EQUITY
                                          --------------
Balance at December 31, 1996............      $526.8
  Issuance of common stock
     Employee stock compensation and
       savings plans....................         3.7
     Redemption of Convertible Preferred
       Stock, 7% Series.................        19.6
     Redemption of $.732
       Series A Preferred Stock.........      --
  Amortization of restricted stock
   awards...............................         0.6
  Net income............................        40.4
  Dividends declared....................        (3.6)
                                          --------------
Balance at June 30, 1997................      $587.5
                                          ==============
Balance at December 31, 1995............      $437.7
  Issuance of common stock
     Employee stock compensation and
       savings plans....................         3.2
  Net income............................        30.0
  Dividends declared....................        (7.4)
                                          --------------
Balance at June 30, 1996................      $463.5
                                          ==============

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

                                       5

<PAGE>
                        SANTA FE ENERGY RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

(1)  ACCOUNTING POLICIES

     The unaudited consolidated financial statements of Santa Fe Energy
Resources, Inc. (the "Company") reflect, in the opinion of management, all
adjustments, consisting only of normal and recurring adjustments, necessary to
present fairly the Company's financial position at June 30, 1997 and the
Company's results of operations and cash flows for the three-month and six-month
periods ended June 30, 1997 and 1996. Interim period results are not necessarily
indicative of results of operations or cash flows for a full-year period.

     In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS 128"),
which establishes new guidelines for computing and presenting earnings per share
("EPS") and is effective for financial statements issued for periods ending
after December 15, 1997. If the provisions of FAS 128 had been in effect in the
three-month and six-month periods ended June 30, 1997 and 1996 the Company's EPS
would have been unchanged.

     These financial statements and the notes thereto should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
December 31, 1996.

(2)  STATEMENT OF CASH FLOWS

     The Company made interest and income tax payments as follows during the
three month and six-month periods ended June 30, 1997 and 1996 (in millions of
dollars):

                                         THREE MONTHS           SIX MONTHS
                                         ENDED JUNE 30        ENDED JUNE 30
                                        ---------------      ----------------
                                        1997      1996       1997       1996
                                        ----      -----      -----      -----
Interest payments....................   $5.9      $18.5      $15.3      $18.5
Income tax payments..................    8.6        1.9        9.4        2.1

(3) MONTEREY RESOURCES, INC.

     In 1996 the Company formed Monterey Resources Inc. ("Monterey") to assume
the operations of the Company's Western Division (the "Western Division")
which conducted the Company's oil and gas operations in the State of California.
In November 1996, prior to the initial public offering (the "IPO") discussed
below, pursuant to a contribution and conveyance agreement (the "Contribution
Agreement"), among other things: (i) the Company contributed to Monterey
substantially all of the assets and properties of the Western Division, subject
to the retention by the Company of a production payment, as defined below, and
certain other assets; (ii) the Company retained a $30.0 million production
payment (the "Production Payment") with respect to certain properties in the
Midway-Sunset field; (iii) Monterey assumed all obligations and liabilities of
the Company associated with or allocated to the assets and properties of the
Western Division, including $245.0 million of indebtedness in respect of Santa
Fe's 10.23% Series E Notes due 1997, 10.27% Series F Notes due 1998 and 10.61%
Series G Notes due 2005 (the "Series E Notes", "Series F Notes" and "Series
G Notes", respectively) and (iv) Monterey agreed to purchase from the Company
an $8.3 million promissory note receivable related to the sale to a third party
of certain surface acreage located in Orange County, California. Also prior to
the IPO, Monterey and the Company entered into a $75.0 million revolving credit
facility with a group of banks (the "Monterey Credit Facility") and borrowed
$16.0 million which was retained by the Company.

     In November 1996 Monterey sold 9,335,000 shares of its common stock for
total consideration of $123.6 million (after deducting underwriting discounts of
$9.1 million and other related costs of $2.6 million). The proceeds from the IPO
were used in part to (i) repay the Series E Notes and Series F Notes ($70.0
million) and pay a prepayment penalty thereon of $2.5 million; (ii) retire the
Production Payment ($30.0 million); (iii) repay the $16.0 million outstanding
under the Monterey Credit Facility; and (iv) pay a

                                        6
<PAGE>
                         SANTA FE ENERGY RESOURCES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)
$2.0 million fee with respect to a supplement to the indenture relating to the
Company's 11% Senior Subordinated Debentures due 2004. Subsequent to the IPO,
Monterey issued $175.0 million in aggregate principal amount of 10.61% Senior
Notes due 2005 (the "Monterey Senior Notes") to holders of the Series G Notes
in exchange for the cancellation of such notes and paid a $1.3 million consent
fee in connection therewith.

     The costs and expenses related to the retirement of the Company's
outstanding debt, as discussed above, and approximately $3.4 million of deferred
debt issue costs and related transaction costs were reflected in the Company's
1996 Statement of Operations as an extraordinary item, net of $3.2 million in
income taxes.

     At June 30, 1997, the Company owned 82.8% of Monterey's outstanding common
stock. On July 25, 1997 the Company distributed pro rata to its common
shareholders all of the shares of Monterey's common stock that it owned by means
of a tax-free distribution (the "Spin Off"). Pursuant to the terms of a letter
agreement dated as of June 13, 1996, upon consummation of the Spin Off, a fee is
payable by Monterey to Chase Securities Inc. and Petrie Parkman & Co., Inc. of
$3.3 million, one-half of which will be paid to each of Chase Securities and
Petrie Parkman. In addition, a fee of $400,000 was paid to GKH Partners, L.P.,
of which $200,000 was paid by the Company and $200,000 was paid by Monterey. One
of the Company's directors is associated with Chase Securities and another is
associated with GKH Partners.

     Monterey has agreed to indemnify the Company if at any time during the
one-year period after the consummation of the Spin Off (or if certain tax
legislation is enacted and is applicable, such longer period as is required for
the Spin Off to be tax free to the Company) Monterey takes certain actions, the
effects of which result in the Spin Off being taxable to the Company.

     The Company provides various administrative and financial services to
Monterey, including administration of certain employee benefits plans, access to
telecommunications, corporate legal assistance and certain other corporate staff
and support services. The Company and Monterey have entered into a Services
Agreement, terminable by either party on thirty days' notice, under which
Monterey pays a fee of $120,000 per month for such services until such time as
Monterey assumes full responsibility during 1997 for each of the services
covered by the agreement. The agreement is expected to be terminated by the end
of the third quarter of 1997.

     The following table sets forth certain financial information for the
Company, on a proforma basis assuming that the Spin Off occurred prior to the
beginning of the periods presented(1):

                                          THREE MONTHS
                                              ENDED           SIX MONTHS ENDED
                                            JUNE 30,              JUNE 30,
                                        -----------------     -----------------
                                         1997       1996       1997       1996
                                        ------     ------     ------     ------
                                         (MILLIONS OF DOLLARS, EXCEPT AS NOTED)
Revenues.............................   $ 75.1     $ 69.2     $164.2     $133.3
Income (loss) from operations........      9.1       (2.1)      36.8        4.9
Net income (loss)....................      4.8        2.9       21.8        6.3
Earnings (loss) to common shares.....     (4.9)      (0.8)       9.7       (1.1)
Earnings (loss) to common shares per
  share (in dollars).................    (0.05)     (0.01)      0.10      (0.01)
- ------------

(1) Does not give effect to (i) $3.7 million in advisory fees payable upon
    consummation of the Spin Off, $3.5 million of which is payable by Monterey
    and $0.2 million of which is payable by Santa Fe, (ii) $1.1 million of
    related costs and expenses ($0.8 million after giving effect to related
    income taxes) and (iii) $0.7 million in compensation expense resulting from
    the Spin Off with respect to certain outstanding shares of restricted Common
    Stock.

