NATIONAL ENERGY GROUP INC, 10-Q, 1999-05-14

NATIONAL ENERGY GROUP INC
10-Q, 1999-05-14
CRUDE PETROLEUM & NATURAL GAS

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<PAGE> 1
================================================================================

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

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

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999

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

Commission File No. 0-19136 (Common Stock)
and 333-9045 (Series B Senior Notes)
and 333-38075 (Series D Senior Notes)

NATIONAL ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 58-1922764
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)

1400 ONE ENERGY SQUARE
4925 GREENVILLE AVENUE
DALLAS, TEXAS 75206
(Address of principal executive offices)

(214) 692-9211
(Registrant's telephone number, including area code)

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

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

40,527,482 shares of the registrant's Common Stock, $0.01 par value,
were outstanding on May 7, 1999.

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

<PAGE> 2
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1998 and March 31, 1999
(Unaudited)..................................................................... 1
Consolidated Statements of Operations for the three months ended
March 31, 1998 and 1999 (Unaudited)............................................. 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1999 (Unaudited)....................................... 3
Consolidated Statement of Stockholders' Equity (Deficit) for the three months ended
March 31, 1999 (Unaudited)...................................................... 4
Notes to Consolidated Financial Statements (Unaudited)............................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................... 10
Item 3. Quantitative and Qualitative Disclosure about Market Risk.......................... 16

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.................................................................. 17
Item 3. Defaults Upon Senior Securities.................................................... 17
Item 5. Other Information.................................................................. 18
Item 6. Exhibits and Reports on Form 8-K................................................... 18
</TABLE>

<PAGE> 3

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------- -------------
<S> <C> <C>

Current assets:
Cash and cash equivalents ..................................................... $ 2,542,235 $ 8,677,352
Marketable securities ......................................................... 339,250 295,000
Accounts receivable--oil and natural gas sales ................................ 5,030,155 3,553,594
Accounts receivable--joint interest and other ................................. 1,918,411 694,369
Other ......................................................................... 1,905,050 1,726,459
------------- -------------
Total current assets ....................................................... 11,735,101 14,946,774
Oil and natural gas properties, at cost (full cost method):
Subject to ceiling limitation ................................................. 327,459,034 328,312,989
Accumulated depreciation, depletion, and amortization ......................... (251,712,879) (255,802,705)
------------- -------------
Net oil and natural gas properties ......................................... 75,746,155 72,510,284
Other property and equipment ...................................................... 2,601,163 2,576,582
Accumulated depreciation ...................................................... (989,905) (1,096,103)
------------- -------------
Net other property and equipment ........................................... 1,611,258 1,480,479
Other assets and deferred charges, net ............................................ 5,909,344 5,805,216
------------- -------------
Total assets .................................................................. $ 95,001,858 $ 94,742,753
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Liabilities not subject to compromise:
Current liabilities:
Accounts payable-trade ..................................................... $ 2,019,114 $ 532,301
Accounts payable-revenue ................................................... 4,446,696 --
Drilling advances .......................................................... 99,961 --
Credit facility ............................................................ 25,000,000 25,000,000
Accrued interest on credit facility ........................................ 280,160 763,932
Senior Notes including unamortized issuance premium ........................ 166,238,513 --
Accrued interest on Senior Notes ........................................... 10,537,601 --
Current portion of gas prepayments ......................................... 485,845 --
Other ...................................................................... 461,088 --
------------- -------------
Total current liabilities ............................................... 209,568,978 26,296,233
Long-term liabilities:
Gas balancing and prepayments .............................................. 2,052,691 --
Other ...................................................................... 312,957 --

Liabilities subject to compromise:
Accounts payable-trade ..................................................... -- 2,755,007
Accounts payable-revenue ................................................... -- 3,927,985
Drilling advances .......................................................... -- 78,857
Senior Notes including unamortized issuance premium ........................ -- 166,198,986
Accrued interest on Senior Notes ........................................... -- 10,537,601
Gas balancing and prepayments .............................................. -- 2,535,291
Other ...................................................................... -- 545,883
------------- -------------
Total liabilities subject to compromise ................................. -- 186,579,610

Commitments and contingencies

Stockholders' equity (deficit): Convertible preferred stock, $1.00 par:
Authorized shares--1,000,000
Issued and outstanding shares--171,187
Aggregate liquidation preference--$17,118,700 .............................. 171,187 171,187
Common stock, $.01 par value:
Authorized shares--100,000,000
Issued and outstanding shares-- 40,527,482 at
December 31, 1998 and March 31, 1999, respectively ...................... 405,275 405,275
Additional paid-in capital .................................................... 113,089,872 113,089,872
Unrealized loss on marketable securities, net ................................. (176,094) (220,344)
-------------
Accumulated deficit ........................................................... (230,423,008) (231,579,080)
------------- -------------
Total stockholders' equity (deficit) ....................................... (116,932,768) (118,133,090)
------------- -------------
Total liabilities and stockholders' equity (deficit) .......................... $ 95,001,858 $ 94,742,753
============= =============
</TABLE>

See accompanying notes.

