ENERGY SEARCH INC, POS AM, 1998-12-30

ENERGY SEARCH INC
POS AM, 1998-12-30
DRILLING OIL & GAS WELLS

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 1998
REGISTRATION NO. 333-12755
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------

ENERGY SEARCH, INCORPORATED
(Name of Small Business Issuer in Its Charter)

TENNESSEE 1381 62-1423071
(State or Other Juris- (Primary Standard (I.R.S. Employer
diction of Incorporation Industrial Classifi- Identification
or Organization) cation Code Number) No.)

- ---------------------------------------------------------------------------
280 FORT SANDERS WEST BOULEVARD
SUITE 200
KNOXVILLE, TENNESSEE 37922
(423) 531-6562

(Address and Telephone Number of Principal Executive Offices)
-----------

RICHARD S. COOPER
PRESIDENT
ENERGY SEARCH, INCORPORATED
280 FORT SANDERS WEST BOULEVARD
SUITE 200
KNOXVILLE, TENNESSEE 37922
(423) 531-6562
(Name, address, including zip code, and telephone number,
including area code, of Registrant's agent for service)

COPIES OF COMMUNICATION TO:

PATRICK R. SUGHROUE, ESP. STEPHEN C. WATERBURY, ESQ.
PATRICK R. SUGHROUE, P.C. WARNER NORCROSS & JUDD LLP
3777 SPARKS DRIVE 111 LYON STREET, N.W.
SUITE 130 GRAND RAPIDS, MICHIGAN 49503
GRAND RAPIDS, MICHIGAN 49546 (616) 742-2137
(616) 940-3592

<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please 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 post-effective amendment filed pursuant to Rule 462 (c)
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 post-effective amendment 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. [x] #333 - 12755

If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]

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 SECTION 8(A) OF THE SECURITIES ACT, MAY
DETERMINE.

<PAGE>
TABLE OF CONTENTS

HEADING PAGE

PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . 20

BUSINESS AND PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . 28

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 53

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . 55

DESCRIPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . 57

LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 60

GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . F-1

<PAGE>
PROSPECTUS
[ENERGY SEARCH INCORPORATED LOGO]

1,000,000 SHARES OF COMMON STOCK AND
REDEEMABLE SERIES A COMMON STOCK PURCHASE WARRANT

PURPOSES OF POST-EFFECTIVE AMENDMENT NO.1 TO THE REGISTRATION STATEMENT

(1) To make information in the Prospectus current based on
activities of Energy Search and events since the IPO; and

(2) To modify the terms of the Series A Warrants by providing a
limited exercise window (the "Limited Exercise Window") during
which Series A Warrant holders may exercise their Series A
Warrants for a reduced exercise price. The Limited Exercise
Window will begin three (3) days after the effective date of this
Post-Effective Amendment No.1 to the Registration Statement and
will continue for one year from such effective date. For the first
90 days of the Limited Exercise Window, the exercise price shall
be $5.00 per warrant share. For the duration of the Limited
Exercise Window, the exercise price shall be $6.00 per warrant
share. At the end of the Limited Exercise Window, the exercise
price of the Series A Warrants will return to the applicable
adjusted exercise price for the remaining term of the Series A
Warrant.

On January 30, 1997, we completed our initial public offering ("IPO") of
1,000,000 Units at $8.00 per Unit. The following securities were part of
the offering:

UNITS - Each Unit consisted of one share of common stock, no par value
per share, and one Redeemable Series A Common Stock Purchase Warrant
("Series A Warrant") pursuant to a Prospectus dated January 24, 1997.
These Units are no longer in existence. The common stock and warrants
are now traded separately.

SERIES A WARRANTS - Each Series A Warrant entitles the holder thereof
to purchase one share of common stock at an exercise price of $9.60
per warrant share at any time commencing on February 28, 1998 until
January 30, 2002, unless earlier redeemed. The exercise price of the
Series A Warrant is subject to automatic adjustment in the event
Energy Search issues additional shares of common stock. Based on
additional issuances by Energy Search of its common stock since the
IPO, the current adjusted exercise price of the Series A Warrant is
$8.83 per share. The Series A Warrants are subject to redemption by
Energy Search at a price of $0.05 per warrant at any time commencing

<PAGE>
July 24, 1998, on thirty (30) days prior written notice, provided that
the closing sale price per share for the common stock has equaled or
exceeded $16.00 per share for twenty (20) consecutive trading days
within the thirty (30) day period immediately preceding such notice.

REPRESENTATIVE WARRANTS - We agreed to sell to the underwriters in the
IPO (the "Representatives") warrants to purchase 100,000 Units at
$10.00 per Unit exercisable for four years commencing January 24,
1998.

<TABLE>
<CAPTION>
SECURITY NASDAQ SMALLCAP BOSTON STOCK
TRADING SYMBOLS MARKET EXCHANGE
<S> <C> <C> <C>
Common Stock EGAS EYS
Series A EGASW EYS.WS.A
Warrants
</TABLE>

THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE
SHARES OF COMMON STOCK ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK
FACTORS" BEGINNING ON PAGE 11. NEITHER THE SECURITIES AND EXCHANGE
COMMISSION (THE "SEC") NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

NEIDIGER/TUCKER/BRUNER, INC. NATIONAL SECURITIES CORPORATION
THE DATE OF THIS POST-EFFECTIVE AMENDMENT NO.1 TO PROSPECTUS IS
DECEMBER 30, 1998.

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING NOTES THERETO)
APPEARING ELSEWHERE IN THIS PROSPECTUS. THE SECURITIES OFFERED HEREBY
INVOLVE A HIGH DEGREE OF RISK. INVESTORS A SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER "RISK FACTORS." CERTAIN TERMS RELATING TO THE
OIL AND GAS BUSINESS ARE DEFINED IN THE SECTION CAPTIONED "GLOSSARY OF
TERMS."

INTRODUCTION

On January 24, 1997, Energy Search, Incorporated's ("Energy Search" or
the "Company") Form SB-2 registration statement for our initial public
offering ("IPO") of common stock and Series A common stock purchase
warrants ("Series A Warrants") was declared effective by the United States
Securities and Exchange Commission ("SEC"). The IPO was completed by
January 30, 1997 at which time all of the securities covered by the
registration statement were sold. The managing underwriters (referred to
as the "Representatives") were Neidiger/Tucker/Bruner, Inc. and National
Securities Corporation. The securities offered and sold in the IPO were
Units comprised of one share of common stock and one Series A Warrant.

PURPOSES OF POST-EFFECTIVE AMENDMENT NO.1 TO THE REGISTRATION STATEMENT

(1) To make information in the Prospectus current based on
activities of Energy Search and events since the IPO; and

(2) To modify the terms of the Series A Warrants by providing a
limited exercise window ("Limited Exercise Window") during which
Series A Warrant holders may exercise their Series A Warrants for
a reduced exercise price. The Limited Exercise Window will begin
three (3) days after this Post-Effective Amendment No.1 to the
Registration Statement is declared effective by the SEC and will
continue for one year from such effective date. For the first 90
days of the Limited Exercise Window, the exercise price shall be
$5.00 per warrant share. For the duration of the Limited Exercise
Window, the exercise price shall be $6.00 per warrant share. At
the end of this Limited Exercise Window, the exercise price of the
Series A Warrants will return to $9.60 per Warrant Share for the
remaining term of the Series A Warrants.

THE COMPANY

We are an independent oil and natural gas company engaged in the
exploration, development, production and acquisition of domestic oil and
natural gas properties primarily in the Appalachian Basin region of the
eastern United States. The Company's emphasis is on natural gas production

<PAGE>
with approximately 90% of its production being from natural gas. Starting
in January 1997, we shifted our focus from drilling primarily for limited
partnerships which we sponsored ("Affiliated Drilling Partnerships") to
developing reserves for our own account. Our growth is anticipated to be
driven by development, exploitation and controlled exploration drilling on
our existing properties and the continuation of our acquisition strategy in
the Appalachian Basin region. We drill primarily development wells and, on
occasion, exploratory wells, exclusively in the Appalachian Basin region.
The Appalachian Basin is characterized by shallow natural gas formations,
which historically have provided highly predictable drilling success rates.
Natural gas from this area typically has commanded a premium price relative
to natural gas produced in areas such as the Gulf Coast and Mid-Continent
regions of the United States because wells drilled in the Appalachian Basin
are closer to the large demand centers in the northeastern United States.
At present, our activities are primarily in southeastern Ohio and central
and western West Virginia.

We were organized as a Tennessee corporation in 1990. We were formed
by a three-member management team with energy, financial, legal and
transactional experience. Since our formation, we have developed a
qualified team of geologists, petroleum engineers and land managers. Prior
to 1997, substantially all of our oil and natural gas wells were drilled in
joint ventures with Affiliated Drilling Partnerships which we sponsored and
managed. Over $40,000,000 in investor capital was raised for these
Affiliated Drilling Partnerships primarily by our affiliate, Equity
Financial Corporation ("EFC"), a member of the National Association of
Securities Dealers, Inc. ("NASD"). In 1997, Energy Search acquired EFC.
The Affiliated Drilling Partnerships participated primarily in development
drilling in Washington, Athens and Meigs Counties, Ohio. In 1998, we have
sponsored only one small Affiliated Drilling Partnership which, as of
November 30, 1998, has been capitalized with approximately $120,000 in
investor capital.

Energy Search also operates approximately 92 miles of gas gathering
systems servicing our primary areas of natural gas operations.
Approximately 60 miles of our gas gathering system is owned by a Tennessee
limited partnership affiliated with us (the "Pipeline Operating
Partnership.") We are the managing general partner of the Pipeline
Operating Partnership and we own a 28.74% general partner interest in it.
The Pipeline Operating Partnership has a single limited partner which is
another Tennessee limited partnership affiliated with us (the "Pipeline
Income Partnership") for which we also serve as managing general partner.
Capital was raised from limited partner investors in the Pipeline Income
Partnership by EFC in a private offering conducted in 1992 and 1993.

From January of 1997 through November 30, 1998, we have drilled 47 net
wells for our own account and 9 (net) wells in joint ventures with
Affiliated Drilling Partnerships. We have drilled 3 dry holes since

<PAGE>
January of 1997. All wells have been successfully completed and are
currently operated by Energy Search. 24 of the wells drilled and completed
since January 1997 are located in southeastern Ohio and 32 are in West
Virginia.

RECENT ACQUISITIONS BY ENERGY SEARCH

Since July of 1996, we have completed a number of significant oil and
gas property acquisitions. These acquisitions were funded either by the
sale of Energy Search common stock in the IPO or subsequent private
offerings or from bank loans.

- The first transaction was the pre-IPO acquisition in July of 1996
of approximately 17,000 mostly contiguous leasehold acres in
Raleigh County, West Virginia (the "Beaver Lease") at a cost of
$170,000. We have subsequently added approximately 30,000
leasehold acres to our inventory in this area. Since completion
of the IPO and through November 30, 1998, we have drilled 31 wells
on the Beaver Lease and contiguous acreage. We plan to continue
drilling the Beaver Lease for our own account and to attempt to
exploit similar opportunities in the area.

- In November of 1997, we acquired from Lomak Corporation
approximately 9,000 acres of oil and natural gas properties
located in southeastern Ohio and western West Virginia at a cost
of $1,250,000. The purchase included 192 wells, equipment, a 10-
mile, 6-inch gas gathering pipeline system and a compression
facility. Since the acquisition, we have begun remediating and
increasing production on existing wells. We have also drilled and
successfully completed 2 wells on this property.

- In May of 1998, we acquired approximately 24,000 leasehold acres
in Raleigh County, West Virginia to develop coalbed methane gas.
Since May of 1998, we have acquired approximately 8,000 additional
coalbed methane leasehold acres. The initial aggregate
acquisition cost of these coalbed methane leasehold interests was
approximately $167,000. These leases contain certain drilling
commitments. Our coalbed methane leases are located near other
coalbed methane properties in southwestern West Virginia currently
being developed by other companies.

- In June of 1998, we acquired 56 oil and natural gas wells,
associated leasehold interests and equipment from Viking Resources
Corporation at a cost of $1,750,000. Since this acquisition, we
have begun remediating and increasing production from existing
wells. We believe these wells have additional enhancement
potential, as well as unexploited uphole reserves.

<PAGE>
- In a transaction completed in approximately June of 1998, we
acquired from nine individuals, certain working interest and
overriding royalty interest in various oil and natural gas wells
previously drilled by Energy Search in joint venture with
Affiliated Drilling Partnerships. All the wells involved are
operated by Energy Search. As consideration for these purchases,
we issued 10,114 shares of our common stock and paid $121,543 in
cash. Sellers were given an option to take either stock or cash
based upon a predetermined formula.

- In a transaction completed in September of 1998, we acquired from
our earliest five Affiliated Drilling Partnerships all their
working interests in various oil and natural gas wells jointly
owned and operated with Energy Search. Since these purchases, the
five Affiliated Drilling Partnerships have been liquidated and
dissolved. As consideration for these purchases, we issued
221,453 shares of common stock and paid $507,193 in cash.
Individual limited partners in each of the Affiliated Drilling
Partnership voted to approve the transaction and were given the
option to take either stock or cash as a liquidating distribution.

Energy Search's business plan currently anticipates drilling an
average of approximately 25 to 50 wells per year over the next five years
with net cash flow, proceeds of future equity offerings, incurring of
additional limited long-term debt, and, on a limited basis, proceeds of
future Affiliated Drilling Partnerships. We plan to continue drilling,
development and strategic acquisition activities primarily for our own
account which should enable us to expand our activities and operations. We
believe our business plan will result in the continued growth of our proved
natural gas and oil reserves, net cash flow and, ultimately, shareholder
value. Our future success, however, cannot be guaranteed. Our activities
and operations will be subject to numerous risks described below in "Risk
Factors."

RECENT FINANCINGS BY ENERGY SEARCH

In January 1997, we closed our initial public offering ("IPO") of
1,000,000 units (the "Units") each comprised of one share of common stock
and one Series A Warrant. The Units were sold at $8.00 per unit (with
attributed values of $6.50 per share of stock, $1.50 per warrant) in a firm
underwriting. The net proceeds from the IPO were approximately $6,500,000.
We utilized the IPO net proceeds primarily to explore for, acquire and
develop natural gas and oil reserves.

In October 1997, we completed the private placement of 749,961 shares
of common stock at $7.00 per share. The total offering proceeds were
approximately $5,250,000 and the net proceeds, after selling commissions
and expenses of the offering, were approximately $4,630,000. We used the

<PAGE>
funds raised in this offering for the continued development of our Beaver
Lease in West Virginia and our Churchtown field in southeastern Ohio.

On December 18, 1998, we closed the private placement sale of 175,545
shares of 9% redeemable convertible preferred stock at an issue price $5.50
per share. As a result of this transaction, we raised approximately
$888,250, net sales commissions.

ADDRESS AND TELEPHONE NUMBER

Our principal executive offices are located at 280 Fort Sanders West
Blvd., Suite 200, Knoxville, Tennessee 37922. Our telephone number at that
location is (800) 551-5810.

<PAGE>
THE OFFERING

Securities Offered and Sold in 1,000,000 Units were sold, each
the IPO . . . . . . . . . . . . . Unit consisting of one share of
Common Stock and one Series A
Warrant.

Terms of the Series A Warrants . Each Series A Warrant entitles the
holder thereof to purchase one
share of common stock. The Series A
Warrants are exercisable starting
February 28, 1998 until January 30,
2002, unless earlier redeemed by
Energy Search, for one share of
common stock each, at an exercise
price $9.60 per Warrant Share. The
exercise price of the Series A
Warrant is subject to automatic
adjustment in the event Energy
Search issues additional shares of
common stock. Based on additional
issuance by Energy Search of its
common stock since the IPO, the
current adjusted exercise price of
the Series A Warrant is $8.83 per
warrant share. However, during the
Limited Exercise Window, the Series
A Warrant holders may exercise
their Series A Warrants for a
reduced exercise price. The
Limited Exercise Window will begin
three (3) days after this Post-
Effective Amendment No.1 to the
Registration Statement is declared
effective by the SEC and will
continue for one year from such
effective date. For the first 90
days of the Limited Exercise
Window, the exercise price shall be
$5.00 per warrant share. For the
duration of the Limited Exercise
Window, the exercise price shall be
$6.00 per warrant share. At the
end of this Limited Exercise
Window, the exercise price of the
Series A Warrants will return to
the applicable adjusted exercise
price for the remaining term of the

<PAGE>
Series A Warrants. The Series A
Warrants are redeemable by Energy
Search at $0.05 per warrant on
thirty (30) days prior written
notice provided that the closing
sale price per share for the common
stock has equaled or exceeded
$16.00 for twenty (20) consecutive
trading days within the thirty
(30)-day period immediately
preceding the notice.

Common Stock Outstanding . . . . . As of September 30, 1998, there were
4,005,308 shares of Energy Search common
stock outstanding and 36,000 shares of
preferred stock outstanding. As of the date
of this Prospectus, there were 4,017,308
shares of common stock outstanding and
175,545 shares of preferred stock
outstanding. The outstanding shares of
common stock do NOT include:

(a) 1,200,000 shares of common stock
issuable upon the exercise of
outstanding Series A Warrants and
Representatives Warrants;
(b) 74,996 shares of common stock
issuable upon the exercise of
outstanding participating selling
agent warrants with an exercise
price of $7.00 per share;
(c) 65,150 shares issuable upon
exercise of outstanding general
private common stock warrants with
exercise prices varying from $4.50
to $8.00 per share;
(d) 450,000 shares issuable upon
exercise of executive officer
common stock purchase warrants with
an exercise price ranging from $4.50
to $8.00 per share;
(e) 10,000 shares of common stock
issuable to current outside
directors pursuant to options
issued to them as part of Energy
Search's program for compensating
outside directors with an exercise
price of $4.50 per share.

<PAGE>
See "Management -- Executive
Compensation," and "Principal
Stockholders."

Use of Proceeds of the IPO . . . . Underwriting discounts and commissions were
$800,000. Expenses paid to or for the
underwriters were $232,938. Other expenses
of the IPO amounted to $465,571. Total
expenses of the IPO were $1,498,509. The
net IPO offering proceeds to Energy Search
after offering expenses were $6,501,491,
which total was applied as follows:
$5,267,492 to explore for, acquire and
develop natural gas and oil reserves;
$912,500 for working capital; $261,750 for
repayment of certain indebtedness to
officers of Energy Search; and $59,749 for
payment of accrued dividends to former Class
A preferred shareholders of Energy Search
whose preferred stock converted to common
stock upon consummation of the IPO.

Risk Factors . . . . . . . . . . . An investment in Energy Search's common
stock is speculative and involves a high
degree of risk. Energy Search common stock
should not be purchased by investors who
cannot afford the loss of their entire
investment. See "Risk Factors."