                                        7
<PAGE>
                         SANTA FE ENERGY RESOURCES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)

(4)  CONVERTIBLE PREFERRED STOCK

     In the second quarter of 1997 the Company redeemed all 10.7 million
outstanding shares of its $.732 Series A Convertible Preferred Stock (the
"DECS") for 9.1 million shares of common stock and converted all 1.2 million
outstanding shares of its Convertible Preferred Stock, Series 7% (the "7%
Preferred") for 2.3 million shares of common stock. The conversion of the 7%
Preferred resulted in a noncash reduction in earnings to common shares (which is
reflected as a convertible preferred premium in the statement of operations) of
$8.5 million. The conversion of the DECS had no effect on the Company's earnings
to common shares.

(5)  COMMITMENTS AND CONTINGENCIES

    OIL AND GAS HEDGING

     From time to time the Company hedges a portion of its oil and gas sales to
provide a certain minimum level of cash flow from its sales of oil and gas.
While the hedges are generally intended to reduce the Company's exposure to
declines in market price, the Company's gain from increases in market price may
be limited. The Company uses various financial instruments whereby monthly
settlements are based on differences between the prices specified in the
instruments and the settlement prices of certain futures contracts quoted on the
New York Mercantile Exchange ("NYMEX") or certain other indices. Generally, in
instances where the applicable settlement price is less than the price specified
in the contract, the Company receives a settlement based on the difference; in
instances where the applicable settlement price is higher than the specified
price, the Company pays an amount based on the difference. The instruments
utilized by the Company differ from futures contracts in that there is no
contractual obligation which requires or allows for the future delivery of the
product. Gains or losses on hedging activities are recognized in oil and gas
revenues in the period in which the hedged production is sold.

     Crude oil sales hedges resulted in an increase in revenues of $1.4 million
in the second quarter of 1997 and $1.7 million in the first six months of 1997
and a decrease in revenues of $5.5 million in the second quarter of 1996 and
$9.0 million in the first six months of 1996. At June 30, 1997 the Company had
open crude oil sales hedges on 646,000 barrels during the period July to October
1997. The instruments used have floors ranging from $20.00 to $21.00 per barrel
and ceilings ranging from $20.14 to $23.82 per barrel. Under the terms of the
instruments, if the aggregate average of the applicable daily settlement prices
is below the floor, the Company will receive a settlement based on the
difference, and if the aggregate average of the applicable daily settlement
prices is above the ceiling, the Company will be required to pay an amount based
on the difference. Based on the July 1997 settlement price of the applicable
NYMEX futures contract, the Company would recognize a $0.4 million gain with
respect to such hedges at June 30, 1997. The actual gains or losses realized by
the Company from these hedges may vary significantly due to the volatility of
the futures markets.

     The Company has had no open natural gas sales hedges during 1997. Natural
gas sales hedges resulted in a decrease in revenues of $5.1 million in the
second quarter of 1996 and $10.8 million in the first six months of 1996.

     In addition to its oil and gas sales hedges, for the first six months of
1996 Monterey hedged 20 MMcf per day of the natural gas it purchases for use in
its steam generation operations in the San Joaquin Valley of California. Such
hedges resulted in a $1.5 million increase in production and operating costs in
the second quarter of 1996 and $3.2 million in the first six months of 1996.

  ENVIRONMENTAL REGULATION

     Federal, state and local laws and regulations relating to environmental
quality control affect the Company in all of its oil and gas operations. The
Comprehensive Environmental Response, Compensation

                                        8
<PAGE>
                         SANTA FE ENERGY RESOURCES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)
and Liability Act ("CERCLA"), also known as the "Superfund" law, imposes
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons that contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
a site and companies that disposed or arranged for the disposal of the hazardous
substance found at a site. CERCLA also authorizes the Environmental Protection
Agency (the "EPA") and, in some cases, third parties to take actions in
response to threats to the public health or the environment and to seek to
recover from the responsible classes of persons the costs they incur. In the
course of its operations, the Company has generated and will generate wastes
that may fall within CERCLA's definition of "hazardous substances". The
Company may be responsible under CERCLA for all or part of the costs to clean up
sites at which such wastes have been disposed. Certain properties owned or used
by the Company or its predecessors have been investigated under state and
Federal Superfund statutes, and the Company has been and could be named a
potentially responsible party ("PRP") for the cleanup of some of these sites.

     Pursuant to the Contribution Agreement, Monterey agreed to indemnify and
hold harmless the Company from and against any costs incurred in the future
relating to environmental liabilities of the Western Division assets (other than
those retained by the Company), including any costs or expenses incurred at any
of the OII Site, the Santa Fe Springs Site and the Eastside Site, and any costs
or liabilities that may arise in the future that are attributable to laws, rules
or regulations in respect to any property or interest therein located in
California and formerly owned or operated by the Western Division or its
precedessors.

     The Company has been identified as one of over 250 PRPs at a Superfund site
in Los Angeles County, California (the "OII Site"). The OII Site was operated
by a third party as a waste disposal facility from 1948 until 1983. The EPA is
requiring the PRPs to undertake remediation of the site in several phases, which
include site monitoring and leachate control, gas control and final remediation.
In November 1988 the EPA and a group of PRPs that includes the Company entered
into a consent decree covering the site monitoring and leachate control phases
of remediation. The Company was a member of the group Coalition Undertaking
Remediation Efforts ("CURE") which was responsible for constructing and
operating the leachate treatment plant. This phase is now complete and the
Company's share of costs with respect to this phase was $0.9 million. Another
consent decree provides for the predesign, design and construction of a landfill
gas treatment system to harness and market methane gas emissions. The Company is
a member of the New CURE group which is responsible for the gas treatment system
construction and operation and landfill cover. Currently, New CURE is in the
design stage of the gas treatment system. The Company's share of costs of this
phase is expected to be $1.6 million and such costs have been provided for in
the financial statements. Pursuant to consent decrees settling lawsuits against
the municipalities and transporters involved with the OII site but not named by
the EPA as PRPs, such parties are required to pay approximately $84 million, of
which approximately $76 million will be credited against future remediation
expenses. The EPA and the PRPs are currently negotiating the final closure
requirements. After taking into consideration the credits from the
municipalities and transporters, the Company estimates its share of final costs
of closure will be approximately $0.8 million, which amount has been provided
for by the Company in its financial statements. The Company has entered into a
Joint Defense Agreement with the other PRPs to defend against a lawsuit filed in
September 1994 by 95 homeowners alleging, among other things, nuisance,
trespass, strict liability and infliction of emotional distress. A second
lawsuit has been filed by 33 additional homeowners and the Company and the other
PRPs have entered into a Joint Defense Agreement. At this stage of the lawsuit
the Company is not able to estimate costs or potential liability.