1
<PAGE> 4

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Oil and natural gas sales ................................................... $ 10,529,424 $ 7,244,008

Costs and expenses:
Lease operating .......................................................... 1,707,554 1,472,258
Oil and natural gas production taxes ..................................... 736,341 484,769
Depreciation, depletion, and amortization ................................ 5,938,046 4,428,956
Write-down of oil and natural gas properties ............................. 26,500,000 --
General and administrative ............................................... 1,404,063 1,040,735
------------ ------------
Total costs and expenses ................................................ 36,286,004 7,426,718
------------ ------------
Operating income (loss) ..................................................... (25,756,580) (182,710)
Other income (expense):
Interest expense ......................................................... (3,511,162) (455,928)
Interest income and other, net ........................................... 224,217 --
------------ ------------
Income (loss) before reorganization items and income taxes .................. (29,043,525) (638,638)
Reorganization items:
Professional fees and other .............................................. -- (574,467)
Interest earned on accumulating cash resulting from Chapter 11 proceedings -- 57,033
------------ ------------
Income (loss) before income taxes ........................................... (29,043,525) (1,156,072)
Provision for income taxes .................................................. -- --
------------ ------------
Net income (loss) ........................................................... (29,043,525) (1,156,072)
Preferred stock dividend requirements ....................................... (157,095) --
------------ ------------
Net income (loss) applicable to common shareholders ......................... $(29,200,620) $ (1,156,072)
============ ============

Net income (loss) per common share, basic and diluted ....................... $ (.72) $ (.03)
============ ============

Weighted average number of common shares outstanding ........................ 40,481,320 40,527,482
============ ============
</TABLE>

See accompanying notes.

2
<PAGE> 5

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1998 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ............................................................. $(29,043,525) $ (1,156,072)
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation, depletion, and amortization .................................. 5,938,046 4,428,956
Write-down of oil and natural gas properties .............................. 26,500,000 --
Amortization of issuance premium ........................................... (39,528) (39,527)
Amortization of deferred compensation ...................................... 10,273 11,133
Common stock, options, and warrants issued for services .................... 24,999 14,062
Other ...................................................................... 48,841 4,539
Changes in operating assets and liabilities:
Accounts receivable ..................................................... 3,710,746 2,700,603
Other current assets .................................................... (1,090,411) 150,590
Accounts payable and accrued liabilities ................................ (2,673,850) 962,940
------------ ------------
Net cash provided by operating activities ............................. 3,385,591 7,077,224
------------ ------------

INVESTING ACTIVITIES
Purchases of other property and equipment ..................................... (425,893) --
Oil and gas acquisition, exploration, and development expenditures ............ (27,517,621) (1,108,772)
Proceeds from sales of oil and gas properties ................................. -- 254,817
Purchases of other long-term assets ........................................... (157,829) (97,266)
Other ......................................................................... 3,337 9,114
------------ ------------
Net cash used in investing activities ................................. (28,098,006) (942,107)
------------ ------------

FINANCING ACTIVITIES
Proceeds from credit facility ................................................. 10,000,000 --
Repayments of other long-term liabilities ..................................... (26,918) --
Proceeds from exercise of stock options and warrants .......................... 93,750 --
------------ ------------
Net cash provided by financing activities ............................. 10,066,832 --
------------ ------------
Increase (decrease) in cash and cash equivalents .............................. (14,645,583) 6,135,117
Cash and cash equivalents and beginning of period ............................. 25,954,479 2,542,235
------------ ------------
Cash and cash equivalents at end of period .................................... $ 11,308,896 $ 8,677,352
============ ============

SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid in cash ......................................................... $ -- $ --
============ ============
</TABLE>

See accompanying notes.

3
<PAGE> 6

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)

CONVERTIBLE ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ------------ ------------ ------------ ------------

<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 ... 171,187 $ 171,187 40,527,482 $ 405,275 $113,089,872
Unrealized loss on marketable
securities ............... -- -- -- -- --
Net loss .................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at March 31, 1999 ...... 171,187 $ 171,187 40,527,482 $ 405,275 $113,089,872
============ ============ ============ ============ ============

<CAPTION>
UNREALIZED
LOSS TOTAL
ON STOCKHOLDERS'
MARKETABLE EQUITY
SECURITIES DEFICIT (DEFICIT)
------------ ------------- -------------

<S> <C> <C> <C>
Balance at December 31, 1998 ... $ (176,094) $(230,423,008) $(116,932,768)
Unrealized loss on marketable
securities ............... (44,250) -- (44,250)
Net loss .................... -- (1,156,072) (1,156,072)
------------ ------------- -------------
Balance at March 31, 1999 ...... $ (220,344) $(231,579,080) $(118,133,090)
============ ============= =============
</TABLE>

See accompanying notes.

4
<PAGE> 7

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999

1. PETITION FOR RELIEF UNDER CHAPTER 11

On December 4, 1998, certain of the Company's 10 3/4% Senior Note
bondholders filed an Involuntary Petition for an Order for Relief under Chapter
11 of Title 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Texas, Dallas Division, due to
non-payment of interest due December 2, 1998, after expiration of a 30-day grace
period. On December 23, 1998, the Company filed in the Bankruptcy Court, an
Answer to and Motion to Dismiss the pending Involuntary Petition. The Company's
Motion affirmed that it (i) was meeting its obligations and generally paying its
debts as they become due, unless such debts were the basis of a bona fide
dispute and (ii) had arranged with the lender under its credit facility to
borrow additional funds sufficient to pay the interest due on the 10 3/4% Senior
Notes, conditioned upon the Court's dismissal of the Involuntary Petition.
However, on February 8, 1999, the Bankruptcy Court denied the Company's Motion
to Dismiss the Involuntary Petition. An Order for Relief was entered by the
Bankruptcy Court on February 11, 1999. The Order for Relief places the Company
under the protection of the Court and precludes payment of the interest on the
Senior Notes at this time. Additionally, payment of liabilities existing as of
February 11, 1999 to certain unsecured creditors and dividends in arrears to
holders of the Company's Preferred Stock and any pending litigation are stayed
during the Bankruptcy proceeding. The Company shall act as debtor-in-possession
and will continue to operate its business and manage its properties in the
ordinary course of business during its Chapter 11 proceeding. The Company
anticipates proposing a Plan of Reorganization within the period allotted by the
Court. The Plan may include the issuance of common stock or common stock
equivalents in exchange for debt of the Company which could materially dilute
the current equity interests. A hearing on such Plan has been scheduled by the
Court for June 4, 1999. As of December 4, 1998, the Company discontinued the
accrual of interest on the unsecured Senior Notes and discontinued the accrual
of dividends on the unsecured preferred stock, as a result of the Chapter 11
filing. Approximately $4.4 million additional interest expense would have been
recognized by the Company for the first quarter of 1999 if not for the
discontinuation of the interest accrual on the Senior Notes.

