NEWFIELD EXPLORATION CO /DE/, S-4/A, 1997-11-17

NEWFIELD EXPLORATION CO /DE/
S-4/A, 1997-11-17
CRUDE PETROLEUM & NATURAL GAS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1997

REGISTRATION NO. 333-39563
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------

NEWFIELD EXPLORATION COMPANY
(Exact name of Registrant as specified in its charter)
---------------------

<TABLE>
<S> <C> <C>
DELAWARE 1311 71-1133047
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
TERRY W. RATHERT
VICE PRESIDENT -- PLANNING
AND ADMINISTRATION
363 N. SAM HOUSTON PARKWAY E. 363 N. SAM HOUSTON PARKWAY E.
SUITE 2020 SUITE 2020
HOUSTON, TEXAS 77060 HOUSTON, TEXAS 77060
(281) 847-6000 (281) 847-6000
(Address, including zip code, and telephone (Name, address, including zip code, and
number, telephone number,
including area code, of registrant's including area code, of agent for service)
principal executive offices)
</TABLE>

Copy to:

JAMES H. WILSON
VINSON & ELKINS L.L.P.
2300 FIRST CITY TOWER
HOUSTON, TEXAS 77002-6760
(713) 758-2222
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable following the effectiveness of this Registration
Statement.

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------

If this Form is a post-effective statement filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2

PROSPECTUS

NEWFIELD EXPLORATION COMPANY
OFFER TO EXCHANGE
7.45% SERIES B SENIOR NOTES DUE 2007
FOR ALL OUTSTANDING 7.45% SENIOR NOTES DUE 2007

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON DECEMBER 19, 1997, UNLESS EXTENDED
---------------------
Newfield Exploration Company, a Delaware corporation (the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal", and together with this Prospectus, the "Exchange Offer"), to
exchange $1,000 principal amount of its 7.45% Series B Senior Notes due 2007
(the "Exchange Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
(as defined herein) of which this Prospectus constitutes a part, for each $1,000
principal amount of its outstanding 7.45% Senior Notes due 2007 (the "Old
Notes"), of which $125,000,000 principal amount is outstanding. The form and
terms of the Exchange Notes are identical in all material respects to the form
and terms of the Old Notes except for certain transfer restrictions and
registration rights relating to the Old Notes. The Exchange Notes will evidence
the same debt as the Old Notes and will be issued under and be entitled to the
benefits of the Indenture (as defined herein). The Exchange Notes and the Old
Notes are collectively referred to herein as the "Notes."

The Notes are senior unsecured obligations of the Company and rank pari
passu in right of payment with all existing and future senior unsecured
obligations of the Company and senior in right of payment to any future
subordinated obligations of the Company.

The Company will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange
Offer expires, which will be December 19, 1997, unless the Exchange Offer is
extended. See "The Exchange Offer -- Expiration Date; Extensions; Amendments."
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date (as defined herein), unless previously
accepted for exchange. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. However, the Exchange
Offer is subject to certain conditions which may be waived by the Company and to
the terms and provisions of the Registration Rights Agreement (as defined
herein). Old Notes may be tendered only in denominations of $1,000 principal
amount and integral multiples thereof. The Company has agreed to pay the
expenses of the Exchange Offer. See "The Exchange Offer."

(Cover continued on next page)

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

SEE "RISK FACTORS" BEGINNING ON PAGE 14 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE
NOTES.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------

The date of this Prospectus is November 17, 1997
<PAGE> 3

The Exchange Notes will bear interest at the rate of 7.45% per annum,
payable semi-annually on April 15 and October 15 of each year, commencing April
15, 1998, to holders of record on the April 1 and October 1 immediately
preceding such interest payment date. Holders of Exchange Notes of record on
April 1, 1998 will receive interest on April 15, 1998 from the date of issuance
of the Exchange Notes, plus an amount equal to the accrued interest on the Old
Notes from the date of issuance of the Old Notes, October 15, 1997, to the date
of exchange thereof. Interest on the Old Notes accepted for exchange will cease
to accrue upon issuance of the Exchange Notes.

The Old Notes were sold by the Company on October 15, 1997 to the Initial
Purchasers (as defined herein) in a transaction not registered under the
Securities Act in reliance upon Section 4(2) of the Securities Act. The Old
Notes were thereupon offered and sold by the Initial Purchasers only to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act), or to non-U.S. persons in reliance on Regulation S under the Securities
Act, each of whom agreed to comply with certain transfer restrictions and other
conditions. Accordingly, the Old Notes may not be offered, resold or otherwise
transferred unless registered under the Securities Act or unless an applicable
exemption from the registration requirements of the Securities Act is available.
The Exchange Notes are being offered hereunder in order to satisfy the
obligations of the Company under the Registration Rights Agreement entered into
with the Initial Purchasers in connection with the offering of the Old Notes.
See "The Exchange Offer" and "Description of Notes -- Registration Covenant;
Exchange Offer."

Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission" or "SEC") to third parties, including
Exxon Capital Holdings Corporation (available April 13, 1989), Morgan Stanley &
Co. Inc. (available June 5, 1991) (the "Morgan Stanley Letter") and Mary Kay
Cosmetics, Inc. (available June 5, 1991), the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by the respective holders thereof (other than a
"Restricted Holder," being (i) a broker-dealer who purchased Old Notes exchanged
for such Exchange Notes directly from the Company to resell pursuant to Rule
144A or any other available exemption under the Securities Act or (ii) a person
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder is not
participating in, and has no arrangement with any person to participate in, the
distribution (within the meaning of the Securities Act) of such Exchange Notes.
Eligible holders wishing to accept the Exchange Offer must represent to the
Company that such conditions have been met. Holders who tender Old Notes in the
Exchange Offer with the intention to participate in a distribution of the
Exchange Notes may not rely upon the Morgan Stanley Letter or similar no-action
letters. See "The Exchange Offer -- General." Each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. A broker-dealer that delivers such a prospectus to
purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations). This Prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has consented to the use of
this Prospectus and any amendment or supplement to this Prospectus by any
broker-dealer for use in connection with any such resale for a period of up to
180 days after consummation of the Exchange Offer. See "Plan of Distribution."

The Company will not receive any proceeds from the Exchange Offer.

The Exchange Notes will constitute a new issue of securities with no
established trading market, and there can be no assurance as to the liquidity of
any markets that may develop for the Exchange Notes or as to the ability of or
price at which the holders of Exchange Notes would be able to sell their
Exchange Notes. Future trading prices of the Exchange Notes will depend on many
factors, including, among

2
<PAGE> 4

others, prevailing interest rates, the Company's operating results and the
market for similar securities. The Company does not intend to apply for listing
of the Exchange Notes on any securities exchange. Goldman, Sachs & Co., Chase
Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
Jefferies & Company, Inc. (together, the "Initial Purchasers") have informed the
Company that they currently intend to make a market for the Exchange Notes.
However, they are not so obligated, and any such market making may be
discontinued at any time without notice. Accordingly, no assurance can be given
that an active public or other market will develop for the Exchange Notes or as
to the liquidity of, or the trading market for, the Exchange Notes.

THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
Available Information....................................... 4
Incorporation of Certain Documents by Reference............. 5
Prospectus Summary.......................................... 6
Risk Factors................................................ 14
Forward-Looking Statements.................................. 20
Private Placement........................................... 20
Use of Proceeds............................................. 20
Capitalization.............................................. 21
Selected Historical Financial Data.......................... 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 30
Management.................................................. 43
The Exchange Offer.......................................... 46
Description of Notes........................................ 53
Certain United States Tax Consequences To Foreign Holders... 64
Plan of Distribution........................................ 66
Legal Matters............................................... 67
Experts..................................................... 67
Glossary of Oil and Gas Terms............................... 68
Index to Financial Statements............................... F-1
</TABLE>

3
<PAGE> 5

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith, files reports and other information with the Commission. The
Registration Statement, such reports and other information may be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: Seven World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials can be
obtained by mail from the Public Reference Section of the Commission, at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a site on the World Wide Web that
contains reports, proxy and information statements and other information filed
electronically by the Company with the Commission which can be accessed over the
Internet at http://www.sec.gov. While any Old Notes remain outstanding, the
Company will make available, upon request, to any holder and any prospective
purchaser of Old Notes, the information required pursuant to Rule 144A(d)(4)
under the Securities Act during any period in which the Company is not subject
to Section 13 or 15(d) of the Exchange Act. Any such request should be directed
to the Secretary of the Company, 363 N. Sam Houston Parkway E., Suite 2020,
Houston, Texas 77060.

This Prospectus constitutes part of a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus omits certain of the information set forth in
the Registration Statement. Reference is hereby made to the Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and the securities offered hereby. Statements contained
herein concerning the provisions of contracts or other documents are not
necessarily complete, and each such statement is qualified in its entirety by
reference to the copy of the applicable contract or other document filed with
the Commission. Copies of the Registration Statement and the exhibits thereto
are on file at the offices of the Commission and may be obtained upon payment of
the fee prescribed by the Commission, or may be examined without charge at the
public reference facilities of the Commission described above.

4
<PAGE> 6

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents have been filed by the Company with the Commission
pursuant to the Exchange Act (File No. 1-12534) and are incorporated herein by
reference:

(1) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;

(2) the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997; and

(3) the Company's Current Reports on Form 8-K filed with the Commission on
May 15, 1997, July 21, 1997, October 1, 1997 and October 20, 1997.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made by this Prospectus shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
thereof. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any or all of the documents that are incorporated by reference
in this Prospectus (not including exhibits to such documents that are
incorporated by reference herein unless such exhibits are specifically
incorporated by reference into such documents). Requests for such copies should
be directed to the Secretary of the Company at 363 N. Sam Houston Parkway E.,
Suite 2020, Houston, Texas 77060. In order to ensure timely delivery of such
documents prior to the Expiration Date, any request should be made by December
12, 1997.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE EXCHANGE AGENT. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. NEITHER THIS
PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER,
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.

5
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, references to "Newfield" or the "Company" shall mean Newfield
Exploration Company and its subsidiaries. Certain terms relating to the oil and
gas business are defined in the "Glossary of Oil and Gas Terms" included in this
Prospectus.

THE COMPANY
OVERVIEW

Newfield is an independent oil and gas company engaged in the exploration,
development and acquisition of oil and natural gas properties located primarily
in the Gulf of Mexico. Newfield discovered and acquired its first oil and gas
reserves in 1990 and has grown rapidly since that time. At June 30, 1997,
Newfield had proved reserves of 379.3 Bcfe with a Present Value of estimated
future pre-tax cash flows of $574 million. Approximately 73% of Newfield's
proved reserves at such date were natural gas and approximately 81% were proved
developed.

Newfield has achieved substantial growth in reserves, production, revenues
and EBITDA since its inception. Newfield's estimated proved reserves have
increased from 23.1 Bcfe as of December 31, 1990 to 379.3 Bcfe as of June 30,
1997, representing a compound annual growth rate of 54%. Similarly, annual
production has increased from 6.0 Bcfe in 1991 to 56.7 Bcfe in 1996,
representing a compound annual growth rate of 57%. Newfield has set a production
target for 1997 of 73.5 Bcfe, a 30% increase from 1996. Newfield's revenues and
EBITDA were $186.6 million and $153.1 million, respectively, for the 12 months
ended September 30, 1997.

Newfield has become a significant operator in the Gulf of Mexico. As of
September 30, 1997, Newfield owned interests in 115 lease blocks in the Gulf of
Mexico and operated over 90 platforms. For the first quarter of 1997, Newfield
was ranked as the fourteenth largest operator in the Gulf of Mexico based on
average operated gross daily production of 414 MMcfe. For September 1997,
Newfield had average operated gross daily production of 494 MMcfe. In addition,
Newfield was the eighth most active driller in the Gulf of Mexico in 1996.

From its inception through June 30, 1997, Newfield has invested $642.5
million in capital expenditures (including acquisition costs) to generate 609.4
Bcfe of proved reserves at an average finding and development cost of $1.05 per
Mcfe. Over that period, Newfield's average cash margin per Mcfe of production
was $1.89, allowing internally generated cash flow to be the principal source
for Newfield's capital investments in oil and gas properties and drilling and
construction activities. Newfield intends to continue to fund a substantial
portion of its capital investments through internally generated cash flow.

STRATEGY

Newfield's strategy is to continue to expand its reserve base and increase
its cash flow through exploration and the acquisition and exploitation of proved
properties. Newfield emphasizes the following elements in implementing this
strategy:

- Reserve growth through exploratory drilling of a balanced portfolio

- Balance between exploration and the acquisition and exploitation of
proved properties

- Geographic focus in the Gulf of Mexico

- Control of operations and costs

- Use of 3-D seismic and other advanced technology

- Equity ownership and other incentives to retain and attract employees

through the acquisition of proved reserves and 27% were added through the
exploitation of opportunities identified and acquired in connection with the
acquisition of proved properties. Newfield's exploration, acquisition and
exploitation activities are complementary. Proved properties acquired by
Newfield usually have exploration or exploitation potential that Newfield has
previously identified. In addition, acquisitions can increase Newfield's
presence in an area, creating the infrastructure to provide Newfield with the
ability to capture other opportunities at a competitive advantage. Information
gathered while evaluating production on acquisition candidates and adjacent
acreage is used, as appropriate, in Newfield's exploration efforts. Conversely,
a successful exploratory prospect may reveal similar untested reserve potential
on an adjacent property, making its purchase attractive.

EXPLORATION ACTIVITIES. Newfield maintains an active, technologically
driven exploration program. During 1996, Newfield invested $48.5 million for
exploration costs, including seismic data, leasehold acquisitions and
exploratory drilling. Newfield allocates its exploration spending between a
small number of higher risk, higher potential prospects which, if successful,
may result in significant increases in proved reserves, and a greater number of
lower risk, moderate potential prospects. From its inception through June 30,
1997, Newfield participated in 83 exploratory wells at a cost to drill and
evaluate of $127.3 million net to Newfield's interest. These wells have resulted
in the discovery of proved reserves of 219.0 Bcfe net to Newfield's interest. Of
these 83 wells, 83% were operated by Newfield. All of the exploratory prospects
drilled by Newfield in 1996 and to date in 1997 were based on 3-D seismic data.
Newfield has budgeted $68.9 million for exploration activities for 1997.

Newfield acquires exploration prospects through federal and state lease
sales, in connection with proved property acquisitions and through farm-ins.
Newfield is continuously evaluating new opportunities and currently has a
substantial inventory of prospects, including seven that are expected to be
drilled prior to December 31, 1997. Recently, Newfield initiated its first
international activity by acquiring an interest in an exploration project
offshore China.

In July 1997, Newfield completed the acquisition of interests in five oil
and gas producing fields comprised of interests in nine offshore blocks in the
East Cameron, West Cameron and High Island areas of the Gulf of Mexico and
offshore Louisiana and Texas for a purchase price of approximately $43 million.
In July 1997, combined production from these fields was approximately 18 MMcfe
per day net to the interests acquired, or approximately 10% of Newfield's net
daily production prior to the acquisition. These nine offshore blocks present
Newfield with several exploratory and development opportunities, which Newfield
is currently pursuing.

DEVELOPMENT ACTIVITIES. Newfield also maintains an active development
program. During 1996, Newfield invested $79.6 million for development costs,
including recompletions and development drilling. From its inception through
June 30, 1997, Newfield participated in 93 development wells at an aggregate
cost, net to Newfield's interest, of $231.3 million. These wells have resulted
in the addition of proved reserves of 158.2 Bcfe. Newfield has budgeted $112.4
million for development activities for 1997.

GEOGRAPHIC FOCUS. Newfield believes that its focus in the federal waters of
the Gulf of Mexico is the foundation for its continued growth. The Gulf of
Mexico is a prolific oil and gas province, accounting for approximately 25% of
domestic natural gas production, and Newfield believes that the Gulf of Mexico
has significant remaining undiscovered reserve potential. Newfield's management
and technical personnel have extensive experience in the Gulf of Mexico, and
Newfield's geographic focus assists it in controlling operating and
administrative costs. The Gulf of Mexico has a substantial existing
infrastructure, including gathering systems, platforms and pipelines, and
numerous drilling and service companies maintain a substantial presence there,
facilitating cost effective operations and the timely development of
discoveries. In addition, significant amounts of geologic data are available at
reasonable cost.
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<PAGE> 9

While Newfield intends to continue to focus on the Gulf of Mexico, it also
intends to pursue selective opportunities to develop "focused diversification"
outside the Gulf of Mexico. Focused diversification efforts will be directed
toward a limited number of areas where Newfield can apply its core competencies,
such as geological and geophysical analyses through the application of 3-D
seismic and other advanced technologies, and control of or significant influence
on operations.

As a natural extension of its operations in the Gulf of Mexico, Newfield
has established onshore Gulf Coast operations in southern Louisiana. The
objective of this onshore effort is to acquire and rejuvenate large producing
fields through the use of 3-D seismic and core competencies that Newfield has
used successfully in the adjacent offshore area.

In May 1997, Newfield acquired the assets and subsidiaries of Huffco
International, L.L.C., which include a 35% working interest in a 415,000 acre
production sharing contract in the Bohai Bay, offshore China, for approximately
$6 million. As part of this acquisition, Newfield also acquired certain rights
and data relating to offshore West Africa and an international database and
added a small international technical staff. The recently drilled initial
exploratory well in the Bohai Bay failed to produce oil or gas and Newfield and
the other participants in the well have agreed to plug and abandon the well.
Newfield anticipates additional exploratory drilling on the property in 1998.
Successful exploratory drilling in the Bohai Bay may result in significant
future investment in this area. Newfield is also actively considering
investments in selected countries in West Africa and Latin America.

CONTROL OF OPERATIONS AND COSTS. Newfield believes that it is one of the
lowest cost producers in the Gulf of Mexico based upon several reports prepared
by analysts that follow the industry. Newfield prefers to operate its properties
in order to manage production performance and to control operating expenses, the
timing and amount of capital expenditures and the application of technology.
Properties operated by Newfield accounted for 89% of its total equivalent
production for 1996.

Newfield's geographic focus enables it to manage a large asset base with a
relatively small number of employees and to add successful exploratory and
development wells and proved property acquisitions at relatively low incremental
costs. Newfield also uses independent contractors for much of its field
operations activities to control costs.

TECHNOLOGY. Newfield uses advanced technology in its exploration and
development activities to reduce its risks and lower its costs. Newfield
currently holds licenses or has access to 3-D seismic surveys covering
approximately 220 blocks in the Gulf of Mexico and 315 square miles in southern
Louisiana, including coverage of 36 producing fields it operates. In addition,
Newfield holds licenses or has access to more than 80,000 miles of recent
vintage 2-D seismic data in the central Gulf of Mexico and to 300,000 miles of
regional 2-D seismic coverage across the Gulf of Mexico, and owns a library
containing logs on more than 4,500 wells drilled in Newfield's focus area.

The availability of 3-D seismic coverage for the Gulf of Mexico at a
reasonable cost makes its use in exploration attractive from a risk management
perspective. The use of 3-D seismic and computer-aided exploration technology
provides Newfield with substantially more accurate and comprehensive geological
data for the evaluation of drilling prospects than use of only 2-D seismic data.

MANAGEMENT AND EMPLOYEES. Newfield's management and 39 technical personnel
have extensive experience in the Gulf of Mexico. Newfield was founded by Joe B.
Foster, former Chairman of Tenneco Oil Company, and 25 former employees of
Tenneco with experience in the Gulf of Mexico. A principal management philosophy
then and today is to incentivize and reward employees through equity ownership
and performance based compensation. As of September 30, 1997, Newfield's
employees owned or had options to acquire an aggregate of approximately 13% of
Newfield's outstanding common stock on a fully diluted basis.

GENERAL

Newfield was incorporated in Delaware in 1988. The address of Newfield's
principal executive offices is 363 North Sam Houston Parkway East, Suite 2020,
Houston, Texas 77060, and its telephone number is (281) 847-6000. Newfield
maintains a web site on the Internet at http://www.newfld.com.
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THE PRIVATE PLACEMENT AND USE OF PROCEEDS

The Old Notes were sold by the Company on October 15, 1997 to the Initial
Purchasers and were thereupon offered and sold by the Initial Purchasers only to
certain qualified buyers. Of the $122.3 million net proceeds received by the
Company in connection with the sale of the Old Notes, $120 million was used to
repay all borrowings outstanding under the Credit Facility. It is anticipated
that the remainder of the net proceeds will be used to provide working capital
to the Company to fund further exploration and development of the Company's oil
and gas properties and the acquisition of oil and gas properties and for other
general corporate purposes. See "Private Placement" and "Capitalization."

THE EXCHANGE OFFER

The Exchange Offer relates to the exchange of up to $125,000,000 principal
amount of Exchange Notes for up to $125,000,000 principal amount of Old Notes.
The form and terms of the Exchange Notes are identical in all material respects
to the form and terms of the Old Notes except that the Exchange Notes have been
registered under the Securities Act and will not contain certain transfer
restrictions and hence are not entitled to the benefits of the Registration
Rights Agreement relating to the contingent increases in the interest rate
provided for pursuant thereto. The Exchange Notes will evidence the same debt as
the Old Notes and will be issued under and be entitled to the benefits of the
Indenture governing the Old Notes. See "Description of Notes."

THE EXCHANGE OFFER......... Each $1,000 principal amount of Exchange Notes will
be issued in exchange for each $1,000 principal
amount of outstanding Old Notes. As of the date
hereof, $125,000,000 principal amount of Old Notes
are issued and outstanding. The Company will issue
the Exchange Notes to tendering holders of Old
Notes on or promptly after the Expiration Date.

RESALE..................... The Company believes that the Exchange Notes issued
pursuant to the Exchange Offer generally will be
freely transferable by the holders thereof without
registration or any prospectus delivery requirement
under the Securities Act, except for certain
Restricted Holders who may be required to deliver
copies of this Prospectus in connection with any
resale of the Exchange Notes issued in exchange for
such Old Notes. See "The Exchange Offer -- General"
and "Plan of Distribution."

EXPIRATION DATE............ 5:00 p.m., New York City time, on December 19,
1997, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments."

INTEREST ON THE NOTES...... The Exchange Notes will bear interest payable
semi-annually on April 15 and October 15 of each
year, commencing April 15, 1998. Holders of
Exchange Notes of record on April 1, 1998 will
receive interest on April 15, 1998 from the date of
issuance of the Exchange Notes, plus an amount
equal to the accrued interest on the Old Notes from
the date of issuance of the Old Notes, October 15,
1997, to the date of exchange thereof.
Consequently, assuming the Exchange Offer is
consummated prior to the record date in respect of
the April 15, 1998 interest payment for the Old
Notes, holders who exchange their Old Notes for
Exchange Notes will receive the same interest
payment on April 15, 1998 that they would have
received had they not accepted the Exchange Offer.
Interest on the Old Notes
9
<PAGE> 11

accepted for exchange will cease to accrue upon
issuance of the Exchange Notes. See "The Exchange
Offer -- Interest on the Exchange Notes."

PROCEDURES FOR TENDERING
OLD NOTES.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, or an
Agent's Message (as defined herein) together with
the Old Notes to be exchanged and any other
required documentation to the Exchange Agent at the
address set forth herein and therein or effect a
tender of Old Notes pursuant to the procedures for
book-entry transfer as provided for herein. See
"The Exchange Offer -- Procedures for Tendering."

SPECIAL PROCEDURES FOR
BENEFICIAL HOLDERS....... Any beneficial holder whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on the
beneficial holder's behalf. If such beneficial
holder wishes to tender directly, such beneficial
holder must, prior to completing and executing the
Letter of Transmittal and delivering the Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in such holder's name or
obtain a properly completed bond power from the
registered holder. The transfer of record ownership
may take considerable time. See "The Exchange
Offer -- Procedures for Tendering."

GUARANTEED DELIVERY
PROCEDURES............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes and
a properly completed Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis
and deliver an Agent's Message, may tender their
Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures."

WITHDRAWAL RIGHTS.......... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date, unless previously accepted for
exchange. See "The Exchange Offer -- Withdrawal of
Tenders."

TERMINATION OF THE EXCHANGE
OFFER.................... The Company may terminate the Exchange Offer if it
determines that the Exchange Offer violates any
applicable law or interpretation of the staff of
the SEC. Holders of Old Notes will have certain
rights against the Company under the Registration
Rights Agreement should the Company fail to
consummate the Exchange Offer. See "The Exchange
Offer -- Termination" and "Description of
Notes -- Registration Covenant; Exchange Offer."
10
<PAGE> 12

ACCEPTANCE OF OLD NOTES
AND DELIVERY OF EXCHANGE
NOTES.................... Subject to certain conditions (as summarized above
in "Termination of the Exchange Offer" and
described more fully in "The Exchange
Offer -- Termination"), the Company will accept for
exchange any and all Old Notes which are properly
tendered in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange
Offer will be delivered promptly following the
Expiration Date. See "The Exchange
Offer -- General."

EXCHANGE AGENT............. First Union National Bank is serving as exchange
agent (the "Exchange Agent") in connection with the
Exchange Offer. The mailing address of the Exchange
Agent is: First Union National Bank, Attention:
Reorg Department, 1525 West W.T. Harris 3C3,
Charlotte, North Carolina 28262. Hand deliveries
and deliveries by overnight courier should also be
sent to the address provided above. For information
with respect to the Exchange Offer, the telephone
number for the Exchange Agent is (704) 590-7408 and
the facsimile number for the Exchange Agent is
(704) 590-7628. See "The Exchange Offer -- Exchange
Agent."

USE OF PROCEEDS............ There will be no cash proceeds payable to the
Company from the issuance of the Exchange Notes
pursuant to the Exchange Offer. See "Use of
Proceeds." For a discussion of the use of the net
proceeds received by the Company from the sale of
the Old Notes, see "Private Placement."

TERMS OF NOTES

NOTES OUTSTANDING.......... $125,000,000 principal amount of 7.45% Senior Notes
due 2007.

MATURITY DATE.............. October 15, 2007.

INTEREST PAYMENT DATES..... April 15 and October 15 of each year, beginning on
April 15, 1998.

OPTIONAL REDEMPTION........ The Notes may be redeemed at any time, at the
option of the Company, in whole or in part, at a
price equal to 100% of the principal amount plus
accrued and unpaid interest (if any) to the date of
redemption plus a Make-Whole Premium (if any)
relating to the then prevailing Treasury Yield and
the remaining life of the Notes.

MANDATORY REDEMPTION....... None.

RANKING.................... The Notes are senior unsecured obligations of the
Company and rank pari passu in right of payment
with any existing and future senior unsecured
indebtedness of the Company, including under its
bank credit facility (the "Credit Facility") and
senior in right of payment to all existing and
future subordinated indebtedness of the Company.

CERTAIN COVENANTS.......... The indenture (the "Indenture") relating to the
Notes contains limitations on, among other things,
the Company's ability to (i) incur indebtedness
secured by certain liens, (ii) engage in certain
sale/leaseback transactions, and (iii) engage in
certain merger, consolidation or reorganization
transactions. See "Description of Notes."
11
<PAGE> 13

SUMMARY HISTORICAL FINANCIAL DATA

The following table sets forth certain historical consolidated financial
data for the Company as of and for each of the periods indicated derived from
the Company's audited consolidated financial statements for the years ended
December 31, 1994, 1995 and 1996 and unaudited consolidated financial statements
for the nine months ended September 30, 1996 and 1997. The following data should
be read in conjunction with the "Selected Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and notes
thereto included elsewhere in this Prospectus. The results for the nine months
ended September 30, 1997 are not necessarily indicative of results for the full
year.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Oil and gas revenues.......................... $ 69,728 $ 94,598 $149,256 $101,774 $139,135
-------- -------- -------- -------- --------
Operating expenses:
Lease operating (including production
taxes).................................... 9,555 14,227 16,946 12,094 17,782
Depreciation, depletion and amortization.... 34,118 49,904 64,026 45,535 67,415
General and administrative, net............. 3,802 5,549 7,552 5,338 8,251
Stock compensation(1)....................... 1,084 692 1,943 1,444 1,005
-------- -------- -------- -------- --------
Total operating expenses............. $ 48,559 $ 70,372 $ 90,467 $ 64,411 $ 94,453
-------- -------- -------- -------- --------
Income from operations........................ $ 21,169 $ 24,226 $ 58,789 $ 37,363 $ 44,682
Interest income (expense), net................ 1,379 780 497 391 (1,015)
-------- -------- -------- -------- --------
Income before income taxes.................... $ 22,548 $ 25,006 $ 59,286 $ 37,754 $ 43,667
Income tax provision.......................... 8,108 8,742 20,792 13,203 15,292
-------- -------- -------- -------- --------
Net income.................................... $ 14,440 $ 16,264 $ 38,494 $ 24,551 $ 28,375
======== ======== ======== ======== ========
OTHER FINANCIAL DATA AND SELECTED RATIOS:
EBITDA(2)..................................... $ 57,029 $ 75,118 $123,732 $ 83,486 $112,865
Capital expenditures.......................... $116,693 $104,185 $163,823 $120,812 $188,338
Net cash provided by operating activities..... $ 68,121 $ 67,640 $127,494 $108,631 $117,270
Ratio of EBITDA to interest expense(3)........ 98.3x 85.2x 64.2x 69.4x 27.0x
Ratio of earnings to fixed charges(4)......... 31.2x 24.1x 28.3x 28.6x 10.5x
Ratio of total debt to EBITDA(5).............. -- 0.4x 0.5x 0.5x 0.8x
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ 10,987 $ 11,235 $ 11,436 $ 9,368 $ 8,849
Oil and gas properties, net................... 173,924 228,509 328,615 304,079 449,944
Total assets.................................. 215,557 277,406 395,938 379,033 506,926
Long-term debt and capital lease obligations,
less current maturities..................... 555 25,152 60,000 56,000 120,000
Stockholders' equity.......................... 169,491 193,571 239,902 223,541 278,240
</TABLE>

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

(1) Stock compensation represents noncash stock compensation charges.

(2) EBITDA represents income from continuing operations plus income taxes,
interest expense and depreciation, depletion and amortization expense.
EBITDA is not presented as an indicator of the Company's operating
performance, an indicator of cash available for discretionary spending or as
a measure of liquidity. EBITDA may not be comparable to other similarly
titled measures of other companies.