     In 1994 the Company received a request from the EPA for information
pursuant to Section 104(e) of CERCLA and a letter ordering the Company and other
PRPs to negotiate with the EPA regarding implementation of a remedial plan for a
site located in Santa Fe Springs, California (the "Santa Fe Springs

                                        9
<PAGE>
                         SANTA FE ENERGY RESOURCES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)
Site"). The Company owned the property on which the Santa Fe Springs Site is
located from 1921 to 1932. During that time the property was leased to another
company and in 1932 the property was sold to that company. During the time the
other company leased or owned the property and for a period thereafter,
hazardous wastes were allegedly disposed at the Santa Fe Springs Site. The
Company filed its response to the Section 104(e) order setting forth its
position and defenses based on the fact that the other company was the lessee
and operator of the site during the time the Company was the owner of the
property. However, the Company has also given its Notice of Intent to comply
with the EPA's order to prepare a remediation design plan. In March 1997 the EPA
issued an Amended Order for Remedial Design to the original eight PRPs plus an
additional thirteen PRPs. The Amended Order directs the twenty-one PRPs to
complete certain work required under the original Order, plus additional
remedial design and investigative work. The total cost to complete this work and
to complete the final remedy (including ongoing operations and maintenance) is
currently estimated to be $5 million. Past costs incurred by the EPA for this
site for which the EPA is seeking reimbursement totals approximately $6 million.
The Company has provided $250,000 in its financial statements for its share of
future costs at the Santa Fe Springs Site.

     In 1995 the Company and eleven other companies received notice that they
have been identified as PRPs by the California Department of Toxic Substances
Control (the "DTSC") as having generated and/or transported hazardous waste to
the Environmental Protection Corporation ("EPC") Eastside Landfill (the
"Eastside Site") during its fourteen-year operation from 1971 to 1985. EPC has
since liquidated all of its assets and placed the proceeds in trust (the "EPC
Trust") for closure and post-closure activities. However, these monies may not
be sufficient to close the site. The PRPs have entered into an enforceable
agreement with the DTSC to characterize the contamination at the site and
prepare a focused remedial investigation and feasibility study. The DTSC
recently designated 27 new PRPs with respect to the Eastside Site. The cost of
the remedial investigation and feasibility study is estimated to be $1.0
million, the cost of which will be shared by the PRPs and the EPC Trust. The
ultimate costs of subsequent phases will not be known until the remedial
investigation and feasibility study is completed and a remediation plan is
accepted by the DTSC. The Company currently estimates final remediation could
cost $2 million to $6 million and believes the monies in the EPC Trust will be
sufficient to fund the lower end of this range of costs. The Company has
provided $80,000 in its financial statements for its share of costs related to
this site.

  EMPLOYMENT AGREEMENTS

     The Company has entered into employment agreements with eleven employees.
The initial term of ten of the agreements expire on December 31, 1998; however,
beginning January 1, 1998 and on each January 1 thereafter, the term is
automatically extended for one-year periods, unless by September 30 of the
preceding year the Company gives notice that the agreement will not be extended.
The term of the agreements is automatically extended for a period of two years
following a change of control. The initial term of the other agreement expires
December 31, 1999 and beginning January 1, 2000, is automatically extended for
one-year periods and is automatically extended for a three-year period following
a change of control.

     In the event that following a change in control an employee is terminated
for reasons specified in the employment agreements, the employment agreements
provide for payment of certain amounts to the employee based on the employee's
salary and bonus under the Company's incentive compensation plan; payout of
non-vested restricted stock, phantom units, stock options, if any, and
continuation of certain insurance benefits on a tax neutral basis for a period
of up to 36 months. The payments and benefits are payable pursuant to the
employment agreements only to the extent they are not paid out under the terms
of any other plan of the Company. The payments and benefits provided by the
employment agreements may be limited, with the exception of those made to Mr.
Payne, by certain provisions of the Internal Revenue Code.

                                       10
<PAGE>
                         SANTA FE ENERGY RESOURCES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                   (UNAUDITED)

  OTHER MATTERS

     Monterey has certain long-term contracts ranging up to twelve years for the
supply and transportation of approximately 20 million cubic feet per day of
natural gas to the Company's operations in Kern County, California. In the
aggregate, these contracts involve a minimum commitment on the part of the
Company of approximately $12.2 million per year (based on prices and
transportation charges in effect for June 1997).

     In connection with the development of a gas field in Argentina in which the
Company has a 19.9% working interest, a gas contract with "take-or-pay" and
"delivery-or-pay" obligations was executed in 1994 with a gas distribution
company.

     On July 24, 1997 the Company announced that an exploratory well in which it
was a participant was determined to be nonproductive. The Company's share of the
cost of the well, approximately $2.2 million (approximately $1.4 million after
the effect of related income taxes), will be included in the Company's results
of operations in the third quarter of 1997.

     On July 24, Monterey acquired all of the outstanding common shares of
McFarland Energy, Inc. ("McFarland"), for $106.2 million in cash ($18.55 per
share for each of the 5.7 million outstanding common shares of McFarland.)
Monterey borrowed $100 million under the terms of a credit agreement to fund the
acquisition.

     There are other claims and actions, including certain other environmental
matters, pending against the Company. In the opinion of management, the amounts,
if any, which may be awarded in connection with any of these claims and actions
could be significant to the results of operations of any period but would not be
material to the Company's consolidated financial position.

                                       11
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

     At June 30, 1997 Santa Fe Energy Resources, Inc. (the "Company") owned
approximately 83% of the outstanding common stock of Monterey Resources, Inc.
("Monterey"), which conducts all of the Company's oil and gas operations in
the state of California. The Company's other operations are conducted by (i) the
Central Division, which operates primarily in the Permian Basin of west Texas
and in southeastern New Mexico; (ii) the Gulf Division which operates in the
Gulf of Mexico and adjacent onshore areas; and (iii) the International Division,
which operates in areas outside the United States. References herein to the
"Company" or "Consolidated" relate to operations and the results thereof
including Monterey and references to "Santa Fe" relate to operations and the
results thereof excluding Monterey. The Company distributed pro rata to its
common shareholders all of its ownership in Monterey by means of a tax-free
distribution (the "Spin Off", see -- Initial Public Offering and Spin Off) on
July 25, 1997.

  CONSOLIDATED

     The Company reported earnings to common shares of $2.8 million, $0.03 per
share, in the second quarter of 1997, compared to earnings to common shares of
$13.7 million, $0.15 per share, in the second quarter of 1996. Income from
operations for the second quarter of 1997 totalled $27.2 million compared to
$26.0 million in the second quarter of 1996. Sales of crude oil and liquids
produced averaged 79,100 barrels per day in the second quarter of 1997, which
equaled the highest quarter in the Company's history, compared to 74,300 barrels
per day in the second quarter of 1996. The Company's average hedged sales price
for crude oil and liquids produced of $15.37 per barrel in the second quarter of
1997 was $1.21 per barrel lower than in the second quarter of 1996. Natural gas
sales averaged 182.7 MMcf per day in the second quarter of 1997 compared to
164.3 MMcf per day in the second quarter of 1996. The Company's average realized
sales price for natural gas was $1.89 per Mcf in the second quarter of 1997
compared to $1.76 per Mcf (net of a $0.34 per Mcf hedging loss) in the same
period in 1996.