The accompanying consolidated financial statements have been prepared on a
going concern basis of accounting and do not reflect any adjustments that might
result should the Company be unable to continue as a going concern. The
Company's recent losses from operations and the related Chapter 11 proceeding
raise concern about its ability to continue as a going concern. The
appropriateness of using the going concern basis is dependent upon, among other
things (i) confirmation of a plan of reorganization under the Bankruptcy Code,
(ii) the ability to achieve profitable operations after such confirmation and
(iii) the ability to generate sufficient cash from operations to meet its
obligations.

The Company anticipates proposing a Plan of Reorganization in accordance
with the federal bankruptcy laws as administered by the Bankruptcy Court.
Confirmation of a Plan of Reorganization could materially change the amounts
currently recorded in the financial statements. The financial statements do not
give effect to any adjustment to the carrying value of assets, or amounts and
classifications of liabilities that might be necessary as a consequence of this
matter.

2. BASIS OF PRESENTATION

In management's opinion, the accompanying financial statements contain all
adjustments (consisting solely of normal recurring accruals) necessary to
present fairly the financial position of National Energy Group, Inc. (the
"Company") as of December 31, 1998 and March 31, 1999, the results of operations
for the three months ended March 31, 1998 and 1999, and the cash flows for the
three months ended March 31, 1998 and 1999.

The accompanying unaudited financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to those rules and regulations, although the Company believes
that the disclosures made are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
Company's financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.

5
<PAGE> 8
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999

2. BASIS OF PRESENTATION (CONT)

Certain previously reported amounts have been reclassified to conform with
the current presentation.

The results of operations for the three months ended March 31, 1999, are not
necessarily indicative of the results expected for the full year.

The Company capitalizes internal general and administrative costs that can
be directly identified with acquisition, exploration, and development
activities. These costs totaled approximately $446,000 and $281,000 for the
three months ended March 31, 1998 and 1999, respectively. The Company
capitalized interest costs of approximately $955,000 for the three months ended
March 31, 1998.

Overhead reimbursements included as a reduction of general and
administrative expense totaled approximately $311,000 and $178,000 for the three
months ended March 31, 1998 and 1999, respectively.

As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, Reporting Comprehensive Income. Comprehensive income is
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources.
Statement 130 establishes rules for the reporting and display of comprehensive
income and its components. For the three months ended March 31, 1998 and 1999,
the differences between net earnings and total comprehensive income were not
material.

3. ACQUISITIONS

On March 31, 1998, the Company acquired Fortune Natural Resources
Corporation's 12.5% working interest in the East Bayou Sorrel Field for $4.5
million in cash. This acquisition did not have a significant impact on the 1998
results of operations.

4. CREDIT FACILITY

On August 29, 1996, the Company, NEG-OK and Boomer Marketing, entered into a
credit facility with Bank One, as Bank and Administrative Agent, and the Credit
Lyonnais New York Branch, as Bank and Syndication Agent (collectively, the
"Banks"). The credit facility consisted of a $100.0 million reducing revolving
line of credit, with an initial borrowing base of $60.0 million and a $5.0
million term loan. Interest under the reducing revolving line of credit was
payable monthly at the Bank One base rate, as adjusted.

In November 1996, the Company repaid the outstanding borrowings under the
credit facility with a portion of proceeds from the issuance of $100.0 million
principal amount of 10 3/4% Senior Notes due 2006 (the "Series A Notes"). See
Note 5.

In connection with the issuance of the Series A Notes in 1996, the Company
revised the credit facility. The credit facility had a borrowing base of $25.0
million. The borrowing base may be redetermined at least semiannually and may
require mandated monthly principal reductions from time to time. The principal
amount of any borrowings is due at maturity, August 29, 2000 and interest is
payable monthly.

The Company granted liens to the Banks on substantially all of the Company's
oil and natural gas properties, whether currently owned or hereafter acquired,
and a negative pledge on all other oil and natural gas properties. The credit
facility requires, among other things, semiannual engineering reports covering
oil and natural gas properties, and maintenance of certain financial ratios,
including the maintenance of a minimum interest coverage, a current ratio, and a
minimum tangible net worth.

6
<PAGE> 9
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999

4. CREDIT FACILITIES (CONT)

The credit facility contains other covenants prohibiting cash dividends,
distributions, loans, or advances to third parties, except that cash dividends
on preferred stock will be allowed so long as no event of default exists or
would exist as a result of the payment thereof. In addition, if the Company is
required to purchase or redeem any portion of the Notes, or if any portion of
the Notes become due, the borrowing base is subject to reduction.

The Company is required to pay a commitment fee on the unused portion of the
borrowing base equal to 1% per annum.

On December 7, 1998, Bank One and Credit Lyonnais gave notice to the Company
that all outstanding obligations under the credit facility were accelerated and
were immediately due and payable due to certain unspecified Events of Default as
defined in the loan agreement.