(3) On a pro forma basis, assuming the sale of the Notes and the application of
net proceeds therefrom, the ratio of EBITDA to interest expense would be
41.2x for the year ended December 31, 1996 and 38.9x for the nine months
ended September 30, 1997.

(4) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before income taxes plus fixed charges. Fixed charges
consist of interest expense (excluding capitalized interest) and the
estimated interest component of rent expense. On a pro forma basis, assuming
the sale of the Notes and the application of net proceeds therefrom, the
ratio of earnings to fixed charges would be 18.8x for the year ended
December 31, 1996 and 14.9x for the nine months ended September 30, 1997.

(5) For the nine months ended September 30, 1996 and 1997, EBITDA was calculated
using data from the 12 months ended September 30, 1996 and 1997,
respectively. On a pro forma basis, assuming the sale of the Notes and the
application of net proceeds therefrom, the ratio of total debt to EBITDA
would be 1.0x for the twelve months ended December 31, 1996 and 0.8x for the
twelve months ended September 30, 1997.
12
<PAGE> 14

SUMMARY OPERATING DATA

The following table sets forth certain operating information with respect
to the oil and gas operations of the Company.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -----------------
1994 1995 1996 1996 1997
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Production:
Oil and condensate (MBbls)................... 1,394 2,071 2,558 1,842 2,491
Gas (MMcf)................................... 24,267 33,719 41,323 29,826 39,002
Total production (MMcfe)..................... 32,631 46,145 56,670 40,880 53,950
Average realized prices:
Oil and condensate (per Bbl)................. $15.73 $17.23 $20.89 $19.79 $19.26
Gas (per Mcf)................................ 1.97 1.75 2.32 2.19 2.34
Average costs (per Mcfe):
Lease operating (including production
taxes).................................... $ 0.29 $ 0.31 $ 0.30 $ 0.30 $ 0.33
Depreciation, depletion and amortization..... 1.05 1.08 1.13 1.11 1.25
General and administrative, net.............. 0.12 0.12 0.13 0.13 0.15
</TABLE>

SUMMARY OIL AND GAS RESERVE DATA

The following table sets forth summary information with respect to the
Company's estimated proved oil and gas reserves and the estimated future net
cash flows attributable thereto. Unless otherwise noted, all information in this
Prospectus relating to oil and gas reserves and the estimated future net cash
flows attributable thereto are based upon estimates prepared by the Company and
are net to the Company's interest. The Present Value of estimated future net
cash flows (unless otherwise indicated) was prepared using constant prices as of
the calculation date, discounted at 10% per annum on a pre-tax basis. See "Risk
Factors -- Uncertainty of Estimates of Oil and Gas Reserves" and
"Business -- Oil and Gas Reserves."

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------
1994 1995 1996 AS OF JUNE 30, 1997
-------- -------- -------- -------------------
<S> <C> <C> <C> <C>
Proved Reserves:
Oil and condensate (MBbls)............ 8,610 9,633 13,659 16,886
Gas (MMcf)............................ 153,967 203,580 241,385 277,986
Gas Equivalent (MMcfe)................ 205,627 261,378 323,339 379,305
Present Value of estimated future
pre-tax net cash flows (in
thousands)............................ $230,594 $364,879 $859,817(1)
Present Value of estimated future
pre-tax net cash flows using June 30,
1997 pricing (in thousands)(2)........ $488,646 $574,150
</TABLE>

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

(1) Calculated using December 31, 1996 prices of $24.15 per Bbl of oil and $4.07
per Mcf of gas.

(2) The Present Value of estimated future pre-tax net cash flows as of the dates
indicated were calculated using June 30, 1997 prices of $17.53 per Bbl of
oil and $2.48 per Mcf of gas.
13
<PAGE> 15

RISK FACTORS

Holders of Old Notes should carefully review the information in this
Prospectus and should particularly consider the following matters in evaluating
the Exchange Offer.

VOLATILITY OF OIL AND GAS PRICES; MARKETABILITY OF PRODUCTION

The Company's revenue, profitability and future rate of growth are
substantially dependent upon the prevailing prices of, and demand for, oil and
natural gas. The Company's ability to maintain or increase its borrowing
capacity and to obtain additional capital on attractive terms is also
substantially dependent upon oil and gas prices. Prices for oil and natural gas
are subject to wide fluctuation in response to relatively minor changes in the
supply of and demand for oil and natural gas, market uncertainty and a variety
of additional factors that are beyond the control of the Company. These factors
include the level of consumer product demand, weather conditions, domestic and
foreign governmental regulations, the price and availability of alternative
fuels, political conditions in the Middle East, the foreign supply of oil and
natural gas, the price of oil and gas imports and overall economic conditions.
From time to time, oil and gas prices have been depressed by excess domestic and
imported supplies. There can be no assurance that current price levels will be
sustained. It is impossible to predict future oil and natural gas price
movements with any certainty. Declines in oil and natural gas prices may
adversely affect the Company's financial condition, liquidity and results of
operations and may reduce the amount of the Company's oil and natural gas that
can be produced economically. Additionally, substantially all of the Company's
sales of oil and natural gas are made in the spot market or pursuant to
contracts based on spot market prices and not pursuant to long-term fixed price
contracts.

From time to time, the Company has utilized and expects to continue to
utilize hedging transactions with respect to a portion of its oil and gas
production to achieve a more predictable cash flow, as well as to reduce its
exposure to price fluctuations. While the use of these hedging arrangements
limits the downside risk of adverse price movements, it may also limit future
revenues from favorable price movements. The use of hedging transactions also
involves the risk that the counterparties will be unable to meet the financial
terms of such transactions. All of the Company's hedging transactions to date
were carried out in the over-the-counter market and the obligations of the
counterparties have been guaranteed by entities with at least an investment
grade credit rating or secured by letters of credit. The Company accounts for
these transactions as hedging activities and, accordingly, gains or losses are
included in oil and gas revenues when the hedged production is delivered.
"Business -- Marketing and Hedging."

In addition, the marketability of the Company's production depends upon the
availability and capacity of gas gathering systems, pipelines and processing
facilities. Federal and state regulation of oil and gas production and
transportation, general economic conditions and changes in supply and demand
could adversely affect the Company's ability to produce and market its oil and
natural gas. If market factors were to change dramatically, the financial impact
on the Company could be substantial. The availability of markets and the
volatility of product prices are beyond the control of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Marketing and
Hedging."

UNCERTAINTY OF ESTIMATES OF OIL AND GAS RESERVES

This Prospectus contains estimates, most of which were prepared by the
Company, of proved oil and gas reserves and the Present Value of estimated
future net cash flows therefrom. Estimating quantities of reserves and future
net cash flows is not an exact science. There are numerous uncertainties
inherent in the process that require assumptions based upon available geologic,
engineering and economic data, including assumptions required by the Commission
as to oil and gas prices, drilling and operating expenses, capital expenditures,
taxes and availability of funds. As a result, any such estimate is inherently
imprecise. Actual prices, production, development expenditures, operating
expenses and quantities of recoverable oil and gas reserves will vary from those
assumed in the estimates and such variances may be significant. Any significant
variance from the assumptions could result in the actual

14
<PAGE> 16

quantity of the Company's reserves and future net cash flow therefrom being
materially different from the estimates set forth in this Prospectus. In
addition, the Company's estimated reserves may be subject to downward or upward
revision, based upon production history, results of future exploration and
development, prevailing oil and gas prices, operating and development costs and
other factors. The Company's properties may also be susceptible to hydrocarbon
drainage from production by other operators on adjacent properties. See
"Business -- Oil and Gas Reserves."

The Present Value of estimated future net cash flows referred to in this
Prospectus should not be construed as the current market value of the estimated
oil and gas reserves attributable to the Company's properties. In accordance
with applicable requirements of the Commission, the estimated discounted future
net cash flows from proved reserves are generally based on prices and costs as
of the date of the estimate, whereas actual future prices and costs may be
materially higher or lower. Actual future net cash flows also will be affected
by factors such as the amount and timing of actual production, changes in
consumption by oil and gas purchasers and changes in governmental regulations or
taxation. The timing of actual future net cash flows from proved reserves, and
thus their actual present value, will be affected by the timing of both the
production and the incurrence of expenses in connection with development and
production of oil and gas properties. In addition, the 10% discount factor,
which is required by the Commission to be used in calculating the Present Value
of estimated future net cash flows for reporting purposes, is not necessarily
the most appropriate discount factor based on interest rates in effect from time
to time and risks associated with the Company or the oil and gas industry in
general.

NEED FOR RESERVE REPLACEMENT

As is generally the case in the Gulf of Mexico, the Company's producing
properties are characterized by a high initial production rate, followed by a
steep decline in production. While production declines vary from property to
property, and vary for any one property from time to time, recent production
declines experienced by the Company equate to a reserve life index (the number
of years a property would produce at a constant rate using current rates of
production) for the Company's proved reserves of approximately 5.7 years as of
December 31, 1996. As a result, the Company must locate and develop or acquire
new oil and gas reserves to replace those being depleted by production. Without
successful exploration or acquisition activities, the Company's reserves and
revenues will decline rapidly. There can be no assurance that the Company will
be able to find and develop or acquire additional reserves. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

DRILLING RISKS; OPERATING DELAYS

Drilling involves numerous risks, including the risk that no commercially
productive natural gas or oil reservoirs will be encountered. The cost of
drilling, completing and operating wells is often uncertain, and drilling
operations may be curtailed, delayed or cancelled as a result of a variety of
factors, including unexpected drilling conditions, pressure or irregularities in
formations, equipment failures or accidents, weather conditions and shortages or
delays in the delivery of equipment. Demand and rates for drilling rigs,
production equipment and related services increased significantly during 1996
and to date in 1997. The Company has experienced delays in obtaining such
equipment and services, and in some instances the costs incurred were higher
than originally budgeted. There can be no assurance as to the success of the
Company's future drilling activities or the availability of equipment and
services.

ACQUISITION RISKS

The successful acquisition of producing properties requires an assessment
of recoverable reserves, future oil and gas prices, operating costs, potential
environmental and other liabilities and other factors. Such assessments are
necessarily inexact and their accuracy is inherently uncertain. In connection
with such an assessment, the Company performs a review of the subject properties
that it believes to be generally consistent with industry practices, which
generally includes on-site inspections and the review of reports filed with the
Minerals Management Service for environmental compliance. Such a review,

15
<PAGE> 17

however, will not reveal all existing or potential problems nor will it permit a
buyer to become sufficiently familiar with the properties to fully assess their
deficiencies and capabilities. Inspections may not always be performed on every
platform or well, and structural environmental problems are not necessarily
observable even when an inspection is undertaken. Even when problems are
identified, the seller may be unwilling or unable to provide effective
contractual protection against all or part of such problems. The Company is
generally not entitled to contractual indemnification for environmental
liabilities and acquires structures on a property on an "as is" basis.

COMPETITION

Competition in the oil and gas industry is intense, particularly with
respect to the acquisition of producing properties and proved undeveloped
acreage. Major and independent oil and gas companies actively bid for desirable
oil and gas properties, as well as for the equipment and labor required to
operate and develop such properties. Many of the Company's competitors have
financial resources and exploration and development budgets that are
substantially greater than those of the Company, which may adversely affect the
Company's ability to compete with these companies.

DEPENDENCE ON KEY PERSONNEL

The Company's operations are dependent upon a relatively small group of
management and technical personnel. The loss of one or more of these individuals
could have a material adverse effect on the Company. See "Management" and
"Business -- Employees."

OPERATING HAZARDS

The Company's operations are subject to the usual hazards incident to the
drilling of oil and gas wells, many of which are beyond the Company's control,
such as cratering, explosions, uncontrollable flows of oil, gas or well fluids,
fires, pollution and other environmental risks. Additional risks include the
risk that no commercially productive oil or natural gas reservoirs will be
encountered and that operations may be curtailed, delayed or cancelled as a
result of numerous factors including title problems, compliance with
governmental requirements and shortages or delays in the delivery of equipment.
In addition, substantially all of the Company's operations currently are
offshore and subject to the additional hazards of marine operations, such as
capsizing, collision and damage or loss from severe weather. These hazards can
cause personal injury and loss of life, severe damage to and destruction of
property and equipment, environmental damage and suspension of operations. In
accordance with industry practice, the Company maintains insurance against some,
but not all, of the risks described above. See "Business -- Operating Hazards
and Insurance."

GOVERNMENTAL REGULATION

Oil and gas operations are subject to various United States federal, state
and local and foreign and international governmental regulations that change
from time to time in response to economic or political conditions. Matters
subject to regulation include discharge permits for drilling operations,
drilling and abandonment bonds, reports concerning operations, the spacing of
wells, and unitization and pooling of properties and taxation. From time to
time, regulatory agencies have imposed price controls and limitations on
production by restricting the rate of flow of oil and gas wells below actual
production capacity in order to conserve supplies of oil and gas. In addition,
the production, handling, storage, transportation and disposal of oil and gas,
by-products thereof and other substances and material produced or used in
connection with oil and gas operations are subject to regulation under federal,
state and local laws and regulations primarily relating to protection of human
health and the environment. The discharge of oil, natural gas or pollutants into
the air, soil or water may give rise to significant liabilities on the part of
the Company and may require the Company to incur substantial remediation costs.
The Company may also be subject to substantial clean-up costs for any toxic or
hazardous substance that may exist under any of its properties. To date,
expenditures related to complying with these laws and for

16
<PAGE> 18

remediation of existing environmental contamination have not been significant in
relation to the results of operations of the Company.

Although the Company believes it is in substantial compliance with all
applicable laws and regulations, the requirements imposed by such laws and
regulations are frequently changed and subject to interpretation. In addition,
the recent trend toward stricter standards in environmental legislation and
regulation is likely to continue. For instance, legislation has been proposed in
Congress from time to time that would reclassify certain crude oil and natural
gas exploration and production wastes as "hazardous wastes," which would make
the reclassified wastes subject to much more stringent handling, disposal and
clean-up requirements. If such legislation were to be enacted, it could have a
significant impact on the operating costs of the Company, as well as the oil and
gas industry in general. The Company could incur substantial costs to comply
with environmental laws and regulations, and the Company is unable to predict
the ultimate cost of compliance with these requirements or their effect on its
production. See "Business -- Regulation."

RISKS OF FOREIGN OPERATIONS; EFFECTIVE SUBORDINATION OF THE NOTES

While the Company intends to continue to focus on the Gulf of Mexico, the
Company also intends to pursue selective opportunities to develop "focused
diversification" outside the Gulf of Mexico. In May 1997, the Company acquired
the assets and subsidiaries of Huffco International, L.L.C., which include a 35%
working interest in a 415,000 acre production sharing contract in the Bohai Bay,
offshore China. The Company also acquired certain rights and data relating to
offshore West Africa, an international database and added a small international
technical staff. The recently drilled initial exploratory well in the Bohai Bay
failed to produce oil or gas and Newfield and the other participants in the well
have agreed to plug and abandon the well. Newfield anticipates additional
exploratory drilling on the property in 1998. Successful exploratory drilling in
the Bohai Bay may result in significant future investment in this area. Newfield
is also actively considering investments in selected countries in West Africa
and Latin America. Ownership of property interests and production operations in
China, and in any other areas outside the United States in which the Company may
choose to do business, are subject to the various risks inherent in foreign
operations. These risks may include, among other things, currency restrictions
and exchange rate fluctuations, loss of revenue, property and equipment as a
result of hazards such as expropriation, nationalization, war, insurrection and
other political risks, risks of increases in taxes and governmental royalties,
renegotiation of contracts with governmental entities and quasi-governmental
agencies, change in laws and policies governing operations of foreign-based
companies and other uncertainties arising out of foreign government sovereignty
over the Company's international operations. The Company's international
operations may also be adversely affected by laws and policies of the United
States affecting foreign trade, taxation and investment. In addition, in the
event of a dispute arising from foreign operations, the Company may be subject
to the exclusive jurisdiction of foreign courts or may not be successful in
subjecting foreign persons to the jurisdiction of the courts of the United
States.

The Company's international operations are owned and operated by
subsidiaries organized in foreign jurisdictions, and the Company intends to
continue this practice with respect to any new international operations. As a
result, the Notes will be effectively subordinated to claims of holders of any
preferred stock and claims of creditors (other than the Company) of the
Company's international subsidiaries, including trade creditors, secured
creditors, taxing authorities, creditors holding guarantees, and tort claimants.
In the event of a liquidation, reorganization, or similar proceeding relating to
an international subsidiary, these persons generally will have priority as to
the assets of such subsidiary over the claims and equity interests of the
Company and, thereby indirectly, holders of the Notes. Huffco International,
L.L.C. retained a preferred stock interest in the subsidiary of the Company that
owns the interest in the Bohai Bay production sharing contract. Such preferred
stock interest is economically similar to a 10% net profits interest in the
Bohai Bay activities of such subsidiary. A director and an executive officer of
Newfield together held in excess of 90% of the outstanding member interests of
Huffco International, L.L.C.

17
<PAGE> 19

SUBSTANTIAL CAPITAL REQUIREMENTS

The Company makes, and will continue to make, substantial expenditures for
the development, exploration, acquisition and production of oil and natural gas
reserves. The Company made capital expenditures, including exploration expense,
of $104.2 million during 1995 and $163.8 million during 1996. The Company plans
to make capital expenditures, including exploration expense but not including
expenditures for acquisitions, of approximately $181.3 million in 1997.
Management believes that the Company will have sufficient cash provided by
operating activities, borrowings under the Credit Facility and the proceeds from
the Offering to fund planned capital expenditures in 1997 and 1998. However, if
revenues or cash flows from operations decrease as a result of lower oil and
natural gas prices or operating difficulties, the Company may be limited in its
ability to expend the capital necessary to undertake or complete its drilling
program, or it may be forced to raise additional debt or equity proceeds to fund
such expenditures. There can be no assurance that additional debt or equity
financing or cash generated by operations will be available to meet these
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

ABSENCE OF PUBLIC MARKET FOR THE NOTES

The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. The Old Notes have not been
registered under the Securities Act and will remain subject to restrictions on
transferability to the extent that they are not exchanged for the Exchange
Notes. Although the Exchange Notes will generally be permitted to be resold or
otherwise transferred by the holders thereof without compliance with the
registration requirements under the Securities Act, they will constitute a new
issue of securities with no established trading market. The Exchange Offer will
not be conditioned upon any minimum or maximum aggregate principal amount of Old
Notes being tendered for exchange. No assurance can be given as to the liquidity
of the trading market for the Exchange Notes, or, in the case of non-tendering
holders of Old Notes, the trading market for the Old Notes following the
Exchange Offer.

The Company does not intend to apply for listing of the Exchange Notes or
the Old Notes on any securities exchange or stock market. The Exchange Notes are
expected to be eligible for trading in the Private Offerings, Resale and Trading
through Automated Linkages ("PORTAL") market. Although the Initial Purchasers
have informed the Company that they currently intend to make a market in the
Exchange Notes and the Old Notes, the Initial Purchasers are not obligated to do
so, and any such market making may be discontinued at any time without notice.
The liquidity of any market for the Exchange Notes or the Old Notes will depend
upon the number of holders of the Exchange Notes or the Old Notes, the interest
of securities dealers in making a market in the Exchange Notes or the Old Notes
and other factors. Accordingly, there can be no assurance as to the development
or liquidity of any market for the Exchange Notes or the Old Notes.

The liquidity of, and trading market for the Exchange Notes or the Old
Notes also may be adversely affected by general declines in the market for
similar securities. Such a decline may adversely affect such liquidity and
trading markets independent of the financial performance of, and prospects for,
the Company.

The Old Notes have not been registered under the Securities Act or any
state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Old Notes which
remain outstanding after consummation of the Exchange Offer will continue to
bear a legend reflecting such restrictions on transfer. In addition, upon
consummation of the Exchange Offer, holders of Old Notes which remain
outstanding will not be entitled to any rights to have such Old Notes registered
under the Securities Act or to any similar rights under the Registration Rights
Agreement. The Company does not intend to register under the Securities Act any
Old Notes which remain outstanding after consummation of the Exchange Offer.

18
<PAGE> 20

The Registration Rights Agreement provides, under certain circumstances,
for additional interest to become payable in respect of the Old Notes as
liquidated damages. Following consummation of the Exchange Offer, any
outstanding Old Notes will not be entitled to any such increase in the interest
rate thereon.

To the extent that Old Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Old Notes could be adversely
affected. In addition, any trading market for Old Notes which remain outstanding
after the Exchange Offer could be adversely affected.

The Exchange Notes and any Old Notes which remain outstanding after
consummation of the Exchange Offer will constitute a single class of Notes under
the Indenture and, accordingly, will vote together for purposes of determining
whether holders of the requisite percentage in outstanding principal amount
thereof have taken certain actions or exercised certain rights under the
Indenture.

Delivery of Exchange Notes in exchange for Old Notes tendered and accepted
for exchange pursuant to the Exchange Offer, will be made only after timely
receipt by the Exchange Agent of (i) certificates for Old Notes or a book-entry
confirmation of a book-entry transfer of Old Notes into the Exchange Agents
account at DTC, including an Agent's Message if the tendering holder does not
deliver a Letter of Transmittal, (ii) a completed and signed Letter of
Transmittal (or facsimile thereof) with any required signature guarantees, or,
in the case of a book-entry transfer, an Agent's Message in lieu of the Letter
of Transmittal, and (iii) any other documents required by the Letter of
Transmittal. Therefore, holders of Old Notes desiring to tender such Old Notes
in exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. The Company is not under a duty to give notification of defects or
irregularities with respect to the tenders of Old Notes for exchange.

19
<PAGE> 21

FORWARD-LOOKING STATEMENTS

This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this
Prospectus, including without limitation statements under "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" regarding planned capital expenditures,
the availability of capital resources to fund capital expenditures, estimates of
proved reserves, the number of anticipated wells to be drilled in 1997 and
thereafter, the Company's financial position, business strategy and other plans
and objectives for future operations, are forward-looking statements. Although
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. There are numerous uncertainties inherent in
estimating quantities of proved oil and natural gas reserves and in projecting
future rates of production and timing of development expenditures, including
many factors beyond the control of the Company. Reserve engineering is a
subjective process of estimating underground accumulations of oil and natural
gas that cannot be measured in an exact way, and the accuracy of any reserve
estimate is a function of the quality of available data and of engineering and
geological interpretation and judgment. As a result, estimates made by different
engineers often vary from one another. In addition, results of drilling, testing
and production subsequent to the date of an estimate may justify revisions of
such estimate and such revisions, if significant, would change the schedule of
any further production and development drilling. Accordingly, reserve estimates
are generally different from the quantities of oil and natural gas that are
ultimately recovered. Additional important factors that could cause actual
results to differ materially from the Company's expectations are disclosed under
"Risk Factors" and elsewhere in this Prospectus. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by such factors.

PRIVATE PLACEMENT

On October 15, 1997, the Company completed the private sale to the Initial
Purchasers of $125,000,000 principal amount of the Old Notes in a transaction
not registered under the Securities Act in reliance upon Section 4(2) of the
Securities Act. The Initial Purchasers thereupon offered and resold the Old
Notes only to qualified institutional buyers and non-U.S. persons. Of the $122.3
million net proceeds received by the Company in connection with the sale of the
Old Notes, $120 million was used to repay all borrowings outstanding under the
Credit Facility. It is anticipated that the remainder of the net proceeds will
be used to provide working capital to the Company to fund further exploration
and development of the Company's oil and gas properties and the acquisition of
oil and gas properties and other general corporate purposes.

USE OF PROCEEDS

The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange a like
principal amount of Old Notes, the terms of which are identical in all material
respects to the Exchange Notes. The Old Notes surrendered in exchange for the
Exchange Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the Exchange Notes will not result in any change in the
capitalization of the Company.

20
<PAGE> 22

CAPITALIZATION

The following table sets forth as of September 30, 1997, (i) the unaudited
historical capitalization of the Company and (ii) the capitalization of the
Company as adjusted to give effect to the issuance of the Notes and the
application of the net proceeds of $122.3 million therefrom as described under
"Private Placement." The table should be read in conjunction with the
consolidated financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Credit Facility........................................... $120,000 $ --
7.45% Senior Notes due 2007............................... -- 125,000
-------- --------
Total long-term debt.............................. 120,000 125,000
-------- --------
Stockholders' equity
Preferred stock ($0.01 par value; 5,000,000 shares
authorized; no shares issued).......................... -- --
Common Stock ($0.01 par value; 100,000,000 shares
authorized; issued and outstanding).......... 359 359
Additional paid-in capital.................................. 159,265 159,265
Unearned compensation....................................... (4,764) (4,764)
Retained earnings........................................... 123,380 123,380
-------- --------
Total stockholders' equity........................ 278,240 278,240
-------- --------
Total capitalization............................ $398,240 $403,240
======== ========
</TABLE>

21
<PAGE> 23

SELECTED HISTORICAL FINANCIAL DATA

The following table sets forth certain historical consolidated financial
data for the Company as of and for each of the periods indicated derived from
the Company's audited consolidated financial statements for the years ended
December 31, 1992, 1993, 1994, 1995 and 1996 and unaudited consolidated
financial statements for the nine months ended September 30, 1996 and 1997. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and notes thereto included elsewhere in this
Prospectus. The results for the nine months ended September 30, 1997 are not
necessarily indicative of results for the full year.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Oil and gas revenues....................... $41,427 $ 60,178 $ 69,728 $ 94,598 $149,256 $101,774 $139,135
------- -------- -------- -------- -------- -------- --------
Operating expenses:
Lease operating (including production
taxes)................................. 4,151 7,096 9,555 14,227 16,946 12,094 17,782
Depreciation, depletion and
amortization........................... 18,709 25,116 34,118 49,904 64,026 45,535 67,415
General and administrative, net.......... 1,956 3,709 3,802 5,549 7,552 5,338 8,251
Stock compensation(1).................... -- 3,235 1,084 692 1,943 1,444 1,005
------- -------- -------- -------- -------- -------- --------
Total operating expenses........... $24,816 $ 39,156 $ 48,559 $ 70,372 $ 90,467 $ 67,411 $ 94,453
------- -------- -------- -------- -------- -------- --------
Income from operations..................... $16,611 $ 21,022 $ 21,169 $ 24,226 $ 58,789 $ 37,363 $ 44,682
Interest income (expense), net............. 423 759 1,379 780 497 391 (1,015)
------- -------- -------- -------- -------- -------- --------
Income before income taxes................. $17,034 $ 21,781 $ 22,548 $ 25,006 $ 59,286 $ 37,754 $ 43,667
Income tax provision....................... 5,787 7,753 8,108 8,742 20,792 13,203 15,292
------- -------- -------- -------- -------- -------- --------
Net income................................. $11,247 $ 14,028 $ 14,440 $ 16,264 $ 38,494 $ 24,551 $ 28,375
======= ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA AND SELECTED RATIOS:
EBITDA(2).................................. $35,766 $ 46,951 $ 57,029 $ 75,118 $123,732 $ 83,486 $112,865
Capital expenditures....................... $34,896 $ 43,245 $116,693 $104,185 $163,823 $120,812 $188,338
Net cash provided by operating
activities............................... $30,980 $ 38,569 $ 68,121 $ 67,640 $127,494 $108,631 $117,270
Ratio of EBITDA to interest expense(3)..... 251.9x 271.4 98.3x 85.2x 64.2x 69.4x 27.0x
Ratio of earnings to fixed charges(4)...... 81.1x 82.3x 31.2x 24.1x 28.3 28.6x 10.5x
Ratio of total debt to EBITDA(5)........... -- -- -- 0.4x 0.5x 0.5x 0.8x
RESERVE DATA:
Proved reserves (MMcfe).................... 97,033 140,745 205,627 261,378 323,339 N/A N/A
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital............................ $ 8,196 $ 70,268 $ 10,987 $ 11,235 $ 11,436 $ 9,368 $ 8,849
Oil and gas properties, net................ 74,952 91,136 173,924 228,509 328,615 304,079 449,944
Total assets............................... 95,988 183,683 215,557 277,406 395,938 379,033 506,926
Long-term debt and capital lease
obligations, less current maturities..... 399 446 555 25,152 60,000 56,000 120,000
Stockholders' equity....................... 77,934 152,845 169,491 193,571 239,902 223,541 278,240
</TABLE>

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

(1) Stock compensation represents noncash stock compensation charges.

(4) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before income taxes plus fixed charges. Fixed charges
consist of interest expense. On a pro forma basis, assuming the sale of the
Notes and the application of net proceeds therefrom, the ratio of earnings
to fixed charges would be 18.8x for the year ended December 31, 1996 and
14.9x for the nine months ended September 30, 1997.

22
<PAGE> 24

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist in an understanding of the
Company's consolidated financial position and results of operations for each
year of the three-year period ended December 31, 1996 and the nine months ended
September 30, 1996 and 1997. The Company's historical consolidated financial
statements and the notes thereto included elsewhere in this Prospectus contain
detailed information that should be referred to in conjunction with the
following discussion.

GENERAL

As an independent oil and gas producer, the Company's revenue,
profitability and future rate of growth are substantially dependent upon
prevailing prices for natural gas, oil and condensate, which are dependent upon
numerous factors beyond the Company's control, such as economic, political and
regulatory developments and competition from other sources of energy. The energy
markets have historically been very volatile and there can be no assurance that
oil and gas prices will not be subject to wide fluctuations in the future. A
substantial or extended decline in oil and gas prices could have a material
adverse effect on the Company's financial position, results of operations, cash
flows, quantities of oil and gas reserves that may be economically produced and
access to capital.

The Company's results of operations may vary significantly from quarter to
quarter as a result of development operations, commodity prices, the curtailment
of production in association with workover and recompletion activities and the
incurrence of expenses related thereto, the timing and amount of reimbursement
for customary overhead costs received by the Company and other factors, and,
therefore, the results of operations for any one quarter may not be indicative
of results for the full fiscal year.

The Company uses the full cost method of accounting for its oil and gas
properties. Under this method, all acquisition, exploration and development
costs, including certain related employee costs (less any reimbursements for
such costs) incurred for the purpose of acquiring and finding oil and gas
reserves are capitalized in a "full cost pool" as incurred. The Company records
depletion of its full cost pool using the unit of production method and uses its
internal estimates of proved quantities of oil and gas reserves for financial
accounting matters. To the extent that such capitalized costs in the full cost
pool (net of depreciation, depletion and amortization and related deferred
taxes) exceed the present value (using a 10% discount rate) of estimated future
net after-tax cash flows from proved oil and gas reserves, such excess costs are
charged to operations. Once incurred, a write-down of oil and gas properties is
not reversible at a later date even if oil or gas prices increase.