     The Company reported earnings to common shares of $28.3 million, $0.30 per
share, in the first six months of 1997, compared to earnings to common shares of
$22.6 million, $0.25 per share, in the first six months of 1996. Income from
operations for the first six months of 1997 totalled $83.0 million compared to
$55.5 million in the first six months of 1996. Sales of crude oil and liquids
produced averaged 79,100 barrels per day in the first six months of 1997
compared to 72,300 barrels per day in the first six months of 1996. The
Company's average hedged sales price for crude oil and liquids produced of
$16.70 per barrel in the first six months of 1997 was $0.61 per barrel higher
than in the first six months of 1996. Natural gas sales averaged 176.7 MMcf per
day in the first six months of 1997 compared to 159.1 MMcf per day in the first
six months of 1996. The Company's average realized sales price for natural gas
was $2.19 per Mcf in the first six months of 1997 compared to $1.79 per Mcf (net
of a $0.38 per Mcf hedging loss) in the first six months in 1996.

  SANTA FE

     Santa Fe's sales of crude oil and liquids produced averaged 28,800 barrels
per day in the second quarter of 1997 compared to 27,900 barrels per day in the
second quarter of 1996, and the average hedged sales price for crude oil and
liquids produced was $17.59 per barrel in the second quarter of 1997 compared to
$17.77 per barrel in the second quarter of 1996. Natural gas sales averaged
179.5 MMcf per day in the second quarter of 1997 compared to 163.3 MMcf per day
in the second quarter of 1996, and the average realized sales price for natural
gas was $1.91 per Mcf in the second quarter of 1997 compared to $1.76 per Mcf
(net of a $0.35 per Mcf hedging loss) in the same period in 1996.

     Santa Fe's sales of crude oil and liquids produced averaged 28,900 barrels
per day in the first six months of 1997 compared to 27,300 barrels per day in
the first six months of 1996, and the averaged hedged sales price for crude oil
and liquids produced of $19.10 per barrel in the first six months of 1997 was
$1.86 per barrel higher than in the first six months of 1996. Natural gas sales
averaged 173.6 MMcf per day in the first six months of 1997 compared to 156.9
MMcf per day in the first six months of 1996, and the average

                                       12
<PAGE>
realized sales price for natural gas was $2.21 per Mcf in the first six months
of 1997 compared to $1.80 per Mcf (net of a $0.38 per Mcf hedging loss) in the
first six months of 1996.

INITIAL PUBLIC OFFERING AND SPIN OFF

     In the third quarter of 1996 the Company announced its intention to
separate its operations in the State of California from the rest of its domestic
and international operations. In November such operations were assumed by
Monterey which subsequently issued 9.3 million shares of its common stock in an
initial public offering. The proceeds from the offering were primarily used to
retire outstanding long-term debt. On July 25, 1997 the Company distributed pro
rata to its common shareholders all of the shares of Monterey common stock that
it owned by means of a tax-free distribution.

     The Company took these actions because of its belief that its oil and gas
operations had developed over time into separate businesses that operate
independently and have diverging capital requirements and risk profiles. In
addition, the Board of Directors believes that dividing the Company's operations
into two independent companies allows 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 IPO and the Spin Off allow investors to better evaluate
each business, enhancing the likelihood that each would achieve appropriate
market recognition for its performance. As a result of the Spin Off, the market
price of the Company's common stock declined to reflect the distribution of the
Monterey common stock.

GENERAL

     Crude oil prices are subject to significant changes in response to
fluctuations in the domestic and world supply and demand and other market
conditions as well as the world political situation as it affects OPEC, the
Middle East and other producing countries. Since the beginning of 1996 the
actual average crude oil sales price (unhedged) received by Santa Fe ranged from
a high of $21.47 per barrel in the fourth quarter of 1996 to a low of $17.43 per
barrel for the first quarter of 1996. Based on operating results for the first
six months of 1997, Santa Fe estimates that on an annualized basis a $1.00 per
barrel increase or decrease in its average crude oil sales prices would result
in a corresponding $6.1 million change in net income and a $7.6 million change
in cash flow from operating activities. The foregoing estimates do not give
effect to changes in any other factors, such as the effect of Santa Fe's hedging
program or its debt levels and related interest expense, that might result from
a change in oil prices.

     The price of natural gas fluctuates due to weather conditions, the level of
natural gas in storage, the relative balance between supply and demand and other
economic factors. The actual average sales price (unhedged) received by Santa Fe
since the beginning of 1996 for its natural gas ranged from a high of $2.53 per
Mcf in the first quarter of 1997 to a low of $1.91 per Mcf in the third quarter
of 1996. Based on operating results for the first six months of 1997, Santa Fe
estimates that on an annualized basis a $0.10 per Mcf increase or decrease in
its average natural gas sales price would result in a corresponding $3.7 million
change in net income and a $4.6 million change in cash flow from operating
activities. The foregoing estimates do not give effect to changes in any other
factors, such as the effect of Santa Fe's hedging program or its debt levels and
related interest expense, that might result from a change in natural gas prices.

                                       13
<PAGE>
RESULTS OF OPERATIONS

  REVENUES

     The following table reflects the components of the Company's crude oil and
natural gas liquids and natural gas revenues:

<TABLE>
<CAPTION>
                                                      CONSOLIDATED                                  SANTA FE
                                       ------------------------------------------  ------------------------------------------
                                        THREE MONTHS ENDED     SIX MONTHS ENDED     THREE MONTHS ENDED     SIX MONTHS ENDED
                                             JUNE 30,              JUNE 30,              JUNE 30,              JUNE 30,
                                       --------------------  --------------------  --------------------  --------------------
                                         1997       1996       1997       1996       1997       1996       1997       1996
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                                         <C>        <C>        <C>        <C>                                         
CRUDE OIL AND LIQUIDS PRODUCED
  Sales Volumes (MBbls/day)
    Domestic
      California Heavy...............       46.6       43.1       46.0       42.1     --         --         --         --
      Other..........................       24.6       22.8       25.0       22.3       20.9       19.5       20.8       19.4
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                            71.2       65.9       71.0       64.4       20.9       19.5       20.8       19.4
      Argentina......................        4.3        3.7        4.4        3.3        4.3        3.7        4.4        3.3
      Indonesia......................        3.6        4.7        3.7        4.6        3.6        4.7        3.7        4.6
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                            79.1       74.3       79.1       72.3       28.8       27.9       28.9       27.3
                                       =========  =========  =========  =========  =========  =========  =========  =========
  Sales Prices ($/Bbl)
    Unhedged
      Domestic
        California Heavy.............  $   13.85  $   15.83  $   14.99  $   15.53  $  --      $  --      $  --      $  --
        Other........................      17.19      20.13      19.18      18.82      17.19      20.35      19.21      18.95
        Total........................      15.01      17.31      16.46      16.67      17.19      20.35      19.21      18.95
      Argentina......................      16.50      18.42      17.63      17.41      16.50      18.42      17.63      17.41
      Indonesia......................      16.90      17.74      17.63      17.76      16.90      17.74      17.63      17.76
      Total..........................      15.17      17.39      16.58      16.77      17.05      19.65      18.77      18.56
    Hedged...........................      15.37      16.58      16.70      16.09      17.59      17.77      19.10      17.24
  Revenues ($/millions)
    Sales
      Domestic
        California Heavy.............  $    58.8  $    62.0  $   124.9  $   118.9  $  --      $  --      $  --      $  --
        Other........................       38.4       41.7       86.7       76.6       32.7       36.0       72.2       66.9
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                            97.2      103.7      211.6      195.5       32.7       36.0       72.2       66.9
      Argentina......................        6.5        6.2       14.1       10.5        6.5        6.2       14.1       10.5
      Indonesia......................        5.5        7.7       11.7       14.8        5.5        7.7       11.7       14.8
    Hedging..........................        1.4       (5.5)       1.7       (9.0)       1.4       (4.8)       1.7       (6.6)
    Net Profits Payments.............       (1.5)      (1.2)      (2.7)      (2.3)      (0.9)      (0.9)      (1.9)      (1.8)
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                       $   109.1  $   110.9  $   236.4  $   209.5  $    45.2  $    44.2  $    97.8  $    83.8
                                       =========  =========  =========  =========  =========  =========  =========  =========
NATURAL GAS PRODUCED
  Sales Volumes (MMcf/day)
    Domestic.........................      159.7      145.6      155.6      140.9      156.5      144.6      152.5      138.7
    Foreign..........................       23.0       18.7       21.1       18.2       23.0       18.7       21.1       18.2
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                           182.7      164.3      176.7      159.1      179.5      163.3      173.6      156.9
                                       =========  =========  =========  =========  =========  =========  =========  =========
  Sales Prices ($/Mcf)
    Unhedged
      Domestic.......................  $    1.97  $    2.21  $    2.31  $    2.28  $    1.99  $    2.21  $    2.34  $    2.30
      Foreign........................       1.35       1.30       1.30       1.24       1.35       1.30       1.30       1.24
      Total..........................       1.89       2.10       2.19       2.17       1.91       2.11       2.21       2.18
    Hedged(1)........................       1.89       1.76       2.19       1.79       1.91       1.76       2.21       1.80
  Revenues ($/millions)
    Sales
      Domestic.......................  $    28.6  $    29.2  $    65.1  $    58.6  $    28.3  $    29.0  $    64.5  $    58.0
      Foreign........................        2.9        2.2        5.0        4.1        2.9        2.2        5.0        4.1
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                            31.5       31.4       70.1       62.7       31.2       31.2       69.5       62.1
    Hedging(1).......................     --           (5.1)    --          (10.8)    --           (5.1)    --          (10.8)
    Net Profits Payments.............       (1.0)      (1.4)      (2.9)      (2.1)      (1.0)      (1.3)      (2.9)      (2.0)
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                       $    30.5  $    24.9  $    67.2  $    49.8  $    30.2  $    24.8  $    66.6  $    49.3
                                       =========  =========  =========  =========  =========  =========  =========  =========
</TABLE>
- ------------

(1)  The Company has not hedged any gas production in 1997.

                                       14
<PAGE>
  CONSOLIDATED

     A material portion of the Company's crude oil production is from Monterey's
long-lived fields in the San Joaquin Valley of California where enhanced oil
recovery methods are being utilized. The market price of the heavy (i.e., low
gravity, high viscosity) and sour (i.e., high sulfur content) crude oils
produced in these fields is lower than sweeter, light (i.e., low sulfur and low
viscosity) crude oils, reflecting higher transportation and refining costs. The
lower price received for Monterey's domestic heavy and sour crude oil is
reflected in the average sales price of the Company's domestic crude oil and
liquids (excluding the effect of hedging transactions) for the first six months
of 1997 of $16.46 per barrel, compared to $19.57 per barrel for West Texas
Intermediate ("WTI") crude oil (an industry posted price generally indicative
of prices for sweeter light crude oil). In the first six months of 1997
Monterey's average sales price for California heavy crude oil was $14.99 per
barrel, approximately 77% of the average posted price for WTI.

     Revenues from the sales of crude oil and liquids produced decreased from
$110.9 million in the second quarter of 1996 to $109.1 million in the second
quarter of 1997 reflecting lower prices as the Company's unhedged average sales
price declined from $17.39 per barrel in 1996 to $15.17 per barrel in 1997,
partially offset by an increase in crude oil and liquids production from 74,300
barrels per day in 1996 to 79,100 barrels per day in 1997. Monterey's crude oil
production increased 3,900 barrels per day, primarily reflecting the effect of
its development program in 1996 and reduced royalties on Federal heavy oil
leases. Production from the Company's Central Division increased 2,000 barrels
per day, primarily reflecting the effect of properties acquired in 1996 and
early 1997, and production from the El Tordillo field in Argentina increased 600
barrels per day, reflecting the effect of new wells and the workover of existing
wells and the acquisition of an additional 4% working interest. Indonesian
production declined 1,100 barrels per day, primarily reflecting lower cost
recovery volumes due to the payout of the government oil company's carried
interest at the Salawati Island field. Revenues from the sales of crude oil and
liquids produced for 1997 include a $1.4 million gain on hedging transactions
compared to a $5.5 million loss on such transactions in 1996.

     Revenues from the sales of crude oil and liquids produced increased from
$209.5 million in the first six months of 1996 to $236.4 million in the first
six months of 1997 primarily reflecting increased production volumes. The
Company's crude oil and liquids production increased from 72,300 barrels per day
in 1996 to 79,100 barrels per day in 1997 while the unhedged average sales price
declined from $16.77 per barrel in 1996 to $16.58 per barrel in 1997. Monterey's
crude oil production increased 5,200 barrels per day, primarily reflecting the
effect of its development program in 1996 and reduced royalties on Federal heavy
oil leases. Production from the Company's Central Division increased 1,800
barrels per day, primarily reflecting the effect of properties acquired in 1996
and early 1997, and production from the El Tordillo field in Argentina increased
1,100 barrels per day, reflecting the effect of new wells and the workover of
existing wells and the acquisition of an additional 4% working interest.
Indonesian production declined 900 barrels per day, primarily reflecting lower
cost recovery volumes due to the payout of the government oil company's carried
interest at the Salawati Island field. Revenues from the sales of crude oil and
liquids produced for 1997 include a $1.7 million gain on hedging transactions
compared to a $9.0 million loss on such transactions in 1996.

     Revenues from the sales of natural gas produced increased from $24.9
million in the second quarter of 1996 to $30.5 million in the second quarter of
1997, reflecting an increase in production from 164.3 MMcf per day in 1996 to
182.7 MMcf per day in 1997, partially offset by a decline in the Company's
average unhedged sales price from $2.10 per Mcf in 1996 to $1.89 per Mcf in
1997. Natural gas production increased 4.9 MMcf per day in the Gulf Division and
7.0 MMcf per day in the Central Division, primarily reflecting the results of
exploration and development drilling, and 4.3 MMcf per day in Argentina,
primarily reflecting the expansion of the gas processing plant at the Sierra
Chata field. Revenues from the sales of natural gas produced in 1996 included a
$5.1 million loss on hedging transactions.