Effective December 22, 1998, the credit facility and all associated liens
were assigned by the Banks to Arnos, Inc., an affiliated subsidiary of the
Company's Series D Preferred Stockholder. In a letter dated December 23, 1998,
Arnos (1) rescinded the acceleration of the loan, (2) waived all defaults
existing at that time and (3) made sufficient borrowings available to pay the
interest on the Senior Notes that was due on November 2, 1998, conditioned upon
the Bankruptcy Court's dismissal of the Involuntary Petition. To date, no fees
or interest have been paid to Arnos. The Company is currently accruing interest
expense at an 8% rate under the Arnos credit facility. The Company had
$25,000,000 outstanding under the Arnos credit facility as of March 31, 1999. At
March 31, 1999, the Company was in violation of the minimum interest coverage
ratio and current ratio covenants under the Arnos credit facility and as a
result has classified the amount outstanding as a current liability.

At March 31, 1999, the fair value of borrowings under the Arnos credit
facility approximates the carrying value of the liability. Pursuant to the Order
for Relief dated February 11, 1999, the Company is prohibited from obtaining
further borrowings without Court approval.

5. 10 3/4 SENIOR NOTES DUE 2006

7
<PAGE> 10
NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999

5. 10 3/4 SENIOR NOTES DUE 2006 (CONT)

In November 1996, the Company issued $100 million aggregate principal amount
of unregistered 10 3/4% Senior Notes due 2006 (the "Series A Notes"). The net
proceeds of the Series A Notes of approximately $96.1 million were used to repay
approximately $62.0 million of borrowings under a prior facility and to increase
the Company's working capital. In 1997, the Series A Notes were exchanged for
registered 10 3/4% Senior Notes due 2006 (the "Series B Notes") which were
substantially identical to the Series A Notes. Collectively, the Series A Notes
and Series B Notes are referred to as the Series A/B Notes." In August 1997, the
Company issued $65.0 million aggregate principal amount of its unregistered 10
3/4% Senior Notes (the "Series C Notes"). The net proceeds of the Series C Notes
of approximately $64.8 million were used to repay approximately $23.0 million of
borrowings under the credit facility and to increase the Company's working
capital. In December 1997, the Company exchanged substantially all of the Series
A/B Notes and all of the Series C Notes for registered 10 3/4% Senior Notes due
2006 (the "Series D Notes"). The Series D Notes are substantially identical to
the Series A/B Notes and the Series C Notes. Collectively, the Series A/B Notes,
the Series C Notes and the Series D Notes are referred to as the "Notes." The
Notes bear interest at an annual rate of 10 3/4%, payable semiannually in
arrears on May 1 and November 1 of each year. The Notes are senior, unsecured
obligations of the Company, ranking pari passu with all existing and future
senior indebtedness of the Company, and senior in right of payment to all future
subordinated indebtedness of the Company. Subject to certain limitations set
forth in the indenture covering the Notes (the "Indenture"), the Company and its
subsidiaries may incur additional senior indebtedness and other indebtedness.

At March 31, 1998 and 1999, unamortized issuance premiums associated with
the Notes totaled $1,238,513 and $1,198,986, respectively.

The Indenture contains certain covenants limiting the Company and any
Restricted Subsidiaries, with respect to the following: (i) assets sales; (ii)
restricted payments; (iii) the incurrence of additional indebtedness and the
issuance of certain redeemable preferred stock; (iv) liens; (v) sale and
leaseback transactions; (vi) lines of business; (vii) dividend and other payment
restrictions affecting subsidiaries; (viii) mergers and consolidations; and (ix)
transactions with affiliates.

6. COMMITMENTS AND CONTINGENCIES

The Company filed suit in the 244th J/D Court of Ector County, Texas against
Mr. R. E. Steakley in August 1995 to enjoin Mr. Steakley from interfering with
the operations of the Company. Mr. Steakley counterclaimed against the Company
for surface damages, alleging certain environmental claims. In February 1999,
without admitting any liability, the Company and Mr. R. E. Steakley entered into
a Settlement and Release Agreement which provided that each of the Company and
Mr. Steakley release and discharge the other from all claims and damages which
may have occurred through January 31, 1999 and dismiss the pending litigation
against each other. The Company further agreed to pay Mr. Steakley an amount of
$75,000, to purchase certain materials from Mr. Steakley at market value which
the Company shall use to maintain roads incidental to its operations on the
Steakley property and limit the Company's ingress and egress to specified
entrances on the Steakley property.

Other than the Bankruptcy Court proceeding, the Company is not a defendant
in any additional material pending legal proceedings.

7. CRUDE OIL AND NATURAL GAS PRODUCING ACTIVITIES

The Company follows the full cost method of accounting for oil and natural
gas properties. Under such method, the net book value of such properties, less
related deferred income taxes, may not exceed a calculated "ceiling." The
ceiling is the estimated after-tax future net revenues from proved oil and
natural gas properties, discounted at 10% per year. In calculating future net
revenues, prices and costs in effect at the time of the calculation are held
constant indefinitely, except for charges which are fixed and determinable by
existing contracts.

8
<PAGE> 11

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999

7. CRUDE OIL AND NATURAL GAS PRODUCING ACTIVITIES (CONT)

The net book value is compared to the ceiling on a quarterly and yearly
basis. The excess, if any, of the net book value above the ceiling is required
to be written off as a non-cash expense. At March 31, 1999, the net book value
of the Company's oil and gas properties did not exceed the full cost ceiling
based on the weighted average prices of crude oil and natural gas received by
the Company, and therefore no writedown was required. At March 31, 1998, the net
book value of the Company's oil and natural gas properties exceeded the full
cost ceiling, based on the weighted average prices of crude oil and natural gas
received by the Company, resulting in a non-cash writedown aggregating $26.5
million. There can be no assurance that there will not be additional writedowns
in future periods under the full cost method of accounting as a result of
sustained decreases in oil and natural gas prices or other factors.

<PAGE> 12

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The information below should not be construed to imply that the results
discussed herein will necessarily continue into the future or that any
conclusion reached herein will necessarily be indicative of actual operating
results in the future. Such discussion only represents the best present
assessment by management of the Company.