Boston Stock Exchange Symbols
Units*. . . . . . . . . . . . "EYS.U"
Common Stock. . . . . . . . . "EYS"
Series A Warrants . . . . . . "EYS.WS.A"

Nasdaq Small-Cap Market Symbols

Units*. . . . . . . . . . . . "EGASU"
Common Stock. . . . . . . . . "EGAS"
Series A Warrants . . . . . . "EGASW"

*No longer in existence

<PAGE>
SUMMARY NATURAL GAS AND OIL RESERVE INFORMATION

Energy Search oil and natural gas reserves are located in Ohio and
West Virginia. Proved reserves represent estimated quantities of crude oil
and natural gas which geological and engineering data demonstrate to be
reasonably certain to be recoverable in the future from known reservoirs
under existing economic and operating conditions. Proved developed oil and
natural gas reserves are proved reserves that can be expected to be
recovered through existing wells using existing equipment and operating
methods. Proved undeveloped reserves are proved reserves expected to be
recovered from new wells on undrilled acreage, or from existing wells at
depths below the present bottom of the wells.

The following tables summarize information with respect to the
estimated net proved oil and natural gas reserves as reviewed, evaluated
and certified by the independent engineers and/or a geologist attributable
to Energy Search's interests in oil and natural gas properties as of
December 31, 1997, 1996 and 1995. The substantial difference in total
proved reserves of our natural gas from 1996 to 1997 is primarily due to
the acquisition and development of our Beaver Lease in central West
Virginia and the Simmons Field in Ohio and West Virginia. The year-end
reserve reports for December 31, 1996 and December 31, 1995 were prepared
by Kim A. Walbe, independent certified geologist. After our IPO, Mr. Walbe
became a director of Energy Search. The year-end reserve report for
December 31, 1997 was prepared by Wright & Company, Inc., independent
certified petroleum engineers.

The oil and natural gas reserve amounts in the following tables
represent well interests and reserves directly owned 100% by Energy Search.
While Energy Search and Affiliated Drilling Partnerships may each own
separate percentages of the entire working interest in certain wells, their
respective percentage ownership is separate and direct. No reserves shown
below as owned by Energy Search are owned indirectly through any Affiliated
Drilling Partnership.

TOTAL ESTIMATED NET RESERVE QUANTITIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
COMPANY - TOTAL
Total Proved Reserves:<F1>
Oil (Bbls) 23,624 16,736 22,340
Natural Gas (Mcf) 30,609,977 15,692,300 3,564,527
Equivalent Bbls (BOE)<F2> 5,125,287 2,632,119 616,428
Equivalent Mcf (Mcfe)<F2> 30,751,721 15,892,716 3,698,567

<PAGE>
Total Proved Undeveloped Reserves:<F1>
Oil (Bbls) -- 11 10,616
Natural Gas (Mcf)<F2> 19,417,960 14,543,536 2,305,073
Equivalent Bbls (BOE)<F2> 3,236,327 2,423,934 394,795
Equivalent Mcf (Mcfe)<F2> 19,417,960 14,543,602 2,368,769

Total Proved Developed Reserves:<F1>
Oil (Bbls) 23,624 16,725 11,724
Natural Gas (Mcf) 11,192,017 1,148,764 1,259,454
Equivalent Bbls (BOE)<F2> 1,888,960 208,186 221,633
Equivalent Mcf (Mcfe)<F2> 11,333,761 1,249,114 1,329,798
<FN>
__________________________
<F1> Reserves are net to Energy Search's interest. Applicable royalties
have been deducted from these volumes.
<F2> After conversion on the basis of 6.0 Mcf of natural gas to 1.0 barrel
of crude oil.
</FN>
</TABLE>
DISCOUNTED PRESENT VALUE OF FUTURE NET REVENUES

The following tables represent the estimated future net revenues and
the present value of the future estimated net reserves discounted at a rate
of 10% per year from the proved developed producing, proved developed non-
producing and proved undeveloped reserves of Energy Search as of December
31, 1997, 1996 and 1995, respectively.

With respect to the tables below, the Estimated Discounted Present
Value Future Net Cash Flows from Proved Oil and Gas Reserves is computed
assuming a constant price of $3.45 per Mcf. For the fiscal year ended
December 31, 1997, gross natural gas prices received by us for our natural
gas ranged from $2.23 to $5.04 per Mcf before royalties and gathering and
transportation costs.
<TABLE>
ESTIMATED DISCOUNTED PRESENT VALUE OF FUTURE NET CASH FLOWS
FROM PROVED OIL AND NATURAL GAS RESERVES
<CAPTION>
AT DECEMBER 31,
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
COMPANY - TOTAL
Proved Developed Producing
Oil (Bbl) 23,624 13,859 7,798
Natural Gas (Mcf) 7,475,526 943,584 969,573
Proved Developed Non-Producing
Oil (Bbl) -- 2,866 3,926
Natural Gas (Mcf) 3,716,491 205,180 289,881

12
<PAGE>
Proved Undeveloped
Oil (Bbl) -- 11 10,616
Natural Gas (Mcf) 19,417,960 14,543,536 2,305,073

Estimated Future Net Cash Flows
Before Income Taxes Discounted
at 10%
Proved Producing $ 9,703,797 $ 1,434,504 $1,203,549
Proved Non-Producing 4,748,113 227,129 279,747
Proved Undeveloped 17,909,290 19,665,164 1,237,353
----------- ----------- ----------

Total $32,361,200 $21,326,797 $2,720,649
=========== =========== ==========
</TABLE>

For additional information concerning the discounted future net cash
flows to be derived from our reserves, see the Supplemental Information to
Consolidated Financial Statements incorporated herein.

In accordance with applicable requirements of the SEC, estimates of
Energy Search's proved reserves and future cash flows are made using sales
prices estimated to be in effect as of the date of such reserve estimates
and are held constant throughout the life of the properties (except to the
extent a contract specifically provides otherwise). Estimated quantities
of proved reserves and future cash flows therefrom are affected by natural
gas and oil prices, which have fluctuated widely in recent years.

13
<PAGE>
the results of drilling, testing and production subsequent to the date of
such estimate. Accordingly, reserve estimates are often different from the
quantities of oil and natural gas that are ultimately recovered. While we
believe that reserve estimates presented in this Prospectus are reasonable,
the estimates should be viewed with the understanding that subsequent
reservoir performance, the timing and success of future development
drilling and changes in pricing structure or market demand will affect the
reserve estimates.

In general, the volume of production from oil and gas properties
declines as reserves are depleted. Except to the extent we acquire
properties containing proven reserves or conduct successful exploration and
development activities, or both, our proven reserves will decline as
reserves are produced. Our future oil and natural gas production is,
therefore, highly dependent upon our level of success in acquiring or
developing additional reserves.

<PAGE>
SUMMARY FINANCIAL INFORMATION

The following summary of historical consolidated financial information
of Energy Search for the years ended December 31, 1996 and 1997 has been
derived from our audited Consolidated Financial Statements and the notes
thereto contained in the Annual Report on form 10-KSB filed with the SEC
for the fiscal year ended December 31, 1997. The data presented for the
nine months ended September 30, 1998 is derived from our unaudited
Consolidated Financial Statements and the notes thereto contained in the
Quarterly Report on Form 10-QSB filed with the SEC for the quarterly
period ended September 30, 1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEAR ENDED
SEPTEMBER 30, 1998, DECEMBER 31,
(UNAUDITED) (AUDITED)
------------------- -----------------
($000s) 1998 1997 1996
------------------- -------- --------
INCOME STATEMENT DATA:
<S> <C> <C> <C>
Revenue:
Oil and gas $ 1,970 $ 799 $ 289
Turnkey (net) 77 476 882
Other 647 958 271
----------- -------- ---------
Total revenue 2,694 2,233 1,442

Expenses:
Production 515 274 171
Exploration 147 77 242
Depletion, depreciation and
amortization 769 557 375
Sales, general and administrative 1,014 1,816 1,280
----------- -------- ---------
Total expenses 2,445 2,724 2,068
----------- -------- ---------
Operating income (loss) 249 (491) (626)

Interest and other income (expense) (282) (58) (396)
Income tax benefit 10 182 417
Extraordinary item 0 0 (79)
----------- -------- ---------
Net income (loss) ($ 23) (367) (684)
=========== ======== =========
Net Income (Loss) per Common Share ($ 0.01) ($0.14) ($ 0.67)

Weighted Average Shares Outstanding 3,807 2,996 1,108
15

<PAGE>
CASH FLOW DATA:
Net cash provided (used in) operating
activities 603 (1,703) (897)
Net cash provided (used in) investing
activities ($8,916) ($ 7,117) ($ 1,172)
Net cash provided (used in) by
financing activities 6,232 11,022 2,014

BALANCE SHEET DATA:
Working Capital $ 4 $ 1,283 ($ 2,601)
Total assets $ 23,919 $ 16,121 $ 6,668
Long-Term debt $ 6,857 $ 137 $ 155
Total debt $ 6,888 $ 817 $ 1,127

Shareholders' equity $ 15,908 $ 13,946 $ 3,173
</TABLE>

<PAGE>
RISK FACTORS

AN INVESTMENT IN ENERGY SEARCH COMMON STOCK OR SERIES A WARRANTS
INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER THE
FOLLOWING FACTORS IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION.

RISKS ASSOCIATED WITH ENERGY SEARCH

DEVELOPMENT OF ADDITIONAL RESERVES. Our future success depends upon
our ability to find or acquire additional natural gas and oil reserves that
are economically recoverable. Except to the extent that we conduct
successful exploration or development activities or acquire properties
containing proved reserves, the proved reserves of Energy Search will
generally decline as reserves are produced. There can be no assurance that
we will be able to discover and exploit additional commercial quantities of
oil and gas, or that we will have success drilling productive wells or
acquiring underdeveloped properties at low finding costs.

NEED FOR ADDITIONAL FINANCING. Development of our oil and gas
properties and execution of our business plan may require capital resources
greater than those currently available to us. Current arrangements for
additional sources of capital include our working capital revolving line of
credit with Bank One, Texas, NA (the "Bank One Credit Facility"), our
recent sale of 175,545 shares of 9% redeemable convertible preferred stock,
and the offering of interests in the 1998 Affiliated Drilling Partnership.
Furthermore, we believe that reducing the exercise price of Series A
Warrants during the Limited Exercise Window may induce holders of Series A
Warrants to exercise their warrants, thereby bringing additional capital to
the Company. There can be no assurance that these, or any other, sources
of capital will be available to us on acceptable terms, or at all, in the
future. The inability to obtain additional financing would have a material
adverse effect on Energy Search, including requiring us to curtail
significantly or farm-out development of our oil and natural gas
properties. Any additional financing may involve dilution to our existing
shareholders.

DEPENDENCE ON KEY PERSONNEL. The success of Energy Search depends
to a large extent on the abilities and continued participation of certain
key employees, including Charles P. Torrey, Jr., our chief executive
officer, Richard S. Cooper, our president, Robert L. Remine, our secretary
and treasurer, John M. Johnston, our vice president - exploration and
production, and Michael W. Mooney, our vice president of field operations.
The loss of any of these officers or other key employees could have a
material adverse effect on our business. In an effort to address this
risk, we have entered into written employment contracts (which include
confidentiality and noncompetition clauses) and purchased "key man" term
life insurance policies with respect to these officers. In addition, we

<PAGE>
have adopted a stock option and restricted stock plan through which can
provide incentive awards for these individuals. See "Management."

GEOLOGIST'S ESTIMATES OF RESERVES AND FUTURE NET REVENUE. This
Prospectus contains estimates of our oil and natural gas reserves and the
future net revenues therefrom which have been prepared by a certified
independent geologist. See "Business and Properties -- Description of Property
- -- Oil and Natural Gas Reserves." These estimates are based on various
assumptions and, therefore, are inherently imprecise indications of future
revenues. Actual future revenues, development expenditures, operating
expenses and quantities of recoverable oil and gas reserves may vary
substantially from the estimates. In addition, our reserves may be subject
to downward or upward revision, based on production history, results of
future exploration and development, prevailing oil and gas prices and other
factors.

UNDEVELOPED ACREAGE MAY BE LOST. Our oil and gas leases typically
require the drilling of wells, payment of minimum royalties or delay
rentals or the continued production of oil or gas in commercial quantities
in order for the leases to remain valid and not lapse. Typically, once a
well is drilled and becomes commercially productive, as long as commercial
production from such lease continues, the lease will not lapse and is
deemed to be "held by production." Nonetheless, lease termination or
expiration clauses are specific to each lease. If existing and future
drilling commitments, minimum royalty payments or continuing production
clauses in particular leases are not met, we may lose lease acreage.

PROPERTIES PLEDGED TO SECURE DEBT. Substantially all of our
properties are pledged to secure the Bank One Credit Facility and an
equipment and vehicle loan from SunTrust Bank. A failure to pay the
principal or accrued interest on such secured obligations could cause us to
lose our interest in our principal properties. For further information on
these secured transactions, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Notes to Consolidated
Financial Statements included herein.

ACCUMULATED DEFICIT. As of September 30, 1998 we had an accumulated
deficit of approximately $1,524,354. Our future operating results will
depend on many factors some of which are beyond our control. There can be
no assurance that we will be able to operate profitably in the future.

LIMITED DIVERSIFICATION OF ENERGY SEARCH'S ACTIVITIES AND PROPERTIES.
We are engaged exclusively in the business of exploration for and
production and marketing of natural gas and oil. A large part of our field
operations and activities are located in Washington, Athens and Meigs
Counties, Ohio, and in Raleigh and Wood Counties, West Virginia. See
"Business and Properties -- Properties -- Leasehold Acreage." It is
likely that, for the foreseeable future, our activities and primary area of
field operations will not change materially.
18

<PAGE>
FINANCING ENERGY SEARCH'S GROWTH THROUGH PRIVATE PLACEMENT SECURITIES
OFFERINGS. Our capital needs have increased materially in recent years.
Prior to 1997, substantially all of our drilling capital was raised through
the private offering of investment interests in Affiliated Drilling
Partnerships to investors. These Affiliated Drilling Partnerships have
been sponsored by our principals, as well as by Energy Search, and have
been marketed by EFC. See "Business and Properties -- Energy Search's
Activities with Affiliated Partnerships." It is anticipated that a portion
of our drilling capital in the future will continue to be raised by the
private offering of investment interests in future Affiliated Drilling
Partnerships. To the extent we may depend on raising capital from
syndication of future Affiliated Drilling Partnerships, there can be no
assurance that future offerings will be successful or will raise adequate
capital for desired Energy Search activities. Also, there is no assurance
that any other sources of capital will be available to us.

From 1991 through 1992, we raised working capital through the sale of
limited partnership interests, on a private placement basis, in Tennessee
limited partnerships which loaned the proceeds of investor subscriptions to
us. All of these loans from limited partnerships have been repaid in full
as of the date of this Prospectus. We have also raised capital to finance
a portion of the gas gathering system which services our wells in
southeastern Ohio by sponsoring and selling to private investors limited
partnership interests in the Pipeline Income Partnership. Management
believes, and is advised by our legal counsel, that these private placement
offerings, together with the Affiliated Drilling Partnerships, were exempt
from registration under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance on the "private offering" exemption
contained in Section 4(2) of the Securities Act and Rule 506 promulgated
thereunder. The availability of this exemption is dependent upon a number
of factors, including the manner of offering the investment, the
information furnished to investors, their investment experience, the method
of placing the securities, and the possible integration of several
offerings. For the most part, these placements have been made to
"accredited investors" as that term is defined under Rule 501(a) of the
Securities Act. We have taken all steps recommended by securities legal
counsel to assure that we have complied with the various federal and state
requirements with respect to these private placements. In the unlikely
event that we are determined not to have complied with those requirements,
however, we could be subject to legal claims for rescission, regulatory
enforcement actions or penalties. The total amount of such rescission
claims, if such claims did exist, could, subject to statute of limitations
and other procedural and substantive defenses, equal the total amount
raised by us and our affiliates in all prior securities offerings --
approximately $47,000,000. However, no such claims have been filed or
threatened against Energy Search, and management has no knowledge that any
such claims are contemplated.

<PAGE>
ENERGY SEARCH'S FIDUCIARY RESPONSIBILITY TO OUR RELATED PARTNERSHIPS.
We owe a fiduciary duty to each Affiliated Drilling Partnership, the
Pipeline Income Partnership, the Pipeline Operating Partnership, and any
future partnership in which Energy Search is the managing general partner,
or serves in a similar capacity. Accordingly, we have been, and will
continue to be, obligated to exercise good faith, reasonable business
judgment and integrity in handling each such Partnership's business and
funds. If we were to violate our fiduciary duties, we could be subject to
legal action which could result in liability.

CONFLICTS OF INTEREST. The nature of our activities in the oil and
natural gas business results in many situations in which conflicts of
interest may arise. In general, conflicts of interest are inherent in oil
and gas drilling programs involving non-industry participants because
transactions are entered into without arms-length negotiation. The
interests of the investors, on one hand, and those of Energy Search, as
managing general partner and driller-operator of an Affiliated Drilling
Partnership, on the other hand, may be inconsistent in some respects or in
certain instances. Relationships between Energy Search and Affiliated
Drilling Partnerships involving conflicts of interest include: the
determination of joint drilling and operating agreement ("JDOA") or limited
partnership agreement terms, particularly relating to compensation of
Energy Search, in syndicated Affiliated Drilling Partnerships; the
selection and allocation of drill sites as between Energy Search and
various Affiliated Drilling Partnerships; allocation of overhead among
related parties or affiliates; handling the "proving-up" by an Affiliated
Drilling Partnership of unproven acreage which such partnership has no
contractual right to drill; use of Energy Search personnel or resources;
structuring of gas marketing arrangements; related-party transactions and
similar circumstances. Energy Search, as managing general partner of the
Affiliated Drilling Partnerships, the Pipeline Operating Partnership and
the Pipeline Income Partnership, is accountable to investor partners
therein as a fiduciary and must, therefore, exercise good faith and
integrity in handling the affairs of the various partnerships. This is
particularly true in the handling of conflicts between Energy Search's
activity for our own account, and our activity on behalf of partnerships we
manage. Energy Search, in recognition of our fiduciary responsibilities
to investor partners, must endeavor to resolve any and all such conflicts
on a basis which we believes to be fair and equitable and otherwise in or
not opposed to the best interests of such investor partners. With respect
to the selection of drilling prospects and drill sites, Energy Search is
not obligated under the terms of the relevant limited partnership
agreements or JDOA's to offer to Affiliated Drilling Partnerships the prior
right to drill any acreage "proved up" by the drilling of any Affiliated
Drilling Partnership well. Failure to adequately resolve such conflicts of
interest appropriately could result in liability or other adverse legal
consequences to Energy Search. Energy Search has in place an audit
committee comprised of two independent directors and one management member

<PAGE>
which reviews conflicts of interest issues. The audit committee evaluates
each situation on a case-by-case basis taking into account all relevant
facts and circumstances.

RISKS ASSOCIATED WITH THE OIL AND GAS INDUSTRY

RISK OF OIL AND GAS OPERATIONS. Our operations are subject to all of
the risks normally incident to the operation and development of oil and
natural gas properties and the drilling of oil and natural gas wells,
including encountering unexpected formations or pressures, blowouts,
cratering and fires, which could result in personal injuries, loss of life,
pollution damage and other damage to the properties of Energy Search or
others. Oil and gas operations present risks of environmental
contamination from drilling operations and leakage from oil field storage
or transportation facilities. We have never experienced a significant
environmental mishap, but spills of oil and other liquids could occur which
could create material liability to us for clean-up expenses. See "Business
and Properties -- Insurance" for a discussion of Energy Search's insurance
coverage.