In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("Statement No. 128"). The statement specifies the computation, presentation,
and disclosure requirements for earnings per share ("EPS") and is designed to
improve the EPS information provided in the financial statements by simplifying
the existing computation. When adopted, this statement is expected to result in
an insignificant increase in the Company's basic EPS. The Company will adopt the
provisions of the statement in its 1997 year-end financial statements.

In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information About Capital Structure"
("Statement No. 129"). The statement consolidates the existing requirements to
disclose certain information about an entity's capital structure, for both
public and nonpublic entities. In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("Statement No. 130"). The statement establishes standards for reporting and
display of comprehensive income and its components. In June 1997, the FASB
issued Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("Statement No. 131"). The
statement specifies revised guidelines for determining an entity's operating and
geographic segments and the type and level of financial information about those
segments to be disclosed. The Company will adopt the provisions of Statements
No. 129, 130 and 131 in its 1998 financial statements. The Company does not
believe that

23
<PAGE> 25

the adoption of Statements No. 129, 130 and 131 will have a material effect on
its results of operations or the calculation of net income.

RESULTS OF OPERATIONS

The following table sets forth certain operating information with respect
to the oil and gas operations of the Company:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Production:
Oil and condensate (MBbls)............. 1,394 2,071 2,558 1,842 2,491
Gas (MMcf)............................. 24,267 33,719 41,323 29,826 39,002
Total production (MMcfe)............... 32,631 46,145 56,670 40,880 53,950
Average realized prices:
Oil and condensate (per Bbl)........... $ 15.73 $ 17.23 $ 20.89 $ 19.79 $ 19.26
Gas (per Mcf).......................... 1.97 1.75 2.32 2.19 2.34
Average costs (per Mcfe):
Lease operating (including production
taxes).............................. $ 0.29 $ 0.31 $ 0.30 $ 0.30 $ 0.33
Depreciation, depletion and
amortization........................ 1.05 1.08 1.13 1.11 1.25
General and administrative, net........ 0.12 0.12 0.13 0.13 0.15
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996

PRODUCTION. Net production increased 32%, from 40.9 Bcfe for the nine
months ended September 30, 1996, to 54.0 Bcfe for the nine months ended
September 30, 1997. Oil and condensate production for the nine months ended
September 30, 1997 increased 649 MBbls, or 35%, compared to the same period of
1996. Increased oil production for the first nine months of 1997 was due
primarily to production increases from development drilling activities during
1996 at South Timbalier 148 and Ewing Bank 947, the acquisition of Ship Shoal 69
in the third quarter of 1996 and a well drilled and placed on production late in
the fourth quarter of 1996 at Vermilion 398. Gas production increased by 9.2
Bcf, or 31%, from 29.8 Bcf for the nine months ended September 30, 1996 to 39.0
Bcf for the comparable period of 1997. Increased gas production was due to
production increases from development drilling activities during 1996 at Ewing
Bank 947, South Timbalier 148 and West Delta 152 and wells drilled and placed on
production during the fourth quarter of 1996 at Vermilion 308 and 398. These
increases were partially offset by natural production decline on other
properties of the Company.

OIL AND GAS REVENUES. Oil and gas revenues for the nine months ended
September 30, 1997 increased by $37.4 million, or 37%, compared to the same
period of 1996, primarily as a result of increased oil and gas production and
higher realized gas prices. The average realized price of natural gas increased
by 6.8%.

For the nine months ended September 30, 1997, the average realized gas
price was $2.34 per Mcf, which, as a result of hedging activities, was 95% of
the $2.46 per Mcf average gas sales price that would have otherwise been
received. As a result of hedging activities for gas production for the nine
months ended September 30, 1996, the Company realized an average gas price of
$2.19 per Mcf, or 84% of the $2.60 per Mcf average gas sales price that would
have otherwise been received. There were no oil hedging activities for the nine
months ended September 30, 1997. For the nine months ended September 30, 1996,
the average realized oil and condensate price was $19.79, which, as a result of
hedging activities, was 98% of the $20.15 per barrel average oil and condensate
sales price that would have otherwise been received.

LEASE OPERATING EXPENSE. Lease operating expense for the nine months ended
September 30, 1997 increased to $17.8 million from $12.1 million for the
comparable period of 1996. Lease operating

24
<PAGE> 26

expense per Mcfe increased from $0.30 for the nine months ended September 30,
1996 to $0.33 for the comparable period of 1997. These increases are primarily
attributable to a general increase in costs in the oilfield service industry,
increased workover activities, and lease operating costs associated with
properties acquired after September 30, 1996.

DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE. During the nine months
ended September 30, 1997, depreciation, depletion, and amortization expense
increased to $67.4 million from $45.5 million for the comparable period of 1996.
The increase was the result of an increased depletion rate per Mcfe and
production increases from acquisitions and exploratory and development drilling
activities during 1996 and 1997. The depletion rate per unit for the nine month
period ended September 30, 1997 increased to $1.25 per Mcfe from $1.11 per Mcfe
for the comparable period of 1996. The increase in the depletion rate per unit
is primarily attributable to increased costs of drilling goods and services,
platform and facilities construction and transportation services in the
industry.

GENERAL AND ADMINISTRATIVE EXPENSE, NET. General and administrative
expense, which is net of overhead reimbursements received by the Company from
other working interest owners, increased to $8.3 million, or $0.15 per Mcfe for
the nine month period ended September 30, 1997, as compared to $5.3 million, or
$0.13 per Mcfe, for the same period of 1996. Performance based compensation, as
a component of general and administrative expense, increased from $3.2 million,
or $0.08 per Mcfe, for the nine month period ended September 30, 1996 to $3.8
million, or $0.07 per Mcfe for the nine month period ended September 30, 1997.
Direct costs associated with staff increases during 1996 were partially offset
by joint interest reimbursements. To the extent that the Company continues to
grow and increase its ownership in certain properties, the Company expects
general and administrative expenses, in the aggregate, to continue to increase.

NET INCOME. As a result of the foregoing, the Company had net income of
$28.4 million or $0.75 per share, for the nine month period ended September 30,
1997 as compared to $24.6 million or $0.66 per share for the comparable period
of 1996.

1996 COMPARED TO 1995

PRODUCTION. Net production increased 10.6 Bcfe, or 23%, from 46.1 Bcfe for
1995, to 56.7 Bcfe for 1996. Gas production increased by 7.6 Bcf, or 23%, from
33.7 Bcf for 1995 to 41.3 Bcf for 1996. Increased gas production was due to
production increases at Eugene Island 251/262 and production from wells drilled
and placed on production at Vermilion 355 and Vermilion 297 during the fourth
quarter of 1995 and the first quarter of 1996, respectively. These increases
were partially offset by natural production decline on other properties of the
Company. Oil and condensate production for 1996 increased 487 MBbls, or 24%,
compared to 1995. Increased oil production for 1996 was due primarily to
production increases at Eugene Island 182, Ship Shoal 157 and the acquisition of
Ship Shoal 69 in the third quarter of 1996.

OIL AND GAS REVENUES. Oil and gas revenues for 1996 increased by $54.7
million, or 58%, compared to 1995, primarily as a result of increased oil and
gas production and increased oil and gas prices. The average realized price of
oil and condensate increased by 21% and the average realized price of natural
gas increased by 33%.

For the year ended December 31, 1996, the average realized gas price was
$2.32 per Mcf, which, as a result of hedging activities, was 86% of the $2.70
per Mcf average gas sales price that would have otherwise been received. For the
year ended December 31, 1995, the average realized gas price was $1.75 per Mcf,
which as a result of hedging activities, was 105% of the $1.67 per Mcf average
gas sales price that would have otherwise been received. For 1996, the average
realized oil and condensate price was $20.89 per barrel, which, as a result of
hedging activities, was 99% of the $21.15 per barrel average oil and condensate
sales price that would have otherwise been received. For 1995, oil hedging
activities had a negligible impact on oil and condensate revenues. During 1996,
approximately 54% of the Company's equivalent production was subject to hedge
positions as compared to 42% in 1995.

25
<PAGE> 27

LEASE OPERATING EXPENSE. Lease operating expense for 1996 increased to
$16.9 million from $14.2 million for 1995. Despite a general increase in costs
in the oil service industry, lease operating expense per Mcfe decreased from
$0.31 for 1995 to $0.30 for 1996. The decrease in lease operating expense per
unit is primarily attributable to higher production volumes.

DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE. During 1996,
depreciation, depletion and amortization expense increased to $64.0 million from
$49.9 million for 1995. The increase was the result of an increased depletion
rate per Mcfe and production increases from acquisitions and exploratory and
development drilling activities during 1996. The depletion rate per unit for
1996 increased to $1.13 per Mcfe from $1.08 per Mcfe for 1995. The increase in
the depletion rate per unit is primarily attributable to higher cost reserve
additions associated with proved properties the Company acquired in 1996.

GENERAL AND ADMINISTRATIVE EXPENSE, NET. General and administrative
expense, which is net of overhead reimbursements received by the Company from
other working interest owners, increased to $7.6 million, or $0.13 per Mcfe, for
1996 as compared to $5.5 million, or $0.12 per Mcfe, for 1995. Performance based
compensation, as a component of general and administrative expense, increased
from $2.4 million, or $0.05 per Mcfe, for 1995, to $4.9 million, or $0.09 per
Mcfe, for 1996. Direct costs associated with staff increases during 1996 were
offset to a significant extent by joint interest reimbursements.

STOCK COMPENSATION EXPENSE. Stock compensation expense increased by $1.3
million during 1996 due to the amortization of additional noncash compensation
expense associated with 246,000 shares of restricted stock that were granted in
1996 to employees and 10,000 shares of restricted stock that were granted to
non-employee Directors.

NET INCOME. As a result of the foregoing, the Company had net income of
$38.5 million or $1.03 per share for 1996, as compared to $16.3 million or $0.45
per share for 1995.

1995 COMPARED TO 1994

PRODUCTION. Net production increased 13.5 Bcfe, or 41%, from 32.6 Bcfe for
1994 to 46.1 Bcfe for 1995. During 1995, gas production increased by 9.5 Bcf or
39%, to 33.7 Bcf for 1995 from 24.3 Bcf for 1994. Increased gas production was
due to production increases at Eugene Island 182, the acquisition of South
Timbalier 100 in the second quarter of 1995, and wells drilled and placed on
production during the first quarter of 1995 at Eugene Island 251/262, Main Pass
255/259 and Vermillion 288. These increases were partially offset by natural
production decline on other properties of the Company. Oil and condensate
production for 1995 increased 677 MBbls, or 49%, compared to 1994. Increased oil
and condensate production for 1995 was due primarily to initial production in
1995 following development drilling during 1994 at Eugene Island 182 and Eugene
Island 251/262.

OIL AND GAS REVENUES. Oil and gas revenues for 1995 increased by $24.9
million, or 36%, compared to 1994. The increase was primarily the result of
increased oil and gas production and increased oil and condensate prices,
partially offset by a decrease in gas prices. The average realized price of oil
and condensate increased by 10% and the average realized price of natural gas
decreased by 11%.

As a result of hedging activities for gas production for 1995, the Company
realized an average gas price of $1.75 per Mcf, or 105% of the $1.67 per Mcf
average gas sales price that otherwise would have been received. For 1994, the
average realized gas price was $1.97, which, as a result of hedging activities,
was 102% of the $1.94 per Mcf average gas sales price that would have otherwise
been received. The hedging activities for oil and condensate production for 1995
had a negligible impact on oil and condensate revenues. There were no hedging
activities for oil and condensate production in 1994. During 1995, approximately
42% of the Company's equivalent production was subject to hedge positions as
compared to 16% in 1994.

LEASE OPERATING EXPENSE. Lease operating expense for 1995 increased $4.6
million to $14.2 million from $9.6 million for 1994. Lease operating expense per
Mcfe increased from $0.29 for 1994 to $0.31

26
<PAGE> 28

for 1995. Both increases are primarily attributable to lease operating costs
associated with properties the Company acquired during the first half of 1995,
with the increase per Mcfe partially offset by higher production volumes.

DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE. In 1995, depreciation,
depletion and amortization expense increased to $49.9 million from $34.1 million
in 1994. The increase is attributable to an increased depletion rate per Mcfe
and increased production volumes in 1995 as compared to 1994. The depletion rate
for 1995 increased to $1.08 per Mcfe from $1.05 per Mcfe for 1994.

GENERAL AND ADMINISTRATIVE EXPENSE, NET. General and administrative
expense, which is net of overhead reimbursements received by the Company from
other working interest owners, increased to $5.5 million for 1995 as compared to
$3.8 million for 1994. Direct costs associated with staff increases since the
end of 1994 were offset to a significant extent by program and joint interest
reimbursements.

NET INCOME. As a result of the foregoing, the Company had net income of
$16.3 million, or $0.45 per share, for 1995, an increase of $1.8 million
compared to $14.4 million, or $0.40 per share, for 1994.

LIQUIDITY AND CAPITAL RESOURCES

The Company had $8.8 million of working capital at September 30, 1997
compared to $11.4 million at December 31, 1996. The $2.6 million decrease in
working capital is primarily due to increased drilling activity during the first
nine months of 1997 offset by the impact of increased revenues during the
period. In addition, working capital balances may fluctuate from quarter to
quarter to the extent the Company increases or decreases borrowings under the
Credit Facility. Historically, the Company has funded its oil and gas activities
through cash flow from operations, equity capital from private and public
sources and bank borrowings.

As of September 30, 1997, the Company had entered into commodity price
hedging contracts with respect to its gas production as follows:

<TABLE>
<CAPTION>
FIXED PRICE SWAPS COLLARS FLOOR CONTRACTS
-------------------------- ------------------------------- --------------------------
NYMEX
CONTRACT PRICE
NYMEX PER MMBTU NYMEX
VOLUME IN CONTRACT PRICE VOLUME IN ----------------- VOLUME IN CONTRACT PRICE
PERIOD MMMBTU PER MMBTU MMMBTU FLOOR CEILING MMMBTU PER MMBTU
------ --------- -------------- --------- ----- ------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 1997............ 1,500(1) $2.41 -- -- -- 1,500(1) $2.38
November 1997........... 1,500(2) $3.02 750 $2.78 $3.34 250 $2.95
December 1997........... 1,500(2) $3.10 250 $3.03 $3.85 -- --
-- -- 750 $2.87 $3.70 -- --
January 1998............ 1,500(2) $3.09 250 $3.01 $4.30 -- --
-- -- 750 $2.86 $4.13 -- --
February 1998........... 1,500(2) $2.77 250 $2.67 $4.03 -- --
-- -- 750 $2.59 $3.93 -- --
March 1998.............. 1,500(2) $2.48 250 $2.48 $3.25 750 $2.33
April 1998.............. 500(1) $2.25 -- -- -- -- --
</TABLE>

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

(1) The Company has entered into a basis swap with respect to all of the
indicated volume.

(2) The Company has entered into a basis swap with respect to 50% of the
indicated volume.

27
<PAGE> 29

These hedging transactions are settled based upon the average of the
reported settlement prices on the New York Mercantile Exchange (the "NYMEX") for
the last three trading days of a particular contract month (the "settlement
price"). With respect to any particular swap transaction, the counterparty is
required to make a payment to the Company in the event that the settlement price
for any settlement period is less than the swap price for such transaction, and
the Company is required to make payment to the counterparty in the event that
the settlement price for any settlement period is greater than the swap price
for such transaction. For any particular collar transaction, the counterparty is
required to make a payment to the Company if the settlement price for any
settlement period is below the floor price for such transaction, and the Company
is required to make payment to the counterparty if the settlement price for any
settlement period is above the ceiling price for such transaction. For any
particular floor transaction, the counterparty is required to make a payment to
the Company if the settlement price for any settlement period is below the floor
price for such transaction. The Company is not required to make any payment in
connection with the settlement of a floor transaction.

The Company enters into basis swaps (either as part of a particular hedging
transaction or separately) tied to a particular NYMEX-based transaction to
eliminate basis risk. Because substantially all of the Company's natural gas
production is sold under spot contracts that have historically correlated with
the swap price, the Company believes that it has no material basis risk with
respect to gas swaps that are not coupled with basis swaps.

The Company maintains its reserve-based revolving Credit Facility with The
Chase Manhattan Bank, as agent. The Credit Facility was amended and restated as
of October 9, 1997 in connection with the offering of the Notes. As so amended
and restated, the Credit Facility provides a $125 million revolving credit
maturing on October 31, 2002, improved interest rate pricing grids and
additional flexibility under certain covenants. The amount available under the
Credit Facility is subject to a calculated borrowing base, which base is reduced
by the principal amount of the Notes outstanding at the time of calculation. The
Company has an option, subject to the borrowing base, to increase the facility
to $200 million. As of September 30, 1997, $120 million was outstanding under
the Credit Facility. Subsequent to September 30, 1997, the Company used the net
proceeds from the sale of the Notes to repay all borrowings outstanding under
the Credit Facility. The Company currently has $100 million of borrowing
capacity under the Credit Facility.

The Company's net cash flow from operations for the first nine months of
1997 was $117.3 million compared to $108.6 million for the same period of 1996.
The increase in cash flow was primarily attributable to increases in oil and gas
production and average realized gas prices and changes in operating assets and
liabilities. Net cash flow from operations before changes in operating assets
and liabilities for the first nine months of 1997 was $112.1 million compared to
$85.0 million for the same period of 1996. The increase in net cash flow from
operations before changes in operating assets and liabilities is primarily
attributable to increased oil and gas production. The Company's net cash flow
from operations for 1996 was $127.5 million compared to $67.6 million for 1995.
Net cash flow from operations before changes in operating assets and liabilities
for 1996 was $125.2 million compared to $75.6 million for 1995. The year-to-year
increase in net cash flow from operations before changes in operating assets and
liabilities was primarily attributable to increases in oil and gas production
and higher average realized natural gas and oil prices, partially offset by
higher operating expenses.

Capital expenditures for the nine months ended September 30, 1997 were
$188.3 million, consisting of $53.8 million for exploration, $86.8 million for
development and $47.7 million for proved property acquisitions. Capital
expenditures for 1996 were $163.8 million, consisting of $49.3 million for
exploration, $80.3 million for development and $34.2 million for acquisitions of
properties.

28
<PAGE> 30

The Company's exploration capital expenditure budget for the last quarter
of 1997 is approximately $15.1 million. Development and construction
expenditures for platforms, facilities and pipelines are budgeted to be
approximately $25.5 million for the last quarter of 1997. No significant
abandonment or dismantlement costs are anticipated for the remainder of 1997.
The Company continues to pursue attractive acquisition opportunities. The timing
and size of any acquisition and the associated capital commitments are
unpredictable. Actual levels of capital expenditures may vary significantly due
to many factors, including drilling results, oil and gas prices, industry
conditions, the prices and availability of goods and services and the extent to
which proved properties are acquired. The Company anticipates that these capital
expenditures will be funded principally from cash flow from operations, working
capital, bank borrowings and proceeds from the Offering.

29
<PAGE> 31

BUSINESS
OVERVIEW

Newfield has achieved substantial growth in reserves, production, revenues
and EBITDA since its inception. Newfield's estimated proved reserves have
increased from 23.1 Bcfe as of December 31, 1990 to 379.3 Bcfe as of June 30,
1997, representing a compound annual growth rate of 54%. Similarly, annual
production has increased from 6.0 Bcfe in 1991 to 56.7 Bcfe in 1996,
representing a compound annual growth rate of 57%. Newfield has set a revised
production target for 1997 of 73.5 Bcfe, a 30% increase from 1996. Newfield's
revenues and EBITDA were $186.6 million and $153.1, respectively, for the 12
months ended September 30, 1997.

STRATEGY

- Reserve growth through exploratory drilling of a balanced portfolio

- Balance between exploration and the acquisition and exploitation of
proved properties

- Geographic focus in the Gulf of Mexico

- Control of operations and costs

- Use of 3-D seismic and other advanced technology

- Equity ownership and other incentives to retain and attract employees

Newfield has utilized a balanced approach of exploration and the
acquisition and exploitation of proved properties to grow its reserves,
production and cash flow. Of the 609.4 Bcfe of proved reserves Newfield has
added through June 30, 1997, 36% were added through exploration, 37% were added
through the acquisition of proved reserves and 27% were added through the
exploitation of opportunities identified and acquired in connection with the
acquisition of proved properties. Newfield's exploration, acquisition and
exploitation activities are complementary. Proved properties acquired by
Newfield usually have exploration or exploitation potential that Newfield has
previously identified. In addition, acquisitions can increase Newfield's
presence in an area, creating the infrastructure to provide Newfield with the

30
<PAGE> 32

ability to capture other opportunities at a competitive advantage. Information
gathered while evaluating production on acquisition candidates and adjacent
acreage is used, as appropriate, in Newfield's exploration efforts. Conversely,
a successful exploratory prospect may reveal similar untested reserve potential
on an adjacent property, making its purchase attractive.

ACQUISITION ACTIVITIES. Newfield actively pursues the acquisition of proved
oil and gas properties in the Gulf of Mexico and southern Louisiana,
particularly properties with unexploited reserve potential in order to enhance
returns. Newfield targets properties that it can operate to control operations
and costs and in which it can increase its interest. Acquisitions that meet
these criteria and provide a base for further evaluation and exploitation
adjacent to existing Company production are of particular interest to Newfield.
Newfield pursues a multi-discipline team approach for evaluating acquisition
opportunities. Acquisition candidates undergo extensive technical and financial
evaluation by a group of geologists, geophysicists, geological engineers and
petroleum engineers. Land, drilling, operations and marketing staffs support
these evaluation efforts. Newfield's seismic, land and production databases,
along with regional geological interpretations, supplement any information
provided by a potential seller in the acquisition candidate screening process.

31
<PAGE> 33

gathering systems, platforms and pipelines, and numerous drilling and service
companies maintain a substantial presence there, facilitating cost effective
operations and the timely development of discoveries. In addition, significant
amounts of geologic data are available at reasonable cost.

TECHNOLOGY. Newfield uses advanced technology in its exploration and
development activities to reduce its risks and lower its costs. Newfield
currently holds licenses or has access to 3-D seismic surveys covering
approximately 220 blocks in the Gulf of Mexico and 315 square miles in southern
Louisiana, including coverage of 36 producing fields it operates. In addition,
Newfield holds licenses or has access to more than 80,000 miles of recent
vintage 2-D seismic data in the central Gulf of Mexico and to 300,000 miles of
regional 2-D seismic coverage across the Gulf of Mexico and owns a library
containing logs on more than 4,500 wells drilled in Newfield's focus area.

32
<PAGE> 34

PROPERTIES

Substantially all of the Company's proved properties are located in the
federal waters of the Gulf of Mexico. The more significant proved producing
properties stretch from the West Delta area offshore Louisiana, south-southeast
of New Orleans, to the High Island area offshore Texas, south-southeast of
Houston. These properties lie in water depths that range from 45 feet to 480
feet. For the nine month period ended September 30, 1997, no single field
accounted for more than 15% of the Company's net production. As of September 30,
1997, the Company owns interests in 115 leases and 440 wells and operates 96
platforms, 57 of which are considered major platforms. Major platforms are those
that have six or more wells or two pieces of production equipment.

The Company's eight largest properties accounted for approximately 56% of
the Company's equivalent proved reserves at June 30, 1997, but no single
property held more than 12% of the Company's equivalent proved reserves as of
such date, nor did any single property hold more than 15% of the net present
value of the proved reserves as of such date.

The Company owns interests in two proved producing properties onshore south
Louisiana, in Cameron and Acadia parishes. Additionally, the Company owns
unproved acreage in and adjacent to these producing properties and in other
coastal parishes in Louisiana.

OIL AND GAS RESERVES

The following table sets forth estimated net proved oil and gas reserves of
the Company and the present value of estimated future pre-tax net cash flows
related to such reserves as of June 30, 1997. Unless otherwise noted, all
information in this Prospectus relating to oil and gas reserves and the
estimated future net cash flows attributable thereto are based upon estimates
prepared by the Company and are net to the Company's interest. The Present Value
of estimated future net cash flows was prepared using constant prices as of the
calculation date, discounted at 10% per annum on a pre-tax basis.

<TABLE>
<CAPTION>
PROVED RESERVES
------------------------------------
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- --------
<S> <C> <C> <C>
Oil and condensate (MBbls).................... 15,262 1,624 16,886
Gas (MMcf).................................... 215,716 62,270 277,986
Total proved reserves (MMcfe)................. 307,290 72,015 379,305
Present value of estimated future pre-tax net
cash flows (in thousands)................... $492,663 $81,487 $574,150
</TABLE>

Ryder Scott Company, Petroleum Engineers ("Ryder Scott"), has prepared
estimates of the Company's proved reserves and future net cash flows therefrom
as of December 31, 1992, 1993, 1994, 1995 and 1996. Ryder Scott's estimates of
equivalent proved reserves were 100.3%, 97.8%, 106.0%, 100.5% and 96.3%,
respectively, of the Company's estimates of proved reserves for the same
periods. Ryder Scott's estimates of the present value of future pre-tax net cash
flows attributable to the Company's proved reserves were 105.7%, 102.4%, 107.9%,
102.4% and 93.7% respectively, of the Company's estimates for the same periods.

There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves and in projecting future rates of production and
timing of development expenditures, including many factors beyond the control of
the producer. The reserve data set forth herein represents estimates only.
Reserve engineering is a subjective process of estimating underground
accumulations of oil and gas that cannot be measured in an exact way, and the
accuracy of any reserve estimate is a function of the quality of available data
and of engineering and geological interpretation and judgment. As a result,
estimates made by different engineers often vary from one another. In addition,
results of drilling, testing, and production subsequent to the date of an
estimate may justify revision of such estimates, and such revisions may be
material. Accordingly, reserve estimates are generally different from the
quantities of oil

33
<PAGE> 35

and gas that are ultimately recovered. Furthermore, the estimated future net
revenues from proved reserves and the present value thereof are based upon
certain assumptions, including future prices, production levels and costs, that
may not prove correct.

As is generally the case in the Gulf of Mexico, the Company's producing
properties are characterized by a high initial production rate, followed by a
steep decline in production. As a result, the Company must locate and develop or
acquire new oil and gas reserves to replace those being depleted by production.
Without successful exploration or acquisition activities, the Company's reserves
and revenues will decline rapidly.

As an operator of domestic oil and gas properties, the Company has filed
Department of Energy Form EIA-23, "Annual Survey of Oil and Gas Reserves," as
required by Public Law 93-275. There are differences between the reserves as
reported on Form EIA-23 and as reported herein. The differences are attributable
to the fact that Form EIA-23 requires that an operator report on the total
reserves attributable to wells that are operated by it, without regard to
ownership (i.e., reserves are reported on a gross operated basis, rather than on
a net interest basis).

FINDING COSTS

The following table sets forth certain information regarding the costs
associated with finding, acquiring and developing the Company's proved oil and
gas reserves:

<TABLE>
<CAPTION>
COST TO FIND
CAPITALIZED RESERVES AND
COSTS(1) ADDED DEVELOP
(IN THOUSANDS) (MMCFE) (PER MCFE)
-------------- -------- ------------
<S> <C> <C> <C>
1992........................................ $ 34,777 39,257 $0.89
1993........................................ 43,126 72,164(2) 0.60(2)
1994........................................ 116,476 97,513 1.19
1995........................................ 103,511 102,580 1.01
1996........................................ 162,315 119,050 1.36
1997 (through June 30)...................... 112,403 94,101 1.19
-------- ------- -----
Five-and-one-half-year period ended June
30, 1997............................... $572,608 524,665 $1.09
======== ======= =====
</TABLE>

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

(1) Capitalized costs represent all capitalized expenditures of the Company as
shown in the following table under the caption "-- Development, Exploration
and Acquisition Capital Expenditures," excluding interest capitalized.

(2) Reserves added during 1993 include 10,088 MMcfe of reserves attributable to
the Company's reversionary interests in certain properties that had not
previously been included in the reserve estimates. Cost to find and develop
per Mcfe for 1993 is $0.69 without taking into account the addition of
reserves attributable to such reversionary interests. See "-- Oil and Gas
Reserves."