OVERVIEW

The Company's current financial condition and 1998 and 1999 operating
results have resulted from the significant decline in oil prices during 1998 and
the first quarter of 1999, coupled with unfavorable revisions in estimates of
oil and gas reserves during 1998.

The revenues generated by the Company's operations are highly dependent upon
the prices of, and demand for, oil and natural gas. The price received by the
Company for its oil and natural gas production depends on numerous factors
beyond the Company's control, including seasonal price fluctuation, the
condition of the U.S. economy, foreign imports, political conditions in other
oil and natural gas producing countries, the actions of the Organization of
Petroleum Exporting Countries and domestic governmental regulations, legislation
and policies. Declines during 1998 and the first quarter of 1999 in the prices
of oil and gas have had a material adverse effect on the carrying value of the
Company's oil and gas properties and the Company's revenues, profitability and
cash flows.

RESULTS OF OPERATIONS

OVERVIEW OF PRODUCTION, SALES AND UNIT ECONOMICS

The following table sets forth certain information regarding the production
volumes, oil and natural gas sales, average sales prices, and unit economics per
Mcfe for revenues and costs and expenses related to the Company's oil and
natural gas production for the periods indicated.

<PAGE> 13

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1998 1999
------------ ------------

<S> <C> <C>
Net production:
Oil (Mbbls)............................... 293 294
Natural gas (Mmcf)........................ 3,080 2,494
Natural gas equivalent (Mmcfe)............ 4,835 4,260

Oil and natural gas sales (in thousands):
Oil....................................... $ 4,261 $ 3,196
Natural gas............................... 6,268 4,048
------------ ------------
Total..................................... $ 10,529 $ 7,244
============ ============

Average sales price:
Oil (per Bbl)............................ $ 14.57 $ 10.85
Natural gas (per Mcf).................... 2.04 1.62

Unit economics (per Mcfe):
Average sales price...................... $ 2.18 $ 1.70
Lease operating expenses................. .35 .35
Oil and natural gas production taxes..... .15 .11
Depletion (excluding writedowns)......... 1.15 .96
General and administrative............... .29 .24
</TABLE>

THREE MONTHS ENDED MARCH 31, 1998, COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999

Revenues. Total revenues decreased by $3.3 million (31.4%) to $7.2 million
for 1999 from $10.5 million in 1998. The reduction in revenues was primarily due
to the decline in commodity prices from the same period in 1998. Average natural
gas prices decreased $.42 per Mcf to $1.62 per Mcf for 1999 from $2.04 for 1998
and average oil prices declined $3.72 per barrel to $10.85 for 1999 from $14.57
for 1998. The decrease in average prices reduced first quarter 1999 revenues by
approximately $2.1 million compared to 1998.

In 1999, the Company produced 294 Mbbls of oil, which was virtually
unchanged from the 293 Mbbls produced in 1998. The Company discontinued
additional developmental drilling at Goldsmith Adobe Unit in March 1998 due to
the decline of crude oil prices. The reduction in oil production resulting from
natural decline and from the discontinued drilling at the Goldsmith Adobe Unit
was offset by the successful drilling and completion of the State Lease #2102
well at the Company's East Bayou Sorrel area which came on line in October of
1998. In 1999, the Company produced 2,494 Mmcf of natural gas, a decrease of
19.0% from 3,080 Mmcf produced in 1998. The decline in gas production is
primarily due to natural decline as well as flush production during the first
quarter of 1998 at the Company's East Texas and Arkoma properties. The Company
had limited drilling activities in these areas during 1999.

Costs and Expenses. Lease operating expenses decreased $.2 million (11.8%)
to $1.5 million for 1999 from $1.7 million for 1998. The decrease is primarily
the result of the Company's efforts to reduce operating costs. However, lease
operating expenses per Mcfe remained constant at $.35 for 1998 and 1999 due to
the decline in Mcfe equivalent production from 1998 to 1999.

Oil and natural gas production taxes decreased $.2 million (28.6%) to $.5
million for 1999 from $.7 million for 1998. This decrease is the direct result
of the Company's reduced revenues.

<PAGE> 14

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION

Depreciation, depletion and amortization decreased $1.5 million (25.4%) to
$4.4 million for 1999 compared to $5.9 million for 1998 due to the decrease in
the average depletion rate per Mcfe which was $.96 for 1999 compared to $1.15
for 1998. The decrease in the depletion rate was due to the full cost ceiling
writedowns during 1998.

At March 31, 1998, the net book value of the Company's oil and natural gas
properties exceeded the full cost ceiling, resulting in a non-cash writedown of
the Company's oil and natural gas properties of $26.5 million for the three
months ended March 31, 1998. This writedown resulted primarily from the decline
in natural gas prices and costs incurred on unsuccessful exploratory wells
drilled during the period, combined with revisions of estimated proved reserves
as of March 31, 1998. No ceiling writedown was required for the three months
ended March 31, 1999.

General and administrative costs decreased $.4 million (28.6%) to $1.0
million for 1999 compared to $1.4 million for 1998. The decrease in general and
administrative expenses is the direct result of the Company's efforts in
restructuring the management team and other personnel and efforts to control
other expenses. As discussed in Note 2, the Company capitalizes internal general
and administrative costs that can be directly identified with acquisition,
exploration and development activities. These costs totaled $.5 million and $.3
million for the three months ended March 31, 1998 and 1999, respectively.