CURRENT OIL AND GAS MARKETS. There is substantial uncertainty as to
the prices at which natural gas and oil produced by Energy Search may be
sold, and it is possible that under some market conditions the production
and sale of oil and gas from some or all of our wells may not be
economical. The average natural gas prices received by us were $2.34, $2.97
and $3.08 per Mcf in 1995, 1996 and 1997, respectively, prior to reduction
for royalties, severance taxes and gathering and transportation charges.
The average oil prices received by us were $16.48, $19.26 and $18.06 per Bbl
in 1995, 1996 and 1997, respectively. The average price received by us for
natural gas and oil in 1998 to date has been $2.66 and $12.42,
respectively. The availability of a ready market for oil and gas and the
prices obtained for oil and gas depend upon numerous factors beyond the
control of us, including competition from other natural gas and oil
suppliers and national and international economic and political
developments. We are not subject to any gas price controls.

EXPLORATION AND DEVELOPMENT RISKS. Exploration and development
drilling activities are subject to greater risks of failure than those
associated with the ownership of producing properties. The drilling of
exploratory wells involves the greatest risks, since such wells are located
in unproved areas. The drilling of development wells, although generally
consisting of drilling in proven areas, may result in dry holes or the
failure to produce natural gas and oil in commercial quantities. The
drilling of development wells and exploratory wells also involves the risk
that unusual or unexpected formations and pressures will be encountered,
and other conditions will exist, that could result in us incurring
substantial losses as well as liabilities to third parties or governmental
entities.

<PAGE>
OPERATING HAZARDS AND UNINSURED RISKS. Drilling activities are
subject to many risks, including the risk that no commercially productive
reservoirs will be encountered. There can be no assurance that new wells
drilled by Energy Search will be productive or that we will recover all or
any portion of our investment in such wells. Drilling for oil and natural
gas may involve unprofitable efforts, not only from dry wells, but from
wells that are productive but do not produce sufficient net revenues to
return a profit after drilling, operating, allocable overhead and other
costs. The cost of drilling, completing and operating wells is often
uncertain. Our drilling operations may be curtailed, delayed or canceled
as a result of numerous factors, many of which are beyond our control,
including title problems, weather conditions, compliance with governmental
requirements and shortages or delays in the delivery of equipment and
services.

Our operations are subject to hazards and risks inherent in drilling
for and producing and transporting oil and natural gas, such as fires,
natural disasters, explosions, encountering formations with abnormal
pressures, blowouts, craterings, pipeline ruptures and spills,
uncontrollable flows of oil, natural gas or well fluids, any of which can
result in the loss of hydrocarbons, environmental pollution, personal
injury claims and other damage to properties of Energy Search and others.
We maintain insurance against some but not necessarily all of the risks
described above. In particular, the insurance maintained by us does not
cover claims relating to failure of title to oil and natural gas leases,
trespass during survey acquisition or surface change attributable to
seismic operations and, except in limited circumstances, losses due to
business interruption. We may elect to self-insure if management believes
that the cost of insurance, although available, is excessive relative to
the risks presented. In addition, pollution and environmental risks
generally are not fully insurable. The occurrence of an event that is not
covered, or not fully covered, by insurance could have a material adverse
effect on our business, financial condition and results of operations.

COMPETITION AND MARKETS. The oil and natural gas industry is highly
competitive. We compete with many other companies in the search for and
acquisition of oil and natural gas properties and leases for exploration
and development, and also compete with other companies in our activities
as drilling contractor and natural gas marketers. Our competitors include
numerous independent oil and natural gas companies, major integrated oil
and natural gas companies, individuals and drilling and income programs.
Many of these companies have substantially greater financial, technical and
other resources than us and have been engaged in the exploration and
production business for a much longer time than we have. Such companies
may be able to pay more for leases on oil and natural gas properties and
exploratory prospects, as well as to define, evaluate, bid for or purchase
a greater number of properties and prospects than our financial or human
resources would permit. We will be required to maintain and enhance our

<PAGE>
ability to conduct our operations, to evaluate and select suitable
properties and to consummate transactions in a highly competitive
environment. Competition among oil and gas companies for favorable oil and
natural gas prospects can be expected to continue. It is anticipated that
the cost of acquiring oil and natural gas properties may increase
appreciably.

In the area of capital formation, we compete for investor capital in
the public and private equity markets with other oil and gas companies, as
well as companies from other industries. We also compete with a number of
other companies which offer interests in drilling partnerships with a wide
range of investment objectives and program structures. Competition for
investment capital from both public and private sources is intense. Our
business plan requires that we continue to raise capital for drilling and
acquisition activities. Our ability to attract investment capital cannot
be assured.

COMPETITION FROM ALTERNATIVE ENERGY SOURCES. Substantially all of our
reserves are natural gas reserves. Natural gas competes with coal, oil,
propane, butane, nuclear power and other fuels in the heating and energy
generation markets. Numerous factors, all difficult to predict, affect the
relative desirability or demand at any point in time for any given fuel.
The extent to which public or legislative initiatives to develop and use
alternative fuels will, in the future, affect the demand for oil or natural
gas cannot be predicted at this time.

INDUSTRY CONDITIONS. In recent decades, there have been periods of
worldwide over-production and under-production of hydrocarbons as well as
periods of increased and relaxed energy conservation efforts. Such
conditions have resulted in periods of excess supply of, and reduced demand
for, crude oil on a worldwide basis and natural gas on a domestic basis.
These periods have been followed by periods of short supply of, and
increased demand for, crude oil and, to a lesser extent, natural gas. The
excess or short supply of crude oil and natural gas has placed pressures on
prices and has resulted in dramatic price fluctuations.

SHUT-IN WELLS AND CURTAILED PRODUCTION. In the past, production from
oil and natural gas wells (particularly natural gas wells) in many
geographic areas of the United States had been curtailed due to lack of
market demand, and it is possible that such curtailments may resume in the
future. Therefore, it is possible that our wells may have to be shut-in or
that oil or gas produced from the wells may have to be sold at less than
favorable prices. Production also may be delayed or wells shut-in in the
event there is difficulty in securing markets for production, logistical
problems develop in the transportation of natural gas from the wells or
there are title problems associated with the drill sites. Although it is
anticipated that a substantial amount of natural gas from our Ohio wells
will be sold to our affiliated Pipeline Operating Partnership, the

<PAGE>
agreement regarding the gathering and marketing of natural gas between
Energy Search and the Pipeline Operating Partnership governing such
arrangement will not protect Energy Search from market or price risks.

GENERAL REGULATION. Oil and natural gas exploration, production and
related operations are subject to extensive rules and regulations
promulgated by federal, state and local agencies. Failure to comply with
such rules and regulations can result in substantial penalties. The
regulatory burden on the oil and gas industry increases our cost of doing
business and affects our profitability. Although we believe we are in
substantial compliance with all applicable laws and regulations, because
such rules and regulations frequently are amended or interpreted, we are
unable to predict the future cost or impact of complying with such laws.

STATE REGULATION. Natural gas and oil operations are regulated by an
agency of state government in every state of the United States. Many state
authorities require permits for drilling operations, drilling bonds and
reports concerning operation and impose other requirements relating to the
exploration and production of oil and gas. Some states also have statutes
or regulations addressing conservation matters, including provisions for
the pooling of oil and gas properties, the establishment of maximum rates
of production from oil and gas wells and the regulation of spacing,
plugging and abandonment of such wells. The statutes and regulations also
may limit the rate at which oil and gas can be produced from certain
properties. In Ohio and West Virginia, where most of our natural gas and
oil properties are located, such regulation is by the Ohio Department of
Natural Resources and the West Virginia Division of Environmental
Protection Office of Oil and Gas, respectively. Each of these agencies has
been granted broad regulatory and enforcement powers which are likely to
create additional financial and operational burdens on natural gas and oil
operations like those of Energy Search. Ohio and West Virginia also have
in place other pollution and environmental control laws which have become
increasingly burdensome in recent years.

FEDERAL REGULATION. Our sales of natural gas are affected by the
availability, terms and cost of transportation. The price and terms for
access to pipeline transportation are subject to extensive regulation. The
Federal Energy Regulatory Commission ("FERC") regulates the transportation
and sale for resale of natural gas in interstate commerce pursuant to the
Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978. In the
past, the federal government has regulated the prices at which oil and
natural gas can be sold. While sales by producers of natural gas, and all
sales of oil and natural gas liquids currently can be made at uncontrolled
market prices, Congress could reenact price controls in the future.

In recent years, FERC has undertaken various initiatives to increase
competition within the natural gas industry. As a result of initiatives
like FERC Order 636, issued in April 1992 and our progeny, the interstate

<PAGE>
natural gas transportation and marketing system has been substantially
restructured to remove various barriers and practices that historically
limited non-pipeline natural gas sellers, including producers, from
effectively competing with interstate pipelines for sales to local
distribution companies and large industrial and commercial customers. The
most significant provisions of Order No. 636 require that interstate
pipelines provide transportation separate or "unbundled" from their sales
service, and require that pipelines provide firm and interruptible
transportation service on an open access basis that is equal for all
natural gas supplies. In many instances, the result of Order No. 636 and
related initiatives has been to substantially reduce or eliminate the
interstate pipelines' traditional role as wholesalers of natural gas in
favor of providing only storage and transportation services. Although
Order No. 636 has largely been upheld on appeal, several appeals remain
pending in related restructuring proceedings. It is difficult to predict
when these remaining appeals will be completed or their impact on us.

FERC has announced several important transportation-related policy
statements and proposed rule changes, including a statement of policy and a
request for comments concerning alternatives to our traditional cost-of-
service rate making methodology to establish the rates interstate pipelines
may charge for their services. A number of pipelines have obtained FERC
authorization to charge negotiated rates as one such alternative. In
February 1997, FERC announced a broad inquiry into issues facing the
natural gas industry to assist FERC in establishing regulatory goals and
priorities in the post-Order No. 636 environment. While the changes being
considered by federal and state regulators would affect Energy Search only
indirectly, they are intended to further enhance competition in natural gas
markets. Additional proposals and proceedings that might affect the
natural gas industry are pending before Congress, FERC, state commissions
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 FERC and Congress will continue.

The price we receive from the sale of oil and natural gas liquids is
affected by the cost of transporting products to markets. Effective
January 1, 1995, FERC implemented regulations establishing an indexing
system for transportation rates for oil pipelines, which, generally, would
index such rates to inflation, subject to certain conditions and
limitations. We are not able to predict with certainty the effect, if any,
of these regulations on our operations. However, the regulations may
increase transportation costs or reduce well head prices for oil and
natural gas liquids.

ENVIRONMENTAL REGULATION. Our operations and properties are subject
to extensive and changing federal, state and local laws and regulations
relating to environmental protection, including the generation, storage,
handling, emission, transportation and discharge of materials into the

<PAGE>
environment, and relating to safety and health. The recent trend in
environmental legislation and regulation generally is toward stricter
standards, and this trend likely will continue. These laws and regulations
may require the acquisition of a permit or other authorization before
construction or drilling commences; restrict the types, quantities and
concentration of various substances that can be released into the
environment in connection with drilling and production activities; limit or
prohibit construction, drilling and other activities on certain lands lying
within wilderness, wetlands and other protected areas; require remedial
measures to mitigate pollution from former operations such as plugging
abandoned wells; and impose substantial liabilities for pollution resulting
from our operations. The permits required for various aspects of our operations
are subject to revocation, modification and renewal by issuing authorities.
Governmental authorities have the power to enforce compliance with their
regulations, and violators are subject to civil and criminal penalties or
injunction. Energy Search management believes that we are in substantial
compliance with current applicable environmental laws and regulations, and
that we have no material commitments for capital expenditures to comply
with existing environmental requirements. To date, we have received no
material notice of violation or complaint concerning our compliance with
federal, state or local environmental laws. Changes in existing
environmental laws and regulations or in interpretations thereof could have
a significant impact on us in the future, and thus we are unable to predict
the ultimate cost and effects of such continued compliance.

The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") and comparable state statutes impose strict, joint and
several liability on certain classes of persons who are considered to have
contributed to the release of a "hazardous substance" into the environment.
These persons include the owner or operator of a disposal site or sites
where a release occurred and companies that disposed or arranged for the
disposal of the hazardous substances released at the site. Under CERCLA
such persons or companies may be liable 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 the neighboring
land owners and other third parties to file claims for personal injury,
property damage and recovery of response costs allegedly caused by the
hazardous substances released into the environment. The Resource
Conservation and Recovery Act ("RCRA") and comparable state statutes govern
the disposal of "solid waste" and "hazardous waste" and authorize
imposition of substantial civil and criminal penalties for noncompliance.
Although CERCLA currently excludes petroleum from its definition of
"hazardous substance," state laws affecting our operations impose clean-up
liability relating to petroleum and petroleum-related products. In
addition, although RCRA classifies certain oil field wastes as "non-
hazardous," such exploration and production wastes could be reclassified as
hazardous wastes thereby making such wastes subject to more stringent
handling and disposal requirements.

<PAGE>
We have acquired leasehold interests in numerous properties that for
many years have produced oil and natural gas. Although we believe that the
previous owners of these interests used operating and disposal practices
that were standard in the industry at the time, hydrocarbons or other
wastes may have been disposed of or released on or under the properties.
These properties and the wastes disposed thereon may be subject to CERCLA,
RCRA and analogous state laws. Notwithstanding our lack of control over
properties operated by others, the failure of the operator to comply with
applicable environmental regulations may, in certain circumstances,
adversely impact us.

The Federal Clean Water Act and analogous state laws require permits
to be obtained to authorize discharge into surface waters or to construct
facilities in wetland areas. With respect to certain of our operations, we
are required to maintain such permits or meet general permit requirements.
The Environmental Protection Agency ("EPA") has adopted regulations
concerning discharges of storm water runoff. This program requires covered
facilities to obtain individual permits, participate in a group or seek
coverage under an EPA general permit. We believe that we will be able to
obtain, or be included under, such permits, where necessary, and to make
minor modifications to existing facilities and operations that would not
have a material effect on us.

RISKS ASSOCIATED WITH INVESTMENT IN ENERGY SEARCH

NO ASSURANCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF COMMON STOCK,
AND SERIES A WARRANT PRICES; DISCLOSURE RELATING TO LOW-PRICED STOCK.
Prior to the IPO, there was no public trading market for Energy Search
common stock or Series A Warrants. Since January 24, 1997, Energy Search's
Units, common stock and Series A Warrants have been traded on the Nasdaq
SmallCap Stock Market under the symbols "EGASU," "EGAS," and "EGASW,"
respectively. The EGASU Units no longer exist. There can be no assurance
that a trading market for our common stock and Series A Warrants will be
sustained. The absence of a trading market may render an investor unable
to liquidate his or her investment in Energy Search. The trading price for
the common stock and Series A Warrants may be significantly affected by
such factors as the operating results of Energy Search, the United States
and global economic conditions and various other factors generally
affecting the oil and gas products industry. Additionally, the stock
market has from time to time experienced extreme price and volume
fluctuations which have particularly affected the market price for small
and emerging growth companies. These extreme fluctuations, which often
have been unrelated to the operating performance of any particular company
or to any group of companies, may adversely affect the market price of our
common stock and Series A Warrants. Energy Search Units, common stock and
Series A Warrants have also been approved for listing on the Boston Stock
Exchange under the symbols "EYS.U," "EYS," and EYS.WS.A," respectively.
The EYS.U Units no longer exist. If, at any time, our securities are not

<PAGE>
quoted on a stock exchange, our securities could become subject to the
"penny stock rules" adopted pursuant to Section 15(g) of the Securities
Exchange Act of 1934. The penny stock rules apply to companies whose
common stock trades at less than $5.00 per share or which have tangible net
worth of less than $5,000,000 ($2,000,000 if the company has been operating
for three or more years). Such rules require, among other things, that
brokers who trade "penny stock" to persons other than "established
customers" complete certain documentation, make suitability inquiries of
investors and provide investors with certain information concerning trading
in the security, including a risk disclosure document and quote information
under certain circumstances. Many brokers do not trade "penny stocks"
because of the requirements of the penny stock rules and, as a result, the
number of broker-dealers willing to act as market makers in such securities
is limited.

DIVIDEND POLICY. We have not paid or declared any cash dividends with
respect to our common stock, nor do we anticipate any such payments or
declarations in the foreseeable future. Any future dividends will be
declared at the discretion of our Board of Directors and will depend, among
other things, on our earnings, if any, our financial requirements for
future operations and growth, and such other factors as we may then deem
appropriate. Prospective investors should not rely on the receipt of
dividends in the near future or at any time in the future when evaluating
the merits of an investment in our securities. See "Dividend Policy."

DILUTION. The principal shareholders of Energy Search have acquired
common stock at a cost per share which is substantially less than that at
which we sold the common stock included in the Units to investors in the
IPO. In the event that we issue additional common stock in the future,
including shares that may be issued upon the exercise of the Series A
Warrants or upon the conversion of any 9% redeemable convertible preferred
stock issued by Energy Search, common stockholders may experience further
dilution in the net tangible book value per share of the common stock of
Energy Search.

CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO
EXERCISE SERIES A WARRANTS. Holders of Series A Warrants will be able to
exercise them only if a current Prospectus relating to the common stock
underlying the Series A Warrants is then in effect and only if the purchase
of such common stock is qualified for sale or exempt from qualification
under the applicable securities laws of the state in which such purchaser
resides. Although we have agreed to take all necessary steps to maintain
the effectiveness of a current registration statement covering the purchase
of the common stock, Series A Warrants and the qualification of the
purchase of our common stock under applicable state securities laws, there
can be no assurance that we will be able to obtain or, if obtained, to
maintain the effectiveness of such registration statement or such state
qualification. The value of the Series A Warrants may be greatly reduced

<PAGE>
if a current registration statement covering the common stock issuable upon
the exercise of the Series A Warrants is not kept effective or if such
common stock is not qualified or exempt from qualification in the states in
which the holders of the Series A Warrants reside. A current registration
statement also must be kept effective for the resale of common stock and
Series A Warrants.

POTENTIAL ADVERSE EFFECT OF REDEMPTION OF SERIES A WARRANTS. The
Series A Warrants are subject to redemption by Energy Search at a price of
$.05 per warrant under certain conditions at least 30 days prior written
notice. If the Series A Warrants are redeemed, warrant holders will lose
their right to exercise the Series A Warrants except during such 30-day
redemption period. Upon receipt of a notice of redemption, Series A
Warrant holders would be required to:

(1) Exercise the Series A Warrants and pay the exercise price at
a time when it may be disadvantageous for them to do so;

(2) Sell the Series A Warrants at the then market price, if any,
when they might otherwise wish to hold the Series A
Warrants; or

(3) Accept the redemption price, which is likely to be
substantially less than the market value of the Series A
Warrants at the time of the redemption.

See "Description of Securities -- Series A Warrants."

WARRANTS TO REPRESENTATIVES. At completion of the IPO, we sold to the
managing underwriters (the "Representatives"), for nominal consideration,
Representatives' Warrants to purchase 100,000 Units. To the extent that
the Representatives' Warrants are exercised, they would have a dilutive
effect on the percentage of outstanding shares held by common stockholders.
The exercise of the Representatives' Warrants may occur at a time when we
might be able to obtain additional equity capital on terms more favorable
than those provided by the Representatives' Warrants.