34
<PAGE> 36

DEVELOPMENT, EXPLORATION AND ACQUISITION CAPITAL EXPENDITURES

The following table sets forth certain information (in thousands) regarding
the capitalized costs incurred in the purchase of proved and unproved properties
and in development and exploration activities:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Property acquisition:
Unproved properties... $ 749 $ 1,422 $ 2,020 $ 10,154 $ 5,670 $ 5,300 $ 36,221
Proved properties..... 13,844 17,694 32,810 29,393 28,480 22,124 23,168
Exploration............. 5,315 9,197 17,710 32,518 48,525 43,441 40,131
Development............. 14,869 14,813 63,936 31,446 79,640 48,941 86,425
Interest capitalized.... 119 119 217 674 1,508 1,006 2,393
------- ------- -------- -------- -------- -------- --------
Total capitalized
costs............. $34,896 $43,245 $116,693 $104,185 $163,823 $120,812 $188,338
======= ======= ======== ======== ======== ======== ========
</TABLE>

DRILLING ACTIVITY

The following table sets forth the drilling activity of the Company for
each year of the three-year period ended December 31, 1996 and for the nine
months ended September 30, 1997:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
------------ ----------- ------------ --------------
GROSS NET GROSS NET GROSS NET GROSS NET
----- ---- ----- --- ----- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory wells:
Productive................. 6 3.6 10 4.7 8 4.5 6 3.9
Nonproductive.............. 3 1.7 6 3.9 7 3.4 7 4.4
-- ---- -- --- -- ---- -- ---
Total.............. 9 5.3 16 8.6 15 7.9 13 8.3
== ==== == === == ==== == ===
Development wells:
Productive................. 16 8.6 12 4.0 24 10.1 13 7.2
Nonproductive.............. 3 1.9 3 2.0 1 0.3 1 0.5
-- ---- -- --- -- ---- -- ---
Total.............. 19 10.5 15 6.0 25 10.4 14 7.7
== ==== == === == ==== == ===
</TABLE>

35
<PAGE> 37

PRODUCTIVE WELLS

The following table sets forth the number of productive oil and gas wells
in which the Company owned an interest as of September 30, 1997:

<TABLE>
<CAPTION>
COMPANY OUTSIDE TOTAL
OPERATED OPERATED PRODUCTIVE
COMPANY WELLS WELLS WELLS
OPERATED ------------ ----------- ------------
PLATFORMS GROSS NET GROSS NET GROSS NET
--------- ----- ---- ----- --- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Offshore Louisiana
Federal:
Oil.............................. 28 56 32.3 -- -- 56 32.3
Gas.............................. 59 85 41.7 17 1.9 102 43.6
State:
Oil.............................. 1 1 0.7 -- -- 1 0.7
Gas.............................. 1 1 0.7 -- -- 1 0.7
Onshore Louisiana
Oil.............................. -- 3 1.3 -- -- 3 1.3
Gas.............................. -- 2 1.5 -- -- 2 1.5
Offshore Texas
Federal:
Oil.............................. -- 6 2.8 -- -- 6 2.8
Gas.............................. 7 10 5.1 -- -- 10 5.1
-- --- ---- -- --- --- ----
Total....................... 96 164 86.1 17 1.9 181 88.0
== === ==== == === === ====
</TABLE>

ACREAGE DATA

The following table sets forth certain information regarding the Company's
developed and undeveloped lease acreage as of September 30, 1997:

<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
------------------ ------------------
GROSS NET GROSS NET
------- ------- ------- -------
<S> <C> <C> <C> <C>
Offshore Louisiana:
Federal waters......................... 301,665 142,556 83,944 54,239
State waters........................... 3,153 2,177 2,592 2,592
Onshore Louisiana........................ 24,813 12,899 11,687 5,857
Offshore Texas:
Federal waters......................... 33,930 16,596 46,080 37,008
State waters........................... -- -- -- --
Offshore People's Republic of China...... -- -- 415,000 145,250
------- ------- ------- -------
Total.......................... 363,561 174,228 559,303 244,946
======= ======= ======= =======
</TABLE>

Leases covering approximately 5,000 (875 net to the Company), 9,822 (7,384
net to the Company), 33,938 (21,501 net to the Company), 42,453 (33,317 net to
the Company), and 18,098 (12,338 net to the Company) undeveloped acres are
scheduled to expire in the fourth quarter of 1997, 1998, 1999, 2000 and 2001,
respectively.

MARKETING AND HEDGING

The Company markets substantially all of the oil and gas production from
Company-operated properties for both the account of the Company and the other
working interest owners in these properties. The Company has one
market-sensitive long-term contract (accounting for approximately 5% of gas
sales during recent months) under which the buyer has certain obligations to
take natural gas. The majority of the Company's natural gas production, however,
is sold to a variety of purchasers under short-

36
<PAGE> 38

term (less than 12 months) contracts or 30-day spot gas purchase contracts.
During 1996, Coast Energy Group and Superior Natural Gas Corporation each
purchased in excess of 10% of the gas sold by the Company for its own account.
Oil sales contracts are short-term and are based upon field posted prices plus
negotiated bonuses. During 1996, Gulfmark Energy, Inc. and Northridge Energy
Marketing each purchased in excess of 10% of the oil sold by the Company for its
own account. Based upon the current demand for oil and gas, the Company believes
that the loss of any of these purchasers would not have a material adverse
effect on the Company. See Note 1 to the Company's consolidated financial
statements included elsewhere in this Prospectus.

From time to time, the Company has utilized and expects to continue to
utilize hedging transactions with respect to a portion of its oil and gas
production to achieve a more predictable cash flow, as well as to reduce its
exposure to price fluctuations. While the use of these hedging arrangements
limits the downside risk of adverse price movements, they may also limit future
revenues from favorable price movements. The use of hedging transactions also
involves the risk that the counterparties will be unable to meet the financial
terms of such transactions. All of the Company's hedging transactions to date
were carried out in the over-the-counter market and the obligations of the
counterparties have been guaranteed by entities with at least an investment
grade credit rating or secured by letters of credit.

During 1996, approximately 54% of the Company's equivalent production was
subject to hedge positions. The Company has also entered into hedging
transactions with respect to a portion of its estimated production for 1997. The
Company continues to evaluate whether to enter into additional hedging
transactions for 1997 and future years. In addition, the Company may determine
from time to time to terminate its then existing hedging positions.

As of September 30, 1997, the Company had entered into commodity price
hedging contracts with respect to its gas production as follows:

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

(1) The Company has entered into a basis swap with respect to all of the
indicated volume.

(2) The Company has entered into a basis swap with respect to 50% of the
indicated volume.

These hedging transactions are settled based upon the average of the
reported settlement prices on the NYMEX for the last three trading days of a
particular contract month (the "settlement price"). With respect to any
particular swap transaction, the counterparty is required to make a payment to
the Company in the event that the settlement price for any settlement period is
less than the swap price for such transaction, and the Company is required to
make payment to the counterparty in the event that the settlement price for any
settlement period is greater than the swap price for such transaction. For any
particular collar transaction, the counterparty is required to make a payment to
the Company if the settlement price for any settlement period is below the floor
price for such transaction, and the Company is required to make payment to the
counterparty if the settlement price for any settlement period is above the
ceiling price for such transaction. For any particular floor transaction, the
counterparty is required to make a payment to the Company if the settlement
price for any settlement period is below the floor price

37
<PAGE> 39

for such transaction. The Company is not required to make any payment in
connection with the settlement of a floor transaction.

COMPETITION

Competition in the oil and gas industry is intense, particularly with
respect to the acquisition of producing properties and proved undeveloped
acreage. Major and independent oil and gas companies actively bid for desirable
oil and gas properties, as well as for the equipment and labor required to
operate and develop such properties. The Company believes that the locations of
its leasehold acreage, its exploration, drilling, and production capabilities,
and the experience of its management generally enable it to compete effectively.
Many of the Company's competitors, however, have financial resources and
exploration and development budgets that are substantially greater than those of
the Company, which may adversely affect the Company's ability to compete with
these companies.

REGULATION

FEDERAL REGULATION OF SALES AND TRANSPORTATION OF NATURAL
GAS. Historically, the transportation and sale for resale of natural gas in
interstate commerce have been regulated pursuant to the Natural Gas Act of 1938
(the "NGA"), the Natural Gas Policy Act of 1978 (the "NGPA") and the regulations
promulgated thereunder by the Federal Energy Regulatory Commission (the "FERC").
In the past, the federal government has regulated the prices at which gas could
be sold. Deregulation of wellhead natural gas sales began with the enactment of
the NGPA. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act (the
"Decontrol Act"). The Decontrol Act removed all NGA and NGPA price and non-price
controls affecting wellhead sales of natural gas effective January 1, 1993.
Congress could, however, reenact price controls in the future.

Commencing in April 1992, the FERC issued Order Nos. 636, 636-A, 636-B,
636-C (collectively, "Order No. 636"), which require interstate pipelines to
provide transportation separate, or "unbundled," from the pipelines' sales of
gas. Also, Order No. 636 requires pipelines to provide open-access
transportation on a basis that is equal for all gas supplies. Although Order No.
636 does not directly regulate the Company's activities, the FERC has stated
that it intends for Order No. 636 to foster increased competition within all
phases of the natural gas industry. It is unclear what impact, if any, increased
competition within the natural gas industry under Order No. 636 will have on the
Company's activities. Although Order No. 636 could provide the Company with
additional market access and more fairly applied transportation service rates,
Order No. 636 could also subject the Company to more restrictive pipeline
imbalance tolerances and greater penalties for violation of those tolerances. An
imbalance tolerance is the degree by which a shipper's nominated gas flow and
actual gas flow may differ without the shipper being penalized by the pipeline.
The FERC has issued final orders on all Order No. 636 pipeline restructuring
proceedings. Order No. 636 and subsequent FERC orders issued in individual
pipeline restructuring proceedings have been the subject of appeals, the results
of which have generally supported the FERC's open-access policies. Last year,
the United States Court of Appeals for the District of Columbia Circuit (the
"D.C. Circuit") largely upheld Order No. 636. Because further review of certain
of these orders is still possible and other appeals remain pending, it is
difficult to predict the ultimate impact of the orders on the Company and its
production efforts. However, the Company does not believe that it will be
affected by the restructuring rule and orders any differently than other natural
gas producers and marketers with which it competes.

The FERC has announced several important transportation-related policy
statements and proposed rule changes, including the appropriate manner in which
interstate pipelines release capacity under Order No. 636 and, more recently,
the price that shippers can charge for their released capacity. In addition, in

38
<PAGE> 40

1995, the FERC issued a policy statement on how interstate natural gas pipelines
can recover the costs of new pipeline facilities. In January 1996, the FERC
issued a policy statement and a request for comments concerning alternatives to
its traditional cost-of-service ratemaking methodology. A number of pipelines
have obtained FERC authorization to charge negotiated rates as one such
alternative. In February 1997, the FERC announced a broad inquiry into issues
facing the natural gas industry to assist the FERC in establishing regulatory
goals and priorities in the post-Order No. 636 environment. While these changes
would affect the Company only indirectly, they are intended to further enhance
competition in natural gas markets. The Company cannot predict what action the
FERC will take on these matters, nor can it accurately predict whether the
FERC's actions will achieve the goal of increasing competition in markets in
which the Company's natural gas is sold. However, the Company does not believe
that it will be affected by any action taken materially differently than other
natural gas producers with which it competes.

The Outer Continental Shelf Lands Act (the "OCSLA") requires that all
pipelines operating on or across the Outer Continental Shelf (the "OCS") provide
open-access, non-discriminatory service. Although the FERC has opted not to
impose the regulations of Order No. 509, in which the FERC implemented the
OCSLA, on gatherers and other non-jurisdictional entities, the FERC has retained
the authority to exercise jurisdiction over those entities if necessary to
permit non-discriminatory access to service on the OCS.

Commencing in May 1994, the FERC issued a series of orders in individual
cases that delineate its new gathering policy. Among other matters, the FERC
slightly narrowed its statutory tests for establishing gathering status and
reaffirmed that, except in situations in which the gatherer acts in concert with
an interstate pipeline affiliate to frustrate the FERC's transportation
policies, it does not generally have jurisdiction over natural gas gathering
facilities and services, and that such facilities and services located in state
jurisdictions are properly regulated by state authorities. This FERC action may
further encourage regulatory scrutiny of natural gas gathering by state
agencies. In addition, the FERC has approved several transfers by interstate
pipelines of gathering facilities to unregulated independent or affiliated
gathering companies, subject to the transferee providing service for two years
from the date of transfer to the pipeline's existing customers pursuant to a
default contract or pursuant to mutually agreeable terms. In August 1996, the
D.C. Circuit largely upheld the FERC's new gathering policy, but remanded the
FERC's default contract condition. The Company does not believe that it will be
affected by the FERC's new gathering policy any differently than other
producers, gatherers and marketers with which it competes.

Additional proposals and proceedings that might affect the natural gas
industry are pending before Congress, the FERC and the courts. The natural gas
industry historically has been very heavily regulated; therefore, there is no
assurance that the less stringent regulatory approach recently pursued by the
FERC and Congress will continue.

FEDERAL LEASES. Substantially all of the Company's operations are located
on federal oil and gas leases, which are administered by the United States
Department of the Interior Minerals Management Service (the "MMS"). Such leases
are issued through competitive bidding, contain relatively standardized terms
and require compliance with detailed MMS regulations and orders pursuant to the
OCSLA (which are subject to change by the MMS). For offshore operations, lessees
must obtain MMS approval for exploration plans and development and production
plans prior to the commencement of such operations. In addition to permits
required from other agencies (such as the Coast Guard, the Army Corps of
Engineers and the Environmental Protection Agency), lessees must obtain a permit
from the MMS prior to the commencement of drilling. The MMS has promulgated
regulations requiring offshore production facilities located on the OCS to meet
stringent engineering and construction specifications. The MMS proposed
additional safety-related regulations concerning the design and operating
procedures for OCS production platforms and pipelines. These proposed
regulations were withdrawn pending further discussions among interested federal
agencies. The MMS also has regulations restricting the flaring or venting of
natural gas, and has proposed to amend such regulations to prohibit the flaring
of liquid hydrocarbons and oil without prior authorization. Similarly, the MMS
has promulgated other regulations

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<PAGE> 41

governing the plugging and abandonment of wells located offshore and the removal
of all production facilities. To cover the various obligations of lessees on the
OCS, the MMS generally requires that lessees have substantial net worth or post
bonds or other acceptable assurances that such obligations will be met. The cost
of such bonds or other surety can be substantial and there is no assurance that
bonds or other surety can be obtained in all cases. The Company is currently
exempt from the supplemental bonding requirements of the MMS. Under certain
circumstances, the MMS may require any Company operations on federal leases to
be suspended or terminated. Any such suspension or termination could materially
and adversely affect the Company's financial condition and operations.

The MMS has recently issued a notice of proposed rulemaking in which it
proposes to amend its regulations governing the calculation of royalties and the
valuation of crude oil produced from federal leases. This proposed rule would
modify the valuation procedures for both arm's-length and non-arm's-length crude
oil transactions, establish a new MMS form for collecting value differential
data, and amend the valuation procedure for the sale of federal royalty oil. The
Company cannot predict what action the MMS will take on this matter. The Company
believes that these rules, if adopted as proposed, will not have a material
impact on its financial condition, liquidity or results of operations. In April
1997, after two years of study, the MMS withdrew proposed changes to the way it
values natural gas for royalty payments. These proposed changes would have
established an alternative market-based method for calculating royalties on
certain natural gas sold to affiliates or pursuant to non-arm's length sales
contracts.

STATE AND LOCAL REGULATION OF DRILLING AND PRODUCTION. The Company owns
interests in properties located in onshore Louisiana and in the state waters of
the Gulf of Mexico offshore Texas and Louisiana and occasionally may conduct
operations in the state waters offshore Mississippi. These states regulate
drilling and operating activities by requiring, among other things, drilling
permits and bonds and reports concerning operations. The laws of these states
also govern a number of environmental and conservation matters, including the
handling and disposing of waste materials, unitization and pooling of oil and
gas properties and establishment of maximum rates of production from oil and gas
wells. Some states prorate production to the market demand for oil and gas.

OIL PRICE CONTROLS AND TRANSPORTATION RATES. Sales of crude oil, condensate
and gas liquids by the Company are not currently regulated and are made at
market prices. Effective as of January 1, 1995, the FERC implemented regulations
establishing an indexing system for transportation rates for oil that could
increase the cost of transporting oil to the purchaser. The Company is not able
to predict what effect, if any, this order will have on it, but other factors
being equal, it may tend to increase transportation costs or reduce wellhead
prices for crude oil.

ENVIRONMENTAL REGULATIONS. The Company's operations are subject to numerous
laws and regulations governing the discharge of materials into the environment
or otherwise relating to environmental protection. Public interest in the
protection of the environment has increased dramatically in recent years.
Offshore drilling in certain areas has been opposed by environmental groups and,
in certain areas, has been restricted. To the extent laws are enacted or other
governmental action is taken that prohibits or restricts offshore drilling or
imposes environmental protection requirements that result in increased costs to
the oil and gas industry in general and the offshore drilling industry in
particular, the business and prospects of the Company could be adversely
affected.

The Oil Pollution Act of 1990 (the "OPA") and regulations thereunder impose
a variety of regulations on "responsible parties" related to the prevention of
oil spills and liability for damages resulting from such spills in United States
waters. A "responsible party" includes the owner or operator of a facility or
vessel, or the lessee or permittee of the area in which an offshore facility is
located. The OPA assigns liability to each responsible party for oil removal
costs and a variety of public and private damages. While liability limits apply
in some circumstances, a party cannot take advantage of liability limits if the
spill was caused by gross negligence or willful misconduct or resulted from
violation of a federal safety, construction or operating regulation. If the
party fails to report a spill or to cooperate fully in the cleanup, liability
limits likewise do not apply. Even if applicable, the liability limits for
offshore facilities

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<PAGE> 42

require the responsible party to pay all removal costs, plus up to $75 million
in other damages. Few defenses exist to the liability imposed by the OPA.

OPA imposes ongoing requirements on a responsible party, including the
preparation of oil spill response plans and proof of financial responsibility to
cover environmental cleanup and restoration costs that could be incurred in
connection with an oil spill. As amended by the Coast Guard Authorization Act of
1996, OPA requires responsible parties for offshore facilities to provide
financial assurance in the amount of $35 million to cover potential OPA
liabilities. This amount can be increased up to $150 million if a formal risk
assessment indicates that an amount higher than $35 million should be required.
On March 25, 1997, the MMS promulgated a proposed rule implementing these OPA
financial responsibility requirements. The Company does not anticipate that it
will experience any difficulty in satisfying the MMS's requirements for
demonstrating financial responsibility for its offshore facilities under the OPA
amendments or the proposed rule.

The OPA also imposes other requirements, such as the preparation of an oil
spill contingency plan. The Company has such a plan in place. Failure to comply
with ongoing requirements or inadequate cooperation during a spill event may
subject a responsible party to civil or criminal enforcement actions.

In addition, the OCSLA authorizes regulations relating to safety and
environmental protection applicable to lessees and permittees operating on the
OCS. Specific design and operational standards may apply to OCS vessels, rigs,
platforms, vehicles and structures. Violations of lease conditions or
regulations issued pursuant to the OCSLA can result in substantial civil and
criminal penalties, as well as potential court injunctions curtailing operations
and the cancellation of leases. Such enforcement liabilities can result from
either governmental or private prosecution.

The Comprehensive Environmental Response, Compensation, 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 are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances found at the
site. Persons who are or were responsible for releases of hazardous substances
under CERCLA may be subject to joint and several liability for the costs of
cleaning up the hazardous substances that have been released into the
environment and for damages to natural resources, and it is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment.

In addition, legislation has been proposed in Congress from time to time
that would reclassify certain oil and gas exploration and production wastes as
"hazardous wastes," which would make the reclassified wastes subject to much
more stringent handling, disposal and clean-up requirements. If such legislation
were to be enacted, it could increase the operating costs of the Company, as
well as the oil and gas industry in general. Initiatives to further regulate the
disposal of oil and gas wastes are also pending in certain states, and these
various initiatives could have a similar impact on the Company.

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

OPERATING HAZARDS AND INSURANCE

The oil and gas business involves a variety of operating risks, including
the risk of fire, explosions, blow-outs, pipe failure, casing collapse,
abnormally pressured formations and environmental hazards such as oil spills,
gas leaks, ruptures and discharges of toxic gases, the occurrence of any of
which could result in substantial losses to the Company due to injury or loss of
life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, clean-up responsibilities,
regulatory investigation and penalties and suspension of operations. In addition
to the foregoing,

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<PAGE> 43

substantially all of the Company's operations are currently offshore and subject
to the additional hazards of marine operations, such as capsizing of vessels,
collision and adverse weather and sea conditions.

In accordance with customary industry practice, the Company maintains
insurance against some, but not all, of the risks described above. The Company's
insurance does not fully cover business interruption or protect against loss of
revenues. There can be no assurance that any insurance obtained by the Company
will be adequate to cover any losses or liabilities. The Company cannot predict
the continued availability of insurance or the availability of insurance at
premium levels that justify its purchase. The occurrence of a significant event
not fully insured or indemnified against could materially and adversely affect
the Company's financial condition and operations.

EMPLOYEES

At September 30, 1997 the Company had 83 full time employees, primarily
professionals, including geologists, geophysicists, and engineers. The Company
believes that its relationships with its employees are satisfactory. None of the
Company's employees are covered by a collective bargaining agreement. From time
to time, the Company utilizes the services of independent consultants and
contractors to perform various professional services, particularly in the areas
of construction, design, well site surveillance, permitting and environmental
assessment. Field and on-site production operation services, such as pumping,
maintenance, dispatching, inspection and testing, are generally provided by
independent contractors.

LEGAL PROCEEDINGS

The Company has been named as a defendant in certain lawsuits arising in
the ordinary course of business. While the outcome of these lawsuits cannot be
predicted with certainty, management does not expect these matters to have a
material adverse effect on the financial position, results of operations or cash
flows of the Company.

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<PAGE> 44

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information regarding the names, ages and
positions held by each of the Company's directors and executive officers. The
Company's executive officers serve at the discretion of the Board of Directors.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Joe B. Foster............................. 63 Chairman of the Board, President and Chief
Executive Officer
Robert W. Waldrup......................... 53 Vice President -- Operations and Director
David A. Trice............................ 49 Vice President -- Finance and International
Terry W. Rathert.......................... 44 Vice President -- Planning and
Administration and Secretary
David F. Schaible......................... 37 Vice President -- Acquisitions &
Development
William D. Schneider...................... 46 Manager -- International/Onshore
Ronald P. Lege............................ 52 Controller and Assistant Secretary
C. William Austin......................... 45 Legal Counsel and Assistant Secretary
James P. Ulm, II.......................... 34 Treasurer
Charles W. Duncan, Jr..................... 71 Director
Jeffrey A. Harris......................... 41 Director
Dennis Hendrix............................ 57 Director
Terry Huffington.......................... 43 Director
Howard H. Newman.......................... 50 Director
Thomas G. Ricks........................... 44 Director
C. E. Shultz.............................. 58 Director
Dale E. Zand.............................. 71 Director
</TABLE>

The following biographies describe the business experience of the directors
and executive officers of the Company.

JOE B. FOSTER has served as President of the Company since its
incorporation in 1988 and as Chairman of the Board and Chief Executive Officer
since 1989. Prior to founding Newfield, Mr. Foster served in various capacities
with Tenneco Inc. and its subsidiaries for 31 years, including Chairman of the
Board of Tenneco Oil Company and Chairman of the Board of Tenneco Gas Pipeline
Group. His last positions with Tenneco Inc. were Executive Vice President and
Director. He presently serves as a director of Baker Hughes Incorporated and New
Jersey Resources. He is chairman of the National Petroleum Council and past
chairman of the Offshore Committee of the Independent Petroleum Association of
America.

ROBERT W. WALDRUP has served as Vice President -- Operations since 1991 and
as a director of the Company since 1992. From 1989 to 1991, he worked in the
Company's drilling and operations areas. Prior to joining the Company, Mr.
Waldrup was Division Production Manager of the Eastern Gulf Division of Tenneco
Oil Exploration and Production Company. Mr. Waldrup received a degree in
petroleum engineering from Mississippi State University and is a member of the
Society of Petroleum Engineers, a member of the executive board of the Offshore
Operators Committee and the Independent Petroleum Association of America.

DAVID A. TRICE has served as Vice President -- Finance and International
since July 1997. Prior to joining the Company, he served as President, Chief
Executive Officer and Director of Huffco Group Inc. since late 1991. From 1989
to 1991, he served as Vice President, Chief Financial Officer and Director of
Newfield. From 1980 to 1989, he had served as an officer of several different
companies owned by Roy M. Huffington, Inc. and from 1973 to 1980 he was an
attorney with an Atlanta law firm. Mr. Trice

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<PAGE> 45

received a J.D. degree from Columbia University's School of Law and a B.A. in
Managerial Science from Duke University.

TERRY W. RATHERT has served as Vice President -- Planning and
Administration and Secretary since July 1997. From 1992 to July 1997, he served
as Vice President, Chief Financial Officer and Secretary of the Company and from
1989 to 1992, he coordinated the Company's planning and marketing activities.
Prior to joining the Company, Mr. Rathert was Director of Economic Planning &
Analysis for Tenneco Oil Exploration and Production Company. Mr. Rathert
received a degree in petroleum engineering from Texas A&M University and has
completed The Management Program at Rice University. Mr. Rathert is a member of
the Society of Petroleum Engineers and the Independent Petroleum Association of
America.

DAVID F. SCHAIBLE has served as Vice President -- Acquisitions &
Development since February 1995. From 1992 to 1995, he served as
Manager -- Acquisitions & Development of the Company. Mr. Schaible was employed
by the Company as Coordinator -- Acquisitions and Marketing from 1991 to 1992
and as a petroleum engineer from 1989 to 1991. Prior to joining the Company, Mr.
Schaible was Senior Production Engineer in the Eastern Gulf Division of Tenneco
Oil Exploration and Production Company in Lafayette, Louisiana. Mr. Schaible
received a degree in petroleum engineering from Marietta College, Marietta,
Ohio. Mr. Schaible is a member of the Society of Petroleum Engineers and the
Independent Petroleum Association of America.

WILLIAM C. SCHNEIDER has served as Manager -- Exploration of the Company
since 1992. From 1989 to 1992, Mr. Schneider was employed by the Company as a
geologist. Prior to joining the Company, Mr. Schneider was Division Geologist in
the Western Gulf Division of Tenneco Oil Exploration and Production Company in
Lafayette, Louisiana. Mr. Schneider received B.S. and M.S. degrees in Geology
from Boston University. Mr. Schneider is a member of the American Association of
Petroleum Geologists and the Independent Petroleum Association of America.

RONALD P. LEGE has served as Controller and Assistant Secretary of the
Company since 1989. Prior to joining the Company, Mr. Lege was Division
Administrative Manager of the Eastern Gulf Division for Tenneco Oil Exploration
and Production Company. Mr. Lege received a B.S. in Accounting and an M.B.A.
degree from the University of Southwestern Louisiana and a Master of Economics
degree from South Dakota State University. Mr. Lege is a member of the American
Institute of Certified Public Accountants and the Louisiana Society of Certified
Public Accountants.

C. WILLIAM AUSTIN has served as Legal Counsel and Assistant Secretary since
March 1994. From 1989 to March 1994, Mr. Austin was employed as a staff attorney
for Energy Service Company, Inc., an international contract drilling and marine
service company headquartered in Dallas, Texas.

JAMES P. ULM, II has served as Treasurer of the Company since June 1995.
From 1989 to June 1995, Mr. Ulm was employed in managerial positions, most
recently as Treasurer, by American Exploration Company, an independent oil and
gas company headquartered in Houston, Texas.

CHARLES W. DUNCAN, JR. is a founding stockholder of the Company and has
served as a director of the Company since 1990. He has been involved in private
investments since 1981. Prior to 1981, Mr. Duncan served as president of Duncan
Foods Company, which later merged with the Coca-Cola Company. After serving as
president of The Coca-Cola Company, he served as Deputy Secretary of the U.S.
Department of Defense from January 1977 to August 1979 and as Secretary of the
Department of Energy from August 1979 until January 1981. Mr. Duncan received a
degree in chemical engineering from Rice University. He currently serves as a
director of American Express Company, The Coca-Cola Company, United Technologies
Corporation and The Welch Foundation. He is a trustee emeritus and
immediate-past chairman of the board of governors of Rice University and a
trustee emeritus of the Brookings Institute.

JEFFREY A. HARRIS has served as a director of the Company since 1995. Since
1988, Mr. Harris has served as a Managing Director of E.M. Warburg, Pincus &
Co., a company that provides specialized financial advisory and investment
counseling services. Mr. Harris received a B.S. in Economics from the Wharton
School and an M.B.A. from the Harvard Business School. He currently serves as a
director of

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<PAGE> 46

Comcast UK Cable Partners Limited, ECsoft Group plc, Knoll, Inc.,
Industri-Matematik International Corp. and several privately held companies.

DENNIS HENDRIX has served as a director of the Company since July 1997. He
is currently a member of the board of directors of Duke Energy Corporation.
Previously, he had served as chairman of the board of PanEnergy Corp. prior to
its merger with Duke Power Company in 1997. Mr. Hendrix is a graduate of the
University of Tennessee and earned his M.B.A. from Georgia State University. He
currently serves as a director of Allied Waste Industries, Inc., National Power,
PLC, Texas Commerce Bank National Association, and the Welch Foundation.

TERRY HUFFINGTON was elected to the Board of Directors in May 1997. She is
the founder, owner and Chairman of Huffco Group, Inc. and affiliated companies.
In 1990, she founded Huffco Group, Inc. after the sale of the Indonesian assets
of Roy M. Huffington, Inc. of which she was a Vice President and Director. She
has a B.S. in Geology from Stanford, an M.A. in Geology from the University of
Texas and an M.B.A. from Harvard. Prior to joining Roy M. Huffington, Inc. in
1987, she worked as a geologist for Exxon and Chevron.

HOWARD H. NEWMAN has been a director of the Company since 1990. Currently,
Mr. Newman serves as a Managing Director with E.M. Warburg, Pincus & Co., a
company that provides specialized financial advisory and investment counseling
services. Mr. Newman holds Bachelor of Arts and Master of Arts degrees in
economics from Yale University and a Ph.D. degree in Business Economics from
Harvard University. He also is a director of ADVO, Inc., Comcast UK Cable
Partners Limited, RenaissanceRe Holdings, Ltd., Cox Insurance Holdings, Plc. and
Poseidon Resources Corp.

THOMAS G. RICKS has served as a director of the Company since 1992. Since
March 1, 1996, he has served as President and Chief Executive Officer of the
University of Texas Investment Management Company. Prior to assuming this
position, Mr. Ricks was an employee of The University of Texas System. Beginning
in March 1985, he served as Manager -- Finance and progressively assumed greater
responsibilities culminating with Vice Chancellor for Asset Management and chief
investment officer. Mr. Ricks received a B.A. in Economics from Trinity College,
an M.B.A. degree from the University of Chicago and is a CPA. He also serves as
a director of BDM International, Inc. and DTM Corporation, a subsidiary of The
BF Goodrich Company.

C.E. (CHUCK) SHULTZ has served as a director of the Company since 1994.
After leaving Gulf Canada Resources in 1995, Mr. Shultz started Dauntless
Energy, Inc. and currently serves as its Chairman and Chief Executive Officer.
He earned a degree in Geological Engineering from the Colorado School of Mines.
He currently serves as a director of Archer Resources Ltd., Jannock Limited,
Pacific Forest Product Ltd., and as Chairman of Canadian Oil Sands Trust and 3-D
Reclamation Inc.

DALE E. ZAND has been a director of the Company since 1995. He currently is
a Professor of Management at the Stern Graduate School of Business at New York
University and is also a management consultant to major organizations in the
petroleum, finance and consumer good industries. He held a Ford Foundation
Fellowship at Harvard Business School and received a Ph.D. from New York
University.