Other Income and Expenses. The decrease of $3.0 million in interest expense
to $.5 million for 1999 from $3.5 million for 1998 was due to the Company's
discontinuation of recording interest of the Senior Notes due to the Chapter 11
proceedings as discussed in Note 1 to the financial statements. Approximately
$4.4 million additional interest expense would have been recognized by the
Company for the first quarter of 1999 if not for the discontinuation of the
interest accrual on the Senior Notes. The average balance of debt outstanding
during 1999 was $190.0 million as compared to average debt outstanding of $165.4
million for 1998. The weighted average interest rate for 1999 was 8.0%
(excluding Senior Notes) compared to 10.74% for 1998. The decline in the
weighted average interest rate is due to the discontinued interest on the Senior
Notes.

Reorganization Items. In the first quarter of 1999, the Company recorded
charges of approximately $.6 million for professional fees and other
reorganization expenses resulting from the Chapter 11 proceedings.

Net Income (Loss). The Company incurred a net loss of $1.2 million for 1999,
compared with a net loss of $29.0 million for 1998. The net loss for 1999
includes net reorganization costs of $.5 million and the net loss for 1998
includes a writedown of oil and natural gas properties of $26.5 million.

LIQUIDITY AND CAPITAL RESOURCES

THREE MONTHS ENDED MARCH 31, 1998, COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999

Net cash provided by operating activities was $3.4 million for 1998,
compared to net cash provided by operating activities of $7.1 million for 1999.
The increase in cash flows from operating activities is primarily due to the
collection of accounts receivable and nonpayment of prepetition trade accounts
payable due to the Chapter 11 proceedings.

Net cash used in investing activities was $28.1 million for 1998 compared
with $1.0 million for 1999. The cash used by investing activities for 1998
included $27.5 million of expenditures related primarily to drilling and
exploration activities. The Company's ability to undertake drilling and
exploration activities is currently limited due to the Chapter 11 proceedings.

Net cash provided by financing activities was $10.1 million for 1998
compared with $0 for 1999. The net cash provided by financing activities during
1998 consisted primarily of proceeds from borrowings under the revised credit
facility. Currently, no additional borrowings are available under the credit
facility.

12
<PAGE> 15

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION

CREDIT FACILITIES

In connection with the issuance of the Series A Notes in 1996, the Company
revised its credit facility. The credit facility had a borrowing base of $25.0
million. The borrowing base may be redetermined at least semiannually and may
require mandated monthly principal reductions from time to time. The principal
amount of any borrowings is due at maturity, August 29, 2000 and interest is
payable monthly.

10 3/4% SENIOR NOTES DUE 2006

13
<PAGE> 16

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION

could materially dilute the current equity interests. A hearing on such Plan has
been scheduled by the Court for June 4, 1999. As of December 4, 1998, the
Company discontinued the accrual of interest on the unsecured Senior Notes and
discontinued the accrual of dividends on the unsecured preferred stock, as a
result of the Chapter 11 filing. Approximately $4.4 million additional interest
expense would have been recognized by the Company for the first quarter of 1999
if not for the discontinuation of the interest accrual on the Senior Notes.

PREFERRED STOCK

Under the terms of the Series D Preferred Stock, a change in control of the
Company may occur if any of certain events occur that trigger the Series D
Preferred Stock Contingent Voting Rights (as defined in the Series D Certificate
of Designations) to elect one-half of the Board of Directors plus one member.
Pursuant to the Order for Relief dated February 11, 1999, the Company was placed
into a Title 11, Chapter 11 of the United States Code bankruptcy reorganization
proceeding. Such proceeding gives rise to the Series D Preferred stockholder to
exercise its right to control the Company's Board of Directors. To date, the
Series D Preferred Stockholder has not exercised such right.

FUTURE CAPITAL AND FINANCING REQUIREMENTS

The Company has made, and will continue to make, ordinary course capital
expenditures for the development, and exploitation of oil and natural gas
reserves, subject to economic conditions and in accordance with the rulings and
procedures set forth by the Court. Due to the Chapter 11 proceeding, the Company
has suspended its exploratory drilling program. The Company will limit its
capital expenditures to ordinary course enhancement of current production
through workovers, recompletions, and other production enhancing activities
deemed to be economic given current depressed oil and gas prices. Development
drilling is anticipated to be limited to (i) ordinary course nonoperated wells
in which we have limited working interests and in which the failure to
participate may result in drainage, depletion or loss of current reserves and
(ii) operated wells deemed to be economical given current oil and gas prices.
Large expenditures for developmental drilling may require court approval and
none are planned at this time.

The Company has currently budgeted approximately $7.8 million for capital
expenditures related to its oil and gas properties in 1999, of which
approximately $6.0 million would be for development and exploitation activities,
and approximately $1.8 million would be for delay rentals, lease bonuses,
geological and geophysical costs. Actual amounts to be expended by the Company
for these activities will be dependent upon a number of factors, including Court
approval if necessary, oil and natural gas prices, the availability of capital,
seismic and contract service costs,

14
<PAGE> 17

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION

availability of drilling rigs and future drilling results. The Company is not
contractually committed to expend the budgeted funds.

The Company currently expects that existing cash and cash flows from
operations will be sufficient to fund planned capital expenditures for its
existing properties through 1999. However, the Company would require additional
capital to fund any acquisitions and access to these markets could be limited
due to the Chapter 11 proceeding.

Subject to Court approval, the Company may seek additional capital, if
required, from traditional reserve base borrowings, equity, and debt offerings
or joint ventures to further develop and explore its properties and to acquire
additional properties. There is no assurance, even if approved by the Court,
that the Company would be able to access additional capital or that, if
available, it will be at prices or on terms acceptable to the Company. In
addition, the Chapter 11 proceeding and restrictions from the Bankruptcy Court
could limit the Company's ability to access additional capital markets.

Should the Company be unable to access the capital markets or should
sufficient capital not be available, the development and exploration of the
Company's properties could be delayed or reduced and, accordingly, oil and
natural gas revenues and operating results may be adversely affected.