USE OF PROCEEDS

We intend to use the proceeds of any Series A Warrants that may be
exercised for general operating purposes. These purposes include the
development and drilling up of oil and gas properties as well as the
selective acquisitions of oil and natural gas properties, acquisitions of
other companies engaged in the same business as Energy Search, or
acquisitions of assets or businesses which Energy Search considers to be
complimentary to our core businesses. As of the date of this Prospectus,
no specific assets or businesses have been identified for acquisition.
There can be no assurance that all or any portion of the Series A Warrants
will be exercised.
29

<PAGE>
DIVIDEND POLICY

Energy Search has never paid, cash dividends on our common stock. We
have no current plans to change this policy. We intend to retain all
earnings to support our operations and future growth. The payment of any
future dividends will be determined by Energy Search board of directors
based upon our earnings, financial condition and cash requirements,
possible restrictions in future financing agreements, business conditions
and other relevant factors. See "Risk Factors -- Risks Associated with
Investment in Securities -- Dividend Policy." Any dividends declared with
respect to our common stock will be subordinate to any preferential right
to dividends associated with Energy Search preferred stock.

<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of Energy Search as
of December 31, 1997 as reflected in our audited Consolidated Financial
Statements, and the capitalization of Energy Search as of September 30,
1998 as reflected in our unaudited Financial Statements.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
ACTUAL ACTUAL
------ ------
(UNAUDITED)
<S> <C> <C>
Short-term debt:

Current portion of notes payable . . . . . . $ 31,245 $ 29,184
----------- -----------
Total short-term debt. . . . . . . . . . . . $ 31,245 $ 29,184
=========== ===========
Long-term debt:

Notes payable. . . . . . . . . . . . . . . . $ 6,856,674 $ 788,279
=========== ===========
Shareholders' equity:

Common Stock, no par value, 25,000,000
shares authorized, 4,005,308 and 3,768,241
shares issued and outstanding as of
September 30, 1998 and December 31,
1997, respectively . . . . . . . . . . . . . $17,231,343 $15,448,073

Preferred stock (no par value, 5,000,000
shares authorized; 36,000 shares of 9%
redeemable convertible issued and
outstanding at $7.50 per share initial
issue price. . . . . . . . . . . . . . . . . $ 201,255 --

Retained earnings (deficit). . . . . . . . . $(1,524,354) $(1,501,584)
----------- -----------
Total shareholders' equity . . . . . $15,908,244 $13,946,489
=========== ===========
Total capitalization . . . . . . . . . . . . . $22,796,163 $14,763,952
=========== ===========
</TABLE>

31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

This discussion and analysis of financial condition and results of
operations, and other sections of this Prospectus, contain forward-looking
statements that are based on management's beliefs, assumptions, current
expectations, estimates and projections about the oil and gas industry, the
economy and about Energy Search. Words such as "anticipates," "believes,"
"estimates," "expects," "forecasts," "intends," "is likely," "plans,"
"predicts," "projects," variations of such words and similar expressions
are intended to identify such forward-looking statements. These statements
are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict with regard to
timing, extent, likelihood and degree of occurrence. Therefore, actual
results and outcomes may materially differ from what may be expressed or
forecasted in such forward-looking statements. Furthermore, we undertake
no obligation to update, amend or clarify forward-looking statements,
whether as a result of new information, future events or otherwise.

Important factors that could cause actual results to differ materially
from the forward-looking statements include, but are not limited to,
changes in price and production volumes of natural gas and oil produced by
Energy Search, the timing and extent of our success in discovering,
acquiring, developing and producing natural gas and oil reserves; risks
incident to the drilling and operation of natural gas and oil wells; future
production and development costs; the effect of existing and future laws,
governmental regulations and the political and economic climate of the
United States; the effect of hedging activities; conditions in the capital
markets; and worldwide demand and commodity prices for petroleum natural
resources.

OVERVIEW

Energy Search is an independent oil and gas company engaged in the
exploration, development, production, and acquisition of primarily natural
gas and to a limited extent oil properties in the Appalachian Basin area of
the eastern United States, including southeastern Ohio and southern West
Virginia. Our revenue is derived primarily from:

- sale of natural gas and crude oil from wells in which we have a
working interest
- transmission of natural gas through a pipeline and gathering system
owned by an affiliated partnership in which we have an ownership
interest
- management and operation of oil and gas wells, and

<PAGE>
- formation, management of land, drilling of oil and gas wells on a
contract basis for oil and gas Affiliated Drilling Partnerships.

In 1997, we shifted our focus from drilling primarily for Affiliated
Drilling Partnerships to developing natural gas and oil reserves for our
own account. The shift in our operational focus was accomplished with
funds raised through our IPO in January 1997, certain equity private
placements and an expansion of our credit facility with Bank One.

Energy Search's wholly owned subsidiary, Equity Financial Corporation
("EFC"), an NASD member firm, provides investment advice and is a
broker/dealer in stocks, bonds and other securities in the East Tennessee
Region. From time to time, EFC serves as placement agent or participating
selling agent with respect to the private placement of Energy Search
securities.

EVENTS SUBSEQUENT TO SEPTEMBER 30, 1998

In August 1998, we initiated the private placement of up to 700,000
shares of Energy Search 9% redeemable convertible preferred stock at an
issue price of $7.50 per share. In November 1998, the private placement
was amended to offer up to 800,000 shares of the preferred stock at an
issue price of $6.50 per share, subject to an adjustment of the issue price
as of termination of the offering, which is to occur no later than December
31, 1998. On December 18, 1998, we closed the private placement having
raised approximately $888,250, net of commission expense, from the sale
of preferred stock.

In November 1998, we increased our loan facility availability from
SunTrust Bank, East Tennessee to $500,000. As of November 30, 1998 the
outstanding balance was approximately $500,000.

NINE MONTHS ENDED SEPTEMBER 30, 1998

FINANCIAL CONDITION

Total assets increased $7,798,087 or 48.4% from December 31, 1997 to
September 30, 1998 primarily due to a $10,134,020 net increase in oil and
gas properties and after an offsetting decrease of $2,162,416 in current
assets.

Current assets for the nine month period ended September 30, 1998
decreased $2,162,416 to $1,157,635, or a 65.1% decrease, compared to
current assets for the year ended December 31, 1997. The decrease in
current assets is due primarily to a decrease in cash of $2,080,549 to
$171,767, or 92.4%, for the nine months ended September 30, 1998. This is
due to our continued expenditures of cash for drilling and development of
wells in our Beaver Lease and Churchtown Lease areas as well as enhancement
efforts and development of wells in our Simmons Field and Viking Field.
33

<PAGE>
See "CASH FLOW FROM OPERATIONS, INVESTING AND FINANCING ACTIVITIES" for
further discussion.

Oil and gas properties for the nine months ended September 30, 1998
increased $10,134,020 to $19,834,904 or 104.5% from the amount reported at
December 31, 1997. The increase is primarily a result of continued
successful drilling activity, and our of oil and gas lease interests in
proven properties.

Energy Search increased capital expenditures for drilling and well
related equipment by $2,721,018 from December 31, 1997 to September 30,
1998. The increase is primarily a result of increased drilling activity
and our acquisition of oil and gas equipment of approximately $980,000 from
Viking Resources Corporation in June of 1998.

Proven properties increased $8,002,669 to $12,549,502 or 176.0% from
the amount reported at December 31, 1997. The increase is primarily due to
our acquisition of oil and gas leases interests in proven properties and
the capitalization of intangible drilling costs (approximately $4,414,755)
associated with our drilled wells. In May 1998, we acquired from certain
individuals the working interest and overriding royalty interest in certain
natural gas wells operated by Energy Search in southeastern Ohio. The
total purchase consideration for the well interests was $227,740 comprised
of $106,197 (10,114 shares) in Energy Search common stock and $121,543 in
cash. In June 1998, we purchased approximately $773,000 in proven
producing properties from Viking Resources Corporation. In the third
quarter of 1998, we purchased all of the working interests in a total of
145 gross natural gas or oil wells operated by Energy Search located in
southeastern Ohio in consideration for cash and Energy Search common stock.
The aggregate purchase price was $2,223,941 comprised of $1,716,748 in
Energy Search common stock (221,453 shares) and $507,193 in cash.

Total liabilities increased $5,836,332 or 268.4% from December 31,
1997 to September 30, 1998, due primarily to an increase in long-term debt
of $6,068,395. See "LIQUIDITY AND CAPITAL RESOURCES" for further
discussion. This increase in long-term debt was used primarily to fund the
drilling, development, and enhancement efforts on our oil and gas
properties. Current liabilities decreased $232,063 to $1,153,869 or 16.7%
from December 31, 1997 to September 30, 1998 primarily due to a decrease in
accounts payable and accrued expenses of $234,124 to $1,122,624 at
September 30, 1998, a decrease of 17.3%.

RESULTS OF OPERATIONS

For the nine months ended September 30, 1998, we had a net loss after
tax of $22,770, compared to net loss after tax of $283,638 for the nine
months ended September 30, 1997. This reduction of loss was as a result of
our transition from turnkey driller operator for Affiliated Drilling
Partnerships to drilling for our own account.
34

<PAGE>
For the three months ended September 30, 1998, we had net income after
tax of $47,980, compared to net loss after tax of $115,667 for the same
period in 1997. This reduction of loss was again due primarily to our
change in direction highlighted above.

For the nine months ended September 30, 1998, total net revenues
increased $1,213,011 or 81.9% from $1,481,164 to $2,694,175 for the same
period in 1997 due primarily to an increase in oil and gas revenue and
other revenue, and after an offsetting decrease in turnkey revenue and
management fees.

For the nine months ended September 30, 1998, net turnkey revenue
decreased $593,651 or 88.5% as compared to the amounts reported for the
nine months ended September 30, 1997. Net turnkey revenue is drilling
profit recognized upon the drilling to total depth of wells for Affiliated
Drilling Partnerships. Energy Search drilled to total depth ten gross
wells attributable to Affiliated Drilling Partnerships for which turnkey
revenues were recognized in the first three quarters of 1997 (seven wells
in the first quarter, two wells in the second quarter, and one well in the
third quarter). Thus far in 1998, we drilled to total depth and recognized
revenue for only one well (in the second quarter) for the 1998 Affiliated
Drilling Partnership. This is a decrease of nine gross wells for the nine
months ending September 30, 1998.

Turnkey drilling revenue increased in the third quarter of 1998 by
$50,148 from that reported for the three months ended September 30, 1997.
This increase in turnkey revenue is primarily a result of adjustments made
in the third quarters of 1998 and 1997 to adjust the turnkey revenue and
expense accruals made at the end of the second quarters to reflect the
actual revenues and expenses.

Oil and gas revenue increased $1,634,196 to $1,969,650 for the nine
months ended September 30, 1998, an increase of 487.2% over that reported
as of September 30, 1997. This increase is consistent with Energy Search's
changing focus to drilling wells for its own account. The increase in oil
and gas revenue is a result of the higher number of wells drilled for our
own account, the purchase of proven producing properties from Viking
Resources Corporation in May 1998, and the purchase from certain
individuals and five Affiliated Drilling Partnerships of working interests
and overriding royalty interests in proven producing properties operated by
Energy Search in the third quarter of 1998, all resulting in increased
production and revenues.

Oil and gas revenue increased $553,139 for the three months ended
September 30, 1998, an increase of 282.4% over that reported for the same
period in 1997. This increase is consistent with the increased production
from our wells and acquisitions as discussed above.

<PAGE>
We anticipate continued growth in oil and gas revenues but do not
expect the growth to continue at the same high levels reflected in the
first nine months of 1998. The continued growth of our oil and gas revenues
and reserves will be dependent on future drilling success, capital raising
efforts, the ability to find other advantageous acquisitions, and the
market pricing of Energy Search's primary commodity product, natural gas.

Other revenue increased $264,808 for the nine months ended September
30, 1998, an increase of 100.3% over that reported for the same period in
1997. This increase is due primarily to the gross operating commission
revenue of approximately $382,000 earned by EFC, an increase in revenue of
$247,124 over that reported for the same period in 1997. Energy Search
acquired EFC, previously an affiliate of Energy Search, in May of 1997 and
thus reported only four months of income for the nine months ended
September 30, 1997. We expect EFC to continue to be a profitable segment of
our operation. Interest income decreased approximately $92,000 due to the
decrease in our cash balances, and transportation revenue increased
approximately $100,000 due to increased production and transportation rates
for natural gas.

Other revenue increased $30,537 for the three months ended September
30, 1998, an increase of 24.6% over that reported for the same period in
1997 due to a decrease in interest income and an increase in transportation
revenue as discussed above.

Management fees for the nine months ended September 30, 1998,
decreased $92,342 to $118,366, a decrease of 43.8% over that reported as of
September 30, 1997. This decrease is primarily a result of our purchase
of the working interests owned by the 1989, 1990, 1991, 1992, and 1992-A
Affiliated Drilling Partnerships discussed earlier and the reduction in the
management fee charged to the Pipeline Operating L.P. from $5,000 per month
in 1997 to $2,500 per month in 1998. The trend of decreased management
fees is expected to continue.

Total operating expenses increased $718,297 or 36.9% for the nine-
month period ending September 30, 1998 over the nine-month period ending
September 30, 1997. This increase is due primarily to an increase in
production expenses associated with the larger number of wells now operated
by Energy Search of $339,692 or 194.0%, an increase in exploration costs
associated with increased drilling of $72,572 or 97.4%, and an increase in
depreciation, depletion, and amortization expense associated with the
larger number of net wells now owned by Energy Search of $368,890 or 92.2%.
These increases are due to the increase in Energy Search owned and operated
wells as discussed above.

General and administrative (G&A) expenses decreased $220,987 to
$1,013,610 or 17.9% for the nine months ended September 30, 1998. This
net decrease is primarily a result of the change in our business plan to

<PAGE>
drill primarily for our own account as opposed to jointly with Affiliated
Drilling Partnerships. Certain costs directly related to drilling Energy
Search-owned wells have been included in the cost of oil and gas
properties. An offsetting increase in G&A expenses is due primarily to the
inclusion of EFC's G&A of approximately $364,470 into the G&A costs of
Energy Search, an increase in expense of $263,431 over that reported for
the same period in 1997. Since EFC was acquired in May 1997, only four
months of EFC's G&A costs were included in the reported nine month period
ending September 30, 1997. G&A expenses for the three months ended
September 30, 1998 decreased as noted above from G&A expenses for the same
period in 1997.

Other income and expense changed from a net income of $61,626 for the
nine-month period ending September 30, 1997 to a net expense of $60,920 for
the nine-month period ending September 30, 1998. The change is primarily a
result of an increase in program reimbursements of $110,639. Other income
and expense changed from a net income of $20,440 for the three months ended
September 30, 1997 to a net expense of $13,384 for the three months ended
September 30, 1998. The change is primarily a result of an increase in
program reimbursements of $39,786. This cost fluctuates based on
production revenues from Affiliated Drilling Partnerships wells for which
Energy Search is the managing general partner and will continue to some
degree during 1998.

CASH FLOW FROM OPERATIONS, INVESTING, AND FINANCING ACTIVITIES

Energy Search provided $603,460 of net cash flow from operating
activities for the nine months ended September 30, 1998 and used $1,145,309
of net cash flow from operating activities for the same period in 1997.
Cash was absorbed by a loss of $22,770 and a loss of $283,638 for the nine-
month period ending September 30, 1998 and 1997, respectively. Cash was
absorbed by a decrease in drilling advances of $1,335,124 for the nine-
month period ending September 30, 1997. Cash was used by a decrease in
accounts payable and accrued expenses of $234,124 and $264,923 for the
nine-month period ending September 30, 1998 and 1997, respectively. Cash
was provided for the nine months ending September 30, 1998 and 1997 by a
decrease in accounts receivable of $212,963 and $319,794, respectively. The
decrease in accounts receivable is a result of the collection of the year-
end Affiliated Drilling Partnership receivable. Cash was provided by
depreciation, depletion, and amortization (DDA) of $769,077 and $400,187
for the nine-months ending September 30, 1998 and 1997, respectively. The
increase in DDA is a direct result of increased drilling and gas
operations.

For the nine month period ending September 30, 1998, cash flows used
for investing activities increased from $3,814,686 to $8,916,045 over the
nine month period ending September 30, 1997. The primary investment
activities for the nine-month period ending September 30, 1998 were

<PAGE>
purchases of proven properties of $6,189,460, purchases of wells and
related equipment of $2,721,018, purchases of other property and equipment
of $30,951, and contributions to Affiliated Drilling Partnerships of
$33,510. The only cash flow from investing activities for the nine month
period ending September 30, 1998 were distributions from Affiliated
Drilling Partnerships of $58,894. The more significant uses of cash flows
for investing activities for the nine month period ending September 30,
1997 were purchases of proven properties of $2,392,152, purchases of wells
and related equipment of $1,153,815, purchases of other property and
equipment of $114,073, and contributions to Affiliated Drilling
Partnerships of $237,215. The only significant cash flow from investing
activities for the nine month period ending September 30, 1997 were
distributions from Affiliated Drilling Partnerships of $72,521.

Cash flows from financing activities increased $41,015 or 0.7% to a
level of $6,232,036. The primary source of financing activities in 1998
was from the expansion of long-term debt in the amount of $6,092,093, and
the net proceeds from the sale of preferred stock in the amount of
$201,255. The majority of these funds have been used for our continued
development of our Beaver Lease and Churchtown Lease areas, enhancement
efforts and development of the Simmons Field, the purchase of oil and gas
wells and associated leases and equipment from Viking Resources
Corporation, and our acquisition of working interests and overriding
royalty interests from certain individuals and the five Affiliated Drilling
Partnerships discussed earlier. The primary cause of the decrease in cash
flows from financing activities was the decrease in net proceeds from the
issuance of common stock from $6,551,765 in 1997 to a net expense of
$39,675 in 1998, a decrease of $6,591,440. The other significant use of
cash flows from financing activities for the nine-month period ending
September 30, 1997 was the payments on long-term debt of $300,995.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996

FINANCIAL CONDITION

Total assets increased $9,452,328 or 142% from December 31, 1996 to
December 31, 1997, primarily due to the funds received from the IPO and the
October, 1997 private placement of common stock.

Current assets for the year ended December 31, 1997 increased
$2,580,541 to $3,320,051, or a 349% increase compared to current assets for
the year ended December 31, 1996. Energy Search raised approximately
$11,200,000 net of underwriter fees, professional fees and various other
costs associated with its two stock offerings completed in 1997. We
invested the proceeds in short-term, investment grade obligations. At
December 31, 1997, the balance in the investment account was approximately
$1,850,000. Accounts receivable for the year ended December 31, 1997
increased $408,689 to $976,065, or a 72% increase compared to accounts

<PAGE>
receivable for the year ended December 31, 1996. The increase in our oil
and natural gas sales is due to drilling 28 net wells for our own account
in 1997 and the year end acquisition of the Simmons Field from Lomak.

Oil and natural gas properties for the year ended December 31, 1997
increased $6,254,024 to $9,700,884, or 181% from the amount reported at
December 31, 1996. The increase primarily is a result of a significant
increase in drilling activity for its own account in 1997, the acquisition
of the Simmons Field and our acquisition of oil and natural gas lease
interests in proved properties. Due to the increased drilling activity, we
increased capital expenditures for well-related equipment and drilling
equipment from December 31, 1996 to December 31, 1997 in the amount of
$5,833,488. Included in this amount were intangible drilling costs of
$3,324,484 associated with Energy Search drilled wells.