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<PAGE> 47

THE EXCHANGE OFFER

GENERAL

In connection with the sale of the Old Notes, the purchasers thereof became
entitled to the benefits of certain registration rights under the Registration
Rights Agreement. The Exchange Notes are being offered hereunder in order to
satisfy the obligations of the Company under the Registration Rights Agreement.
See "Description of Notes -- Registration Covenant; Exchange Offer."

For each $1,000 principal amount of Old Notes surrendered to the Company
pursuant to the Exchange Offer, the holder of such Old Notes will receive $1,000
principal amount of Exchange Notes. Upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal, the
Company will accept all Old Notes properly tendered prior to 5:00 p.m., New York
City time, on the Expiration Date. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer in integral multiples of $1,000 principal
amount.

Under existing interpretations of the staff of the SEC, including Exxon
Capital Holdings Corporation, SEC No-Action Letter (available April 13, 1989),
the Morgan Stanley Letter and Mary Kay Cosmetics, Inc., SEC No-Action Letter
(available June 5, 1991), the Company believes that the Exchange Notes would in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act by the respective holders thereof (other
than a "Restricted Holder," being (i) a broker-dealer who purchased Old Notes
exchanged for such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder is not
participating in, and has no arrangement with any person to participate in, the
distribution (within the meaning of the Securities Act) of such Exchange Notes.
Eligible holders wishing to accept the Exchange Offer must represent to the
Company that such conditions have been met. Any holder of Old Notes who tenders
in the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes could not rely on the interpretation by the staff of the SEC
enunciated in the Morgan Stanley Letter and similar no-action letters, and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.

Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations,
including that (i) it is neither an affiliate of the Company nor a broker-dealer
tendering Old Notes acquired directly from the Company for its own account, (ii)
any Exchange Notes to be received by it are being acquired in the ordinary
course of its business and (iii) it is not participating in, and it has no
arrangement with any person to participate in, the distribution (within the
meaning of the Securities Act) of the Exchange Notes. In addition, in connection
with any resales of Exchange Notes, any broker-dealer (a "Participating
Broker-Dealer") who acquired Old Notes for its own account as a result of
market-making activities or other trading activities must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. The staff of the SEC has
taken the position in no-action letters issued to third parties including
Shearman & Sterling, SEC No-Action Letter (available July 2, 1993), that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of Old Notes) with this Prospectus, as it may be amended
or supplemented from time to time. Under the Registration Rights Agreement, the
Company is required to allow Participating Broker-Dealers to use this
Prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of such Exchange Notes. See "Plan of Distribution."

The Exchange Offer shall be deemed to have been consummated upon the
earlier to occur of (i) the Company having exchanged Exchange Notes for all
outstanding Old Notes (other than Old Notes held by a Restricted Holder)
pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant

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<PAGE> 48

to the Exchange Offer, Exchange Notes for all Old Notes that have been tendered
and not withdrawn on the Expiration Date. Upon consummation of the Exchange
Offer, holders of Old Notes who did not exchange for Exchange Notes seeking
liquidity in their investment would have to rely on exemptions to registration
requirements under the securities laws, including the Securities Act.

As of the date of this Prospectus, $125,000,000 aggregate principal amount
of Old Notes are issued and outstanding. In connection with the issuance of the
Old Notes, the Company arranged for the Old Notes to be eligible for trading in
the Private Offering, Resale and Trading through Automated Linkages (PORTAL)
Market, the National Association of Securities Dealers' screen based, automated
market trading of securities eligible for resale under Rule 144A.

The Company shall be deemed to have accepted for exchange validly tendered
Old Notes when, as and if the Company has given oral or written notice thereof
to the Exchange Agent. See "-- Exchange Agent." The Exchange Agent will act as
agent for the tendering holders of Old Notes for the purpose of receiving
Exchange Notes from the Company and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an invalid
tender or the occurrence of certain other events set forth herein, certificates
for any such unaccepted Old Notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."

This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of the date of this Prospectus.

EXPIRATION DATE; EXTENSIONS; AMENDMENTS

The term "Expiration Date" shall mean December 19, 1997 unless the Company,
in its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended. In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time. The Company reserves the right
(i) to delay acceptance of any Old Notes, to extend the Exchange Offer or to
terminate the Exchange Offer and to refuse to accept Old Notes not previously
accepted, if any of the conditions set forth herein under "-- Termination" shall
have occurred and shall not have been waived by the Company (if permitted to be
waived by the Company), by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, and (ii) to amend the terms of
the Exchange Offer in any manner deemed by it to be advantageous to the holders
of the Old Notes. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the Old
Notes of such amendment. Without limiting the manner in which the Company may
choose to make public announcements of any delay in acceptance, extension,
termination or amendment of the Exchange Offer, the Company shall have no
obligation to publish, advertise, or otherwise communicate any such public
announcement, other than by making a timely release to the Dow Jones News
Service.

INTEREST ON THE EXCHANGE NOTES

The Exchange Notes will bear interest payable semi-annually on April 15 and
October 15 of each year, commencing April 15, 1998. Holders of Exchange Notes of
record on April 1, 1998 will receive interest on April 15, 1998 from the date of
issuance of the Exchange Notes, plus an amount equal to the

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<PAGE> 49

accrued interest on the Old Notes from the date of issuance of the Old Notes,
October 15, 1997, to the date of exchange thereof. Consequently, assuming the
Exchange Offer is consummated prior to the record date in respect of the April
15, 1998 interest payment for the Old Notes, holders who exchange their Old
Notes for Exchange Notes will receive the same interest payment on April 15,
1998 that they would have received had they not accepted the Exchange Offer.
Interest on the Old Notes accepted for exchange will cease to accrue upon
issuance of the Exchange Notes.

PROCEDURES FOR TENDERING

To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, or an Agent's Message,
together with the Old Notes and any other required documents, to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date. In
addition, either (i) the certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent along with an Agent's Message prior to the Expiration Date or
(iii) the Holder must comply with the guaranteed delivery procedures described
below. The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal. Delivery of all
documents must be made to the Exchange Agent at its address set forth herein.
Holders may also request that their respective brokers, dealers, commercial
banks, trust companies or nominees effect such tender for such holders.

The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part of
a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering Old Notes which are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such participant.

The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes should
be sent to the Company. Only a holder of Old Notes may tender such Old Notes in
the Exchange Offer. The term "holder" with respect to the Exchange Offer means
any person in whose name Old Notes are registered on the books of the Company or
any other person who has obtained a properly completed bond power from the
registered holder.

Any beneficial holder whose Old Notes are registered in the name of such
holder's broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on behalf of the registered holder. If such
beneficial holder wishes to tender directly, such beneficial holder must, prior
to completing and executing the Letter of Transmittal and delivering his Old
Notes, either make appropriate arrangements to register ownership of the Old
Notes in such holder's name or obtain a properly completed bond power from the
registered holder. The transfer of record ownership may take considerable time.
If the Letter of Transmittal is signed by the record holder(s) of the Old Notes
tendered thereby, the signature must correspond with the name(s) written on the
face of the Old Notes without alteration, enlargement or any change whatsoever.
If the Letter of Transmittal is signed by a participant in The Depository Trust
Company ("DTC"), the signature must correspond with the name as it appears on
the security position listing as the holder of the Old Notes. Signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, must be
guaranteed by a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office

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<PAGE> 50

or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution") unless the Old Notes tendered pursuant thereto are tendered (i) by
a registered holder (or by a participant in DTC whose name appears on a security
position listing as the owner) who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal and the Exchange Notes are being issued directly to such registered
holder (or deposited into the participant's account at DTC) or (ii) for the
account of an Eligible Institution. If the Letter of Transmittal is signed by a
person other than the registered holder of any Old Notes listed therein, such
Old Notes must be endorsed or accompanied by appropriate bond powers which
authorize such person to tender the Old Notes on behalf of the registered
holder, in either case signed as the name of the registered holder or holders
appears on the Old Notes. If the Letter of Transmittal or any Old Notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with the Letter of Transmittal.

A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Old Notes
(or a timely confirmation received of a book-entry transfer of Old Notes into
the Exchange Agent's account at DTC with an Agent's Message) or a Notice of
Guaranteed Delivery from an Eligible Institution is received by the Exchange
Agent. Issuances of Exchange Notes in exchange for Old Notes tendered pursuant
to a Notice of Guaranteed Delivery by an Eligible Institution will be made only
against delivery of the Letter of Transmittal (and any other required documents)
and the tendered Old Notes (or a timely confirmation received of a book-entry
transfer of Old Notes into the Exchange Agent's account at DTC with an Agent's
Message) with the Exchange Agent.

All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any conditions of the Exchange Offer or
defects or irregularities in tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person shall be under any
duty to give notification of defects or irregularities with respect to tenders
of Old Notes nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering holder of such Old Notes unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date. In addition, the Company reserves the right in its sole
discretion to (i) purchase or make offers for any Old Notes that remain
outstanding subsequent to the Expiration Date, or, as set forth under
"-- Termination," to terminate the Exchange Offer and (ii) to the extent
permitted by applicable law, purchase Old Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
may differ from the terms of the Exchange Offer.

BOOK-ENTRY TRANSFER

The Exchange Agent will establish an account with respect to the Old Notes
at DTC within two business days after the date of this Prospectus, and any
financial institution which is a participant in DTC may make book-entry delivery
of the Old Notes by causing DTC to transfer such Old Notes into the Exchange
Agent's account in accordance with DTC's procedure for such transfer. Although
delivery of

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<PAGE> 51

Old Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, an Agent's Message must be transmitted to and received by the
Exchange Agent on or prior to the Expiration Date at one of its addresses set
forth below under "-- Exchange Agent", or the guaranteed delivery procedure
described below must be complied with. DELIVERY OF DOCUMENTS TO DTC DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in this Prospectus to
deposit or delivery of Old Notes shall be deemed to include DTC's book-entry
delivery method.

GUARANTEED DELIVERY PROCEDURES

Holders who wish to tender their Old Notes and whose Old Notes are not
immediately available or who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer on
a timely basis and deliver an Agent's Message, may effect a tender if: (i) the
tender is made by or through an Eligible Institution; (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
holder of the Old Notes, the registration number or numbers of such Old Notes
(if applicable), and the total principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
business days after the Expiration Date, the Letter of Transmittal, together
with the Old Notes in proper form for transfer (or a confirmation of a
book-entry transfer into the Exchange Agent's account at DTC with an Agent's
Message) and any other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) such
properly completed and executed Letter of Transmittal, together with the
certificate(s) representing all tendered Old Notes in proper form for transfer
(or a confirmation of such a book-entry transfer) and all other documents
required by the Letter of Transmittal are received by the Exchange Agent within
five business days after the Expiration Date.

TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL

The Letter of Transmittal contains, among other things, certain terms and
conditions which are summarized below and are part of the Exchange Offer.

Each holder who participates in the Exchange Offer will be required to
represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that such holder is not participating in, and
has no arrangement with any person to participate in, the distribution (within
the meaning of the Securities Act) of the Exchange Notes, and that such holder
is not a Restricted Holder.

Old Notes tendered in exchange for Exchange Notes (or a timely confirmation
of a book-entry transfer of such Old Notes into the Exchange Agent's account at
DTC) must be received by the Exchange Agent, with the Letter of Transmittal or
an Agent's Message and any other required documents, by the Expiration Date or
within the time periods set forth above pursuant to a Notice of Guaranteed
Delivery from an Eligible Institution. Each holder tendering the Old Notes for
exchange sells, assigns and transfers the Old Notes to the Exchange Agent, as
agent of the Company, and irrevocably constitutes and appoints the Exchange
Agent as the holder's agent and attorney-in-fact to cause the Old Notes to be
transferred and exchanged. The holder warrants that it has full power and
authority to tender, exchange, sell, assign and transfer the Old Notes and to
acquire the Exchange Notes issuable upon the exchange of such tendered Old
Notes, that the Exchange Agent, as agent of the Company, will acquire good and
unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances, and that the Old Notes tendered for
exchange are not subject to any adverse claims when accepted by the Exchange
Agent, as agent of the Company. The holder also warrants and agrees that it
will, upon request, execute and deliver any additional documents deemed by the
Company or the Exchange Agent to be necessary or desirable to complete the
exchange, sale, assignment and transfer of the Old Notes. All authority
conferred or agreed to be conferred in the Letter of Transmittal by the holder
will survive the death, incapacity or dissolution of the holder and any

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<PAGE> 52

obligation of the holder shall be binding upon the heirs, personal
representatives, successors and assigns of such holder.

WITHDRAWAL OF TENDERS

Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date,
unless previously accepted for exchange. To withdraw a tender of Old Notes in
the Exchange Offer, a written or facsimile transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein prior to
5:00 p.m., New York City time, on the Expiration Date and prior to acceptance
for exchange thereof by the Company. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including, if
applicable, the registration number or numbers and total principal amount of
such Old Notes), (iii) be signed by the Depositor in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to permit the Trustee with respect to the Old
Notes to register the transfer of such Old Notes into the name of the Depositor
withdrawing the tender, (iv) specify the name in which any such Old Notes are to
be registered, if different from that of the Depositor and (v) if applicable
because the Old Notes have been tendered pursuant to the book-entry procedures,
specify the name and number of the participant's account at DTC to be credited,
if different than that of the Depositor. All questions as to the validity, form
and eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Old Notes so withdrawn are validly retendered.
Any Old Notes which have been tendered but which are not accepted for exchange
will be returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.

TERMINATION

Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange any Old Notes not theretofore accepted for
exchange, and may terminate the Exchange Offer if it determines that the
Exchange Offer violates any applicable law or interpretation of the staff of the
SEC.

If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return any
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will be distributed to each registered holder of Old
Notes, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders of the Old Notes, if the Exchange Offer
would otherwise expire during such period. Holders of Old Notes will have
certain rights against the Company under the Registration Rights Agreement
should the Company fail to consummate the Exchange Offer.

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<PAGE> 53

EXCHANGE AGENT

First Union National Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:

By Mail, Hand or Overnight Courier:

First Union National Bank

Attention: Reorg Department

1525 West W.T. Harris 3C3

Charlotte, North Carolina 28262

Facsimile Transmission: (704) 590-7628

Confirm by Telephone: (704) 590-7408

FEES AND EXPENSES

The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or telephone. The Company will not make any payments to brokers,
dealers or other persons soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees for
its services and will reimburse the Exchange Agent for its reasonable
out-of-pocket expenses in connection therewith. The Company may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus,
Letters of Transmittal and related documents to the beneficial owners of the Old
Notes and in handling or forwarding tenders for exchange.

The other expenses incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by the Company. The Company will pay all transfer
taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange
Offer. If, however, Exchange Notes or Old Notes not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.

ACCOUNTING TREATMENT

No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. The expenses of the Exchange Offer
will be amortized by the Company over the term of the Exchange Notes under
generally accepted accounting principles.

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<PAGE> 54

DESCRIPTION OF NOTES

The Exchange Notes will be issued and the Old Notes were issued pursuant to
an Indenture dated as of October 15, 1997 (the "Indenture") between the Company
and First Union National Bank, as trustee (the "Trustee"). The following
summaries of certain provisions of the Notes and the Indenture, a copy of which
is filed as an exhibit to the Registration Statement of which this Prospectus is
a part, do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, the Notes and the Indenture, including the
definitions therein of certain capitalized terms used but not defined herein.

The Old Notes and the Exchange Notes will constitute a single series of
debt securities for all purposes under the Indenture, including waivers,
amendments, redemptions and offers to purchase. If the Exchange Offer is
consummated, Holders of Notes who do not exchange their Old Notes for Exchange
Notes will vote together with Holders of the Exchange Notes for all relevant
purposes under the Indenture. In that regard, the Indenture requires that
certain actions by the Holders thereunder (including acceleration following an
Event of Default) must be taken, and certain rights must be exercised, by
specified minimum percentages of the aggregate principal amount of the
outstanding securities issued under the Indenture. In determining whether
Holders of the requisite percentage in principal amount have given any notice,
consent or waiver or taken any other action permitted under the Indenture, any
Old Notes that remain outstanding after the Exchange Offer will be aggregated
with the Exchange Notes, and the Holders of such Old Notes and the Exchange
Notes will vote together as a single series for all such purposes. Accordingly,
all references herein to specified percentages in aggregate principal amount of
the outstanding Notes shall be deemed to mean, at any time after the Exchange
Offer is consummated, such percentages in aggregate principal amount of the Old
Notes and the Exchange Notes then outstanding.

GENERAL

Each Note will mature on October 15, 2007 and will bear interest at the
rate per annum stated on the cover page hereof from October 15, 1997 payable
semiannually on April 15 and October 15 of each year, commencing April 15, 1998,
to the person in whose name the Note is registered at the close of business on
the April 1 or October 1 preceding such interest payment date. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. Principal and
interest will be payable at the offices of the Trustee and the Paying Agent. In
addition, in the event the Notes do not remain in book-entry form, at the option
of the Company payment of interest will be made by check mailed to the address
of the person entitled thereto as it appears in the register of the Notes (the
"Note Register") maintained by the Registrar. The aggregate principal amount of
the Notes will be limited to $125,000,000. The Notes will be transferable and
exchangeable at the office of the Registrar and any co-registrar and will be
issued in fully registered form, without coupons, in denominations of $1,000 and
any whole multiple thereof. The Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection with certain
transfers and exchanges.

The Notes are senior unsecured obligations of the Company and rank pari
passu in right of payment with the Company's obligations under all existing and
future senior unsecured indebtedness of the Company (including the Credit
Facility) and senior in right of payment to all existing and future indebtedness
of the Company that is, by its terms, expressly subordinated to the Notes.

OPTIONAL REDEMPTION

The Notes are redeemable, at the option of the Company, at any time in
whole or from time to time in part, upon not less than 30 and not more than 60
days' notice mailed to each holder of Notes to be redeemed at the holder's
address appearing in the Note Register, on any date prior to maturity at a price
equal to 100% of the principal amount thereof plus accrued interest to the
Redemption Date (subject to the right of holders of record on the relevant
record date to receive interest due on an interest payment date that is on or
prior to the Redemption Date) plus a Make-Whole Premium, if any (the "Redemption
Price"). In no event will the Redemption Price ever be less than 100% of the
principal amount of the Notes plus accrued interest to the Redemption Date.

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<PAGE> 55

The amount of the Make-Whole Premium with respect to any Note (or portion
thereof) to be redeemed will be equal to the excess, if any, of:

(i) the sum of the present values, calculated as of the Redemption
Date, of:

A. each interest payment that, but for such redemption, would have
been payable on the Note (or portion thereof) being redeemed on each
Interest Payment Date occurring after the Redemption Date (excluding any
accrued interest for the period prior to the Redemption Date); and

B. the principal amount that, but for such redemption, would have
been payable at the final maturity of the Note (or portion thereof)
being redeemed;

over

(ii) the principal amount of the Note (or portion thereof) being
redeemed.

The present values of interest and principal payments referred to in clause
(i) above will be determined in accordance with generally accepted principles of
financial analysis. Such present values will be calculated by discounting the
amount of each payment of interest or principal from the date that each such
payment would have been payable, but for the redemption, to the Redemption Date
at a discount rate equal to the Treasury Yield (as defined below) plus 25 basis
points.

The Make-Whole Premium will be calculated by an independent investment
banking institution of national standing appointed by the Company; provided,
that if the Company fails to make such appointment at least 45 business days
prior to the Redemption Date, or if the institution so appointed is unwilling or
unable to make such calculation, such calculation will be made by Goldman, Sachs
& Co. or, if such firm is unwilling or unable to make such calculation, by an
independent investment banking institution of national standing appointed by the
Trustee (in any such case, an "Independent Investment Banker").

For purposes of determining the Make-Whole Premium, "Treasury Yield" means
a rate of interest per annum equal to the weekly average yield to maturity of
United States Treasury Notes that have a constant maturity that corresponds to
the remaining term to maturity of the Notes, calculated to the nearest 1/12th of
a year (the "Remaining Term"). The Treasury Yield will be determined as of the
third business day immediately preceding the applicable Redemption Date.

The weekly average yields of United States Treasury Notes will be
determined by reference to the most recent statistical release published by the
Federal Reserve Bank of New York and designated "H.15(519) Selected Interest
Rates" or any successor release (the "H.15 Statistical Release"). If the H.15
Statistical Release sets forth a weekly average yield for United States Treasury
Notes having a constant maturity that is the same as the Remaining Term, then
the Treasury Yield will be equal to such weekly average yield. In all other
cases, the Treasury Yield will be calculated by interpolation, on a
straight-line basis, between the weekly average yields on the United States
Treasury Notes that have a constant maturity closest to and greater than the
Remaining Term and the United States Treasury Notes that have a constant
maturity closest to and less than the Remaining Term (in each case as set forth
in the H.15 Statistical Release). Any weekly average yields so calculated by
interpolation will be rounded to the nearest 1/100th of 1%, with any figure of
1/200% or above being rounded upward. If weekly average yields for United States
Treasury Notes are not available in the H.15 Statistical Release or otherwise,
then the Treasury Yield will be calculated by interpolation of comparable rates
selected by the Independent Investment Banker.

If less than all of the Notes are to be redeemed, the Trustee will select
the Notes to be redeemed by such method as the Trustee shall deem fair and
appropriate. The Trustee may select for redemption Notes and portions of Notes
in amounts of $1,000 or whole multiples of $1,000.

The Notes are not entitled to the benefit of any sinking fund or other
mandatory redemption provisions.

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<PAGE> 56

CERTAIN COVENANTS

LIMITATION ON LIENS. Nothing in the Indenture or the Notes in any way
limits the amount of indebtedness or securities (other than the Notes) that the
Company or any of its Subsidiaries may incur or issue. The Indenture provides
that the Company will not, and will not permit any Restricted Subsidiary to,
issue, assume or guarantee any Indebtedness for borrowed money secured by any
Lien on any property or asset now owned or hereafter acquired by the Company or
such Restricted Subsidiary without making effective provision whereby any and
all Notes then or thereafter outstanding will be secured by a Lien equally and
ratably with any and all other obligations thereby secured for so long as any
such obligations shall be so secured.

The foregoing restriction will not, however, apply to:

(a) Liens existing on the date on which the Notes were originally
issued or provided for under the terms of agreements existing on such date;

(b) Liens on property or properties (including any property or assets,
real or personal, or improvements used or to be used in connection with
such property) securing (i) all or any portion of the cost of exploration,
drilling or development of such property or properties, (ii) all or any
portion of the cost of acquiring, constructing, altering, improving or
repairing any property or assets, real or personal, or improvements used or
to be used in connection with such property or properties or (iii)
Indebtedness incurred by the Company or any Restricted Subsidiary to
provide funds for the activities set forth in clauses (i) and (ii) above
with respect to such property or properties;

(d) Liens on property existing at the time of acquisition of such
property by the Company or a Subsidiary or Liens on the property of any
corporation or other entity existing at the time such corporation or other
entity becomes a Restricted Subsidiary of the Company or is merged with the
Company in compliance with the Indenture and in either case not incurred as
a result of (or in connection with or in anticipation of) the acquisition
of such property or such corporation or other entity becoming a Restricted
Subsidiary of the Company or being merged with the Company, provided that
such Liens do not extend to or cover any property or assets of the Company
or any of its Restricted Subsidiaries other than the property so acquired;

(e) Liens on any property securing (i) Indebtedness incurred in
connection with the construction, installation or financing of pollution
control or abatement facilities or other forms of industrial revenue bond
financing or (ii) Indebtedness issued or guaranteed by the United States or
any State thereof or any department, agency or instrumentality of either;

(f) any Lien extending, renewing or replacing (or successive
extensions, renewals or replacements of) any Lien of any type permitted
under clauses (a) through (e) above, provided that such Lien extends to or
covers only the property that is subject to the Lien being extended,
renewed or replaced;

(g) certain Liens arising in the ordinary course of business of the
Company and the Restricted Subsidiaries;

(h) any Lien resulting from the deposit of moneys or evidences of
indebtedness in trust for the purpose of defeasing Indebtedness of the
Company or any Subsidiary; or

(i) Liens (exclusive of any Lien of any type otherwise permitted under
clauses (a) through (h) above) securing Indebtedness of the Company or any
Restricted Subsidiary in an aggregate principal amount which, together with
the aggregate amount of Attributable Indebtedness deemed to be outstanding
in respect of all Sale/Leaseback Transactions entered into pursuant to
clause (a) of the covenant described under "Limitation on Sale/Leaseback
Transactions" below (exclusive of any such Sale/Leaseback Transactions
otherwise permitted under clauses (a) through

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<PAGE> 57

(h) above), does not at the time such Indebtedness is incurred exceed 7.5%
of the Consolidated Net Tangible Assets of the Company (as shown in the
most recent published quarterly or year-end consolidated balance sheet of
the Company and its Subsidiaries).

The following types of transactions will not be prohibited or otherwise
limited by the foregoing covenant: (i) the sale, granting of Liens with respect
to, or other transfer of, crude oil, natural gas or other petroleum hydrocarbons
in place for a period of time until, or in an amount such that, the transferee
will realize therefrom a specified amount (however determined) of money or of
such crude oil, natural gas or other petroleum hydrocarbons; (ii) the sale or
other transfer of any other interest in property of the character commonly
referred to as a production payment, overriding royalty, forward sale or similar
interest; (iii) the entering into of Currency Hedge Obligations, Interest Rate
Hedging Agreements or Oil and Gas Hedging Contracts although Liens securing any
Indebtedness for borrowed money that is the subject of any such obligation shall
not be permitted hereby unless permitted under clauses (a) through (i) above;
and (iv) the granting of Liens required by any contract or statute in order to
permit the Company or any Restricted Subsidiary to perform any contract or
subcontract made by it with or at the request of the United States or any State
thereof or any department, agency or instrumentality of either, or to secure
partial, progress, advance or other payments to the Company or any Restricted
Subsidiary by such governmental unit pursuant to the provisions of any contract
or statute.

LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, enter into
any Sale/Leaseback Transaction with any person (other than the Company or a
Restricted Subsidiary) unless:

(a) the Company or such Restricted Subsidiary would be entitled to
incur Indebtedness, in a principal amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction, secured by a
Lien on the property subject to such Sale/Leaseback Transaction pursuant to
the covenant described under "Limitation on Liens" above without equally
and ratably securing the Notes pursuant to such covenant;

(b) after the date on which the Notes were originally issued and
within a period commencing six months prior to the consummation of such
Sale/Leaseback Transaction and ending six months after the consummation
thereof, the Company or such Restricted Subsidiary shall have expended for
property used or to be used in the ordinary course of business of the
Company and the Restricted Subsidiaries (including amounts expended for the
exploration, drilling or development thereof, and for additions,
alterations, repairs and improvements thereto) an amount equal to all or a
portion of the net proceeds of such Sale/Leaseback Transaction and the
Company shall have elected to designate such amount pursuant to this clause
(b) with respect to such Sale/Leaseback Transaction (with any such amount
not being so designated and not permitted under clause (a) to be applied as
set forth in clause (c) below); or

(c) the Company, during the 12-month period after the effective date
of such Sale/Leaseback Transaction, shall have applied to the voluntary
defeasance or retirement of Notes or any Pari Passu Indebtedness an amount
equal to the greater of the net proceeds of the sale or transfer of the
property leased in such Sale/Leaseback Transaction and the fair value, as
determined by the Board of Directors of the Company, of such property at
the time of entering into such Sale/Leaseback Transaction (in either case
adjusted to reflect the remaining term of the lease and any amount
designated by the Company as set forth in clause (b) above), less an amount
equal to the principal amount of Notes and Pari Passu Indebtedness
voluntarily defeased or retired by the Company within such 12-month period
and not designated with respect to any other Sale/Leaseback Transaction
entered into by the Company or any Restricted Subsidiary during such
period.

SUBSIDIARY GUARANTORS. The Notes are not guaranteed by any Subsidiary of
the Company. The Indenture provides that if any Subsidiary of the Company
guarantees any Funded Indebtedness of the Company at any time in the future,
then the Company will cause the Notes to be equally and ratably guaranteed by
such Subsidiary.

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LIMITATIONS ON MERGERS AND CONSOLIDATIONS

The Indenture provides that the Company will not consolidate or merge with
or into any Person, or sell, lease, convey or otherwise dispose of all or
substantially all of its assets, or assign any of its obligations under the
Indenture or under the Notes, to any Person, unless: (i) the Person formed by or
surviving such consolidation or merger (if other than the Company), or to which
such sale, lease, conveyance or other disposition or assignment shall be made
(collectively, the "Successor"), is a corporation organized and existing under
the laws of the United States or any State thereof or the District of Columbia
and the Successor assumes by supplemental indenture in a form satisfactory to
the Trustee all of the obligations of the Company under the Indenture and under
the Notes; and (ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing.

REGISTRATION COVENANT; EXCHANGE OFFER

The Company has entered into an Exchange and Registration Rights Agreement
(the "Registration Rights Agreement") pursuant to which the Company has agreed,
for the benefit of the holders of the Old Notes, (i) to file with the
Commission, within 90 days following the closing of the issuance and sale of the
Notes (the "Old Notes Closing"), a registration statement (the "Exchange Offer
Registration Statement") under the Securities Act relating to an exchange offer
pursuant to which securities substantially identical to the Old Notes (except
that such securities will not contain terms with respect to the special interest
payments described below or transfer restrictions) would be offered in exchange
for the then outstanding Old Notes tendered at the option of the Holders thereof
and (ii) to use all reasonable efforts to cause the Exchange Offer Registration
Statement to become effective as soon as practicable, but in no case later than
180 days following the Old Notes Closing. The Company has further agreed to use
all reasonable efforts to commence and complete the Exchange Offer promptly, but
no later than 45 days after such registration statement has become effective,
hold the Exchange Offer open for at least 30 days, and issue Exchange Notes for
all Old Notes validly tendered and not withdrawn before the expiration of the
Exchange Offer.

The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus is a part.