FINANCIAL REPORTING IMPACT OF FULL COST METHOD OF ACCOUNTING

CHANGES IN PRICES AND INFLATION

The prices received by the Company for its oil and natural gas production
declined dramatically during 1998 and the first quarter of 1999. The Company's
revenue and value of its oil and natural gas properties have been and will
continue to be adversely affected until such prices recover. Oil and gas prices
are subject to seasonal and other fluctuations that are beyond the Company's
ability to control or predict.

From time to time, the Company may hedge oil and gas prices, while the use
of hedging arrangements limits the downside risk of adverse price movements, it
may also limit future gains from favorable movements. All hedging has been
accomplished pursuant to swap agreements based upon standard forms. The Company
addresses market risk by selecting instruments whose value fluctuations
correlate strongly with the underlying commodity being hedged. Credit risk
related to hedging activities is managed by requiring minimum credit standards
for counter parties, periodic settlements, and market to market valuations. The
Company has not been required to provide collateral relating to hedging
activities. At March 31, 1999, the Company had no hedging or basis swap
agreements outstanding.

15
<PAGE> 18

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION

At March 31, 1999, the Company had entered into forward sales contracts with
two purchasers covering the future production of natural gas. Deliveries under
these contracts are priced based on NYMEX prices less a differential whereby the
Company may fix the price for deliveries under these contracts at any time three
days prior to the close of the then current contract based on the NYMEX prices
at that time. The Company pays the cost of transportation of the natural gas to
the delivery point specified in the contracts. Currently, the Company has fixed
the sales price of 1,443,764 Mcf of gas to be delivered under these contracts
during the months of April 1999 through July 1999. The average price of natural
gas for these deliveries is $1.78 per Mcf.

Although certain of the Company's costs and expenses are affected by the
level of inflation, inflation has not had a significant effect on the Company's
results of operations during the three months ended March 31, 1998 and 1999.

YEAR 2000

The year 2000 ("Y2K") problem arises because of computer programs which use
two digits rather than four digits to define a year. This may result in
miscalculations or complete system failures in processing data with programs
using date sensitive information.

The Company currently uses commercially available software for its
management information systems, including accounting, engineering, and word
processing applications. This software has either already been warranted by the
suppliers or publishers to be Y2K compliant or the suppliers and publishers have
represented such software will be compliant in upgrades the Company will receive
in 1999 at minimal or no cost to the Company.

The Company has reviewed its internal computer systems and expects to be
compliant with Y2K by mid-year. The costs of compliance have been minimal and
management expects them to remain minimal since its management information
systems are warranted to be compliant or are represented to be compliant in
upgrades the Company will receive in 1999. Furthermore, the Company replaced its
former oil and gas system in 1996 with a Y2K compliant oil and gas package.

Management is in the process of obtaining confirmation from its major
suppliers and purchasers that they also are or will be Y2K compliant. The costs
of seeking such confirmation are expected to be minimal. Management believes
that it will not be practical to independently verify the responses because it
does not believe that the Company would be given access to carry out such
verification or that the costs of doing so would be affordable. The cost of
replacing non-compliant or non-responsive suppliers and customers will not be
possible to determine until the review process has been completed. Any Y2K
problems that do occur will likely manifest themselves in reduced production
through equipment shut downs or impaired liquidity through inability of
customers to take delivery of production or process payments. The Company plans
to establish contingency plans by mid-year once its confirmation program is
complete and the risks have been more fully quantified.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

None.

16
<PAGE> 19

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company filed suit in the 244th J/D Court of Ector County, Texas against
Mr. R. E. Steakley in August 1995 to enjoin Mr. Steakley from interfering with
the operations of the Company. Mr. Steakley counterclaimed against the Company
for surface damages, alleging certain environmental claims. In February 1999,
without admitting any liability, the Company and Mr. R. E. Steakley entered into
a Settlement and Release Agreement which provided that each of the Company and
Mr. Steakley release and discharge the other from all claims and damages which
may have occurred through January 31, 1999 and dismiss the pending lawsuits
against each other. The Company further agreed to pay Mr. Steakley an amount of
$75,000, to purchase certain materials from Mr. Steakley at market value which
the Company shall use to maintain roads incidental to its operations on the
Steakley property and limit the Company's ingress and egress to specified
entrances on the Steakley property.

Other than the Bankruptcy Court proceedings, the Company is not a defendant
in any additional material pending legal proceedings.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

At March 31, 1999, the Company was in violation of the minimum interest
coverage ratio and current ratio covenants under the Arnos credit facility and
has classified borrowings under the facility as current liabilities and as a
result has classified the amount outstanding as a current liability.

17
<PAGE> 20

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION

ITEM 5. OTHER INFORMATION

The Company's Common Stock traded on the Nasdaq National Market since
September 1, 1995 under the symbol "NEGX". On November 9, 1998, Nasdaq notified
the Company that its common stock would be delisted effective at the close of
business that day for failing to meet the net tangible asset test and minimum
bid price requirements set forth in NASD Marketplace Rules 4450(a)(3) and
4450(a)(5). Nasdaq also advised the Company that its common stock was
immediately eligible for trading on the OTC Bulletin Board through authorized
broker-dealers who had been market makers in the Company's stock during the last
30-days prior to the Company's delisting on Nasdaq. The Company contacted its
OTC Market Makers to notify them of Nasdaq's action and to facilitate future
trading activity. The Company's common stock currently trades on the OTC
Bulletin Board under the symbol "NEGXQ".

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

The list of exhibits required by Item 601 of Regulation S-K and filed as
part of this report is set forth in the Index to Exhibits.