     Revenues from the sales of natural gas produced increased from $49.8
million in the first six months of 1996 to $67.2 million in the first six months
of 1997, primarily reflecting an increase in production from 159.1 MMcf per day
in 1996 to 176.7 MMcf per day in 1997. Natural gas production increased 8.6 MMcf

                                       15
<PAGE>
per day in the Gulf Division and 5.3 MMcf per day in the Central Division,
primarily reflecting the results of exploration and development drilling, and
2.8 MMcf per day in Argentina, primarily reflecting the expansion of the gas
processing plant at the Sierra Chata field. Revenues from the sales of natural
gas produced in 1996 included a $10.8 million loss on hedging transactions.

     Revenues from the sales of crude oil purchased relate to the sale of crude
oil purchased and blended with certain of Monterey's heavy oil production to
facilitate pipeline production. The cost to purchase such crude oil is included
in Costs and Expenses.

  SANTA FE

     Revenues from the sales of crude oil and liquids produced increased from
$44.2 million in the second quarter of 1996 to $45.2 million in the second
quarter of 1997. Santa Fe's unhedged average sales price decreased from $19.65
per barrel in 1996 to $17.05 per barrel in 1997, and crude oil and liquids
production increased from 27,900 barrels per day in 1996 to 28,800 barrels per
day in 1997. The increased production reflects the previously discussed
increases in Central Division and Argentine production, partially offset by the
decrease in Indonesian production. Revenues from the sales of crude oil and
liquids produced for 1997 include a $1.4 million gain on hedging transactions
compared to a $4.8 million loss on such transactions in 1996.

     Revenues from the sales of crude oil and liquids produced increased from
$83.8 million in the first six months of 1996 to $97.8 million in the first six
months of 1997 reflecting improved market conditions, which resulted in an
increase in crude oil and liquids production from 27,300 barrels per day in 1996
to 28,900 barrels per day in 1997 and an increase in unhedged average sales
prices from $18.56 per barrel in 1996 to $18.77 per barrel in 1997. The
increased production reflects the previously discussed increases in Central
Division and Argentine production, partially offset by the decrease in
Indonesian production. Revenues from the sales of crude oil and liquids produced
for 1997 include a $1.7 million gain on hedging transactions compared to a $6.6
million loss on such transactions in 1996.

     From time to time Santa Fe hedges a portion of its oil and gas sales to
provide a certain minimum level of cash flow from its sales of oil and gas as
discussed in Note 5 to the Consolidated Financial Statements.

     At July 31, 1997 Santa Fe had open crude hedges on an average of
approximately 643,000 barrels for the period August to December 1997. The
instruments used have floors ranging from $20.00 to $21.00 per barrel and
ceilings ranging from $20.10 to $23.10 per barrel. Under the terms of the
instruments, if the aggregate average of the applicable daily settlement prices
is below the floor, Santa Fe will receive a settlement based on the difference,
and if the aggregate average of the applicable daily settlement prices is above
the ceiling, Santa Fe will be required to pay an amount based on the difference.
The settlement price for July 1997 was $19.62 per barrel. The following table
reflects estimated amounts due to or from Santa Fe assuming the stated
settlement prices are in effect for the entire period the aforementioned hedges
are in effect.

                    SETTLEMENT PRICE       DUE TO (FROM) COMPANY
                  (DOLLARS PER BARREL)     (MILLIONS OF DOLLARS)
                  --------------------     ---------------------
                         $23.00                    $(1.0)
                          22.00                     (0.5)
                          21.00                     (0.2)
                          19.00                      0.7
                          18.00                      1.3

     Santa Fe has had no open natural gas hedges in 1997. In the first six
months of 1996 natural gas hedges resulted in a decrease in revenues of $10.8
million.

                                       16
<PAGE>
  COSTS AND EXPENSES

     The following table sets forth certain costs and expenses, expressed in
millions of dollars and in dollars per barrel of oil equivalent ("BOE")
produced during the period:

<TABLE>
<CAPTION>
                                                         CONSOLIDATED                                  SANTA FE
                                          ------------------------------------------  ------------------------------------------
                                           THREE MONTHS ENDED     SIX MONTHS ENDED     THREE MONTHS ENDED     SIX MONTHS ENDED
                                                JUNE 30,              JUNE 30,              JUNE 30,              JUNE 30
                                          --------------------  --------------------  --------------------  --------------------
                                            1997       1996       1997       1996       1997       1996       1997       1996
                                          ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                                       <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>      
IN MILLIONS OF DOLLARS
Production and operating costs(a).......  $    49.4  $    44.3  $   101.6  $    88.3  $    19.8  $    20.0  $    40.9  $    39.5
Exploration, including dry hole costs...       10.1        5.9       19.4       11.5        9.6        5.3       18.6       10.6
Depletion, depreciation and
  amortization..........................       35.5       35.1       69.1       67.4       25.8       25.4       50.1       49.2
General and administrative..............       10.1        7.9       17.2       13.9        6.3        5.8       10.7        9.9
Taxes, other than income(b).............        6.6        6.5       14.1       12.6        3.2        4.1        8.1        8.3
Interest income.........................        0.9        0.5        1.8        1.0        0.6        0.5        1.0        1.0
Interest expense........................        7.8        9.7       15.5       19.3        2.9        3.2        5.9        6.4
Interest capitalized....................        1.9        1.2        3.5        2.5        1.5        0.9        2.8        2.1
IN DOLLARS PER BOE
Production and operating costs(a).......  $    4.95  $    4.79  $    5.17  $    4.88  $    3.70  $    4.00  $    3.90  $    4.06
Exploration, including dry hole costs...       1.01       0.64       0.99       0.64       1.80       1.05       1.78       1.09
Depletion, depreciation and
  amortization..........................       3.56       3.78       3.52       3.74       4.83       5.08       4.79       5.06
General and administrative..............       0.90(d)    0.68(e)    0.82(d)    0.68(e)    0.96(f)    0.85(g)    0.91(f)    0.86(g)
Taxes, other than income(b).............       0.66       0.70       0.72       0.70       0.62       0.82       0.78       0.86
Interest expense, net(c)................       0.51       0.86       0.52       0.87       0.19       0.34       0.21       0.34
</TABLE>
- ------------
(a) Excluding related production, severance and ad valorem taxes.

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

(c) Reflects interest expense less amounts capitalized and interest income.

(d) Excludes effect of $1.1 million in administrative costs related to the Spin
    Off -- $0.11 per BOE for the three months ended June 30, 1997 and $0.05 per
    BOE for the six months ended June 30, 1997.

(e) Excludes effect of $1.6 million charge related to the abandonment of an
    office lease -- $0.17 per BOE for the three months ended June 30, 1996 and
    $0.09 per BOE for the six months ended June 30, 1996.

(f) Excludes effect of $1.1 million in administrative costs related to the Spin
    Off -- $0.21 per BOE for the three months ended June 30, 1997 and $0.11 per
    BOE for the six months ended June 30, 1997.

(g) Excludes effect of $1.6 million charge related to the abandonment of an
    office lease -- $0.32 per BOE for the three months ended June 30, 1996 and
    $0.17 per BOE for the six months ended June 30, 1996.