Other assets for the year ended December 31, 1997 increased $617,763
to $3,099,765, or 24.9%. The increase primarily was due to an increase in
property and equipment of $168,512 (86.6%) due to the purchase of
vehicles, an increase in investments in affiliated partnerships of $286,426
(21%) due to contributions made to Affiliated Drilling Partnerships, the
net income recognized during the period and an increase in the deferred tax
asset of $237,400. An offsetting decrease in other assets was due to the
prepaid stock offering costs of $265,948 being charged against the common
stock account when the IPO closed.

Total liabilities decreased $1,321,355 or 37.8% from December 31,
1996, to December 31, 1997, due to a decrease in current liabilities of
$1,304,156 or 39.0% and a decrease in long-term debt of $17,199 or 11.1%.

Current liabilities decreased primarily due to a decrease in drilling
advances of $1,335,124. Drilling advances decrease (and revenues are
recognized) with Energy Search drilling Affiliated Drilling Partnership
wells. The drilling advance decrease represents Energy Search drilling all
wells required to be drilled for Affiliated Drilling Partnerships through
the second quarter of 1997. We raised an additional $765,000 and $440,000
on our two 1997 Affiliated Drilling Partnerships. We completed the
required drilling for the 1997 and the 1997-A Affiliated Drilling
Partnerships by December 31, 1997. Accounts payable and accrued expenses
increased $323,285 to $1,356,748 at December 31, 1997, an increase of
31.3%. Notes payable decreased $251,772 to $650,684 at December 31, 1997,
a decrease of 27.9%. This decrease was due to our payment of notes payable
due to officers of Energy Search.

RESULTS OF OPERATIONS

For the year ended December 31, 1997, Energy Search had a net loss
after tax of $367,281 compared to a net loss after tax of $684,391 for the
year ended December 31, 1996.

<PAGE>
Total net revenues increased $790,842 or 54.8% from December 1, 1996
to December 31, 1997 primarily due to an increase in oil and natural gas
revenue, an increase in other income and an offsetting decrease in turnkey
revenue as explained in the following paragraphs.

In 1997, net turnkey revenue decreased $406,301 or 46.1% as compared
to the amounts reported at December 31, 1996. Net turnkey revenue is
drilling revenue received from the offering proceeds of Affiliated Drilling
Partnerships.

Oil and natural gas revenue increased $509,768 to $798,956 for the
year ended December 31, 1997, an increase of 176% over that reported as of
December 31, 1996. The increase primarily is due to the 28 wells drilled
(net to Energy Search) and the related revenue recognized. This increase
was consistent with our changing focus to drilling wells for its own
account.

The increase in other revenue primarily is due to the interest earned
on the IPO investment account of approximately $154,000, and approximately
$496,131 of gross operating commission revenue earned by EFC. The increase
in earnings also was due to an increase in management fees for the year
ended December 31, 1997, of $50,924 to $264,590, or 23.8% for the year.

Total operating expenses increased $555,492 or 24.4% for the year
ended December 31, 1997, over the same period ending December 31, 1996.
This increase primarily was due to an increase in general and
administrative expenses of $536,424, or 41.9% for the year. The increase
in general and administrative expenses primarily was due to an increase in
salaries of our officers and employees, as well as the addition of two new
officers. Messrs. Torrey and Remine were, prior to the IPO, on the payroll
of EFC. As a direct result of our public status, general and
administrative costs have increased in marketing, printing and production,
and professional fees. The balance of the increase in operating expenses
is a net result of an increase in production expenses of $103,235 or 60.2%
for the year due to the 28 wells (net to Energy Search) drilled and
operated in 1997; a decrease in exploration costs of $165,320 or 68.3% for
the year due to the capitalization of landman expenses related to Energy
Search wells; an increase in depreciation, depletion and amortization
expense of $182,456 or 48.7% for the year due to an increase in depletion
expense related to our Affiliated Drilling Partnership Wells; and the write
down of the investments in related partnerships; and interest expense
decreased $101,303 or 48.9% for the year due to our decrease in long-term
debt as discussed above.

The other income and expense category includes the profit (loss) from
partnership investments, costs of subsidizing various drilling programs and
other non-operating income and expense. For the year ended December 31,
1997, other income and expense changed from a net expense of $189,345 for

<PAGE>
the year ended December 31, 1996 to net income of $48,195. The change was
a result of a decrease in program subsidies of $117,508 or 59.4%, an
increase in partnership income of $86,263 or 230% and no write-off of stock
issuance costs ($83,080 in 1996). The improvement in partnership income
and reduction of program subsidies resulted from higher natural gas prices
and improved production.

CASH FLOW FROM OPERATIONS, INVESTING AND FINANCING ACTIVITIES

Energy Search used $1,703,426 and $896,745 of cash flows for
operations in the years ended December 31, 1997 and 1996, respectively.
Cash was absorbed by losses of $367,281 and $684,391 and decreases in
drilling advances of $1,335,124 and $1,079,996 in 1997 and 1996,
respectively. Cash was also used in 1997 by an increase in accounts
receivable. The increase in accounts receivable is a result of increased
gas production in the fourth quarter. Cash was provided by depreciation,
depletion and amortization (DDA) of $557,167 and $374,711 and an increase
in accounts payable and accrued expenses of $323,286 and $340,660 in 1997
and 1996, respectively. The increases in DDA and payables were a direct
result of increased drilling and gas operations. In 1996, operating cash
was provided by an increase in accounts payable.

In 1997, cash flows used for investing activities increased from
$1,172,375 in 1996 to $7,117,384. The larger investing activities in 1997
were purchases of proven properties of $4,129,663, purchase of wells and
related equipment of $2,513,051, purchase of other property and equipment
of $251,244 and contributions to Affiliated Drilling Partnerships of
$318,100. The only significant cash flow from investing activities in 1997
were distributions from Affiliated Drilling Partnerships of $92,426. The
more significant uses of cash flows for investing activities in 1996 were
the purchase of other property and equipment for $892,165, purchase of
proven properties for $170,000 and contributions to Affiliated Drilling
Partnerships of $125,898.

Cash flows from financing activities increased $9,007,850 or 447% from
$2,014,209 to $11,022,059 in 1997 from 1996. The primary cause of the
increase in 1997 was the net proceeds from the sale of common stock sales
in the amount of $11,466,661. The primary use of cash for financing
activities was an increase in payments on long-term debt of $168,696 from
$270,695 to $439,391.

LIQUIDITY AND CAPITAL RESOURCES

The primary source of funds available to Energy Search has been net
proceeds from the issuance of Energy Search common stock in two offerings
in 1997 raising approximately $11,200,000, net of costs, borrowing against
our Bank One credit facility in the amount of approximately $6,092,093,
and the net proceeds from the issuance of preferred stock raising

<PAGE>
approximately $888,250, net of costs. The proceeds from these sources have
been spent on our operations, including developing the Beaver Lease and the
Simmons Field, our acquisition of proven producing properties from Viking
Resources Corporation, our purchase of working interests from and
overriding royalty interest from certain individuals and Affiliated
Drilling Partnerships, and other developmental drilling activities located
generally in the southeastern Ohio and Southern West Virginia areas.

Energy Search also had funds available from oil and gas revenues, the
collection of the 1997-A Affiliated Drilling Partnership receivable, and
the turnkey revenues from the 1998 Affiliated Drilling Partnership. We
expect oil and gas revenues to continue to increase and additional funds to
be available from turnkey revenues associated with the 1998 Affiliated
Drilling Partnership. There can be no assurance, however, that we will
realize any additional funds by the sponsoring of the 1998 Affiliated
Drilling Partnership. Capital raised has totaled $120,000 in the 1998
Affiliated Drilling Partnership as of November 30, 1998.

Energy Search intends to fund its budgeted capital expenditures
through the end of 1998 primarily from cash flow from operations,
borrowings under our Bank One credit facility, the credit limit of which is
currently $7.1 million, borrowings from the SunTrust loan facility, the
credit limit of which is currently $500,000, and the offer and sale of
additional preferred stock.

We have experienced and expect to continue to experience substantial
working capital requirements due primarily to our active exploration and
development programs. The Company also plans to begin development of its
coal bed methane lease in the fourth quarter of 1998. While the Company
believes that cash flow from operations and borrowings under the Bank One
credit facility and issuance of Preferred Stock should allow the Company to
implement its present business strategy through 1998, in the event
sufficient capital resources are not available to the Company, its drilling
of new wells and oil and gas property development activities may be
curtailed.

EFFECTS OF COMMODITY PRICING, INFLATION AND ENVIRONMENTAL MATTERS

Energy Search's revenues, profitability, future growth, and ability to
borrow funds or obtain additional capital, and the carrying value of its
properties, substantially are dependent on prevailing prices of natural gas
and oil. We cannot predict future natural gas and oil price movements with
certainty. Declines in prices received for natural gas and oil may have an
adverse effect on our financial condition, liquidity, ability to finance
capital expenditures, and results of operations. Lower prices also may
impact the amount of reserves that can be produced economically by the
Company. Inflation may adversely impact us also. However, recent rates of
inflation have had a minimal effect on us. Energy Search's business is

<PAGE>
also subject to certain federal, state, and local laws and regulations
relating to the exploration for, and the development, production, and
transportation of, natural gas and oil, as well as environmental and safety
matters. Many of these laws and regulations have become more stringent in
recent years. Although we believe we are in substantial compliance with all
applicable laws and regulations, the requirements imposed by laws and
regulations may change. We are unable to predict the ultimate cost of
compliance with these requirements. Inability to meet environmental
requirements could materially adversely affect our business, financial
condition and results of operations. Compliance has not had a material
adverse effect on our earnings or competitive position to date. Future
regulations may add to the cost of, or limit, drilling activity.

YEAR 2000 READINESS DISCLOSURE

This Year 2000 Readiness Disclosure is based upon and partially
repeats information provided by Energy Search's outside consultants and
others regarding the Year 2000 readiness of Energy Search and its
customers, suppliers, financial institutions and other parties. Although
we believe this information to be accurate, we have not independently
verified such information.

STATE OF READINESS

We are acutely aware of and have assessed and will continue to assess
the impact of the Year 2000 issue on our reporting systems and operations.
The Year 2000 issue exists because many computer systems and applications
abbreviate dates by eliminating the first two digits of the year, assuming
that these two digits would always be "19." Unless corrected, this
shortcut may cause problems with some computers systems and equipment with
embedded computer chips.

Energy Search has developed a plan to identify those systems that
could be effected by the Year 2000 problem. Management has identified and
assessed the Year 2000 problem with respect to both information technology
(I.T.) and non-information technology (Non-I.T.) systems. Management has
concluded that it has minimal Non-I.T. systems issues which affect day to
day operations. The primary I.T. systems for Energy Search are its
accounting software system and its geological/engineering software
products.

Our current accounting system is not presently Year 2000 ready. We
have been advised via correspondence from the software manufacturer that
the system will be fully Year 2000 compliant by February 1999. If we do
not change our accounting software (see below), we will use the remainder
of 1999 for validation and testing of the system. We are evaluating our
current system in comparison with four alternative systems.

<PAGE>
We have engaged outside consultants as well as our auditors to assist
in the decision of whether to change I.T. accounting software systems. If
we determine to change our I.T. accounting software systems, we have been
advised that those systems will be Year 2000 compliant and we will not be
required to remediate and/or test those systems.

Energy Search uses two primary non-accounting software products, a
specialized engineering software for the evaluation of reserves and
geologic software for reservoir evaluation and modeling. Both of these
systems are already Year 2000 compliant.

Lastly, we have evaluated Year 2000 issues relating to third parties
with whom we do business. These relate primarily to financial
institutions, vendors of products and vendors to whom we sell goods in its
normal business operations.

Vendors generally include suppliers of well equipment and services.
We do not expect the ability of these vendors to supply goods and services
to be adversely affected by the Year 2000 event. The vendor's billing and
invoice systems may experience change and/or delays during the transition,
however. Gas marketers to whom we sell our end product likewise have
advised us that they are aware of the Year 2000 issue and are or will
timely be Year 2000 compliant. We do not expect an adverse impact on our
day to day operations as a result of third parties' unreadiness. There is
no assurance that the systems of other companies on which our systems rely
will be converted in a timely manner. Unreadiness by these third parties
could expose Energy Search to the potential for loss and impairment of
business processes and activities. We are assessing these risks and is
creating contingency plans intended to address perceived risks. If such
modifications and conversions are not made, or are not completed in a
timely manner, the Year 2000 issue could have an adverse impact on our
operations.

COST TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES

As of September 30, 1998, Energy Search has spent approximately $3,500
on identifying and assessing the Year 2000 issue in connection with our
computer programs and applications. Financial expenditure on outside
consultants to date has been minimal. If the decision is made to change
our I.T. accounting software systems, the estimated cost is expected to be
between $25,000 and $50,000. These costs would be primarily for the cost
and implementation of the new system. This amount would be paid from the
operating capital budget and would represent less than one percent of
Energy Search expected general and administrative (G & A) expenses for
1998. If no change of accounting software is deemed prudent, the total
cost to us to become Year 2000 compliant is expected to be under $15,000.

<PAGE>
Based on currently available information, management does not
anticipate that the costs to address the Year 2000 issues will have a
material adverse impact on our financial condition, results of operations
or liquidity. However, the extent to which the computer operations and
other systems of our important third parties are adversely affected could,
in turn, affect our ability to communicate with third parties and could
have a material adverse effect on the operations of Energy Search.

RISKS OF ENERGY SEARCH'S YEAR 2000 ISSUES

Energy Search does not reasonably expect any material lost revenue as
a result of the Year 2000 issue. The most likely worst case scenario would
be a delay in financial analytical abilities of Energy Search in the event
of a delay in implementing a new I.T. financial software system. Similar
delays in third party vendor invoicing and/or gas marketing reporting
and/or payment could be temporarily experienced. We do not expect the Year
2000 to have a materially adverse effect on Energy Search's results of
operation, liquidity or financial condition.

ENERGY SEARCH'S CONTINGENCY PLAN

We are implementing steps to have our internal operating systems fully
Year 2000 compliant and tested by February 1999. At that time, we will
evaluate further the need and extent to which a "contingency plan" should
be developed with respect to Year 2000 readiness.

If our plans as outlined above are not successful, there could be a
disruption of our ability to render distributions and complete monthly
accounting functions as well as a possible slowdown of certain computer-
dependent processes.

The costs of becoming Year 2000 compliant and the date that we expect
to complete the Year 2000 modifications as outlined above are based on
management's best estimates. There can be no guarantee that these
estimates will be achieved and actual results could differ from those
anticipated. Specific factors that might cause differences include, but
are not limited to, the ability of other companies on which our systems
rely to modify or convert their systems to be Year 2000 compliant, the
ability to locate and correct all relevant computer codes and the ability
of vendors with whom we deal to timely become Year 2000 compliant.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," each of which
will require expanded disclosures effective for 1998. We do not expect the
application of these statements to have a material effect on our financial
position, liquidity or results of operations.
45

<PAGE>
BUSINESS AND PROPERTIES

GENERAL

Energy Search is an independent oil and natural gas company engaged in
the exploration, development, production and acquisition of primarily
natural gas and to a lesser extent oil properties in the Appalachian Basin.
The Company's emphasis is on natural gas production with approximately 90%
of its production being from natural gas. Commencing in January 1997, we
shifted our focus from drilling primarily for limited partnerships which we
sponsored ("Affiliated Drilling Partnerships") to developing reserves for
its own account. Our future growth is anticipated to be driven by
development, exploitation and controlled exploration drilling on its
existing properties and the continuation of an opportunistic acquisition
strategy in the Appalachian Basin region of the eastern United States. We
drill primarily development wells and, on occasion, exploratory well, and
focuses its operations entirely in the Appalachian Basin. The Appalachian
Basin is characterized by shallow natural gas formations, which
historically have provided for highly predictable drilling success rates.
In addition, because wells drilled in the Appalachian Basin are closer to
the large demand centers in the northeastern United States, natural gas
from this area typically has commanded a premium price relative to natural
gas produced in areas such as the Gulf Coast and Mid-Continent regions of
the United States. At present, our activities are primarily in
southeastern Ohio and central and western West Virginia.

Energy Search was organized as a Tennessee corporation in 1990.
Prior to 1997, substantially all of our wells were drilled in joint
ventures with Affiliated Drilling Partnerships managed by the Company which
were syndicated, and over $40,000,000 in investor capital raised, primarily
by our affiliate, EFC. The Affiliated Drilling Partnerships participated
primarily in development drilling in Washington, Athens and Meigs Counties,
Ohio. We have drilled over 230 wells with Affiliated Drilling
Partnerships, 191 of which we continued to operate as of December 31, 1997.
In 1998, we have sponsored one Affiliated Drilling Partnership which, as of
November 30, 1998, has been capitalized with approximately $120,000 in
investor capital.

Energy Search operates approximately 100-miles of gas gathering
systems servicing our primary areas of operation. A portion of the gas
gathering system (approximately 60 miles of pipeline) is owned by a
Tennessee limited partnership (the "Pipeline Operating Partnership") which
is comprised of Energy Search, as managing general partner owning a 28.74%
general partner interest, and a single limited partner which is another
Tennessee limited partnership (the "Pipeline Income Partnership") for which
Energy Search also serves as managing general partner. The Pipeline Income
Partnership was syndicated by EFC and capitalized with investor funds
raised in a private offering conducted in 1992 and 1993.

<PAGE>
BUSINESS STRATEGY

Our objective is to maximize shareholder value by growing reserves,
production, cash flow and earnings through active development of our
existing properties and through the opportunistic acquisition of
Appalachian Basin properties with under-exploited value. Fundamental to
the execution of our strategy is our focus on the Appalachian Basin region
and foundation of experienced technical personnel strengthened by a high
level of financial and transactional experience.

GEOGRAPHIC AND NATURAL GAS FOCUS. We focus on natural gas in the
Appalachian Basin. Unlike many exploration and production companies, we
have concentrated on one region and we are one of only a few publicly
traded pure Appalachian Basin natural gas producers. We believe this
region remains attractive for future development, exploration and
acquisition activities due to significant reserve potential, our well
developed infrastructure of gathering systems and pipelines and premium
pricing and economics. This geographic focus has enabled us to build and
utilize a base of region-specific geological, geophysical, engineering and
production expertise.

We believe that natural gas in the Appalachian Basin enjoys favorable
economics. The Appalachian Basin has a price advantage over the Gulf Coast
and other natural gas producing regions given its proximity to the primary
markets on the East Coast.

ACQUISITION OF PROPERTIES WITH UNDER-EXPLOITED VALUE. Energy search
employs an acquisition strategy of purchasing Appalachian Basin natural gas
properties from large independents and major oil companies. These
properties provide opportunities to increase reserves, production and cash
flow through development and exploitation drilling and lease operating
expense reduction. We use our in-house landmen and network of relationships
in the region to discover acquisitions that are not widely advertised. We
also believe our reputation in the region has caused many property owners
to approach us for potential acquisitions.