Under existing Commission interpretations, the Exchange Notes would in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act, except that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to resale of
those Exchange Notes. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to such Exchange Notes (other than a resale of any unsold allotment from the
original sale of the Notes) by delivery of the prospectus contained in the
Exchange Offer Registration Statement. Under the Registration Rights Agreement,
the Company is required to allow Participating Broker-Dealers to use the
prospectus contained in the Exchange Offer Registration Statement in connection
with the resale of such Exchange Notes. The Exchange Offer Registration
Statement will be kept effective for a period of 180 days after the Exchange
Offer has been completed in order to permit resales of Exchange Notes acquired
by broker-dealers in the Exchange Offer for Notes acquired in after-market
transactions. Each holder of the Old Notes (other than certain specified
holders) who wishes to exchange such Old Notes for Exchange Notes in the
Exchange Offer will be required to represent that any Exchange Notes to be
received by it will be acquired in the ordinary course of its business, that at
the time of the commencement of the Exchange Offer it has no arrangement with
any Person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes and that it is not an Affiliate of the
Company.

However, if on or before the date of consummation of the Exchange Offer the
existing Commission interpretations are changed such that the Exchange Notes
would not in general be freely transferable on

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such date, the Company will, in lieu of effecting registration of Exchange
Notes, use all reasonable efforts to file a registration statement under the
Securities Act relating to a shelf registration of the Old Notes for resale by
Holders (such registration, the "Shelf Registration") and such registration
statement, the "Shelf Registration Statement") as soon as practicable, but no
later than the later of 90 days after the time such obligation to file arises
and 180 days after the Old Notes Closing. In addition, in the event that the
Initial Purchasers shall not have resold all of the Old Notes initially
purchased by them from the Company prior to the consummation of the Exchange
Offer, the Company shall file under the Securities Act as soon as practicable a
Shelf Registration Statement. The Company agrees to use all reasonable efforts
to cause the Shelf Registration Statement to become or be declared effective no
later than 90 days after such Shelf Registration Statement is filed and to keep
such Shelf Registration Statement continuously effective until the second
anniversary of the Old Notes Closing. The Company will, in the event of the
Shelf Registration, provide to the holders of the Old Notes copies of the
prospectus that is a part of the Shelf Registration Statement, notify such
holders when the Shelf Registration Statement for the Old Notes has become
effective and take certain other actions as are required to permit unrestricted
resales of the Old Notes. A holder of Old Notes that sells such Old Notes
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement that are applicable
to such a holder (including certain indemnification obligations).

In the event that (i) the Company had not filed the Exchange Offer
Registration Statement within 90 days of the Old Notes Closing or has not filed
a Shelf Registration Statement on or before the date on which such registration
statement is required to be filed as described above, (ii) such Exchange
Registration Statement or Shelf Registration Statement has not become or been
declared effective by the Commission on or before the date on which such
registration statement is required to become or be declared effective as
described above, (iii) the Exchange Offer has not been completed within 45 days
after the initial effective date of the Exchange Offer Registration Statement
(if the Exchange Offer is then required to be made) or (iv) any Exchange Offer
Registration Statement or Shelf Registration Statement required as described
above is filed and declared or becomes effective but shall thereafter either be
withdrawn by the Company or shall become subject to an effective stop order
issued pursuant to Section 8(d) of the Securities Act suspending the
effectiveness of such registration statement (except as specifically permitted
in the Registration Rights Agreement) without being succeeded immediately by an
additional registration statement filed and declared effective (each such event
referred to in clauses (i) through (iv), a "Registration Default" and each
period during which a Registration Default has occurred and is continuing, a
"Registration Default Period"), then, as liquidated damages for such
Registration Default, special cash interest ("Special Interest"), in addition to
any base interest that would otherwise accrue on the Old Notes, shall accrue and
be payable at a per annum rate of .25% for the first 90 days of the Registration
Default Period and at a per annum rate of .50% thereafter for the remaining
portion of the Registration Default Period. The Special Interest will be payable
in cash semiannually in arrears on each April 15 and October 15. Special
Interest, if any, will be computed on the basis of a 365 or 366 day year, as the
case may be, and the number of days actually elapsed.

CERTAIN DEFINITIONS

The following is a summary of certain defined terms used in the Indenture.
Reference is made to the Indenture for the full definition of all such terms and
for the definitions of other capitalized terms used herein and not defined
below.

"Attributable Indebtedness", when used with respect to any Sale/Leaseback
Transaction, means, as at the time of determination, the present value
(discounted at a rate equivalent to the Company's then current weighted average
cost of funds for borrowed money as at the time of determination, compounded on
a semi-annual basis) of the total obligations of the lessee for rental payments
during the remaining term of the lease included in such Sale/Leaseback
Transaction (including any period for which such lease can be extended).

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"Capitalized Lease Obligation" of any Person means any obligation of such
Person to pay rent or other amounts under a lease of property, real or personal,
that is required to be capitalized for financial reporting purposes in
accordance with generally accepted accounting principles; and the amount of such
obligation shall be the capitalized amount thereof determined in accordance with
generally accepted accounting principles.

"Consolidated Net Tangible Assets" means, for the Company and its
Restricted Subsidiaries on a consolidated basis determined in accordance with
generally accepted accounting principles, the aggregate amounts of assets (less
depreciation and valuation reserves and other reserves and items deductible from
gross book value of specific asset accounts under generally accepted accounting
principles) that would be included on a balance sheet after deducting therefrom
(a) all liability items except deferred income taxes, Funded Indebtedness, other
long-term liabilities and shareholders' equity and (b) all goodwill, trade
names, trademarks, patents, unamortized debt discount and expense and other like
intangibles.

"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time that were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or futures contract or other similar agreement or arrangement designed to
protect against or manage such Person's or any of its Subsidiaries' exposure to
fluctuations in foreign currency exchange rates.

"Funded Indebtedness" means all Indebtedness (including Indebtedness
incurred under any revolving credit, letter of credit or working capital
facility) that matures by its terms, or that is renewable at the option of any
obligor thereon to a date, more than one year after the date on which such
Indebtedness is originally incurred.

"Indebtedness" of any Person at any date means, without duplication, (i)
all indebtedness of such Person for borrowed money (whether or not the recourse
of the lender is to the whole of the assets of such Person or only to a portion
thereof), (ii) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments, (iii) all obligations of such Person in
respect of letters of credit or other similar instruments (or reimbursement
obligations with respect thereto), other than standby letters of credit incurred
by such Person in the ordinary course of business, (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
except trade payables and accrued expenses incurred in the ordinary course of
business, (v) all Capitalized Lease Obligations of such Person, (vi) all
Indebtedness of others secured by a Lien on any asset of such Person, whether or
not such Indebtedness is assumed by such Person, (vii) all Indebtedness of
others guaranteed by such Person to the extent of such guarantee and (viii) all
obligations of such Person in respect of Currency Hedge Obligations, Interest
Rate Hedging Agreements and Oil and Gas Hedging Contracts.

"Interest Rate Hedging Agreements" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person or any of its
Subsidiaries against fluctuations in interest rates.

"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
(including, without limitation, any production payment, advance payment or
similar arrangement with respect to minerals in place), whether or not filed,
recorded or otherwise perfected under applicable law. For the purposes of the
Indenture, the Company or any Restricted Subsidiary shall be deemed to own
subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, Capitalized
Lease Obligation (other than any Capitalized Lease Obligation relating to any
building, structure, equipment or other property used or to be used in the
ordinary course of business of the Company and the Restricted Subsidiaries) or
other title retention agreement relating to such asset.

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"Oil and Gas Hedging Contracts" means any oil and gas purchase or hedging
agreement, and other agreement or arrangement, in each case, that is designed to
provide protection against oil and gas price fluctuations.

"Pari Passu Indebtedness" means any Indebtedness of the Company, whether
outstanding on the date on which the Notes were originally issued or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall be
subordinated in right of payment to the Notes.

"Restricted Subsidiary" means any Subsidiary the principal business of
which is carried on in, or the majority of the operating assets of which are
located in, the United States (including areas subject to its jurisdiction).

"Sale/Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary, for a
period of more than three years, of any real or tangible personal property,
which property has been or is to be sold or transferred by the Company or such
Restricted Subsidiary to such Person in contemplation of such leasing.

EVENTS OF DEFAULT

An Event of Default is defined in the Indenture as being: (i) default by
the Company for 30 days in payment when due of any interest on the Notes; (ii)
default by the Company in any payment when due of principal of or premium, if
any, on the Notes; (iii) default by the Company in performance of any other
covenant or agreement in the Notes or the Indenture which shall not have been
remedied within 90 days after written notice by the Trustee or by the holders of
at least 25% in principal amount of the Notes then outstanding; (iv) the
acceleration of the maturity of any Indebtedness of the Company or any
Restricted Subsidiary (other than the Notes) (provided that such acceleration is
not rescinded within a period of 10 days from the occurrence of such
acceleration) having an outstanding principal amount of $10 million or more
individually or in the aggregate, or a default in the payment of any principal
or interest in respect of any Indebtedness of the Company or any Restricted
Subsidiary (other than the Notes) having an outstanding principal amount of $10
million or more individually or in the aggregate and such default shall be
continuing for a period of 30 days without the Company or such Restricted
Subsidiary, as the case may be, effecting a cure of such default; (v) failure by
the Company or any Restricted Subsidiary to pay final, non-appealable judgments
aggregating in excess of $10 million, which judgments are not paid, discharged
or stayed for a period of 60 days; or (vi) certain events involving bankruptcy,
insolvency or reorganization of the Company or any Restricted Subsidiary. The
Indenture provides that the Trustee may withhold notice to the holders of the
Notes of any default (except in payment of principal of, or premium, if any, or
interest on the Notes) if the Trustee considers it in the interest of the
holders of the Notes to do so.

The Indenture provides that if an Event of Default occurs and is continuing
with respect to the Indenture, the Trustee or the holders of not less than 25%
in principal amount of the Notes outstanding may declare the principal of and
premium, if any, and accrued and unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal, premium, if any, and interest
will be due and payable immediately. If an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company or any
Restricted Subsidiary occurs and is continuing, the principal of and premium, if
any, and interest on all the Notes will become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holders of the Notes. The amount due and payable on the acceleration of any Note
will be equal to 100% of the principal amount of such Note, plus accrued
interest to the date of payment. Under certain circumstances, the holders of a
majority in principal amount of the outstanding Notes may rescind any such
acceleration with respect to the Notes and its consequences.

The Indenture provides that no holder of a Note may pursue any remedy under
the Indenture unless (i) the Trustee shall have received written notice of a
continuing Event of Default, (ii) the Trustee shall

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have received a request from holders of at least 25% in principal amount of the
Notes to pursue such remedy, (iii) the Trustee shall have been offered indemnity
satisfactory to it and (iv) the Trustee shall have failed to act for a period of
60 days after receipt of such notice and offer of indemnity; however, such
provision does not affect the right of a holder of a Note to sue for enforcement
of any overdue payment thereon.

The holders of a majority in principal amount of the Notes then outstanding
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee under the
Indenture, subject to certain limitations specified in the Indenture. The
Indenture requires the annual filing by the Company with the Trustee of a
written statement as to compliance with the covenants contained in the
Indenture.

MODIFICATION AND WAIVER

The Indenture provides that modifications and amendments to the Indenture
or the Notes may be made by the Company and the Trustee with the consent of the
holders of a majority in principal amount of the Notes then outstanding;
provided that no such modification or amendment may, without the consent of the
holder of each Note then outstanding affected thereby, (i) reduce the percentage
in principal amount of Notes whose holders must consent to an amendment,
supplement or waiver; (ii) reduce the rate of or change the time for payment of
interest, including default interest, on any Note; (iii) reduce the principal of
or change the fixed maturity of any Note or alter the premium or other
provisions with respect to redemption; (iv) make any Note payable in money other
than that stated in the Note; (v) impair the right to institute suit for the
enforcement of any payment of principal of, or premium, if any, or interest on,
any Note; (vi) make any change in the percentage of principal amount of Notes
necessary to waive compliance with certain provisions of the Indenture; or (vii)
waive a continuing Default or Event of Default in the payment of principal of,
or premium, if any, or interest on the Notes. The Indenture provides that
modifications and amendments of the Indenture may be made by the Company and the
Trustee without the consent of any holders of Notes in certain limited
circumstances, including (a) to cure any ambiguity, omission, defect or
inconsistency, (b) to provide for guarantees of the Notes or addition of any
Subsidiary of the Company as a guarantor of the Notes, (c) to provide for the
assumption of the obligations of the Company under the Indenture upon the
merger, consolidation or sale or other disposition of all or substantially all
of the assets of the Company, (d) to provide for uncertificated Notes in
addition to or in place of certificated Notes, (e) to comply with any
requirement in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act of 1939 or (f) to make any change that does not
adversely affect the rights of any holder of Notes in any material respect.

The Indenture provides that the holders of a majority in aggregate
principal amount of the Notes then outstanding may waive any past default under
the Indenture, except a default in the payment of principal, or premium, if any,
or interest.

DISCHARGE AND TERMINATION

DEFEASANCE OF CERTAIN OBLIGATIONS. The Indenture provides that the Company
may terminate certain of its obligations under the Indenture, including those
described under the section "Certain Covenants," if (i) the Company irrevocably
deposits in trust with the Trustee money or U.S. Government Obligations
sufficient to pay principal of and interest on the Notes to maturity, and to pay
all other sums payable by it under the Indenture, provided that the Trustee
shall have been irrevocably instructed to apply such money or the proceeds of
such U.S. Government Obligations to the payment of said principal and interest
with respect to the Notes as the same shall become due; (ii) the Company
delivers to the Trustee an Officers' Certificate stating that all conditions
precedent to satisfaction and discharge of the Indenture have been complied
with, and an Opinion of Counsel to the same effect; (iii) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit; and
(iv) the Company shall have delivered to the Trustee an Opinion of Counsel from
nationally recognized counsel acceptable to the Trustee or a tax ruling to the
effect that the holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of the Company's exercise of its option

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under such section and will be subject to Federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
option had not been exercised. In order to have money available on a payment
date to pay principal of or interest on the Notes, the U.S. Government
Obligations shall be payable as to principal or interest on or before such
payment date in such amounts as will provide the necessary money. U.S.
Government Obligations shall not be callable at the issuer's option. The
Company's payment obligation shall survive until the Notes are no longer
outstanding.

DISCHARGE. The Indenture provides that the Indenture shall cease to be of
further effect (subject to certain exceptions relating to compensation and
indemnity of the Trustee and repayment to the Company of excess money or
securities) when (i) either (A) all outstanding Notes theretofore authenticated
and issued (other than destroyed, lost or stolen Notes that have been replaced
or paid) have been delivered to the Trustee for cancellation; or (B) all
outstanding Notes not theretofore delivered to the Trustee for cancellation: (x)
have become due and payable, or (y) will become due and payable at their stated
maturity within one year or (z) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company, and
the Company, in the case of clause (x), (y) or (z) above, has deposited or
caused to be deposited with the Trustee as funds (immediately available to the
holders in the case of clause (x)) in trust for such purpose an amount which,
together with earnings thereon, will be sufficient to pay and discharge the
entire indebtedness on such Notes for principal, premium, if any, and interest
to the date of such deposit (in the case of Notes which have become due and
payable) or to the stated maturity or Redemption Date, as the case may be; (ii)
the Company has paid or caused to be paid all other sums payable by it under the
Indenture; and (iii) the Company has delivered to the Trustee an Officers'
Certificate stating that all conditions precedent to satisfaction and discharge
of the Indenture have been complied with, together with an Opinion of Counsel to
the same effect.

GOVERNING LAW

The Indenture provides that it will be governed by, and construed in
accordance with, the laws of the State of New York.

THE TRUSTEE

First Union National Bank will be the Trustee under the Indenture. Its
address is 230 South Tryon Street, Ninth Floor, Charlotte, N.C. 28288-1179. The
Company has also appointed the Trustee as the initial Registrar and as the
initial Paying Agent under the Indenture.

The Indenture contains certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. In the event the Trustee acquires any
conflicting interest (as defined in the Trust Indenture Act of 1939), however,
it must eliminate such conflict or resign.

The Indenture provides that in case an Event of Default shall occur (and be
continuing), the Trustee will be required to use the degree of care and skill of
a prudent man in the conduct of his own affairs. The Trustee will be under no
obligation to exercise any of its powers under the Indenture at the request of
any of the holders of the Notes, unless such holders shall have offered the
Trustee indemnity reasonably satisfactory to it.

BOOK-ENTRY, DELIVERY AND FORM

The Exchange Notes will be issued in the form of a fully registered Global
Certificate (the "Global Exchange Certificate"). The Global Exchange Certificate
will be deposited on the date of the closing of the Exchange Offer (the "Closing
Date") with, or on behalf of DTC and registered in the name of its nominee (such
nominee being referred to herein as the "Global Certificate Holder") or will
remain in the

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custody of the Trustee pursuant to a FAST Balance Certificate Agreement or
similar agreement between the Depositary and the Trustee.

Except as set forth below, the Global Exchange Certificate may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee.

DTC has advised the Company as follows: It is a limited-purpose trust
company which was created to hold securities for its participating organizations
(the "Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through electronic
book-entry changes in accounts of its Participants. Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's book-entry system is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("indirect participants"). Persons who are not
Participants may beneficially own securities held by DTC only through
Participants or indirect participants.

DTC has also advised that pursuant to procedures established by it (i) upon
the issuance by the Company of the Global Exchange Certificate, DTC will credit
the accounts of Participants designated by the Exchange Agent with portions of
the principal amount of the Global Exchange Certificate, and (ii) ownership of
beneficial interests in the Global Exchange Certificate will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to Participants), or by the Participants and the
indirect participants.

All payments on the Global Exchange Certificate registered in the name of
DTC's nominee will be made by the Company through the Paying Agent to DTC's
nominee as the registered owner of the Global Exchange Certificate. Under the
terms of the Indenture, the Company and the Trustee will treat the persons in
whose names the Exchange Notes, including the Global Exchange Certificate, are
registered as the owners of such Exchange Notes for the purpose of receiving
payments of principal and interest on such Exchange Notes and for all other
purposes whatsoever. Therefore, neither the Company, the Trustee nor the Paying
Agent has any direct responsibility or liability for the payment of principal or
interest on the Exchange Notes to owners of beneficial interests in the Global
Exchange Certificate. DTC has advised the Company and the Trustee that its
present practice is, upon receipt of any payment of principal or interest, to
credit immediately the accounts of the Participants with payment in amounts
proportionate to their respective holdings in principal amount of beneficial
interests in the Global Exchange Certificate as shown on the records of DTC.
Payments by Participants and indirect participants to owners of beneficial
interests in the Global Exchange Certificate will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name" and
will be the responsibility of such Participants or indirect participants.

The Company will issue Exchange Notes in definitive form in exchange for
the Global Exchange Certificate if, and only if, either (1) DTC is at any time
unwilling or unable to continue as depositary and a successor depositary is not
appointed by the Company within 90 days, (2) an Event of Default has occurred
and is continuing and the Registrar has received a request from DTC to issue
Exchange Notes in definitive form in lieu of all or a portion of the Global
Exchange Certificate (in which case the Company shall deliver Exchange Notes in
definitive form within 30 days of such request), or (3) the Company determines
not to have the Exchange Notes represented by a Global Exchange Certificate. In
any instance, an owner of a beneficial interest in the Global Exchange
Certificate will be entitled to have Exchange Notes equal in principal amount to
such beneficial interest registered in its name and will be entitled to physical
delivery of such Exchange Notes in definitive form. Exchange Notes so issued in
definitive form will be issued in denominations of $1,000 and integral whole
multiples thereof and will be issued in registered form only, without coupons.

So long as the Global Exchange Certificate Holder is the registered owner
of the Global Exchange Certificate, the Global Exchange Certificate Holder will
be considered the sole Holder under the Indenture of any Exchange Notes
evidenced by the Global Exchange Certificates. Beneficial owners of Exchange

63
<PAGE> 65

Notes evidenced by the Global Exchange Certificate will not be considered the
owners or holders thereof under the Indenture for any purpose, including with
respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records of DTC or for
maintaining, supervising or reviewing any records of DTC relating to the
Exchange Notes.

SETTLEMENT AND PAYMENT

If the total outstanding principal amount of the Exchange Notes is
represented by a Global Exchange Certificate, all payments of principal of and
any premium and interest on the Exchange Notes will be made by the Company in
immediately available funds; otherwise, payments on definitive physical
certificates will be made in U.S. Clearing House funds. Secondary market trading
activity in the Exchange Notes will also settle in immediately available funds.

CERTAIN UNITED STATES TAX CONSEQUENCES TO FOREIGN HOLDERS

The following summary describes certain United States federal income and
estate tax consequences of the ownership of Notes held as capital assets by
Non-United States Holders. Except as otherwise specified below, the summary
assumes that the Non-United States Holder is not subject to United States
federal income or estate tax as a result of a present of former direct or
indirect connection to the United States other than its investment in Notes. As
used herein, the term "Non-United States Holder" means any person that is, as to
the United States, a nonresident alien individual, a foreign estate or trust, a
foreign partnership or a foreign corporation.

The discussion set forth below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations under
the Code and published rulings and judicial decisions in effect as of the date
hereof. Such authorities may be repealed, revoked or modified so as to result in
federal income and estate tax consequences different from those discussed below,
possibly with retroactive effect. Persons considering the purchase of Notes
should consult their own tax advisors concerning the federal income and estate
tax consequences in light of their particular situations as well as any
consequences arising under the laws of any other taxing jurisdiction and the
consequences of any recent or possible future changes in the applicable tax
laws.

INTEREST ON THE NOTES

Subject to the discussion below concerning backup withholding, generally no
withholding of United States federal income tax will be required with respect to
the payment by the Company or any paying agent of principal, premium, if any, or
interest on a Note owned by a Non-United States Holder, provided that in the
case of interest or premium, if any, (i) the beneficial owner does not actually
or constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (ii) the beneficial owner is
not a "controlled foreign corporation" (as defined in Section 957 of the Code)
that is related, actually or constructively, to the Company through stock
ownership and (iii) a certified statement is furnished in accordance with the
requirements described in the next sentence (the "Certification Requirement").
To satisfy the Certification Requirement, the beneficial owner of a Note, or a
financial institution holding the Note on behalf of such owner, must provide, in
accordance with specified procedures, to the Company or its paying agent a
statement to the effect that the beneficial owner is not a United States person.
Pursuant to temporary Treasury regulations currently in effect, these
requirements will be met if (1) the beneficial owner provides the payor its name
and address, and certifies, under penalties of perjury, that it is not a United
States person (which certification may be made on an Internal Revenue Service
("IRS") Form W-8 (or successor or substitute form)) or (2) a financial
institution that holds customers' securities in the ordinary course of its trade
or business and holds the Note on behalf of the beneficial owner certifies,
under penalties of perjury, that such a statement has been received by it (or by
another financial institution acting on behalf of the Non-United States Holder),
and furnishes the payor with a copy thereof.

64
<PAGE> 66

If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exemption from withholding tax described in the preceding
paragraph, payments of premium, if any, and interest made to the Non-United
States Holder will generally be subject to a 30% withholding tax, unless the
beneficial owner of the Note provides the Company or its paying agent with a
properly executed IRS Form 4224 (or successor form) stating that the payment is
not subject to withholding tax because it is effectively connected with the
beneficial owner's conduct of a trade or business in the United States. The
withholding tax that might otherwise be applicable to payments of premium, if
any, and interest made to Non-United States Holders might be reduced or
eliminated under an income tax treaty between the United States and the foreign
country of which the beneficial owner is a resident, provided the beneficial
owner furnishes the Company or its paying agent with a properly executed IRS
Form 1001 (or successor form) claiming such treaty benefit. Prospective
investors in the Notes should consult their own tax advisors regarding the
potential applicability to them of the withholding tax exemptions or reductions
described above as well as the procedures for qualifying for such exemptions or
reductions and possible future changes in those procedures.

If a Non-United States Holder is engaged in a trade or business in the
United States and premium, if any, or interest on the Note is effectively
connected with the conduct of such trade or business, the Non-United States
Holder will generally be subject to United States federal income tax on such
premium or interest on a net income basis at the rates applicable to United
States persons. In addition, if such holder is a foreign corporation, the
after-tax amount of such income may be subject to a branch profits tax at a rate
of 30% or such lower rate as may be specified by an applicable income tax
treaty.

DISPOSITION OF NOTES

Subject to the discussion below concerning backup withholding, withholding
of United States federal income tax will not generally be required with respect
to any gain or income (other than interest) realized by a Non-United States
Holder upon the sale, exchange or retirement of a Note.

Any gain or income (other than interest) realized upon the sale, exchange
or retirement of a Note generally will not be subject to United States federal
income tax unless (i) such gain or income is effectively connected with the
conduct of a trade or business in the United States of the Non-United States
Holder, or (ii), in the case of a Non-United States Holder who is a nonresident
alien individual, such Holder is present in the United States for 183 or more
days in the taxable year of such sale, exchange or retirement and certain other
conditions are met.

ESTATE TAX

A Note beneficially owned by an individual who at the time of death is a
Non-United States Holder generally will not be subject to United States federal
estate tax as a result of such individual's death, provided that such individual
does not at the time of death actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote and provided that the interest payments with respect to such Note would not
have been, if received at the time of such individual's death, effectively
connected with the conduct of a trade or business in the United States by such
individual.

INFORMATION REPORTING AND BACKUP WITHHOLDING

In general, a 31% backup withholding tax and information reporting
requirements apply to certain payments of principal, premium, if any, and
interest on, or to the proceeds from the sale of, a Note.

Generally, no backup withholding will be required with respect to payments
made by the Company or its paying agent to a Non-United States Holder if the
Certification Requirement has been satisfied. In such case, however, the Company
will report the interest payments on the Note to the IRS.

In addition, backup withholding and information reporting generally will
not apply if payments of principal, premium, if any, and interest on a Note are
paid or collected by a foreign office of a custodian,

65
<PAGE> 67

nominee or other foreign agent on behalf of the beneficial owner of such Note,
or if the proceeds of the sale of a Note are paid by or through a foreign office
of a broker (as defined in applicable Treasury regulations). If, however, such
nominee, custodian, agent or broker is, for United States federal income tax
purposes, a United States person, a controlled foreign corporation or a foreign
person that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, such payments will not be
subject to backup withholding but will be subject to information reporting
unless (1) such custodian, nominee, agent or broker has documentary evidence in
its records that the beneficial owner is not a United States person and certain
other conditions are met or (2) the beneficial owner otherwise establishes an
exemption. Temporary Treasury regulations provide that the Treasury is
considering whether backup withholding will apply with respect to such payments
that are not currently subject to backup withholding.

Payments of principal and interest received by the beneficial owner through
a United States office of a custodian, nominee or agent, or the payment by a
broker of the proceeds of the sale of a Note by or through a United States
office of a broker, generally will be subject to both backup withholding and
information reporting unless the beneficial owner (1) satisfies the
Certification Requirement and the payor does not have actual knowledge that the
beneficial owner is a United States person or (2) otherwise establishes an
exemption.

Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against the holder's United States federal income tax
liability provided the required information is furnished to the IRS.

PLAN OF DISTRIBUTION

Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.

The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.

For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Notes) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.

66
<PAGE> 68

LEGAL MATTERS

The validity of the Exchange Notes offered hereby will be passed on for the
Company by Vinson & Elkins L.L.P., Houston, Texas.

EXPERTS

The consolidated financial statements of Newfield Exploration Company as of
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996, included in this Prospectus, have been audited by Coopers &
Lybrand L.L.P., independent public accountants, as stated in their report
appearing herein and have been included herein in reliance upon such firm as
experts in accounting and auditing.

Certain information relating to the Company's proved oil and natural gas
reserves and future net cash flows therefrom included in this Prospectus is
derived from estimates prepared by Ryder Scott Company Petroleum Engineers and
is included herein in reliance upon such firm as experts with respect to such
matters.

67
<PAGE> 69

GLOSSARY OF OIL AND GAS TERMS

The definitions set forth below shall apply to the indicated terms as used
in this Prospectus. All volumes of natural gas referred to herein are stated at
the legal pressure base of the state or area where the reserves exist and at 60
degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.

Basis Risk. The risk associated with the sales point price for oil or gas
production varying from the reference (or settlement) price for a particular
hedging transaction.

Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.

Bcf. Billion cubic feet.

Bcfe. Billion cubic feet equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.

Btu. British thermal unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.

Completion. The installation of permanent equipment for the production of
oil or natural gas, or in the case of a dry hole, the reporting of abandonment
to the appropriate agency.

Developed acreage. The number of acres that are allocated or assignable to
producing wells or wells capable of production.

Development well. A well drilled within the proved area of an oil or
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.

Dry hole or well. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production exceed
production expenses and taxes.

Exploratory well. A well drilled to find and produce oil or natural gas
reserves not classified as proved, to find a new reservoir in a field previously
found to be productive of oil or natural gas in another reservoir or to extend a
known reservoir.

Farm-in or farm-out. An agreement whereunder the owner of a working
interest in an oil and gas lease assigns the working interest or a portion
thereof to another party who desires to drill on the leased acreage. Generally,
the assignee is required to drill one or more wells in order to earn its
interest in the acreage. The assignor usually retains a royalty or reversionary
interest in the lease. The interest received by an assignee is a "farm-in" while
the interest transferred by the assignor is a "farm-out."

Field. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.

Finding Costs. Costs associated with acquiring and developing proved oil
and gas reserves which are capitalized by the Company pursuant to generally
accepted accounting principles.

Gross acres or gross wells. The total acres or wells, as the case may be,
in which a working interest is owned.

Liquids. Crude oil, condensate and natural gas liquids.

MBbls. One thousand barrels of crude oil or other liquid hydrocarbons.

MBbls/d. One thousand barrels of crude oil or other liquid hydrocarbons per
day.

Mcf. One thousand cubic feet.

Mcf/d. One thousand cubic feet per day.

Mcfe. One thousand cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.

MMS. Mineral Management Service of the United States Department of the
Interior.

68
<PAGE> 70

MMBbls. One million barrels of crude oil or other liquid hydrocarbons.

MMbtu. One million Btus.

MMcf. One million cubic feet.

MMcf/d. One million cubic feet per day.

MMcfe. One million cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.

Net acres or net wells. The sum of the fractional working interests owned
in gross acres or gross wells, as the case may be.

Present Value. When used with respect to oil and natural gas reserves, the
estimated value of future gross revenues (estimated in accordance with the
requirements of the Commission) to be generated from the production of proved
reserves, net of estimated production and future development costs, using prices
and costs in effect as of the date indicated, without giving effect to
non-property related expenses such as general and administrative expenses, debt
service and future income tax expenses or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.