  CONSOLIDATED

     Consolidated costs and expenses totalled $122.6 million in the second
quarter of 1997 compared to $111.5 million in the second quarter of 1996.
Production and operating costs increased $5.1 million, primarily due to an
increase in Monterey's costs which principally reflects higher production
volumes, prices and volumes for natural gas purchased in connection with steam
generation operations and costs related to properties acquired in 1996.
Exploration expense increased $4.2 million, primarily reflecting higher dry hole
costs (up $2.1 million). General and administrative expense increased $2.2
million, primarily due to a $1.8 million increase in Monterey's expenses,
reflecting additional costs related to Monterey becoming a publicly-traded
company and $1.1 million in administrative costs associated with the Spin Off.
Costs and expenses for the second quarter of 1996 included a $10.4 million
charge for the impairment of a producing oil and gas property.

     Consolidated costs and expenses totalled $240.7 million in the first six
months of 1997 compared to $205.7 million in the first six months of 1996.
Production and operating costs increased $13.3 million, primarily due to a $11.7
million increase in Monterey's costs. The increase in Monterey's costs primarily
reflects higher production volumes, prices and volumes for natural gas purchased
in connection with steam generation operations and costs related to properties
acquired in 1996. Costs associated with Central Division properties increased
$1.7 million, principally due to costs related to properties acquired in 1996

                                       17
<PAGE>
and early 1997. Exploration expense increased $7.9 million, primarily reflecting
higher dry hole costs (up $6.9 million). General and administrative expense
increased $3.3 million, primarily due to a $2.6 million increase in Monterey's
expenses, reflecting additional costs related to Monterey becoming a
publicly-traded company, and $1.1 million in administrative costs related to the
Spin Off. The increase in taxes other than income primarily reflects higher
production and severance taxes. Costs and expenses for the first six months of
1996 included a $10.4 million charge for the impairment of a producing oil and
gas property.

     Interest expense for the second quarter and first six months of 1997 is
lower than the comparable periods in 1996 primarily due to the retirement of
certain of Monterey's long-term debt.

     Income taxes for the second quarter and first six months of 1996 include a
$6.8 million deferred benefit related to certain foreign expenditures incurred
in prior periods.

     The decrease in the Company's preferred dividend requirement primarily
results from the repurchase of 3.8 million shares of Convertible Preferred
Stock, 7% Series (the "7% Preferred") in the fourth quarter of 1996. The
premium on the 7% Preferred in the second quarter of 1997 relates to the
conversion of 1.2 million shares of 7% Preferred (see "Liquidity and Capital
Resources -- Consolidated").

  SANTA FE

     Costs and expenses totalled $64.9 million in the second quarter of 1997
compared to $71.3 million in the second quarter of 1996. Exploration expense
increased $4.3 million, primarily reflecting higher dry hole costs (up $2.4
million). Costs and expenses for the second quarter of 1996 included a $10.4
million charge for the impairment of a producing oil and gas property.

     Costs and expenses totalled $126.3 million in the first six months of 1997
compared to $128.4 million in the first six months of 1996. Production and
operating costs increased $1.4 million, primarily due to costs associated with
Central Division properties acquired in 1996 and early 1997. Exploration expense
increased $8.0 million, primarily reflecting higher dry hole costs (up $7.2
million). Costs and expenses for the first six months of 1996 included a $10.4
million charge for impairment of a producing oil and gas property.

     On July 24, 1997 the Company announced that an exploratory well in which it
was a participant was determined to be nonproductive. The Company's share of the
cost of the well, approximately $2.2 million (approximately $1.4 million after
the effect of related income taxes), will be included in the Company's results
of operations in the third quarter of 1997.

  EARNINGS PER SHARE

  CONSOLIDATED

     In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS 128"),
which establishes new guidelines for computing and presenting earnings per share
("EPS") and is effective for financial statements issued for periods ending
after December 15, 1997. If the provisions of FAS 128 had been in effect in the
three-month and six-month periods ended June 30, 1997 and 1996 the Company's EPS
would have been unchanged.

LIQUIDITY AND CAPITAL RESOURCES

  CONSOLIDATED

     The $29.3 million net change in other assets and liabilities (a source of
funds provided by operating activities) in the first six months of 1997
principally reflects a decrease in other assets, primarily due to the release of
$24.2 million escrowed in the fourth quarter of 1996 related to a producing
property acquisition which was completed in January 1997.

     In the second quarter of 1997 the Company redeemed all 10.7 million
outstanding shares of its $.732 Series A Convertible Preferred stock (the
"DECS") for 9.1 million shares of common stock and converted all 1.2 million
outstanding shares of its 7% Preferred for 2.3 million shares of common stock.
The conversion of the 7% Preferred resulted in a noncash reduction in earnings
to common shares (which is reflected as a convertible preferred premium in the
statement of operations) of $8.5 million. The conversion of the DECS had no
effect on the Company's earnings to common shares.

     Monterey intends to pay its shareholders a quarterly dividend of $0.15 per
share. The first dividend, consisting of a prorated dividend of $0.22 per share
in respect of Monterey's first partial quarter which

                                       18
<PAGE>
ended December 31, 1996 and its first full quarter ending March 31, 1997, was
paid in April 1997 and Santa Fe received a total of $10.0 million. Santa Fe
received a dividend of $6.8 million in the second quarter. Such amounts were
used to fund Santa Fe's operations.

     Effective November 13, 1996 Monterey entered into the Monterey Credit
Agreement which matures November 13, 2000. The Monterey Credit Agreement permits
Monterey to obtain revolving credit loans and issue letters of credit up to an
aggregate amount of up to $75.0 million, with the aggregate amount of letters of
credit outstanding at any time limited to $15.0 million. Borrowings under the
Monterey Credit Agreement are unsecured and interest rates are tied to the
bank's prime rate or eurodollar offering rate, at the option of Monterey. At
June 30, 1997 $10.0 million in loans and $2.4 million in letters of credit were
outstanding under the terms of the Monterey Credit Agreement.

     Effective July 22, 1997 Monterey terminated the Monterey Credit Agreement
and entered into a new credit agreement (the "New Monterey Credit Agreement")
which matures in July 2002. The New Monterey Credit Agreement permits Monterey
to obtain revolving credit loans and issue letters of credit up to an aggregate
amount of $200 million, with the aggregate amount of letters of credit
outstanding at any time limited to $50 million. Borrowings under the New
Monterey Credit Agreement are unsecured and interest rates are tied to the
bank's prime rate or the eurodollar offering rate, at the option of Monterey.

     In November 1996 Monterey issued the Monterey Senior Notes which were
exchanged for $175.0 million of senior notes previously issued by Santa Fe. The
Monterey Senior Notes bear interest at 10.61% per annum and are payable in full
in 2005. Monterey is required to repay, without premium, $25.0 million of the
principal amount each year from 1999 through 2005.

     On July 24, 1997 Monterey acquired all of the outstanding common shares of
McFarland Energy, Inc. ("McFarland"), for $106.2 million in cash ($18.55 per
share for each of the 5.7 million outstanding common shares of McFarland).
Monterey borrowed $100 million under the New Monterey Credit Agreement to fund
the acquisition.