FOCUS ON DEVELOPMENT AND EXPLOITATION WITH CONTROLLED EXPLORATION.
Energy Search integrates its reservoir and production engineering expertise
with its geological interpretation abilities to enhance the results of its
exploration and production business. Our ability to integrate geophysics
with detailed geology, reservoir engineering and production engineering
allows us to identify multiple development and exploratory prospects in
mature producing fields that were not identified by previous operators and
to identify multiple horizon wells that have previously been unexploited.
We continue to drill our Beaver Lease in southcentral West Virginia and
have begun drilling our Simmons Field in Washington County, Ohio where we
have identified as many as four potentially productive horizons.

<PAGE>
We have assembled a multi-year inventory of development, exploitation
and exploratory drilling opportunities in the Appalachian Basin and have
identified more than 170 drill sites on our current lease inventory. Most
of the properties comprising this inventory are located in fields that have
established production histories. Based on its experience on these
properties and on independent reports from its petroleum engineers, we
believe these properties may yield significant additional recoverable
reserves.

CONTROL OF OPERATIONS. Energy Search seeks to operate and maintain a
majority working interest position in each of our core properties.
Consequently, we can control directly all aspects of drilling, completion
and production. In addition, we intend to maintain a low cost overhead
structure by controlling the timing of the development of its properties.
By operating our producing wells, we believe we are well positioned to
control the expenses and timing of development and exploitation of such
properties and better manage cost reduction efforts.

EMPLOYMENT OF TECHNOLOGY. Energy Search uses advanced technology in
both its development and exploration activities to reduce drilling risks
and finding costs and to prioritize its drilling prospects based on return
potential. Specifically, we use GeoGraphix for determining well location,
mapping and possible viability of potential leases. GeoGraphix is one of
the top programs used for mapping reserve geology and overall reserve
evaluation. We also have a proprietary database of over 25,000 wells that
has been integrated into GeoGraphix making the program a powerful planning
tool. We have spent years developing this extensive proprietary database
and we have a full time employee dedicated to accumulating and inputting
data from our drilling experiences and from public and other records to
form this database.

INTEGRATION. Energy Search operates gas gathering and pipeline
systems throughout its fields. We believe that through this integration we
have been able to improve overall margins on the sale of natural gas. We
are actively examining additional integration possibilities for
transmission, gathering and marketing of natural gas to continue this
integration of our natural gas business.

MARKET FOR OIL AND NATURAL GAS

GENERAL. The revenues generated from our oil and gas operations are
highly dependent upon the prices of and the demand for our oil and natural
gas production. The prices we receive for our oil and gas production
depend upon numerous factors beyond our control including seasonality, the
condition of the United States economy, foreign imports of oil and natural
gas, political conditions in other oil and natural gas producing countries,

48
<PAGE>
the actions of the Organization of Petroleum Exporting Countries and
domestic government regulation, legislation and regulatory policies.
Decreases in the prices of oil and natural gas could have an adverse effect
on the carrying value of our proved reserves, and our revenues,
profitability and cash flow.

Although we have not entered into any crude oil or natural gas price
swaps or other similar hedging transactions for the purpose of reducing its
exposure to future price fluctuations, we may engage in such transactions
from time to time in the future as management deems it advisable to do so.

Although we currently are not experiencing any involuntary
curtailments of our oil or natural gas production, market, economic and
regulatory factors in the future may materially affect our ability to sell
our oil or natural gas production. Due to the availability of other
markets and pipeline connections, we do not believe that the loss of any
single oil or natural gas customer would have a material adverse effect on
our results of operations.

NATURAL GAS SALES. Natural gas produced from completed wells must be
transported through pipeline systems to get to market. In our primary
fields of operations in southeastern Ohio substantially all our completed
wells are connected to our gas gathering system (the "Ohio Gas Gathering
System") which collects the gas from wells in the field, sends it through
compressor stations to enhance transportability and delivers it to the East
Ohio Company interstate pipeline and to Columbia Gas Company interstate
pipeline. Much of the Ohio Gas Gathering System is owned by ESI Pipeline
Operating L.P., an affiliate of the Company (the "Pipeline Operating
Partnership"). Energy Search, for its own account and on behalf of the
Affiliated Drilling Partnerships we manage, has entered into a gas
servicing agreement (the "Gas Servicing Agreement") with the Pipeline
Operating Partnership pursuant to which all natural gas produced from wells
connected to the Ohio Gas Gathering System is purchased by the Pipeline
Operating Partnership and subsequently resold. The price received by
Energy Search for its natural gas is a function of what the Pipeline
Operating Partnership sells it for on the market (i.e. the "Adjusted Gas
Price Spread"). The Gas Servicing Agreement thus provides for natural gas
purchased from Energy Search and Affiliated Drilling Partnerships on a "net
back" basis. As of December 31, 1997, the Adjusted Gas Price Spread with
respect to the Gas Servicing Agreement ranged from approximately $0.45 per
Mcf to $0.48 per Mcf where no compression is used.

Natural gas produced from our wells is sold by the Pipeline Operating
Partnership pursuant to one or more natural gas sales contracts to gas
marketers, interstate or intrastate pipelines, local utilities or
industrial end users in the Appalachian Basin. For the fiscal year ended
December 31, 1997, gross natural gas prices received by the Company for its
natural gas ranged from $2.23 to $5.04 per Mcf before royalties and
gathering and transportation costs.
49

<PAGE>
REGULATION AND ENVIRONMENTAL MATTERS

Oil and natural gas exploration, production and related operations are
subject to extensive rules and regulations promulgated by federal, state
and local agencies. Failure to comply with such rules and regulations can
result in substantial penalties. The regulatory burden on the oil and gas
industry increases our cost of doing business and affects its
profitability. Although we believe we are in substantial compliance with
all applicable laws and regulations, because such rules and regulations
frequently are amended or interpreted, we are unable to predict the future
cost or impact of complying with such laws. See "Risk Factors Risks
Associated with the Oil and Gas Industry General Regulation, State
Regulation, Federal Regulation."

Environmental enforcement efforts with respect to natural gas and oil
operations recently have increased and it can be anticipated that such
regulation will expand and have a greater impact on future natural gas and
oil operations. There is no assurance that laws and regulations enacted in
the future will not adversely affect our efforts in exploration for, and
production and transmission of, oil and natural gas. Such legislation or
actions of local, state and federal governments may have a material effect
on us in the future. To the best knowledge of management, Energy Search
has complied in all material respects with applicable regulatory
requirements of the states in which we operate. To date, we have received
no material notice of violation or complaint concerning our compliance with
federal, state or local laws respecting the environment. There can be no
assurance, however, that our business operations will not result in
violations of environmental laws or related liabilities in the future. See
"Risk Factors Risks Associated with the Oil and Gas Industry
Environmental Regulation."

COMPETITION

The oil and natural gas industry is highly competitive in all of its
phases. Energy Search competes with many other companies in the search for
and acquisition of oil and natural gas properties and leases for
exploration and development, and also competes with other companies in its
activities as drilling contractor and natural gas marketers. Our
competitors include numerous independent oil and natural gas companies,
major integrated oil and natural gas companies, individuals and drilling
and income programs. Many of these companies have substantially greater
financial, technical and other resources than Energy Search and have been
engaged in the exploration and production business for a much longer time
than has Energy Search. Such companies may be able to pay more for leases
on oil and natural gas properties and exploratory prospects, as well as to
define, evaluate, bid for or purchase a greater number of properties and
prospects than our financial or human resources would permit. Energy
Search will be required to maintain and enhance our ability to conduct our

<PAGE>
operations, to evaluate and select suitable properties and to consummate
transactions in a highly competitive environment. Competition among oil
and gas companies for favorable oil and natural gas prospects can be
expected to continue. It is anticipated that the cost of acquiring oil and
natural gas properties may increase appreciably.

In the area of capital formation, we compete for investor capital in
the public and private equity markets with other oil and gas companies, as
well as companies from other industries. We also compete with a number of
other companies which offer interests in drilling partnerships with a wide
range of investment objectives and program structures. Competition for
investment capital from both public and private drilling sources is
intense. Our business plan requires that we continue to raise capital for
drilling and acquisition activities.

ENERGY SEARCH'S ACTIVITIES WITH AFFILIATED PARTNERSHIPS

Energy Search operates an approximately 100-mile gas gathering system
servicing its primary areas of operation. A portion of the gas gathering
system (approximately 60 miles of pipeline) is owned by a Tennessee limited
partnership (the "Pipeline Operating Partnership") which is comprised of
Energy Search, as managing general partner owning a 28.74% general partner
interest, and a single limited partner which is another Tennessee limited
partnership (the "Pipeline Income Partnership") for which Energy Search
also serves as managing general partner. The Pipeline Income Partnership
was syndicated by EFC and capitalized with investor funds raised in a
private offering conducted in 1992 and 1993.

Prior to 1997, substantially all of our wells were drilled in joint
ventures with Affiliated Drilling Partnerships. The Affiliated Drilling
Partnerships have engaged in primarily development drilling in southeastern
Ohio. All of the Affiliated Drilling Partnerships were structured in a
similar fashion. The Affiliated Drilling Partnerships typically enter into
a joint venture with Energy Search to drill and develop the wells (the "ADP
Wells.") The joint venture is evidenced by a joint drilling and operating
agreement ("JDOA") between Energy Search, as participant, project manager
and driller-operator, and the Affiliated Drilling Partnership, as
participant. Pursuant to the JDOA, drill sites are selected Energy Search
from its lease inventory. Energy Search is obligated to contribute drill
sites to the joint ventures evidenced by the JDOA for each Affiliated
Drillings Partnership on a drillsite-by-drillsite basis. No Affiliated
Drilling Partnership has any right to develop any acreage "proved up" by
the drilling of a well on its drillsite. Energy Search, as driller-
operator, has discretion under the JDOA to select the target geological
formation and depth of the ADP Wells to be drilled, and to make all
operational decisions regarding drilling, completion (if warranted) or
plugging and abandonment of the ADP Wells.

<PAGE>
ADP Wells are drilled on a "functional allocation" basis. Pursuant to
this arrangement, the Affiliated Drilling Partnership contributes to the
joint venture drilling funds for intangible drilling costs in exchange for
direct ownership of a working interest in the ADP Wells. Energy Search, on
the other hand, contributes the drillsite, tangible well equipment, excess
intangible drilling funds in the event of cost overruns and services in
exchange for direct ownership of a working interest in the ADP Wells. The
allocation of the percentage of the working interest owned between the
Affiliated Drilling Partnership and Energy Search varies somewhat from
program to program, but is generally based on our estimate of the relative
value contributed. Energy Search's direct ownership of the working
interest of the ADP Well ranges in various Affiliate Drilling Partnerships
from approximately 7.0% to 20.0%. Under the JDOA, Energy Search, in its
capacity as driller-operator under the JDOA, agrees to drill and complete
(if warranted) or plug and abandon the ADP Wells on a "turnkey" basis for a
"fixed price" or "adjustable fixed price" (based on depth of the well and
number of zones stimulated). To the extent actual well development costs
exceed the "turnkey price" or "adjustable turnkey price," Energy Search
may experience a loss on drilling operations. However, to the extent
actual drilling costs are less than the "turnkey price" or "adjustable
turnkey price" received, Energy Search may realize a profit. Typically
under a JDOA, the drilling funds are pre-paid to Energy Search, in its
capacity as driller-operator, to allow Energy Search the opportunity to
inventory drill sites, maintain a field office and line up drilling rigs,
related equipment and crews.

After ADP Wells are drilled and completed in its primary field of
operations in southeastern Ohio, a flow line is constructed and the well is
hooked up to our gas gathering system so that natural gas produced from the
wells can be transported to market. Energy Search is responsible for
managing all production operations concerning the wells and the gas
gathering system. Such operations on the wells include equipment repairs
and maintenance, well swabbing, production chart reading, accounting and
administration. For performing such services, Energy Search generally
receives a monthly, per-producing-well "tending" fee and is reimbursed,
generally at cost, for equipment and generally charges standard rates for
services provided to the wells. With respect to the gas gathering system,
Energy Search maintains and repairs the equipment, monitors and reads gas
meters, negotiates gas sales contracts and otherwise manages the system.
For performing these services, Energy Search currently receives from the
Pipeline Operating Partnership a monthly fee of $2,500 and is reimbursed
for materials, services and administrative overhead contributed toward
managing the system. Energy Search, as the managing general partner in the
Pipeline Operating Partnership, maintains a 28.74% interest in such
partnership entitling us to 28.74% of the net revenues of the Pipeline
Operating Partnership.

<PAGE>
After an ADP Well has been completed and produced, and when a well is
no longer capable of production in commercial quantities, Energy Search, as
operator under the JDOA, is responsible for plugging the well and restoring
the drillsite. Costs of plugging and restoration are shared by the
participants under a JDOA according to the particular agreement. Energy
Search's ownership interest in the wells results from, among other things,
its furnishing of the tangible well equipment. Accordingly, Energy Search
is responsible, under the JDOA, for paying reclamation costs allocable to
such tangible well equipment and is entitled to reclaim any salvageable
tangible well equipment.

ACTIVITIES OF EQUITY FINANCIAL CORPORATION.

EFC, a wholly-owned subsidiary of Energy Search, is a securities
brokerage firm and member of the NASD. It is engaged primarily in the
business of providing investment services and products to its clients.
Charles P. Torrey, Jr., Chief Executive Officer of Energy Search, and
Robert L. Remine, Chief Financial Officer of Energy Search, are each
licensed agents and principals of EFC. They founded EFC in 1985. EFC has
five additional licensed sales agents. EFC maintains offices adjacent to
Energy Search offices in Knoxville, Tennessee.

At times, EFC serves as placement agent for the private placement of
our securities, including, common stock, Preferred Stock and partnership
interests in Affiliated Drilling Partnerships. For these services, EFC
receives placement fees and sales commissions. These fees and commissions
are consistent with NASD requirements and commensurate with what would be
charged by unrelated firms performing similar services.

OFFICES AND EMPLOYEES

Our administrative offices are located at Suite 200, 280 Fort Sanders
West Boulevard, Knoxville, Tennessee, 37922. At this office, all executive
management, financial, accounting and general administrative functions for
Energy Search and its Affiliated Drilling Partnerships and Pipeline Income
Partnership and Pipeline Operating Partnership are performed. Our main
field office is located at 217 Second Street, Marietta, Ohio, with a
satellite field office at 114 Club Circle, Daniels, West Virginia.
Geological, engineering and exploration and production activities are
coordinated from the Marietta office.

As of November 30, 1998, Energy Search had 21 full-time employees,
including one geologist, one engineer, two landmen and seven pumpers. As
drilling production activities increase, we intend to hire additional
technical, operational and administrative personnel as appropriate. None
of our employees are represented by any labor union. We believe Energy
Search relations with our employees are good. From time to time, we use
the services of independent consultants and contractors to perform various

<PAGE>
professional services, particularly in the area of drilling services, water
hauling acquisition of leases and lease options, construction, design,
well-site surveillance, permitting and environmental assessment. We
believe that this use of third-party service providers enhances our ability
to contain general and administrative expenses.

DESCRIPTION OF PROPERTY

ENERGY SEARCH OIL AND NATURAL GAS ASSETS

As of December 31, 1997, Energy Search partially owned and operated
approximately 370 wells and approximately 100 miles of natural gas
gathering systems on approximately 68,610 acres in the Appalachian Basin.
For the year ended December 31, 1997, our wells had a net average daily
production of approximately 0.9 MMcfed. As of November 30, 1998, our gross
production of natural gas was approximately 3.5 MMcfed and net production
was estimated to be 2.7 MMcfed. Following is a summary of our primary oil
and natural gas assets.

BECKLEY, WEST VIRGINIA AREA -- BEAVER LEASE/DUPONT FIELDS. On July
17, 1996, Energy Search acquired the Beaver Lease, approximately 17,000
leasehold acres, mostly contiguous, in Raleigh County, West Virginia from
the Beaver Coal Company. We have drilled 31 wells on the Beaver Lease and
an additional well on acreage contiguous to the Beaver Lease. We plan to
continue drilling the Beaver Lease and to exploit other similar
opportunities in the area. Based on its experience on these properties and
on reports from its independent petroleum engineers, we currently believe
that at least 75 developmental well sites exist for further drilling in
this acreage. All of the working interest of the Beaver Lease is owned by
Energy Search. We also have 13 producing gross natural gas wells on our
Dupont Field located in Wood County, West Virginia (the "Dupont Field").

COALBED METHANE LEASE. In May of 1998, Energy Search acquired an
approximately 24,000 acre lease in Raleigh County, West Virginia to develop
coalbed methane gas. Since May we have leased approximately 8,000
additional acres for coalbed methane gas development in this area. These
coalbed methane leases were acquired at an initial aggregate cost of
approximately $167,000. The leases contain certain drilling commitments.
We expect that the cost of development of these leases will be funded from
our working capital and its existing credit facilities. These coalbed
methane leases are proximate to coalbed methane properties in southwestern
Virginia currently being exploited by other companies. However, the leases
have no existing coalbed methane production and the coalbed methane
reserves underlying the leases are unproven. Although Energy Search has not
previously developed or produced coalbed methane gas, its senior engineer
possesses significant experience and expertise in coalbed methane drilling
and well completion. We plan to commence development of this coalbed
methane prospect in the fall of 1998.

<PAGE>
SIMMONS FIELD. In November 1997, Energy Search acquired the Simmons
field (the "Simmons Field"), comprised of approximately 9,000 acres of oil
and natural gas properties from Lomak Petroleum, Incorporated ("Lomak").
The purchase included 192 wells on leases located in Ohio and West
Virginia, wellhead equipment, surface equipment, a 10-mile, 6-inch gas
gathering pipeline system and a compression facility. Since this
acquisition, we have begun remediating and increasing production from
existing wells, identifying more than 30 wells with uphole recompletion
potential. We have drilled two successful wells on the Simmons Field to
date. We believe that this property is a prototype of what we can target
as an acquisition candidate, a property with remediation and enhanced
production potential, unexploited uphole reserves and a significant number
of developmental sites left to be drilled. We believe that at least 70
developmental well sites exist for further drilling in this acreage. All
of the working interest of the oil and natural gas leases concerning the
Simmons Field is wholly owned by Energy Search.

BARTLETT/TORCH/CHURCHTOWN FIELDS. The Bartlett, Torch and Churchtown
fields (the "Bartlett Field," "Torch Field," and "Churchtown Field,"
respectively) are accumulations of many small lease tracts from individual
owners into relatively contiguous field operation areas located in
Washington, Athens and Meigs Counties, Ohio. The acreage was accumulated
in large part in connection with Energy Search-sponsored Affiliated
Drilling Partnerships over the past eight years. These fields total
approximately 33,000 acres. We believe that at least 25 developmental well
sites exist for further drilling in this acreage. Energy Search owns 100%
of the well equipment on this acreage and varying percentages of working
interest in the wells in conjunction with Affiliated Drilling Partnerships.