Productive well. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.

Proved developed producing reserves. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and capable of production to market.

Proved developed reserves. Proved reserves that can be expected to be
recovered from existing wells with existing equipment and operating methods.

Proved developed nonproducing reserves. Proved developed reserves expected
to be recovered from zones behind casing in existing wells.

Proved reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.

Proved undeveloped location. A site on which a development well can be
drilled consistent with spacing rules for purposes of recovering proved
undeveloped reserves.

Proved undeveloped reserves. Proved reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.

Recompletion. The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.

Reservoir. A porous and permeable underground formation containing a
natural accumulation of producible oil and/or natural gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.

Royalty interest. An interest in an oil and natural gas property entitling
the owner to a share of oil or natural gas production free of costs of
production.

Undeveloped acreage. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether such acreage contains proved
reserves.

Working interest. The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production.

Workover. Operations on a producing well to restore or increase production.

69
<PAGE> 71

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of September 30, 1997
(unaudited) and at December 31, 1996 and 1995............. F-3
Consolidated Statements of Income for the nine months ended
September 30, 1997 and 1996 (unaudited) and each of the
three years in the period ended December 31, 1996......... F-4
Consolidated Statements of Stockholders' Equity for the nine
months ended September 30, 1997 and 1996 (unaudited) and
each of the three years in the period ended December 31,
1996...................................................... F-5
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 (unaudited) and each of
the three years in the period ended December 31, 1996..... F-6
Notes to Consolidated Financial Statements.................. F-7
Supplementary Oil and Gas Disclosures....................... F-19
</TABLE>

F-1
<PAGE> 72

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of
Newfield Exploration Company:

We have audited the accompanying balance sheets of Newfield Exploration
Company as of December 31, 1996 and 1995, and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Newfield Exploration Company
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

Coopers & Lybrand L.L.P.

Houston, Texas
February 11, 1997

F-2
<PAGE> 73

NEWFIELD EXPLORATION COMPANY

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 12,533 $ 13,290 $ 15,279
Accounts receivable -- oil and gas.................. 25,332 46,814 37,222
Other............................................... 4,952 1,179 2,711
--------- --------- ---------
Total current assets........................ 42,817 61,283 55,212
--------- --------- ---------
Oil and gas properties (full cost method, of which
$19,517, $55,305 and $66,957 at December 31, 1995
and 1996 and September 30, 1997, respectively, were
excluded from amortization)......................... 362,857 526,680 715,018
Furniture, fixtures and equipment..................... 1,806 2,496 3,028
Less -- accumulated depreciation, depletion and
amortization........................................ (135,148) (199,161) (266,541)
--------- --------- ---------
229,515 330,015 451,505
--------- --------- ---------
Other assets.......................................... 5,074 4,640 209
--------- --------- ---------
Total assets................................ $ 277,406 $ 395,938 $ 506,926
========= ========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued liabilities............ $ 24,487 $ 46,072 $ 45,448
Advances from joint owners.......................... 1,673 3,612 915
Current maturities of capital lease obligations..... 422 163 --
Current maturities of long-term debt................ 5,000 -- --
--------- --------- ---------
Total current liabilities................... 31,582 49,847 46,363
--------- --------- ---------
Other liabilities..................................... 1,060 2,048 4,703
Long-term capital lease obligations................... 152 -- --
Long-term debt........................................ 25,000 60,000 120,000
Deferred taxes........................................ 26,041 44,141 57,620
--------- --------- ---------
Total long-term liabilities................. 52,253 106,189 182,323
--------- --------- ---------
Commitments and contingencies (Note 5)................ -- -- --
Stockholders' equity:
Preferred stock ($0.01 par value, 5,000,000 shares
authorized; no shares issued).................... -- -- --
Common stock ($0.01 par value, 50,000,000 shares
authorized at December 31, 1995 and 1996;
100,000,000 shares authorized at September 30,
1997; 34,354,844, 35,243,040 and 35,879,058
shares issued and outstanding at December 31,
1995 and 1996 and September 30, 1997,
respectively).................................... 343 352 359
Additional paid-in capital.......................... 137,830 147,291 159,265
Unearned compensation............................... (1,113) (2,746) (4,764)
Retained earnings................................... 56,511 95,005 123,380
--------- --------- ---------
Total stockholders' equity.................. 193,571 239,902 278,240
--------- --------- ---------
Total liabilities and stockholders'
equity.................................... $ 277,406 $ 395,938 $ 506,926
========= ========= =========
</TABLE>

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

F-3
<PAGE> 74

NEWFIELD EXPLORATION COMPANY

CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Oil and gas revenues...... $ 69,728 $ 94,598 $ 149,256 $ 101,774 $ 139,135
----------- ----------- ----------- ----------- -----------
Operating expenses:
Lease operating......... 9,555 14,227 16,946 12,094 17,782
Depreciation, depletion
and amortization..... 34,118 49,904 64,026 45,535 67,415
General and
administrative,
net.................. 3,802 5,549 7,552 5,338 8,251
Stock compensation...... 1,084 692 1,943 1,444 1,005
----------- ----------- ----------- ----------- -----------
Total operating
expenses...... 48,559 70,372 90,467 64,411 94,453
----------- ----------- ----------- ----------- -----------
Income from operations.... 21,169 24,226 58,789 37,363 44,682
Other income (expenses):
Interest income......... 1,742 988 917 588 768
Interest expense, net... (363) (208) (420) (197) (1,783)
----------- ----------- ----------- ----------- -----------
1,379 780 497 391 (1,015)
----------- ----------- ----------- ----------- -----------
Income before income
taxes................... 22,548 25,006 59,286 37,754 43,667
Income tax provision:
Current................. 453 21 29 (308) (23)
Deferred................ 7,655 8,721 20,763 13,511 15,315
----------- ----------- ----------- ----------- -----------
8,108 8,742 20,792 13,203 15,292
----------- ----------- ----------- ----------- -----------
Net income................ $ 14,440 $ 16,264 $ 38,494 $ 24,551 $ 28,375
=========== =========== =========== =========== ===========
Earnings per common
share................... $ 0.40 $ 0.45 $ 1.03 $ 0.66 $ 0.75
=========== =========== =========== =========== ===========
Weighted average number of
shares and common stock
equivalents
outstanding............. 35,910,348 36,193,102 37,202,545 37,131,830 37,771,278
=========== =========== =========== =========== ===========
</TABLE>

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

F-4
<PAGE> 75

NEWFIELD EXPLORATION COMPANY

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, 1996 AND NINE MONTHS ENDED
SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
UNREALIZED
GAIN
(LOSS) ON
INVESTMENT
COMMON STOCK ADDITIONAL SECURITIES TOTAL
------------------- PAID-IN UNEARNED RETAINED AVAILABLE FOR STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS SALE EQUITY
---------- ------ ---------- ------------ --------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993........ 33,098,710 $331 $129,579 $(2,872) $ 25,807 $152,845
Issuance of common stock for
cash, net of offering costs... 233,650 2 1,139 1,141
Amortization of stock
compensation.................. 1,084 1,084
Unrealized loss on investment
securities available for sale
($30 loss, net of deferred
income taxes of $11).......... $(19) (19)
Net income...................... 14,440 14,440
---------- ---- -------- ------- -------- ---- --------
Balance, December 31, 1994........ 33,332,360 333 130,718 (1,788) 40,247 (19) 169,491
Issuance of common stock for
cash, net of offering costs... 1,016,484 10 4,333 4,343
Issuance of restricted stock,
less amortization of $33...... 6,000 80 (47) 33
Cancellation of stock options... (63) 17 (46)
Amortization of stock
compensation.................. 705 705
Adjustment to unrealized loss on
investment securities
available for sale............ 19 19
Tax benefit from exercise of
stock options (Note 6)........ 2,762 2,762
Net income...................... 16,264 16,264
---------- ---- -------- ------- -------- ---- --------
Balance, December 31, 1995........ 34,354,844 343 137,830 (1,113) 56,511 -- 193,571
Issuance of common stock for
cash.......................... 632,196 6 3,204 3,210
Issuance of restricted stock,
less amortization of $1,441... 256,000 3 3,601 (2,163) 1,441
Cancellation of stock options... (28) 3 (25)
Amortization of stock
compensation.................. 527 527
Tax benefit from exercise of
stock options (Note 6)........ 2,684 2,684
Net income...................... 38,494 38,494
---------- ---- -------- ------- -------- ---- --------
Balance, December 31, 1996........ 35,243,040 352 147,291 (2,746) 95,005 -- 239,902
Issuance of common stock for
cash.......................... 590,196 6 7,094 7,100
Issuance of restricted stock,
less amortization of $137..... 45,822 1 3,022 (2,886) 137
Amortization of stock
compensation.................. 868 868
Tax benefit from exercise of
stock options (Note 6)........ 1,858 1,858
Net income...................... 28,375 28,375
---------- ---- -------- ------- -------- ---- --------
Balance, September 30, 1997
(unaudited)..................... 35,879,058 $359 $159,265 $(4,764) $123,380 $ -- $278,240
========== ==== ======== ======= ======== ==== ========
</TABLE>

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

F-5
<PAGE> 76

NEWFIELD EXPLORATION COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- ---------------------
1994 1995 1996 1996 1997
--------- -------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income.................................. $ 14,440 $ 16,264 $ 38,494 $ 24,551 $ 28,375
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization.... 34,118 49,904 64,026 45,535 67,415
Deferred taxes.............................. 7,655 8,721 20,763 13,511 15,315
Stock compensation.......................... 1,084 692 1,943 1,444 1,005
Realized loss on sale of investment
securities............................... 238 32 -- -- --
--------- -------- --------- --------- ---------
57,535 75,613 125,226 85,041 112,110
Changes in assets and liabilities:
(Increase) decrease in accounts receivable,
oil and gas.............................. 5,425 (8,859) (21,418) 744 9,592
(Increase) decrease in other current
assets................................... 1,218 (307) 3,793 2,589 (1,511)
(Increase) decrease in other assets......... (1,226) (24) 443 231 4,431
Increase (decrease) in accounts payable and
accrued liabilities...................... 718 4,275 16,523 9,778 (7,310)
Increase (decrease) in advances from joint
owners................................... 4,357 (3,194) 1,939 9,193 (2,697)
Increase in other liabilities............... 94 136 988 1,055 2,655
--------- -------- --------- --------- ---------
Net cash provided by operating
activities........................ 68,121 67,640 127,494 108,631 117,270
--------- -------- --------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties......... (114,892) (106,957) (158,834) (106,627) (181,652)
Additions to furniture, fixtures and
equipment................................ (229) (599) (703) (417) (566)
Purchases of investment securities.......... (40,997) -- -- -- --
Sales of investment securities.............. 32,499 8,227 -- -- --
--------- -------- --------- --------- ---------
Net cash used in investing
activities........................ (123,619) (99,329) (159,537) (107,044) (182,218)
--------- -------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings.................... -- 96,000 281,000 190,000 315,000
Repayments of borrowings.................... -- (66,000) (251,000) (164,000) (255,000)
Proceeds from issuances of common stock,
net...................................... 1,141 4,343 3,210 2,194 7,100
Payments on capital lease obligations....... (276) (533) (410) (357) (163)
--------- -------- --------- --------- ---------
Net cash provided by financing
activities........................ 865 33,810 32,800 27,837 66,937
--------- -------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents................................. (54,633) 2,121 757 29,424 1,989
Cash and cash equivalents, beginning of
period...................................... 65,045 10,412 12,533 12,533 13,290
--------- -------- --------- --------- ---------
Cash and cash equivalents, end of period...... $ 10,412 $ 12,533 $ 13,290 $ 41,957 $ 15,279
========= ======== ========= ========= =========
</TABLE>

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

F-6
<PAGE> 77

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

These financial statements include the accounts of Newfield Exploration
Company (the "Company"), a Delaware corporation, which was formed on December 5,
1988 to conduct offshore oil and gas exploration and drilling and development
operations in the Gulf of Mexico. As an independent oil and gas producer, the
Company's revenue, profitability and future rate of growth are substantially
dependent upon prevailing prices for natural gas, oil and condensate, which are
dependent upon numerous factors beyond the Company's control, such as economic,
political and regulatory developments and competition from other sources of
energy. The energy markets have historically been very volatile, as evidenced by
the recent volatility of gas prices, and there can be no assurance that oil and
gas prices will not be subject to wide fluctuations in the future. A substantial
or extended decline in oil and gas prices could have a material adverse effect
on the Company's financial position, results of operations, cash flows,
quantities of oil and gas reserves that may be economically produced and access
to capital.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Newfield
Exploration Company and its subsidiaries (collectively, the Company). All
significant intercompany balances and transactions have been eliminated. Certain
reclassification for prior years have been made to conform with the current year
presentation.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date(s) of the financial
statements and the reported amounts of revenues and expenses during the
reporting period(s). The Company's most significant financial estimates are
based on remaining proved oil and gas reserves (see Supplementary Oil and Gas
Disclosures included in Supplementary Financial Information). Actual results
could differ from these estimates.

COMMON STOCK SPLIT

On December 1, 1996 the Company's Board of Directors declared a two-for-one
split of its outstanding common stock to stockholders of record on December 16,
1996. The stated par value per share of common stock was not changed from $0.01.
These financial statements and notes thereto have been restated to retroactively
reflect the stock split.

EARNINGS PER SHARE

Net income per share is calculated by dividing net income by the weighted
average shares of Common Stock and Common Stock equivalents outstanding.

CASH FLOW STATEMENT

Cash equivalents include highly liquid investments with a maturity of
approximately three months or less when acquired. The Company invests cash in
excess of operating requirements in United States Treasury notes, Eurodollar
bonds and investment grade commercial paper. Cash equivalents are stated at
cost, which approximates fair market value. Cash flows resulting from oil and
gas sales hedging contracts are classified in the same category as the items
being hedged.

F-7
<PAGE> 78

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

been eliminated. Certain reclassification for prior years have been made to
conform with the current year presentation.

STOCK-BASED COMPENSATION

In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), which encourages, but does not require, all entities
to record compensation expense on all stock-based compensation plans based upon
fair value. The Company continues to account for its stock-based compensation
plans using the accounting prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees." In accordance with
FAS 123 the Company has disclosed pro forma net income and earnings per share as
if the fair value-based method of accounting had been applied. See Note 6.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company includes fair value information in the notes to financial
statements when the fair value of its financial instruments is different from
the book value. The book value of those financial instruments that are
classified as current assets or liabilities approximate fair value because of
the short maturity of those instruments.

OIL AND GAS PROPERTIES

The Company uses the full cost method of accounting for exploration and
development costs. Under this method of accounting, all costs incurred in the
acquisition, exploration and development of oil and gas properties are
capitalized. Such capitalized costs and estimated future development and
dismantlement costs are amortized on a unit-of-production method based on proved
reserves. Net capitalized costs of oil and gas properties are limited to the
lower of unamortized cost or the cost center ceiling, defined as the sum of the
present value (10% discount rate) of estimated future net revenues from proved
reserves, based on year-end oil and gas prices; plus the cost of properties not
being amortized, if any; plus the lower of cost or estimated fair value of
unproved properties included in the costs being amortized, if any; less related
income tax effects.

Proceeds from the sale of oil and gas properties are applied to reduce the
costs in the cost center unless the sale involves a significant quantity of
reserves in relation to the cost center, in which case a gain or loss is
recognized. At December 31, 1995, the Company had $3.5 million included in other
current assets which was a receivable from an industry investor relating to its
participation in the acquisition of an overriding royalty interest.

Unevaluated properties and associated costs not currently being amortized
and included in oil and gas properties were $55.3 million and $19.5 million at
December 31, 1996 and 1995, respectively. The properties represented by these
costs were at such dates undergoing exploration or development activities, or
are properties on which the Company intends to commence such activities in the
future. The Company believes that the unevaluated properties at December 31,
1996 will be substantially evaluated and therefore subject to amortization in 12
to 24 months.

Other property and equipment are recorded at cost and are depreciated over
their estimated useful lives of five to seven years using the straight-line
method.

F-8
<PAGE> 79

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

ABANDONMENT AND DISMANTLEMENT COSTS

Future abandonment and dismantlement costs include costs to dismantle,
relocate and dispose of the Company's offshore production platforms, gathering
systems, wells and related structures. The Company develops specific estimates
of its future abandonment and dismantlement costs for each of its properties
based upon the type of production structure, depth of water, currently available
abandonment procedures and consultations with construction and engineering
consultants. The Company does not currently anticipate additional abandonment
and dismantlement costs will be incurred beyond such estimates. Such estimates
are re-evaluated by the Company's engineers at least annually.

Total estimated future abandonment and dismantlement costs associated with
the Company's developed and acquired properties were $41.5 million, $35.9
million, and $26.0 million as of December 31, 1996, 1995 and 1994, respectively.

Estimated future abandonment and dismantlement costs are accrued on a
unit-of-production method based on proved reserves. The portion of future
abandonment and dismantlement costs that has been accrued is included in
accumulated depreciation, depletion and amortization and was $18.0 million,
$13.7 million and $8.4 million as of December 31, 1996, 1995 and 1994,
respectively.

PRODUCTION IMBALANCES

Joint interest owners may take more or less than their ownership interest
of natural gas volumes from jointly owned reservoirs. The Company follows the
sales method of accounting for imbalances. Under this method, the Company
records a liability if its sales of gas volumes in excess of its entitlements
from a jointly owned reservoir exceed its interest in the remaining estimated
gas reserves of such reservoir. Imbalances are monitored to minimize significant
imbalances, and such imbalances were not significant at December 31, 1996 and
December 31, 1995.

INCOME TAXES

The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("FAS 109"). This statement requires deferred tax
assets and liabilities to be determined by applying tax regulations existing at
the end of a reporting period to the cumulative temporary differences between
the tax bases of assets and liabilities and their reported amounts in the
financial statements.

CONCENTRATION OF CREDIT RISK

The Company maintains cash balances with several banks, which frequently
exceed federally insured limits and invests its cash in investment grade
commercial and U.S. Government backed securities. The Company's joint interest
partners consist primarily of independent oil and gas producers. The Company's
oil and gas production purchasers consist primarily of independent marketers and
major gas pipeline companies. The Company performs credit evaluations of its
customers' financial condition and obtains letter of credit agreements and
parental guarantees from selected oil and gas purchase customers. The Company
has not experienced any significant losses from uncollectible accounts.

MAJOR CUSTOMERS

The Company sold oil and gas production representing more than 10% of its
oil and gas revenues for the year ended December 31, 1996, to Gulfmark Energy,
Inc. (17%), Coast Energy Group (16%), and Superior Natural Gas Corporation
(12%); for the year ended December 31, 1995, to Gulfmark Energy, Inc. (22%),
Coast Energy Group (15%), and Northridge Energy (10%); for the year ended
December 31, 1994, to Coast Energy Group (14%), Gulfmark Energy, Inc. (14%), and
Eagle Natural Gas

F-9
<PAGE> 80

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

Company (12%). Based upon the current demand for oil and gas, the Company
believes that the loss of any of these purchasers would not have a material
adverse effect on the Company.

UNAUDITED FINANCIAL STATEMENTS

In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of the Company as of September 30, 1997 and the results of
operations and cash flows for the periods presented. All such adjustments are of
a normal recurring nature. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the SEC's rules
and regulations. The results of operations for the periods presented are not
necessarily indicative of the results for the full year.

2. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:

From time to time, the Company has utilized hedging transactions with
respect to a portion of its oil and gas production to achieve a more predictable
cash flow, as well as to reduce its exposure to price fluctuations. While the
use of these hedging arrangements limits the downside risk of adverse price
movements, they may also limit future revenues from favorable price movements.
The use of hedging transactions also involves the risk that the counterparties
will be unable to meet the financial terms of such transactions. All of the
Company's hedging transactions to date were carried out in the over-the-counter
market and the obligations of the counterparties have been guaranteed by
entities with at least an investment grade rating or secured by letters of
credit. The Company accounts for these transactions as hedging activities and,
accordingly, gains or losses are included in oil and gas revenues when the
hedged production is delivered. Unrealized gains and losses on these contracts
are deferred and offset against the related settlement amounts.

F-10
<PAGE> 81

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

During 1996, approximately 54% of the Company's equivalent production was
subject to hedge positions as compared to 42% in 1995. The Company has also
entered into hedging transactions with respect to a portion of its estimated
production for 1997. The Company continues to evaluate whether to enter into
additional hedging transactions for 1997 and future years. In addition, the
Company may determine from time to time to terminate its then existing hedging
positions. The following is a summary of the Company's natural gas hedge
positions as of December 31, 1996.

<TABLE>
<CAPTION>
WEIGHTED AVERAGE SALES POINT
PRICE PER MCF(1)
----------------------------
MONTHLY COLLAR
VOLUME ------------------ FAIR MARKET
PERIOD IN BCF SWAP FLOOR CEILING VALUE(2)
------ ------- ------ ------ -------- -----------------
<S> <C> <C> <C> <C> <C>
January 1997 -- March 1997
Price Swap Contracts................. 1.30 $2.36 -- -- ($3.3 million)(3)
Cashless Collar Contracts............ 1.25 -- $2.22 $2.67 ($2.3 million)(3)
Cashless Collar Contracts............ 1.30 -- $2.76 $3.25 ($1.0 million)(3)
April 1997 -- June 1997
Price Swap Contracts................. 0.80 $2.08 -- -- ($0.2 million)(3)
</TABLE>

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

(1) Price per Mcf is based upon the average energy content of the Company's gas
production for the twelve months ended December 31, 1996.

(2) The fair market value is calculated using prices derived from NYMEX futures
contract prices existing at December 31, 1996.

(3) This opportunity loss will be substantially offset in the cash market when
the hedged production is delivered in 1997, which has the effect of fixing
the price at which the commodity is sold. The Company does not record the
fair value of these instruments in its financial statements.

These gas swaps are settled based on published sales prices of natural gas
delivered into pipelines at the locations where the Company sells its production
(the "Sales Point Price"). With respect to any particular swap transaction, the
counterparty is required to make a payment to the Company in the event that the
average Sales Point Price for any settlement period is less than the swap price
for such transaction, and the Company is required to make payment to the
counterparty in the event that the average Sales Point Price for any settlement
period is greater than the swap price for such transaction. For any particular
collar transaction, the counterparty is required to make a payment to the
Company if the average Sales Point Price for the reference period is below the
floor price for such transaction and the Company is required to make payment to
the counterparty if the average Sales Point Price for the reference period is
above the ceiling price for such transaction. Because substantially all of the
Company's natural gas production is sold under spot contracts that reference the
Sales Point Price, the Company has no basis risk with respect to these
transactions.

3. DEBT:

The Company has an unsecured revolving credit agreement with a current
commitment of $125 million ("Aggregate Commitment"). As of December 31, 1996 and
September 30, 1997, there was $60 million and $120 million, respectively
outstanding under this credit agreement and the Company's available borrowing
base was $125 million and $160 million, respectively (the "Borrowing Base"). The
Borrowing Base is determined by the majority banks party to the agreement on May
1 and November 1 of each year. Available funds under the agreement are
established quarterly by the Company (the "Designated Borrowing Base"). The
Designated Borrowing Base is an amount greater than or equal to

F-11
<PAGE> 82

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

the Designated Borrowing Base Floor Amount of $75 million but less than or equal
to the Borrowing Base. As of December 31, 1996 and September 30, 1997 the
Company's Designated Borrowing Base was $75 million and $125 million,
respectively. The Company retains the ability, subject to notification, to
increase the Designated Borrowing Base to an amount not to exceed the Borrowing
Base.

Borrowings under the credit agreement bear interest, payable quarterly, at
the Company's option at (i) the higher of (a) the federal fund rate (5.25% at
December 31, 1996) plus 50 basis points and (b) the bank's prime rate (8.25% at
December 31, 1996), plus a variable margin, which ranges up to 25 basis points
based upon the loan amount outstanding relative to the borrowing base, or (ii)
LIBOR (30 day LIBOR was 5.50% at December 31, 1996), plus a variable margin,
which ranges from 75 to 125 basis points based upon the loan amount outstanding
relative to the borrowing base. The credit agreement also provides for a
commitment fee, to be paid quarterly, of 37.5 basis points per annum on the
unused Designated Borrowing Base available to the Company. In addition, a
standby fee, to be paid quarterly, of 12.5 basis points per annum will be paid
on the difference between the Designated Borrowing Base and the Aggregate
Commitment. The Company paid commitment fees of approximately $205,000, $179,000
and $100,000 for the years ended December 31, 1996, 1995 and 1994, respectively.

The credit agreement provides for a revolving credit period through June
30, 1999, at which time the aggregate loans outstanding under the credit
agreement convert to a term loan with quarterly maturities through June 30,
2002.

The credit agreement contains positive and negative covenants, which, among
other things, require the Company to maintain a working capital ratio, as
defined, of at least 1.1 to 1.0, a fixed charge coverage ratio, as defined, of
at least 1.5 to 1.0 and a minimum net worth. The credit agreement also limits
the incurrence of additional debt, additional liens on properties, sale of
certain assets and the declaration or payment of dividends.

4. FEDERAL INCOME TAXES:

The components of deferred tax assets and liabilities pursuant to FAS 109
are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax liability:
Oil and gas properties................................. $55,993 $35,059
------- -------
Deferred tax asset:
Alternative minimum tax................................ 1,848 1,846
Net operating losses................................... 8,329 5,567
Other, net............................................. 1,675 1,605
------- -------
11,852 9,018
Valuation Allowance...................................... -- --
------- -------
Net deferred tax liability............................. $44,141 $26,041
======= =======
</TABLE>

The Company does not believe a deferred tax asset valuation is required
because all tax carryovers are expected to be fully utilized.

F-12
<PAGE> 83

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

As of December 31, 1996, the Company had a net operating loss ("NOL")
carryforward for federal income tax purposes of approximately $23.8 million that
may be used in future years to offset taxable income. Utilization of the
Company's NOL carryforward is subject to annual limitations due to certain stock
ownership changes that have occurred or may occur. To the extent not utilized,
the NOL carryforward will begin to expire in 2005.

5. COMMITMENTS AND CONTINGENCIES:

The Company has entered into a noncancelable operating lease agreement for
office space in Houston, Texas. The lease term expires in November 2002, with
two options to renew the lease for five years each.

Future minimum lease payments required as of December 31, 1996 related to
this operating lease are as follows (in thousands):

<TABLE>
<S> <C>
Year ended December 31,
1997................................................... $ 553
1998................................................... 572
1999................................................... 592
2000................................................... 613
2001 and thereafter.................................... 1,174
------
Total minimum lease payments...................... $3,504
======
</TABLE>

Rent expense for the years ended December 31, 1996, 1995 and 1994 was
$537,000, $490,000 and $464,000, respectively.

6. STOCK-BASED COMPENSATION:

The Company has several stock-based compensation plans, which are described
below. The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock-based compensation plans. In October 1995, the FASB
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"), which encourages, but does not require,
all entities to record compensation expense on all stock-based compensation
plans based upon fair value. The Company continues to account for its
stock-based compensation plans using the accounting prescribed by APB Opinion
No. 25. However, pro forma disclosures as if the Company adopted the cost
recognition provisions of FAS 123 in 1995 are presented below.

STOCK OPTION PLANS

The Company has granted options pursuant to its 1989, 1990, 1991, 1993 and
1995 stock option plans (collectively, the "Stock Option Plans"). Options that
have been granted and are outstanding generally expire 10 years from the date of
grant and become exercisable at the rate of 20% per year based on the number of
full years the options are held from the date of grant. At December 31, 1996, a
total of 3,482,700 options were outstanding, of which 2,168,770 were
exercisable. At such date, the

F-13
<PAGE> 84

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

Company had an additional 1,022,600 options available for grant. If granted,
these additional options will be exercisable at a price not less than the fair
market value per share of the Company's Common Stock on the date of grant. The
following is a summary of all stock option activity for 1994, 1995 and 1996:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
SHARES OF AVERAGE
UNDERLYING EXERCISE
OPTIONS PRICES
---------- --------
<S> <C> <C>
Outstanding at December 31, 1993............................ 4,450,940 $ 4.01
Granted................................................... 196,000 12.90
Exercised................................................. (199,500) 4.28
Expired................................................... (9,000) 4.00
--------- ------
Outstanding at December 31, 1994............................ 4,438,440 4.39
Granted................................................... 241,600 13.18
Exercised................................................. (981,550) 4.06
Forfeited................................................. (34,750) 9.63
Expired................................................... (96,000) 14.14
--------- ------
Outstanding at December 31, 1995............................ 3,567,740 4.76
Granted................................................... 539,350 15.35
Exercised................................................. (598,590) 4.64
Forfeited................................................. (25,800) 9.09
--------- ------
Outstanding at December 31, 1996............................ 3,482,700 $ 6.39
========= ======
Exercisable at December 31, 1994............................ 2,527,940 $ 3.94
========= ======
Exercisable at December 31, 1995............................ 2,292,790 $ 4.04
========= ======
Exercisable at December 31, 1996............................ 2,168,770 $ 4.18
========= ======
</TABLE>

The weighted average fair value of options granted during 1996 and 1995 was
$6.39 and $5.69, respectively.

The fair value of each stock option granted during 1996 and 1995 was
estimated as of the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions for grants in 1996 and 1995: no
dividend yield; expected volatility of 28.52%; risk-free interest rates ranging
from 5.33% to 6.71%; and an expected option life of 6.50 years.

The following table summarizes information about stock options outstanding
and exercisable at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------ ----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.50 to $ 5.62 2,690,930 5 years $ 4.00 2,116,930 $ 3.97
10.94 to 14.78 700,770 9 years 13.50 51,840 12.82
17.47 to 25.50 91,000 10 years 22.28 -- --
- ---------------- --------- -------- ------ --------- ------
$ 3.50 to $25.50 3,482,700 6 years $ 6.39 2,168,770 $ 4.18
</TABLE>

F-14
<PAGE> 85

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

Common stock issued through the exercise of stock options results in a tax
deduction for the Company equivalent to the taxable gain recognized by the
optionee. For financial reporting purposes, the tax effect of this deduction is
accounted for as a credit to additional paid-in capital rather than as a
reduction of income tax expense. The exercise of stock options during 1996 and
1995 resulted in a tax benefit to the Company of approximately $2.7 million and
$2.8 million, respectively, which was recorded as an increase in stockholders'
equity.