  SANTA FE

     Santa Fe's cash flow from operating activities is a function of the volumes
of oil and gas produced from Santa Fe's properties and the sales prices received
therefor. Since crude oil and natural gas are depleting assets, unless Santa Fe
replaces the oil and gas produced from its properties, Santa Fe's assets will be
depleted over time and its ability to incur debt at constant or declining prices
will be reduced. Santa Fe increased its proved reserves (net of production and
sales) by approximately 76% over the five years ended December 31, 1996;
however, no assurances can be given that such increase will occur in the future.
Historically, Santa Fe has generally funded development and exploration
expenditures and working capital requirements from cash provided by operating
activities. Depending upon the future levels of operating cash flows, which are
significantly affected by oil and gas prices, the restrictions on additional
borrowings included in certain of Santa Fe's debt agreements, together with debt
service requirements and dividends, may limit the cash available for future
exploration, development and acquisition activities. Income from operations
before exploratory dry hole costs, depletion, depreciation and amortization and
gain or loss on disposition of assets totalled $94.2 million in the first six
months of 1997 and net cash used for capital expenditures and producing property
acquisitions in such period totalled $111.5 million.

     Effective November 13, 1996 Santa Fe entered into a revolving credit
agreement (the "Santa Fe Credit Agreement") which matures November 13, 2001.
The Santa Fe Credit Agreement permits Santa Fe to obtain revolving credit loans
and issue letters of credit up to an aggregate amount of up to $150.0 million,
with the aggregate amount of letters of credit outstanding at any time limited
to $30.0 million. Borrowings under the Santa Fe Credit Agreement are unsecured
and interest rates are tied to the bank's prime rate or eurodollar offering
rate, at the option of Santa Fe. At June 30, 1997, no loans or letters of credit
were outstanding under the terms of the Santa Fe Credit Agreement.

     The Santa Fe Credit Agreement and the indenture for the Debentures include
covenants that restrict Santa Fe's ability to take certain actions, including
the ability to incur additional indebtedness and to pay dividends on capital
stock. Under the most restrictive of these covenants, at June 30, 1997 Santa Fe
could incur up to $495.0 million of additional indebtedness and pay dividends of
up to $48.8 million on its aggregate capital stock.

                                       19
<PAGE>
     Santa Fe has three short-term uncommitted lines of credit totalling $60.0
million which are used to meet short-term cash needs. Interest rates on
borrowings under these lines of credit are typically lower than rates paid under
the Bank Facility. At June 30, 1997 no amounts were outstanding under these
lines of credit.

     At June 30, 1997 Santa Fe had one letter of credit for $1.8 million
outstanding related to certain of its foreign operations.

ENVIRONMENTAL MATTERS

     Almost all phases of the Company's oil and gas operations are subject to
stringent environmental regulation by governmental authorities. Such regulation
has increased the costs of planning, designing, drilling, installing, operating
and abandoning oil and gas wells and other facilities. The Company has expended
significant financial and managerial resources to comply with such regulations.
Although the Company believes its operations and facilities are in general
compliance with applicable environmental regulations, risks of substantial costs
and liabilities are inherent in oil and gas operations. It is possible that
other developments, such as increasingly strict environmental laws, regulations
and enforcement policies or claims for damages to property, employees, other
persons and the environment resulting from the Company's operations, could
result in significant costs and liabilities in the future. As it has done in the
past, the Company intends to fund its cost of environmental compliance from
operating cash flows. See Note 5 to the Consolidated Financial Statements.

     Monterey has agreed to indemnify and hold harmless the Company from and
against any costs incurred in the future relating to environmental liabilities
of the Western Division assets (other than those retained by the Company),
including any costs or expenses incurred at any of the OII Site, the Santa Fe
Springs Site and the Eastside Site, and any costs or liabilities that may arise
in the future that are attributable to laws, rules or regulations in respect to
any property or interest therein located in California and formerly owned or
operated by the Western Division or its precedessors.

DIVIDENDS

     The determination of the amount of future cash dividends, if any, to be
declared and paid on the Company's common stock is in the sole discretion of the
Company's Board of Directors and will depend on the Company's financial
condition, earnings and funds from operations, the level of capital and
exploration expenditures, dividend restrictions in financing agreements, future
business prospects and other matters the Board of Directors deems relevant.

FORWARD LOOKING STATEMENTS

     In its discussion and analysis of financial condition and results of
operations, the Company has included certain statements (other than statements
of historical fact) that constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. When used herein, the words "budget,"
"budgeted," "anticipate," "expects," "believes," "seeks," "goals,"
"intends" or "projects" and similar expressions are intended to identify
forward-looking statements. It is important to note that the Company's actual
results could differ materially from those projected by such forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable and such forward-looking
statements are based upon the best data available at the time this report is
filed with the Securities and Exchange Commission, no assurance can be given
that such expectations will prove correct. Factors that could cause the
Company's results to differ materially from the results discussed in such
forward-looking statements include, but are not limited to, the following:
production variances from expectations, volatility of oil and gas prices, the
need to develop and replace its reserves, the substantial capital expenditures
required to fund its operations, exploration risks, environmental risks,
uncertainties about estimates of reserves, competition, government regulation
and political risks, and the ability of the Company to implement its business
strategy. All such forward-looking statements in this document are expressly
qualified in their entirety by the cautionary statements in this paragraph.

                                       20
<PAGE>
                                     PART II
                                OTHER INFORMATION

     Item 6.  Exhibits and Reports on Form 8-K

     (a)  Exhibits

               None

     (b)  Reports on Form 8-K

      DATE                ITEM
- ----------------          ----
 July 14, 1997              5
August   , 1997             2

                                       21
<PAGE>
                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                            SANTA FE ENERGY RESOURCES, INC.
                                                      (Registrant)

                                        By           /s/ JANET F. CLARK         
                                                      Janet F. Clark
                                                      Vice President, Chief
                                                      Financial Officer and
                                                      Treasurer
                                                      (Principal Financial and
                                                      Accounting Officer)

Houston, Texas
August 13, 1997

                                       22


<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1997 AND THE INCOME STATEMENT FOR THE THREE MONTHS ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-END>                               JUN-30-1997
<CASH>                                          41,900
<SECURITIES>                                         0
<RECEIVABLES>                                  102,100
<ALLOWANCES>                                     2,700
<INVENTORY>                                     15,500
<CURRENT-ASSETS>                               179,600
<PP&E>                                       2,702,700
<DEPRECIATION>                               1,724,300
<TOTAL-ASSETS>                               1,167,200
<CURRENT-LIABILITIES>                          150,500
<BONDS>                                              0
                                0
                                          0
<COMMON>                                         1,000
<OTHER-SE>                                     586,500
<TOTAL-LIABILITY-AND-EQUITY>                 1,167,200
<SALES>                                        323,500
<TOTAL-REVENUES>                               323,700
<CGS>                                          240,700
<TOTAL-COSTS>                                  240,700
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              12,000
<INCOME-PRETAX>                                 72,500
<INCOME-TAX>                                    27,800
<INCOME-CONTINUING>                             40,400
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    40,400
<EPS-PRIMARY>                                     0.30
<EPS-DILUTED>                                     0.30
        

</TABLE>


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