GAS GATHERING SYSTEMS. Throughout its various fields of operation in
Ohio and West Virginia, Energy Search owns and operates approximately 100-
miles of pipeline and natural gas gathering systems. In the Torch,
Bartlett and Churchtown Fields, we operated approximately 60 miles of
natural gas gathering systems most of which are owned by the Pipeline
Operating Partnership. Substantially all completed wells in this area are
connected to these natural gas gathering systems which collects the natural
gas from the wells, sends it through one or more compressor stations to
enhance transportability and delivers it to the East Ohio Company
interstate pipeline and to the Columbia Gas Company interstate pipeline.
In connection with the Simmons Field, Energy Search owns and operates
approximately 18 miles of natural gas gathering systems. Energy Search owns
and operates approximately 4 miles of gas gathering systems in the Dupont
Field and approximately 10 miles of gas gathering systems in connection
with the Beaver Lease.

RECENT ACQUISITIONS BY ENERGY SEARCH

In June of 1998, Energy Search acquired 56 oil and natural gas wells
located in southeastern Ohio, associated leasehold interests and equipment
55

<PAGE>
from Viking Resources Corporation at a cost of $1,750,000. Since this
acquisition, we have begun remediating and increasing production from
existing wells. We believe these wells have additional enhancement
potential, as well as unexploited uphole reserves.

In a transaction completed in approximately June of 1998, Energy
Search acquired from certain individuals, the working interest and
overriding royalty interest in various oil and natural gas wells located in
southeastern Ohio and originally drilled by Energy Search with Affiliated
Drilling Partnerships and currently operated by the company. As
consideration for these purchases, Energy Search issued 10,114 shares of
its common stock and paid $121,543 in cash.

In a transaction completed in September of 1998, Energy Search
acquired from the earliest five Affiliated Drilling Partnerships their
working interests in various oil and natural gas wells located in
southeastern Ohio and operated and owned jointly with Energy Search. Since
the purchase, the five Affiliated Drilling Partnerships have been
liquidated and dissolved. As consideration for these purchases, energy
Search issued 221,453 shares of its common stock and paid $507,193 in cash.

OIL AND NATURAL GAS RESERVES

Energy Search's oil and natural gas reserves are located in Ohio and
West Virginia. Proved reserves represent estimated quantities of crude oil
and natural gas which geological and engineering data demonstrate to be
reasonably certain to be recoverable in the future from known reservoirs
under existing economic and operating conditions. Proved developed oil and
natural gas reserves are proved reserves that can be expected to be
recovered through existing wells using existing equipment and operating
methods. Proved undeveloped reserves are proved reserves expected to be
recovered from new wells on undrilled acreage, or from existing wells at
depths below the present bottom of the wells.

The following tables summarize information with respect to the
estimated net proved oil and natural gas reserves as reviewed, evaluated
and certified by the independent engineers and/or a geologist attributable
to our interests in oil and natural gas properties as of December 31, 1997,
1996 and 1995. The substantial difference in total proved reserves of our
natural gas from 1996 to 1997 is primarily due to the acquisition and
development of our Beaver Lease in central West Virginia and the Simmons
Field in Ohio and West Virginia. The year-end reserve reports for December
31, 1996 and December 31, 1995 were prepared by Kim A. Walbe, independent
certified geologist. Mr. Walbe became a director of Energy Search in March
of 1997 and he continues to serve in such capacity. The year-end reserve
report for December 31, 1997 was prepared by Wright & Company, Inc.,
independent certified petroleum engineers.

<PAGE>
TOTAL ESTIMATED NET RESERVE QUANTITIES

<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------
1997 1996 1995
---------- --------- --------
<S> <C> <C> <C>
COMPANY - TOTAL
Total Proved Reserves:<F1>
Oil (Bbls) 23,624 16,736 22,340
Natural Gas (Mcf) 30,609,977 15,692,300 3,564,527
Equivalent Bbls (BOE)<F2> 5,125,287 2,632,119 616,428
Equivalent Mcf (Mcfe)<F2> 30,751,721 15,892,716 3,698,567

Total Proved Undeveloped Reserves:<F1>
Oil (Bbls) -- 11 10,616
Natural Gas (Mcf)<F2> 19,417,960 14,543,536 2,305,073
Equivalent Bbls (BOE)<F2> 3,236,327 2,423,934 394,795
Equivalent Mcf (Mcfe)<F2> 19,417,960 14,543,602 2,368,769

<FN>
- -------------------
<F1> Reserves are net to our interest. Applicable royalties have
been deducted from these volumes.
<F2> After conversion on the basis of 6.0 Mcf of natural gas to 1.0
barrel of crude oil.
</FN>
</TABLE>

DISCOUNTED PRESENT VALUE OF FUTURE NET REVENUES

The following tables represent the estimated future net revenues
and the present value of the future estimated net reserves discounted
at a rate of 10% per year from the proved developed producing, proved
developed non-producing and proved undeveloped reserves of Energy
Search.

With respect to the tables below, the Estimated Discounted
Present Value Future Net Cash Flows from Proved Oil and Gas Reserves
is computed assuming a constant price of $3.45 per Mcf. For the

<PAGE>
fiscal year ended December 31, 1997, gross natural gas prices received
by Energy Search for its natural gas ranged from $2.23 to $5.04 per
Mcf before royalties and gathering and transportation costs.

ESTIMATED DISCOUNTED PRESENT VALUE OF FUTURE NET CASH FLOWS
FROM PROVED OIL AND NATURAL AS RESERVES

<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------
1997 1996 1995
---------- --------- --------
<S> <C> <C> <C>
COMPANY - TOTAL
Proved Developed Producing
Oil (Bbl) 23,624 13,859 7,798
Natural Gas (Mcf) 7,475,526 943,584 969,573
Proved Developed Non-Producing
Oil (Bbl) -- 2,866 3,926
Natural Gas (Mcf) 3,716,491 205,180 289,881
Proved Undeveloped
Oil (Bbl) -- 11 10,616
Natural Gas (Mcf) 19,417,960 14,543,536 2,305,073

Estimated Future Net Cash Flows
Before Income Taxes
Proved Producing $20,212,160 $ 2,356,125 $ 2,080,061
Proved Non-Producing 9,575,898 362,073 461,001
Proved Undeveloped 41,354,112 33,605,186 2,707,583
----------- ----------- -----------
Total $71,142,170 $36,323,384 $ 5,248,645
=========== =========== ===========
Estimated Future Net Cash Flows
Before Income Taxes Discounted
at 10%
Proved Producing $ 9,703,797 $ 1,434,504 $ 1,203,549
Proved Non-Producing 4,748,113 227,129 279,747
Proved Undeveloped 17,909,290 19,665,164 1,237,353
----------- ----------- -----------
Total $32,361,200 $21,326,797 $ 2,720,649
=========== =========== ===========
</TABLE>
For additional information concerning the discounted future net
cash flows to be derived from our reserves, see the Supplemental
Information to Consolidated Financial Statements included herein.

In accordance with applicable requirements of the SEC, estimates
of our proved reserves and future cash flows are made using sales
58

<PAGE>
prices estimated to be in effect as of the date of such reserve
estimates and are held constant throughout the life of the properties
(except to the extent a contract specifically provides otherwise).
Estimated quantities of proved reserves and future cash flows
therefrom are affected by natural gas and oil prices, which have
fluctuated widely in recent years.

There are numerous uncertainties inherent in estimating oil and
natural gas reserves and their values, including many factors beyond
the control of the producer. The reserve data set forth in this
Prospectus represents estimates only. The meaningfulness of such
estimates is highly dependent upon the accuracy of the assumptions
upon which they were based. Reserve engineering and evaluation is a
subjective process of estimating underground accumulations of oil and
gas that cannot be measured in an exact manner. 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 of different engineers and geologists often vary. In
addition, estimates of reserves are subject to revision by the results
of drilling, testing and production subsequent to the date of such
estimate. Accordingly, reserve estimates are often different from the
quantities of oil and natural gas that are ultimately recovered.
While we believe that reserve estimates presented in this Prospectus
are reasonable, the estimates should be viewed with the understanding
that subsequent reservoir performance, the timing and success of
future development drilling and changes in pricing structure or market
demand will affect the reserve estimates.

In general, the volume of production from oil and gas properties
declines as reserves are depleted. Except to the extent Energy Search
acquires properties containing proven reserves or conducts successful
exploration and development activities, or both, the proven reserves of the
company will decline as reserves are produced. Energy Search's future oil
and natural gas production is, therefore, highly dependent upon its level of
success in acquiring or developing additional reserves.

PRODUCING WELLS

The following table sets forth certain information regarding our
ownership, as of December 31, 1997, of productive wells in Ohio and
West Virginia. For purposes of this table, productive wells are
producing wells and wells capable of production. A gross well is a
well in which a working interest is owned by Energy Search. The
number of gross wells is the total number of wells in which Energy
Search owns a working interest. A net well is deemed to exist when
the sum of the fractional ownership interests in gross wells equals
one. The number of net wells is the sum of the fractional working
interests owned by Energy Search in gross wells expressed as whole
numbers and fractions thereof.
59

<PAGE>
PRODUCTIVE WELL SUMMARY
<TABLE>
<CAPTION>
OIL NATURAL GAS TOTAL <F1>
-------------- --------------- --------------
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Ohio 10.0 1.2 302.0 177.9 312.0 179.1
West Virginia 2.0 0.3 39.0 28.6 41.0 28.9
---- --- ----- ----- ----- -----
Total 12.0 1.5 341.0 206.5 353.0 208.0
==== === ===== ===== ===== =====
<FN>
- ---------------
<F1> The number of wells with multiple completions is 194 of the 353,
which is 55% of the total productive wells.
</FN>
</TABLE>
As of December 31, 1997, Energy Search owned three wells, not
included in the above tables, which were awaiting completion.

PRODUCTION VOLUMES, AVERAGE PRICES AND PRODUCTION COSTS

The following table sets forth certain information regarding the
production volumes of, average sales prices received for, and average
production costs associated with, our sales of oil and natural gas for
the periods indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- ------------

<S> <C> <C> <C>
NET PRODUCTION:
Oil (Bbls) 1,158 957 1,166
Natural Gas (Mcf) 138,958 82,260 91,119
Total (BOE) 24,318 14,667 16,353
Total (Mcfe) 145,906 88,002 98,115

AVERAGE SALES PRICE:
Oil ($/Bbl) $18.06 $19.26 $16.48
Natural Gas ($/Mcf) $ 3.08 $ 2.97 $ 2.34

<PAGE>
AVERAGE PRODUCTION LIFTING COST:
($/Mcf) <F1> $ 0.39 $ 0.41 $ 0.82
<FN>
- -----------------
<F1> Includes direct lifting costs (labor, repairs and maintenance,
materials and supplies) and property and severance taxes.
</FN>
</TABLE>

DEVELOPMENT, EXPLORATION AND ACQUISITION EXPENDITURES

The following table sets forth certain information regarding the
costs incurred by Energy Search in its development, exploration and
acquisition activities on its Ohio and West Virginia properties during
the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Development Costs $ 5,683,356 $ 1,066,814 $ 622,642
Exploration Costs $ 84,616 $ 288,376 $ 124,887
Property Acquisition Costs $ 1,535,173 $ 72,640 $ 146,109
</TABLE>

RECENT DRILLING ACTIVITIES

Energy Search has drilled or participated in the drilling of wells in
its Ohio and West Virginia properties as set out in the tables below for
the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995
------------- -------------- -------------
GROSS NET GROSS NET GROSS NET
----- ---- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
OHIO
DEVELOPMENT WELLS
Oil 0.0 0.0 0.0 0.0 0.0 0.0
Natural Gas 8.0 3.8 17.0 3.5 17.0 2.7
Dry 0.0 0.0 1.0 0.2 1.0 0.2
--- --- ---- --- ---- ---

<PAGE>
Total 8.0 3.8 18.0 3.7 18.0 2.9
=== === ==== === ==== ===

EXPLORATORY WELLS
Oil 0.0 0.0 0.0 0.0 0.0 0.0
Natural Gas 1.0 0.1 1.0 0.1 0.0 0.0
Dry 0.0 0.0 0.0 0.0 2.0 0.2
--- --- ---- --- ---- ---
Total 1.0 0.1 1.0 0.1 2.0 0.2
=== === ==== === ==== ===
WEST VIRGINIA
DEVELOPMENT WELLS
Oil 0.0 0.0 0.0 0.0 0.0 0.0
Natural Gas 24.0 20.1 4.0 0.8 0.0 0.0
Dry 3.0 3.0 0.0 0.0 0.0 0.0
--- --- ---- --- ---- ---
Total 27.0 23.1 4.0 0.8 0.0 0.0
=== === ==== === ==== ===
EXPLORATORY WELLS
Oil 0.0 0.0 0.0 0.0 0.0 0.0
Natural Gas 1.0 1.0 0.0 0.0 0.0 0.0
Dry 0.0 0.0 0.0 0.0 0.0 0.0
--- --- ---- --- ---- ---
Total 1.0 1.0 0.0 0.0 0.0 0.0
=== === ==== === ==== ===
</TABLE>

Energy Search drilled 36 gross wells during fiscal year ended
December 31, 1997. Twenty-eight wells were drilled in southern West
Virginia, completed in one or more of the multiple horizons available
(Princeton, Ravencliff, Maxton, Big Lime, Weir). Eight wells were
drilled and completed in multiple zones including the Clinton, the
Medina and the Berea sands in southeastern Ohio.

OIL AND NATURAL GAS LEASES

LEASEHOLD ACREAGE. As of December 31, 1997, Energy Search owned
oil and natural gas leasehold acres located in Washington, Athens,
Meigs, Noble and Morgan Counties, Ohio, and in Gilmer, Ritchie, Wood
and Raleigh Counties, West Virginia.

The following table sets forth certain information regarding our
developed and undeveloped leasehold acreage as of December 31, 1997.

<PAGE>
LEASEHOLD ACREAGE
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED TOTAL
--------------- --------------- ---------------
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Ohio 25,383 9,057 22,547 19,729 47,930 28,786
West Virginia 18,766 14,098 1,914 1,675 20,680 15,773
------ ------ ------ ------ ------ ------
Total 44,149 23,155 24,461 21,404 68,610 44,559
====== ====== ====== ====== ====== ======
</TABLE>

Substantially all of our Ohio and West Virginia leases are
subject to landowner royalties of 12.5% and, occasionally, subject to
additional overriding royalty interests of 3.125%. Thus, the net
revenue interest of our Ohio and West Virginia leases generally ranges
from 87.5% to 84.375%.

INSURANCE

GENERAL. For its oil and gas operations, Energy Search maintains
extensive insurance coverage (exceeding $10 million in the aggregate)
to protect the company, the Affiliated Drilling Partnerships, the
Pipeline Operating Partnership and the Pipeline Income Partnership
from liability and losses that could arise in connection with
drilling, production or natural gas transportation activities
involving gas or oil. A brief discussion of our insurance policies is
set forth below. Energy Search is the primary insured and the
Affiliated Drilling Partnerships, the Pipeline Operating Partnership
and the Pipeline Income Partnership are listed as an additional
insured on the policies. Each of the policies are subject to certain
terms, conditions, exclusions and limitations that may preclude us or
an Affiliated Drilling Partnership from recovering damages, expenses
and liabilities suffered, including, typically, damages and
liabilities from or caused by: (a) the violation of any federal,
state, or local statute, ordinance or regulation or (b) fines,
penalties and punitive and exemplary damages or (c) war and terrorist
acts (d) normal operation, including wear and tear, (e) faulty design
or (f) dishonesty of employees, (g) professional liability, (h)
failure to supply and (i) damage to underground equipment. Certain
other exclusions that are customary in the insurance and oil and gas
industries (such as the exclusion or limitation of coverage for costs
related to the loss of diamond drill bits and in-hole salvage and
fishing costs) may also apply. It is possible that the terms,
conditions, exclusions and limitations described above may prevent us

<PAGE>
or an Affiliated Drilling Partnership from recovering the full amount
of any damages, expenses and liabilities suffered by Energy Search or
an Affiliated Drilling Partnership which arise from an accident.

COMPREHENSIVE GENERAL LIABILITY. Energy Search maintains a
comprehensive general liability policy insured by The Federal
Insurance Company with coverage limits of $1,000,000 per occurrence
for bodily injury and property damage and $2,000,000 in the aggregate.
Such policy provides coverage of $2,000,000 per occurrence and in the
aggregate with respect to products and completed operations,
$1,000,000 per occurrence and in the aggregate with respect to
underground resources, and $500,000 stop gap liability coverage. This
policy includes coverage for sudden and accidental seepage and
pollution (subject to a limit of $250,000) care, custody and control,
debris removal following a covered loss, broad form property damage,
waiver of subrogation, contractual liability, non-operator working
interest, blow-out and cratering, explosion, collapse and underground
property damage.

AUTOMOBILE LIABILITY. Energy Search maintains an automobile
liability policy with coverage limits of $1,000,000 per occurrence for
bodily injury and property damage and $1,000,000 in the aggregate.

UMBRELLA LIABILITY. We maintain an umbrella liability policy
insured by The Federal Insurance Company with coverage limits of
$10,000,000 per occurrence or series of occurrences arising out of one
(1) event and, subject to certain limitations, in the aggregate. Such
policy becomes effective only after underlying coverage limits of
$1,000,000 for comprehensive general liability, $1,000,000 for
automotive liability, and $500,000 for stop gap liability.

We require subcontractors to carry liability insurance and
workers' compensation insurance as required by state law.

Since November 1990, when we assumed operation of our first oil
and gas wells, there have been no material claims against our
liability insurance policies. In the opinion of our management, our
properties are adequately covered by insurance.

LEGAL PROCEEDINGS

Neither Energy Search, our properties, nor any of our directors
or officers, is involved in any material litigation or administrative
proceedings.

<PAGE>
MANAGEMENT
<TABLE>
<CAPTION>
NAME AGE POSITION TENURE WITH COMPANY CLASS AND TERM OF DIRECTORS;
COMMITTEES
<S> <C> <C> <C> <C>
Charles P. Torrey, Jr. 51 Chief Executive Officer, Since its inception in 1990 Class III, Term expiring in 2001;
Director nonvoting member of the Executive Management
and Compensation Committee

Richard S. Cooper 49 President, Director, Legal Since its inception in 1990 Class I, Term expiring in 1999
Counsel

Robert L. Remine 50 Secretary, Treasurer, Since its inception in 1990 Class II, Term expiring in 2000;
Director nonvoting member of the Audit Committee

John M. Johnston 38 Vice President - Since December 1993 n/a
Exploration/Development

Michael W. Mooney 41 Chief Operating Officer Since November 1997 n/a

Kim A. Walbe 52 Director Since March 1997 Class II, Term expiring in 2000;
Chairperson of the Executive Management
and Compensation Committee and member of
the Audit Committee

Douglas A. Yoakley 43 Director Since March 1997 Class I, Term expiring in 1999;
Chairperson of the Audit Committee and
member of the Executive Management and
Compensation Committee
</TABLE>

CHARLES P. TORREY, JR. (age 51) has been a director of Energy
Search since its inception in 1990. Mr. Torrey, a founder of Energy
Search, has served as the Company's Chief Executive Officer since
1990. Mr. Torrey actively has participated in the syndication,
capital formation, investment and management of over $50 million in
oil and gas related programs for Energy Search. Mr. Torrey's current
responsibilities include interfacing with capital markets, development
of corporate growth strategies, capital formation and financial
operations. Mr. Torrey is a registered securities representative,
principal, director and president of EFC. In 1986, Mr. Torrey
received his certification as a Certified Financial Planner from the
College of Financial Planning, Denver, Colorado.