(b) Reports on Form 8-K

On February 8, 1999, the Company filed a Form 8-K including Item 3 -
Bankruptcy or Receivership. The exhibits included the Order of Bankruptcy Court
Granting Relief on Involuntary Petition. Item 3 stated that effective February
8, 1999, the United States Bankruptcy Court for the Northern District of Texas,
Dallas Division (the "Court"), entered an Order for Relief Under Chapter 11 of
the Bankruptcy Code (Title 11 of the United States Code) against National Energy
Group, Inc. (the "Company") in Case No. 398-80258-HCA-11 pursuant to an Amended
Involuntary Petition for an Order for relief Under Chapter 11 filed against
National Energy Group, Inc. by certain of the Company's 10 3/4% Senior Note
Bondholders. Effective as of February 8, 1999 and at the present time,
jurisdiction of the Company and its assets and business has been assumed by the
Court by leaving the existing directors and officers in possession of the assets
and business of the Company but subject to the supervision and order of the
Court.

18
<PAGE> 21

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION

SIGNATURES

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

NATIONAL ENERGY GROUP, INC.

By: /s/ Bob G. Alexander May 14, 1999
-------------------------------------
Bob G. Alexanderr
President and Chief Executive Officer

By: /s/ Melissa H. Rutledge May 14, 1999
------------------------------------
Melissa H. Rutledge
Vice President, Controller and
Chief Accounting Officer

19
<PAGE> 22

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated June 6, 1996, among the
Company, NEG-OK, Inc. ("NEG-OK"), and Alexander Energy
Corporation ("Alexander") (1)

2.2 First Amendment to Agreement and Plan of Merger, dated as of
June 20, 1996, among the Company, NEG-OK, and Alexander (2)

2.3 Mutual Waiver Agreement dated as of August 29, 1996 by and
among the Company, NEG-OK and Alexander (3)

3.1 Certificate of Incorporation of the Company, which includes
the Certificate of Incorporation of the Company filed with the
Secretary of State of Delaware on November 20, 1990 (4), the
Certificate of Elimination of the Redeemable Convertible
Preferred Stock, Series A of the Company, filed with the
office of the Secretary of State of the State of Delaware on
June 2, 1994 (3), the Certificate of Amendment of Certificate
of Incorporation of the Company, filed with the office of the
Secretary of State of the State of Delaware on August 29, 1996
(3), the Certificate of Designations of the Company of 10%
Cumulative Convertible Preferred Stock, Series B (5), the
Certificate of Designations of the Company of 10 1/2%
Cumulative Convertible Preferred Stock, Series (6), the
Certificate of Designations of the Company of Convertible
Preferred Stock, Series D (3), and the Certificate of
Designations of the Company of Convertible Preferred Stock,
Series E (3)

3.2 By-laws of the Company (4)

4.1 Certificate of Designations of the Company of 10% Cumulative
Convertible Preferred Stock, Series B (5)

4.2 Certificate of Designations of the Company of 10 1/2 %
Cumulative Convertible Preferred Stock, Series C (6)

4.3 Certificate of Designations of the Company of Convertible
Preferred Stock, Series D (3)

4.4 Certificate of Designations of the Company of Convertible
Preferred Stock, Series E (3)

4.5 Indenture dated as of November 1, 1996, among the Company,
National Energy Group of Oklahoma, Inc. (the "Guarantor"),
formerly NEG-OK, and BankOne, Columbus, N.A. (7)

4.6 Indenture dated August 21, 1997, among the Company and Bank
One, N.A. (8)

4.7 Instrument of Resignation, Appointment and Acceptance, dated
October 23, 1998, between the Company, Bank One, Texas, N.A.
and Norwest Bank Minnesota, N.A. (9)

27.1 Financial Data Schedule (11)

99.1 Order of Bankruptcy Court Granting Relief on Involuntary (10)
</TABLE>

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

(1) Incorporated by reference to the Company's Registration Statement on
Form S-4 (No. 333-9045), dated July 29, 1996.

(2) Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement on Form S-4 (No. 333-9045), dated August 7,
1996.

(3) Incorporated by reference to the Company's Current Report on Form 8-K,
dated August 29, 1996.

(4) Incorporated by reference to the Company's Registration Statement on
Form S-4 (No. 33-38331), dated April 23, 1991.

(5) Incorporated by reference to the Company's Current Report on Form 8-K,
dated June 17, 1994.

(6) Incorporated by reference to the Company's Current Report on Form 8-K,
dated July 18, 1995.

(7) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.

20
<PAGE> 23

NATIONAL ENERGY GROUP, INC.
DEBTOR-IN-POSSESSION

INDEX TO EXHIBITS (CONT)

(8) Incorporated by reference to the Company's Form S-4 (No. 333-38075),
filed October 16, 1997.

(9) Incorporated by reference to the Company's annual report on Form 10-K
for the year ended December 31, 1998.

(10) Incorporated by reference to the Company's Current Report on Form 8-K,
dated February 8, 1999.

(11) The Financial Data Schedule, is filed herewith for EDGAR filings only.

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,677
<SECURITIES> 295
<RECEIVABLES> 4,248
<ALLOWANCES> (148)
<INVENTORY> 187
<CURRENT-ASSETS> 14,947
<PP&E> 330,890
<DEPRECIATION> 256,899
<TOTAL-ASSETS> 94,743
<CURRENT-LIABILITIES> 210,574
<BONDS> 165,000
405
0
<COMMON> 171
<OTHER-SE> (118,709)
<TOTAL-LIABILITY-AND-EQUITY> 94,743
<SALES> 7,244
<TOTAL-REVENUES> 7,244
<CGS> 1,957
<TOTAL-COSTS> 1,957
<OTHER-EXPENSES> 6,044
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 456
<INCOME-PRETAX> (1,156)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,156)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,156)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)

</TABLE>