RESTRICTED STOCK

The Company has adopted two plans pursuant to which restricted shares of
Common Stock may be granted. Under the Newfield Exploration Company 1995 Omnibus
Stock Plan ("the Omnibus Plan"), the Company may grant to employees (including
an officer or a director who is also an employee) as restricted Common Stock all
or a portion of 400,000 shares of Common Stock reserved under the Omnibus Plan.
In 1996 the Company issued 246,000 shares of restricted Common Stock whose
shares vest at the rate of 20% per year on each anniversary of the date of
issuance, commencing on the first anniversary date of issuance subject to the
lapse of certain performance-based forfeiture provisions.

Under the Newfield Exploration Company 1995 Non-Employee Director
Restricted Stock Plan ("the Non-Employee Director Plan"), the Company may grant
to "Non-Employee Directors" up to 50,000 shares of Common Stock as restricted
Common Stock. The Non-Employee Director Plan provides for the automatic,
nondiscretionary issuance of 1,000 shares of restricted Common Stock to each
director when first elected to the Company's board of directors, whose shares
vest at the rate of 33 1/3% per year on the day before the first, second and
third annual shareholder meetings following the date the shares were issued. The
Company issued 10,000 shares to five Non-Employee Directors in 1996 and 6,000
shares to three Non-Employee Directors in 1995.

In accordance with APB Opinion No. 25, upon the issuance of restricted
shares of Common Stock under these two plans, the Company recognized a
compensation cost for the cost of the restricted Common Stock in the amount of
$3.6 million for 1996 and $80,000 for 1995. This cost is charged to
shareholders' equity and recognized as amortization expense over the applicable
vesting period, in the amount of $1.5 million for 1996 and $32,000 for 1995. The
weighted average exercise price for 256,000 shares of restricted Common Stock
issued in 1996 is $14.08. The weighted average exercise price for 6,000 shares
of restricted Common Stock issued in 1995 is $13.28.

EMPLOYEE STOCK PURCHASE PLAN

During 1993, the Company established an Employee Stock Purchase Plan (the
"Stock Purchase Plan") that permits eligible employees to acquire Common Stock.
Under the Stock Purchase Plan, the Company is authorized to issue up to 200,000
shares of Common Stock to its full-time (or part-time for at least 20 hours per
week and at least five months per year) employees at a discount from the stock's
fair market value through payroll deductions.

For each six-month period beginning on January 1 or July 1 during the term
of the Stock Purchase Plan, unless the Board determines otherwise, each eligible
employee has the opportunity to purchase Common Stock through voluntary payroll
deductions. Employees make an election to participate prior to the start of a
period by stating the percentage of their compensation to be withheld. An
employee may have withheld from two to ten percent of the employee's base wages
or salary. The Stock Purchase Plan allows withdrawals, terminations and
reductions on the amounts being deducted. The purchase price for the Common
Stock will be 85% of the lesser of the fair market value of the Common Stock on
(i) the first

F-15
<PAGE> 86

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

day of the period, or (ii) the last day of the period. No employee may purchase
Common Stock under the Stock Purchase Plan valued at more than $25,000 for each
calendar year.

Under the Stock Purchase Plan, the Company has sold 23,990 shares and
25,946 shares to employees in 1996 and 1995, respectively, which had weighted
average exercise prices of $13.56 and $9.78, respectively. The weighted average
fair market value of the shares sold during 1996 and 1995 was $1.92 and $1.86,
respectively. In accordance with APB Opinion No. 25, the Company has not
recognized any compensation cost for the Stock Purchase Plan.

The fair value of each stock option granted under the Stock Purchase Plan
is estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions for grants in 1996 and 1995,
respectively: no dividend yield for both years; expected volatility of 28.52%
for both years; risk-free interest rates ranging from 5.07% to 6.11%; and
expected lives of six months for both years.

PRO FORMA NET INCOME AND NET INCOME PER COMMON SHARE

Pursuant to APB Opinion No. 25, the Company recognized a charge of $1.5
million as compensation expense for equity-based compensation awarded in 1996
and $32,000 as compensation expense for equity-based compensation awarded in
1995. If the fair value based method of accounting in FAS 123 had been applied,
the Company would have recognized $2.3 million in 1996 and $197,000 in 1995 as
compensation expense.

The Company's net income and earnings per common share for 1996 and 1995
would have approximated the pro forma amounts below (in thousands except per
share data):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
Net Income -- as reported................................... $38,494 $16,264
Net Income -- pro forma..................................... $37,956 $16,140
Earnings per common share -- as reported.................... $ 1.03 $ 0.45
Earnings per common share -- pro forma...................... $ 1.02 $ 0.45
</TABLE>

The effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts. FAS 123 does not apply to awards prior to 1995,
and the Company anticipates making awards in the future under its stock-based
compensation plans.

7. EMPLOYEE BENEFIT PLANS:

The Company sponsors a 401(k) Profit Sharing Plan (the "401(k) Plan") under
Section 401(k) of the Internal Revenue Code. This plan covers all employees of
the Company. The Company matches $1.00 for each $1.00 of employee deferral, with
the Company's contribution not to exceed 8% of an employee's salary, subject to
limitations imposed by the Internal Revenue Service. The Company's contributions
to the 401(k) Plan totaled $371,000, $301,000 and $112,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.

The Company also sponsors the Newfield Employee 1993 Incentive Compensation
Plan (the "Plan"), which is a non-qualified plan funded by amounts equal to
revenues that would be attributable to a 1% overriding royalty interest on
acquired proved properties and a 2% overriding royalty interest from exploration
properties. Such amounts are attributable to both the Company's interest and the
interest of

F-16
<PAGE> 87

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

certain working interest owners in these properties. Amounts available for
distribution under the Plan and attributable to the overriding royalty interests
bearing against the Company are limited to 5% of the Company's adjusted net
income as defined in the Plan. The Plan is administered by the Compensation
Committee of the Board of Directors with award amounts recommended by the Chief
Executive Officer of the Company, based on the performance of the Company and
the eligible employees during the performance period. All employees of the
Company are eligible for awards if employed on both October 1 and December 31 of
the performance period. Awards may have both a current and a deferred component
of compensation. Current awards are distributed to employees by March 1 of the
year following the performance period, with the deferred amounts being
distributed in four equal payments on each following December 1. Eligible
employees may elect for deferred amounts to be paid in Common Stock instead of
cash. If the eligible employee elects for a deferred amount to be paid in Common
Stock, the number of shares of Common Stock to be awarded shall be determined by
using the fair market value of Common Stock on the date of the award. Total
expenses under the Plan for the years ended December 31, 1996 and 1995 were $4.9
million and $2.4 million, respectively.

8. RELATED PARTY TRANSACTIONS:

Warburg, Pincus Counsellors, Inc. (an affiliate of Warburg, Pincus & Co.,
general partner of Warburg, Pincus Investors, L.P., a significant stockholder of
the Company) provided investment management and consulting services for the
Company for a fee. Such services included advice and assistance concerning the
investment and management of the Company's excess funds invested in marketable
securities. Payments for such services were $39,000 for 1994. No such fees were
incurred during 1995 and 1996.

The 401(k) Plan invests in several mutual funds (the "Warburg Funds")
affiliated with Warburg, Pincus & Co. The amount invested in the Warburg Funds
at any time depends upon the elections made by the participants in the 401(k)
Plan. The Company believes that the 401(k) Plan invests on the same basis in
terms of rates and fees as are offered generally to similar employee investment
vehicles. The aggregate amount of the 401(k) Plan's assets invested in Warburg
Funds were approximately $1,314,000 and $1,077,000 as of December 31, 1996 and
1995, respectively.

9. SUPPLEMENTAL CASH FLOW INFORMATION:

Cash payments for interest and income taxes for each of the three years in
the period ended December 31, 1996, are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest payments (net of interest capitalized of
$1,508, $674 and $217 during 1996, 1995 and 1994,
respectively)......................................... $363 $127 $ 29
Income tax payments..................................... $ -- $550 $200
</TABLE>

The following transactions have been appropriately excluded from the
statement of cash flows:

<TABLE>
<CAPTION>
1996 1995 1994
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term capital leases.............................. $ (73) $ 9 $ 700
Increase (decrease) in capital accrual................ $5,062 $ (22) $1,800
Changes in working capital amounts related to property
acquisitions........................................ $ -- $(2,750) $ --
</TABLE>

F-17
<PAGE> 88

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

10. ACQUISITIONS:

In May 1997, the Company acquired the assets and subsidiaries of Huffco
International, L.L.C., which includes a 35% working interest in a 415,000 acre
production sharing contract in the Bohai Bay, offshore China. The Company also
acquired certain rights and data relating to offshore West Africa, an
international database and increased its technical staff. The purchase price was
$6.3 million.

11. RECENT DEVELOPMENTS:

In July 1997, the Company completed the acquisition of interests in five
oil and gas producing fields, comprised of interests in nine offshore blocks, in
the East Cameron, West Cameron and High Island area of the Gulf of Mexico,
offshore Louisiana and Texas for a purchase price of approximately $43 million.
In July, combined production from these fields is approximately 18 MMcfe of
natural gas per day net to the interests acquired, or approximately 10% of the
Company's net daily production prior to the acquisition.

The Company maintains its reserve-based revolving Credit Facility with The
Chase Manhattan Bank, as agent. As of September 30, 1997, $120 million was
outstanding under the Credit Facility. The Credit Facility was amended and
restated as of October 9, 1997 in connection with the Company's private
placement of $125 million of senior unsecured notes. The net proceeds of the
private placement were used primarily to repay all amounts then outstanding
under the Credit Facility. As so amended and restated, the Credit Facility
provides a $125 million revolving credit maturing on October 31, 2002, improved
interest rate pricing grids and additional flexibility under certain covenants.
The amount available under the Credit Facility is subject to a calculated
borrowing base, which base is reduced by the principal amount of the Notes
outstanding at the time of calculation. The Company has an option, subject to
the borrowing base, to increase the facility to $200 million. The Company
currently has $100 million of borrowing capacity under the Credit Facility.

F-18
<PAGE> 89

NEWFIELD EXPLORATION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

The results of operations by quarter for the periods ended September 30,
1997, December 31, 1996 and 1995 are as follows (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
1997 QUARTER ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30
-------- ------- ------------
<S> <C> <C> <C> <C>
Oil and gas revenues................. $46,927 $42,345 $49,863
Income from operations............... 18,207 12,252 14,223
Net income........................... 11,887 7,773 8,715
Earnings per common share............ $ 0.32 $ 0.21 $ 0.23
</TABLE>

<TABLE>
<CAPTION>
1996 QUARTER ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Oil and gas revenues................. $32,962 $33,013 $35,799 $47,482
Income from operations............... 12,123 12,162 13,078 21,426
Net income........................... 7,929 7,949 8,673 13,943
Earnings per common share............ $ 0.22 $ 0.21 $ 0.23 $ 0.37
</TABLE>

<TABLE>
<CAPTION>
1995 QUARTER ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Oil and gas revenues................. $19,029 $24,811 $24,622 $26,136
Income from operations............... 4,904 6,641 5,615 7,066
Net income........................... 3,403 4,417 3,769 4,675
Earnings per common share............ $ 0.09 $ 0.12 $ 0.10 $ 0.13
</TABLE>

F-19
<PAGE> 90

NEWFIELD EXPLORATION COMPANY

SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY OIL AND GAS DISCLOSURES -- UNAUDITED

Users of this information should be aware that the process of estimating
quantities of "proved" and "proved developed" natural gas and crude oil reserves
is very complex, requiring significant subjective decisions in the evaluation of
all available geological, engineering and economic data for each reservoir. The
data for a given reservoir may also change substantially over time as a result
of numerous factors including, but not limited to, additional development
activity, evolving production history and continual reassessment of the
viability of production under varying economic conditions. Consequently,
material revisions to existing reserve estimates occur from time to time.
Although every reasonable effort is made to ensure that reserve estimates
reported represent the most accurate assessments possible, the significance of
the subjective decisions required and variances in available data for various
reservoirs make these estimates generally less precise than other estimates
presented in connection with financial statement disclosures.

Proved reserves are estimated quantities of natural gas, crude oil and
condensate that geological and engineering data demonstrate, with reasonable
certainty, to be recoverable in future years from known reservoirs under
existing equipment economic and operating conditions.

Proved developed reserves are proved reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.

No major discovery or other favorable or adverse event subsequent to
December 31, 1996 is believed to have caused a material change in the estimates
of proved or proved developed reserves as of that date.

F-20
<PAGE> 91

NEWFIELD EXPLORATION COMPANY

SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY OIL AND GAS DISCLOSURES -- UNAUDITED -- (CONTINUED)

ESTIMATED NET QUANTITIES OF OIL AND GAS RESERVES

The following table sets forth the Company's net proved reserves (at 15.025
pounds per square inch absolute), including the changes therein, and proved
developed reserves (all within the United States) at the end of each of the
three years in the period ended December 31, 1996, as estimated by the Company's
petroleum engineering staff:

<TABLE>
<CAPTION>
OIL,
CONDENSATE
AND NATURAL NATURAL
GAS LIQUIDS GAS
(MBBLS) (MMCF)
--------------- -------
<S> <C> <C>
Proved developed and undeveloped reserves:
December 31, 1993......................................... 6,414 102,261
Revisions of previous estimates........................ 127 (3,409)
Extensions, discoveries and other additions............ 2,845 53,900
Purchases of properties................................ 618 25,482
Production............................................. (1,394) (24,267)
------ -------
December 31, 1994......................................... 8,610 153,967
Revisions of previous estimates........................ 166 (575)
Extensions, discoveries and other additions............ 926 62,035
Purchases of properties................................ 2,002 22,556
Sales of properties.................................... -- (684)
Production............................................. (2,071) (33,719)
------ -------
December 31, 1995......................................... 9,633 203,580
Revisions of previous estimates........................ 850 (1,829)
Extensions, discoveries and other additions............ 3,479 68,011
Purchases of properties................................ 2,306 13,063
Sales of properties.................................... (51) (117)
Production............................................. (2,558) (41,323)
------ -------
December 31, 1996......................................... 13,659 241,385
====== =======
</TABLE>

<TABLE>
<CAPTION>
CRUDE NATURAL
OIL GAS
(MBBLS) (MMCF)
--------------- -------
<S> <C> <C>
Proved developed reserves:
December 31, 1994......................................... 8,196 140,742
December 31, 1995......................................... 8,292 154,726
December 31, 1996......................................... 11,820 199,452
</TABLE>

F-21
<PAGE> 92

NEWFIELD EXPLORATION COMPANY

SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY OIL AND GAS DISCLOSURES -- UNAUDITED -- (CONTINUED)

Capitalized costs for oil and gas producing activities consist of the
following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Proved properties............................ $ 501,328 $ 348,226 $254,196
Unproved properties.......................... 25,352 14,631 4,476
--------- --------- --------
526,680 362,857 258,672
Accumulated depreciation, depletion and
amortization............................... (198,065) (134,348) (84,748)
--------- --------- --------
Net capitalized costs...................... $ 328,615 $ 228,509 $173,924
========= ========= ========
</TABLE>

Costs incurred for oil and gas property acquisition, exploration and
development activities are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Property acquisition:
Unproved*.................................... $ 5,670 $ 10,154 $ 2,020
Proved....................................... 28,480 29,393 32,810
Exploration.................................... 49,337 33,192 17,927
Development.................................... 80,336 31,446 63,936
-------- -------- --------
Total costs incurred................. $163,823 $104,185 $116,693
======== ======== ========
</TABLE>

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

* These amounts represent costs incurred by the Company and excluded from the
amortization base until proved reserves are established or impairment is
determined.

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES

The following information has been developed utilizing procedures
prescribed by Statement of Financial Accounting Standards No. 69 "Disclosures
about Oil and Gas Producing Activities" ("FAS 69") and based on natural gas and
crude oil reserve and production volumes estimated by the Company's engineering
staff. It may be useful for certain comparative purposes, but should not be
solely relied upon in evaluating the Company or its performance. Further,
information contained in the following table should not be considered as
representative of realistic assessments of future cash flows, nor should the
Standardized Measure of Discounted Future Net Cash Flows be viewed as
representative of the current value of the Company.

The Company believes that the following factors should be taken into
account in reviewing the following information: (1) future costs and selling
prices will probably differ from those required to be used in these
calculations; (2) due to future market conditions and governmental regulations,
actual rates of production achieved in future years may vary significantly from
the rate of production assumed in the calculations; (3) selection of a 10%
discount rate is arbitrary and may not be reasonable as a measure of the
relative risk inherent in realizing future net oil and gas revenues; and (4)
future net revenues may be subject to different rates of income taxation.

Under the Standardized Measure, future cash inflows were estimated by
applying period-end oil and gas prices adjusted for fixed and determinable
escalations to the estimated future production of period-

F-22
<PAGE> 93

NEWFIELD EXPLORATION COMPANY

SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY OIL AND GAS DISCLOSURES -- UNAUDITED -- (CONTINUED)

end proved reserves. Future cash inflows at December 31, 1996 do not reflect the
impact of future production that is subject to open hedge positions (see Note
2). Future cash inflows were reduced by estimated future development,
abandonment and production costs based on period-end costs in order to arrive at
net cash flow before tax. Future income tax expense has been computed by
applying period-end statutory tax rates to aggregate future pre-tax net cash
flows, reduced by the tax basis of the properties involved and tax
carryforwards. Use of a 10% discount rate is required by FAS 69.

Management does not rely solely upon the following information in making
investment and operating decisions. Such decisions are based upon a wide range
of factors, including estimates of probable as well as proved reserves and
varying price and cost assumptions considered more representative of a range of
possible economic conditions that may be anticipated.

The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves is as follows (in thousands):

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Future cash inflows........................ $1,312,815 $ 642,019 $ 400,766
Less related future:
Production costs......................... (113,937) (84,999) (66,221)
Development and abandonment costs........ (107,205) (83,262) (45,704)
---------- ---------- ----------
Future net cash flows before income
taxes.................................... 1,091,673 473,758 288,841
10% annual discount for estimating timing
of cash flows............................ (231,856) (108,879) (58,247)
---------- ---------- ----------
Standardized measure of discounted future
net cash flows before income taxes....... 859,817 364,879 230,594
Future income tax expense, net of 10%
annual discount.......................... (247,889) (88,553) (50,592)
---------- ---------- ----------
Standardized measure of discounted future
net cash flows........................... $ 611,928 $ 276,326 $ 180,002
========== ========== ==========
</TABLE>

F-23
<PAGE> 94

NEWFIELD EXPLORATION COMPANY

SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY OIL AND GAS DISCLOSURES -- UNAUDITED -- (CONTINUED)

A summary of the changes in the standardized measure of discounted future
net cash flows applicable to proved oil and gas reserves is as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Beginning of the period.................... $ 276,326 $ 180,002 $ 116,129
---------- ---------- ----------
Revisions of previous estimates:
Changes in prices and costs.............. 254,227 61,917 (22,877)
Changes in quantities.................... 9,544 691 (3,438)
Changes in future development costs...... -- 1,026 2,097
Development costs incurred during the
period................................... 24,895 2,839 20,313
Additions to proved reserves resulting from
extensions, discoveries and improved
recovery, less related costs............. 229,314 87,760 85,089
Purchases of reserves in place............. 55,910 45,324 27,843
Accretion of discount...................... 36,488 23,059 15,916
Sales of oil and gas, net of production
costs.................................... (132,310) (80,371) (60,173)
Net change in income taxes................. (159,336) (37,961) (7,566)
Production timing and other................ 16,870 (7,960) 6,669
---------- ---------- ----------
Net increase............................... 335,602 96,324 63,873
---------- ---------- ----------
End of the period.......................... $ 611,928 $ 276,326 $ 180,002
========== ========== ==========
</TABLE>

F-24
<PAGE> 95

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL"), a Delaware corporation has the power, under specified
circumstances, to indemnify its directors, officers, employees and agents in
connection with threatened, pending or completed actions, suits or proceedings,
whether civil, criminal, administrative or investigative (other than an action
by or in right of the corporation), brought against them by reason of the fact
that they were or are such directors, officers, employees or agents, against
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred in any such action, suit or proceeding. Article Seventh of
the Company's Second Restated Certificate of Incorporation, as amended (the
"Newfield Charter"), together with Article VI of its Restated Bylaws (the
"Newfield Bylaws") provide for indemnification of each person who is or was made
a party to any actual or threatened civil, criminal, administrative or
investigative action, suit or proceeding because such person is, was or has
agreed to become an officer or director of the Company or is a person who is or
was serving or has agreed to serve at the request of the Company as a director,
officer, partner, venturer, proprietor, trustee, employee, agent or similar
functionary of another corporation or of a partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise to the fullest
extent permitted by the DGCL as it existed at the time the indemnification
provisions of the Newfield Charter and Bylaws were adopted or as may be
thereafter amended. Article VI of the Newfield Bylaws expressly provides that it
is not the exclusive method of indemnification.

Article Seventh of the Newfield Charter and Article VI of the Newfield
Bylaws also provide that the Company may maintain insurance, at its own expense,
to protect itself and any director, officer, employee or agent of the Company or
of another entity against any expense, liability or loss, regardless of whether
the Company would have the power to indemnify such person against such expense,
liability or loss under the DGCL.

Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
liability for unauthorized acquisitions or redemptions of, or dividends on,
capital stock) or (iv) for any transaction from which the director derived an
improper personal benefit. Article Seventh of the Newfield Charter contains such
a provision.

Howard H. Newman and Jeffrey A. Harris, each a director of the Company and
a Managing Director of E.M. Warburg, Pincus & Co., LLC ("Warburg"), are
indemnified by an affiliate of Warburg against certain liabilities that Messrs.
Newman and Harris may incur as a result of their serving as directors of the
Company. Thomas G. Ricks, a director of the Company and President and Chief
Executive Officer of the University of Texas Investment Management Company
("UTIMCO"), is indemnified by UTIMCO against certain liabilities that he may
incur as a result of his serving as a director of the Company.

II-1
<PAGE> 96

ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES

The following instruments and documents are included as Exhibits to this
Registration Statement. Exhibits incorporated by reference are so indicated by
parenthetical information.

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
*4.1 -- Second Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (File No.
33-69540))
*4.1.1 -- Certificate of Amendment to Second Restated Certificate
of Incorporation of the Company dated May 15, 1997
(incorporated by reference to Exhibit 3.1.1 to the
Company's Registration Statement on Form S-3
(Registration No. 333-32582).
*4.2 -- Restated Bylaws of the Company (incorporated by reference
to Exhibit 3.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994)
*4.3 -- Indenture dated as of October 15, 1997 among the Company,
as issuer, and First Union National Bank, as trustee
*4.4 -- Exchange and Registration Rights Agreement dated October
15, 1997 by and among the Company and Goldman, Sachs &
Co., Chase Securities Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Jefferies and Company, Inc.
*5.1 -- Opinion of Vinson & Elkins L.L.P.
*23.1 -- Consent of Coopers & Lybrand L.L.P.
*23.2 -- Consent of Ryder Scott Company
*23.3 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit
5.1)
*24.1 -- Power of Attorney (included on the signature pages of
this Registration Statement)
25.1 -- Statement of Eligibility of First Union National Bank
*99.1 -- Form of Letter of Transmittal
</TABLE>

- ---------------
* Previously filed.

ITEM 22. UNDERTAKINGS.

The Company hereby undertakes that:

(1) For purposes of determining any liability under the securities Act
of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling

II-2
<PAGE> 97

precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by its is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.

(3) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.

(4) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.

II-3
<PAGE> 98

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, the State of
Texas on November 17, 1997.

NEWFIELD EXPLORATION CO.

By: /s/ TERRY W. RATHERT

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

Terry W. Rathert

Vice President -- Planning

and Administration

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>

* Chairman of the Board and Chief November 17, 1997
- --------------------------------------------------- Executive Officer (Principal
Joe B. Foster Executive Officer)

* Vice President -- Operations and November 17, 1997
- --------------------------------------------------- Director
Robert W. Waldrup

/s/ TERRY W. RATHERT Vice President -- Planning and November 17, 1997
- --------------------------------------------------- Administration (Principal Financial
Terry W. Rathert Officer)

* Controller and Assistant Secretary November 17, 1997
- --------------------------------------------------- (Principal Accounting Officer)
Ronald P. Lege

* Director November 17, 1997
- ---------------------------------------------------
Charles W. Duncan, Jr.

* Director November 17, 1997
- ---------------------------------------------------
Jeffrey A. Harris

* Director November 17, 1997
- ---------------------------------------------------
Dennis Hendrix

* Director November 17, 1997
- ---------------------------------------------------
Terry Huffington

* Director November 17, 1997
- ---------------------------------------------------
Howard H. Newman

* Director November 17, 1997
- ---------------------------------------------------
Thomas G. Ricks
</TABLE>

II-4
<PAGE> 99
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>

* Director November 17, 1997
- ---------------------------------------------------
C.E. Shultz

* Director November 17, 1997
- ---------------------------------------------------
Dale E. Zand

*By: /s/ TERRY W. RATHERT
----------------------------------------------
Terry W. Rathert
Attorney-in-fact
</TABLE>

II-5
<PAGE> 100

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
*4.1 -- Second Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (File No.
33-69540))
*4.1.1 -- Certificate of Amendment to Second Restated Certificate
of Incorporation of the Company dated May 15, 1997
(incorporated by reference to Exhibit 3.1.1 to the
Company's Registration Statement on Form S-3
(Registration No. 333-32587).
*4.2 -- Restated Bylaws of the Company (incorporated by reference
to Exhibit 3.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994)
*4.3 -- Indenture dated as of October 15, 1997 among the Company,
as issuer, and First Union National Bank, as trustee
*4.4 -- Registration Rights Agreement dated October 15, 1997 by
and among the Company and Goldman, Sachs & Co., Chase
Securities Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Jefferies and Company, Inc.
*5.1 -- Opinion of Vinson & Elkins L.L.P.
*23.1 -- Consent of Coopers & Lybrand L.L.P.
*23.2 -- Consent of Ryder Scott Company
*23.3 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit
5.1)
*24.1 -- Power of Attorney (included on the signature pages of
this Registration Statement)
25.1 -- Statement of Eligibility of First Union National Bank
*99.1 -- Form of Letter of Transmittal
</TABLE>

- ---------------
* Previously filed.

<PAGE> 1
EXHIBIT 25.1

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---------

FORM T-1
---------

STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE

---------

FIRST UNION NATIONAL BANK
(Exact name of trustee as specified in its charter)

United States National Bank 56-0900030
(State of incorporation if (I.R.S. employer
not a national bank) identification no.)

First Union National Bank
230 South Tryon Street, 9th Floor
Charlotte, North Carolina 28288-1179
(Address of principal (Zip Code)
executive offices)

SAME AS ABOVE

(Name, address and telephone number, including
area code, of trustee's agent for service)

NEWFIELD EXPLORATION COMPANY

(Exact name of obliger as specified in its charter)

DELAWARE

(State or other jurisdiction of incorporation or organization)

71-1133047
(I.R.S. employer identification no.)

363 N. Sam Houston Parkway E.
Suite 2020
Houston, Texas 77060
(281) 847-6000

(Address, including zip code, of principal executive offices)
---------------------

US $125,000,000
7.45% Senior Notes due 2007

(Title of the indenture securities)

--------------------------------------------
<PAGE> 2
1. General information. Furnish the following information as to
the trustee:

(a) Name and address of each examining or supervising authority to
which it is subject

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

Name Address
- --------------------------------------------------------------------------------

Federal Reserve Bank of Richmond, VA Richmond, VA

Comptroller of the Currency Washington, D.C.

Securities and Exchange Commission
Division of Market Regulation Washington, D.C.

Federal Deposit Insurance Corporation Washington, D.C.

(b) Whether it is authorized to exercise corporate trust powers.

The trustee is authorized to exercise corporate trust powers.

2. Affiliations with obligor and underwriters. If the obligor or
any underwriter for the obligor is an affiliate of the trustee,
describe each such affiliation.

None.

(See Note 1 on Page 4.)

Because the obligor is not in default on any securities issued under indentures
under which the applicant is trustee, Items 3 through 15 are not required
herein.

16. List of Exhibits.

All exhibits identified below are filed as a part of this statement of
eligibility.

*1. A copy of the Articles of Association of First Union National
Bank as now in effect, which contain the authority to commence
business and a grant of powers to exercise corporate trust
powers.

2
<PAGE> 3
*2. A copy of the certificate of authority of the trustee to
commence business, if not contained in the Articles of
Association.

*3. A copy of the authorization of the trustee to exercise
corporate trust powers, if such authorization is not contained
in the documents specified in exhibits (1) or (2) above.

*4. A copy of the existing By-laws of the trustee, or instruments
corresponding thereto.

5. Inapplicable.

6. The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939. Included at Page 4 of this Form
T-1 Statement.

*7. A copy of the latest report of condition of the trustee
published pursuant to law or to the requirements of its
supervising or examining authority.

8. Inapplicable.

9. Inapplicable.

- -----------
* Incorporated by reference to Exhibits bearing identical numbers in Item 16 of
the Form T-1 of First Union National Bank, filed as Exhibit 25.1 of the
Current Report on Form 8-K of Summit Properties Partnership L.P. filed with
the Securities and Exchange Commission on July 23, 1997 (Registration
No. 333-25575-01).

3
<PAGE> 4
NOTE

Note 1: Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information. Item 2 may, however, be
considered correct unless amended by an amendment to this Form T-1.

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, First Union National Bank, a national association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Charlotte, and State of North Carolina, on the 17th day of November, 1997.

FIRST UNION NATIONAL BANK
(trustee)

By: /s/ DANIEL S. OBER
-----------------------------
Its: V.P.
-------------------------

CONSENT OF TRUSTEE

Under section 321(b) of the Trust Indenture Act of 1939, as amended,
and in connection with the proposed issuance by Newfield Exploration Company of
its 7.45% Senior Notes due 2007, First Union National Bank as the trustee
herein named, hereby consents that reports of examinations of said Trustee by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.

FIRST UNION NATIONAL BANK

By: /s/ Daniel S. Ober
-----------------------------
Name: Daniel S. Ober
------------------------
Its: V.P.
-------------------------

Dated: November 17, 1997