RICHARD S. COOPER (age 49) has been a director of Energy Search
since its inception in 1990. Mr. Cooper, a founder of Energy Search,

<PAGE>
has served as the Company's President since 1990. Mr. Cooper actively
has participated in the syndication, capital formation, investment and
management of over $50 million in oil and gas related programs for
Energy Search. Mr. Cooper is licensed to practice law in the State of
Tennessee and, before 1991, practiced business and real estate law in
Knoxville, Tennessee.

ROBERT L. REMINE (age 50), a certified public accountant, has
been a director of Energy Search since its inception in 1990. Mr.
Remine, a founder of Energy Search, has served as its Secretary and
Treasurer since 1990. Mr. Remine actively has participated in the
syndication, capital formation, investment and management of over $50
million in oil and gas related programs for the Company. Mr. Remine
is responsible for overview of all financial, tax and accounting
matters. Mr. Remine is a registered securities representative,
principal, director and secretary and treasurer of ("EFC").

JOHN M. JOHNSTON (age 38) joined Energy Search as a petroleum
geologist in December 1993 and became Vice President-Exploration and
Development in January of 1996. Mr. Johnston specializes in
subsurface geological analysis, reservoir engineering, wellsite
geology, well completion design and supervision and production
maintenance. Mr. Johnston also manages the use of advanced geologic
(GeoGraphix) and reservoir engineering (GEMS) computer programs.
Before joining Energy Search, from 1987 through December of 1993, Mr.
Johnston served as manager of geology and reservoir engineering for
Halwell Company, Inc. of Marietta, Ohio and senior geologist and
project manager for Energy Omega, Inc. of Marietta, Ohio, an affiliate
of Halwell Company, Inc. From 1981 through 1986, Mr. Johnston worked
as a staff exploration geologist for Chevron U.S.A. and Gulf Oil Corp.
Mr. Johnston presently is working on his thesis in connection with a
Masters of Science Degree in Geology at the University of Cincinnati.
Mr. Johnston was awarded a Chevron Fellowship, was a Marathon Oil
Scholar and an Edmund J. James Scholar. Mr. Johnston is currently
president of the Ohio Geological Society and a member of the board of
directors of the Southeastern Ohio Oil and Gas Association. Mr.
Johnston is a member of the American Association of Petroleum
Geologists, the Society of Professional Well Log Analysts, the Ohio
Geological Society and the Ohio Oil and Gas Association.

MICHAEL W. MOONEY (age 41) joined Energy Search in November 1997
and is responsible for coordinating all drilling and completion
functions as well as coordinating all production activities with
respect to the Company's operated wells. Mr. Mooney also is
responsible for the general supervision of Energy Search's personnel
involved in the drilling, completion and production functions of
Energy Search. Mr. Mooney has 20 years of oil and gas industry
experience. Before joining Energy Search, Mr. Mooney served as the

<PAGE>
head drilling and completion engineer for Penn Virginia Oil and Gas
Corp., where he was responsible for managing all phases of the
drilling programs, drilling an average of 75 wells per year.

KIM A. WALBE (age 52) has been a director of Energy Search since
March 1997. Mr. Walbe is an independent consultant supervising
drilling and completion of wells in West Virginia, Virginia and
Kentucky. Mr. Walbe prepares oil and gas reserve reports for wells in
New York, Pennsylvania, West Virginia, Ohio, Kentucky and Virginia.
He is also involved in supervising acquisition quality control and
interpretation of all forms of electric log data, including deviated
well data. Mr. Walbe functions as well-site geologist in Kentucky,
West Virginia and Virginia; evaluates leases in Ohio, Virginia,
Pennsylvania, West Virginia, New York and Kentucky; interprets aerial
photography and prepares geological structure maps from
interpretations; prepares lineation/fracture/borehole television maps
for Devonian Shale well site selection and prepares and delivers
testimony in oil and gas litigation as an expert witness. Mr. Walbe
is an Adjunct Professor of Geology at the University of Charleston.
Mr. Walbe also has been a contract consultant since 1985 to the Gas
Research Institute's Devonian Shale Program. Mr. Walbe is a member of
the Appalachian Geological Society, American Institute of Professional
Geologists, Society of Petroleum Engineers of A.I.M.E., Society of
Professional Well Log Analysts and American Society for Photogrammetry
and Remote Sensing.

DOUGLAS A. YOAKLEY (age 43), a certified public accountant, has
been a director of Energy Search since March 1997. Mr. Yoakley
founded Pershing & Yoakley & Associates, a multi-specialty public
accounting firm with over 100 employees in three offices, including
Knoxville and Chattanooga, Tennessee and Clearwater, Florida. Mr.
Yoakley is a member of the American Institute of Certified Public
Accountants and the Tennessee Society of Certified Public Accountants.
Mr. Yoakley serves as a director for The Philadelphians, Inc.,
Healthcare Horizons, Inc., Camel Manufacturing, Inc. and Clinical
Laboratories, Inc.

NUMBER OF DIRECTORS; TERMS. In accordance with Energy Search's
Third Amended and Restated Charter and Fourth Amended and Restated
Bylaws, there are currently five members of the Board of Directors, each
of whom serve annual terms or until their successors are duly elected
and qualified. The Board of Directors of Energy Search is divided into
three classes, each class to consist as nearly as possible of one-third
of the directors. The Class I directors are Messrs. Cooper and Yoakley.
The Class II directors are Messrs. Remine and Walbe. The Class III
director is Mr. Torrey. The term of office of one class of directors
shall expire each year with the initial term of office of the Class I
directors expiring at the 1998 annual meeting of shareholders; the

<PAGE>
initial term of office of the Class II directors expiring at the 1999
annual meeting of the shareholders; and the initial terms of office of
the Class III directors expiring at the 2000 annual meeting of
shareholders. Commencing with the 1998 annual meeting of shareholders,
the directors of the class elected at each annual meeting of
shareholders shall hold office for a term of three years.

DIRECTOR COMPENSATION. As compensation to outside directors,
Energy Search pays directors' fees not to exceed $2,500 per quarter,
plus expenses. Currently, non-employee directors are paid $3,000 per
year plus $500 per board meeting attended. While not presently finalized,
Energy Search is considering a program wherein up to half of directors'
fees may, upon agreement between the Company and the director, be payable
in shares of Energy Search common stock, based on the value of the stock
on the last day of each quarter. Inside directors will not receive
compensation, but may be reimbursed for expenses.

OBSERVER DESIGNATED BY IPO UNDERWRITERS. Until January 1999,
Energy Search is required to allow an observer designated by the
managing underwriters of the IPO, to attend all meetings of the Board of
Directors. The observer has no voting rights, is reimbursed for all
out-of-pocket expenses incurred in attending meetings and receives
compensation equal to that received by outside directors. The observer
will be indemnified by the Company against all claims, liabilities,
damages, costs and expenses arising out of his or her participation at
Board of Directors meetings. The managing underwriters have appointed
Anthony B. Petrelli, senior vice president of Neidiger/Tucker/Bruner,
Inc. as the observer of meetings of the Board of Directors.

COMMITTEES. Energy Search has two standing committees of its Board
of Directors: the Audit Committee and the Executive Management and
Compensation Committee. The Audit Committee recommends to the Board of
Directors the selection of independent accountants; approves the nature
and scope of services to be performed by the independent accountants and
reviews the range of fees for such services; confers with the
independent accountants and reviews the results of the annual audit;
reviews with the independent accountants the Company's internal
auditing, accounting and financial controls; and reviews policies and
practices regarding compliance with laws and conflicts of interest.
Messrs. Yoakley and Walbe currently serve on the Audit Committee and Mr.
Remine serves on the Audit Committee as a non-voting member. Mr.
Yoakley is Chairman of the Audit Committee.

The Executive Management and Compensation Committee, formed on
March 31, 1998, is responsible for recommending individuals to serve as
officers, reviewing and recommending to the Board of Directors the
timing and amount of compensation for the Chief Executive Officer and

<PAGE>
other key employees, including salaries, bonuses and other benefits. The
Executive Management and Compensation Committee also is responsible for
administering Energy Search's stock option and other equity-based
incentive plans, recommending retainer and attendance fees for directors
who are not employees of the Company or any of its subsidiaries,
reviewing for their adequacy and competitiveness compensation plans and
awards as they relate to the Chief Executive Officer and other key
employees and reviewing management's recommended annual budget and the
Company's strategic plans. Messrs. Walbe and Yoakley currently serve on
the Executive Management and Compensation Committee and Mr. Torrey
serves on the Executive Management and Compensation Committee as a non-
voting member. Mr. Walbe is Chairman of the Executive Management and
Compensation Committee.

<PAGE>
EXECUTIVE COMPENSATION

The following Summary Compensation Table shows certain information
concerning the compensation earned during the fiscal year ended December
31, 1997, by the Chief Executive Officer of Energy Search and each
executive officer who earned in excess of $100,000 and who served in
positions other than Chief Executive Officer at the end of the last
completed fiscal year:

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
---------
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
NUMBER
OF SHARES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS<F1> OPTIONS COMPENSATION<F2>
- ------------------ ---- ------ -------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Charles P. Torrey, Jr. 1997 $180,000 $ 52,500 42,738 $ 6,052
Chairman, Chief Executive
Officer and Director

Richard S. Cooper 1997 $180,000 $ 52,500 32,738 $ 5,166
President and Director

Robert L. Remine 1997 $180,000 $ 52,500 32,738 $ 7,875
Secretary, Treasurer and
Director
<FN>
________________
<F1> Includes payments or accruals under the annual bonus program
contained in each individual's employment agreement.

<F2> Represents other annual compensation paid or to be paid, including
such items as automobile allowance, health, disability and life
insurance, contributions to retirement plans, and certain compensation
assigned to the executives as stated amount in lieu of their respective

70
<PAGE>
interests in certain Affiliated Drilling Partnership net revenues
previously assigned to them by the Company.

The compensation listed in this column for 1997 consisted of: (i)
Company contributions to the accounts of the named executive
officers under the Company's simplified employee pension plan (SEP)
as follows: $4,050 for Mr. Torrey, $4,050 for Mr. Cooper and $4,050
for Mr. Remine; and (ii) payments made by the Company for the
premiums on certain life insurance policies as follows: $2,002 for
Mr. Torrey, $1,116 for Mr. Cooper and $3,825 for Mr. Remine.
</FN>
</TABLE>

In 1998, the base salary of Messrs. Torrey, Remine and Cooper is
$190,800.

CHIEF EXECUTIVE OFFICER

Energy Search has an employment contract with Mr. Torrey which
provides for his continued service as Chief Executive Officer through
December 31, 2002 and thereafter, based on renewal provisions.

Under his employment agreement, Mr. Torrey will receive a base
salary in 1998 of $190,800. This amount is subject to an annual
increase of at least 6% per year plus any additional amount that the
Board of Directors may award. Mr. Torrey is entitled to participate in
the annual bonus program for Energy Search executive officers and to
receive fringe benefits similar to those provided to executive officers.

Mr. Torrey's annual incentive bonus under the annual bonus program
is based upon Energy Search increasing its gross working interest
revenues by 20% over the level reported for the prior fiscal year. Since
the Company achieved this target, Mr. Torrey received a bonus which
represented 25% of his earned salary.

In 1997, Mr. Torrey was awarded options to purchase an additional
42,738 shares of common stock.

STOCK OPTIONS

Energy Search's stock option plans are administered by the
Executive Management and Compensation Committee of the Board of
Directors which has authority to determine the individuals to whom and
the terms upon which options will be granted, the number of shares to be
subject to each option and the form of consideration that may be paid
upon the exercise of an option. The Board of Directors makes
recommendations of stock incentive grants which the Executive Management
and Compensation Committee will then consider.

<PAGE>
The following tables set forth information regarding stock options
granted to and exercised by the named executive officers during the
fiscal year ended December 31, 1997:

OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE
GRANTED IN FISCAL PER EXPIRATION
NAME <F1><F2> YEAR SHARE DATE
- ------------------- --------- --------- -------- ----------
<S> <C> <C> <C> <C>
Charles P. Torrey, Jr. 42,738 27.1% $6.50-$8.00 1/24/02
Richard S. Cooper 32,738 20.2% $6.50-$8.00 1/24/02
Robert L. Remine 32,738 20.2% $6.50-$8.00 1/24/02
<FN>
- --------------
<F1> Options granted during 1997 under Energy Search's general private
common stock purchase warrant programs were granted for a term of five
years.

<F2> Options granted during 1997 under Energy Search's executive officer
common stock purchase warrants program are exercisable with respect to
25% of the shares beginning on the first anniversary of the date of
grant and become exercisable in cumulative 25% installments on each
anniversary date thereafter with full vesting occurring on the fourth
anniversary date of the grant. All options were granted for a term of
five years.
</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES<F1>

NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END
--------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles P. Torrey, Jr. 42,738 9,000 93,899 1,350
Richard S. Cooper 32,738 3,300 61,389 495
Robert L. Remine 32,738 11,000 93,899 1,650
<FN>
__________________
<F1> No named executive officer exercised any stock options in 1997.
</FN>
</TABLE>

EMPLOYMENT AGREEMENTS; TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS

CHARLES P. TORREY, JR., RICHARD S. COOPER AND ROBERT L. REMINE.
Energy Search has entered into employment agreements with Charles P.
Torrey, Jr., Chairman and Chief Executive Officer, Richard S. Cooper,
President, and Robert L. Remine, Secretary and Treasurer. Each of
these employment agreements became effective January 1, 1997, continues
for an initial term of five years and is subject to automatic annual
renewal terms of one year each thereafter. Base salary for each of the
employment agreements began at $180,000 per year for 1997, subject to an
annual increase of at least 6% per year, plus any additional amount that
the Board of Directors may award. In addition, in each year in which
the gross working interest revenue of Energy Search increases by at least
20% over its level in the preceding year, each of the employment
agreements provide for a yearly performance bonus equal to 25% of the
executive officer's base salary. Messrs. Torrey, Remine and Cooper each
were awarded a bonus equal to 25% of their base salary in 1997. The
base salary for Messrs. Torrey, Remine and Cooper in 1998 is $190,800.
At the option of the employee, Messrs. Torrey, Remine, or Cooper may elect
to take their yearly performance bonus in the form of a demand promissory
note bearing interest at the rate of 10% per annum payable monthly.

Under the employment agreements, Messrs. Torrey, Cooper and Remine
also are entitled to receive the following benefits: a nonaccountable
automobile allowance of $1,000 per month and reimbursement of itemized

73
<PAGE>
fuel, cleaning and related expenses; a life insurance policy in the face
amount of $500,000 (with the employee to name the beneficiary) provided
the employee is insurable at standard rates (and if extra premiums are
incurred to insure the life of the employee, the employee will be
responsible for payment of such additional premiums or may accept such
reduced death benefit as may be purchased for the cost of standard
premiums); medical, health and hospitalization insurance as provided to
other executive officers; participation in any bonus or profit-sharing
plan, qualified salary deferral plan or pension plan now or in the
future adopted by the Company; three weeks paid vacation; and
participation with the Company in the drilling of Company oil and gas
wells by giving the employee the option to purchase a 1% carried working
interest in any well drilled by the Company (other than in connection
with syndicated existing or future drilling programs with affiliated
entities for a price equal to 1% of the completion costs for the well
(thereby being carried by the Company through the drilling and casing
point). The net present value of each employee's option to purchase a
carried working interest has been set at $75,000 as of December 18, 1998.
Messrs. Torrey, Cooper, and Remine have each agreed to take a demand
promissory note in the amount of $75,000 each, bearing interest at 10%
per annum, payable monthly.

In the event of Messrs. Torrey's, Cooper's or Remine's termination
of employment by the Company with or without cause, each is entitled to
be paid a severance allowance equal to 24 months' salary (less amounts
required to be withheld and deducted) plus any performance bonus,
ratably apportioned. In the event any of Messrs. Torrey, Cooper or
Remine are terminated without cause, such termination shall be preceded
by 120 days advance written notice. No advance written notice is
required to be given by the Company for a termination with cause.

Messrs. Torrey's, Remine's and Cooper's employment agreements each
contain confidentiality provisions (generally requiring that all the
Company's confidential and proprietary data be kept confidential) and
noncompetition provisions (generally providing that the employee will
not directly or indirectly compete with the Company during the term of
employment or for two years thereafter) for the benefit of the Company.

JOHN M. JOHNSTON. Energy Search has entered into an employment
agreement with John M. Johnston as vice president of exploration and
development. This employment agreement is effective January 1, 1997,
continues for an initial term of one year and is subject to automatic
annual renewal terms of one year each thereafter. Base salary for the
employment agreement is $72,000 per year. In addition, in each year in
which the gross working interest revenue of Energy Search increases by
at least 20% over its level in the preceding year, the employment
agreement provides for a yearly performance bonus equal to 25% of Mr.
Johnston's base salary. Under the employment agreement, Mr. Johnston
will be entitled to receive the following benefits: a nonaccountable
74

<PAGE>
automobile allowance including use, maintenance, repair and insurance of
an automobile and reimbursement of itemized fuel, cleaning and related
expenses; a life insurance policy in the face amount of $200,000 (with
the employee to name the beneficiary) provided the employee is insurable
at standard rates (and if extra premiums are incurred in order to insure
the life of the employee, the employee will be responsible for payment
of such additional premiums or may accept such reduced death benefit as
may be purchased for the cost of standard premiums); medical, health and
hospitalization insurance as provided to other employees; participation
in any bonus or profit-sharing plan, qualified salary deferral plan or
pension plan now or in the future adopted by the Company; and two weeks
paid vacation.

On December 18, 1998, the Company authorized the issuance of 10,000
shares of stock on December 31, 1999 and December 31, 2000, or such earlier
date as the Company may be sold, so long as Mr. Johnston remains employed
by the Company. An additional 10,000 shares shall be issued to Mr.
Johnston upon the sale of the Company.

In the event of a termination of Mr. Johnston by the Company with
or without cause, he shall be entitled to be paid a severance allowance
equal to one year's salary (less amounts required to be withheld and
deducted) plus any performance bonus, ratably apportioned. In the event
Mr. Johnston is terminated without cause, such termination shall be
preceded by 120 days advance written notice. No advance written notice
is required to be given by the Company for a termination with cause.

Mr. Johnston's employment agreement contains confidentiality
provisions (generally requiring that all the Company's confidential and
proprietary data be kept confidential) and noncompetition provisions
(generally providing that the employee will not directly or indirectly
compete with Energy Search during the term of employment or for one year
thereafter) for the benefit of the Company.

MICHAEL W. MOONEY. Energy Search has entered into an employment
agreement with Michael W. Mooney . This employment agreement is
effective November 1, 1997, continues for an initial term of one year
and is subject to automatic annual renewal terms of one year each
thereafter. Base salary for the employment agreement is $91,584 for
1998. In addition, Mr. Mooney receives (1) 5,000 shares of Energy
Search for each year employed until the year 2000, (2) 2,500 shares of
Energy Search for each year for the next four years beginning January 5,
1999 but is contingent upon Mr. Mooney's continued employment with
Energy Search. Under the employment agreement, Mr. Mooney will be
entitled to receive the following benefits: a nonaccountable automobile
allowance including use, maintenance, repair and insurance of an
automobile and reimbursement of itemized fuel, cleaning and related
expenses; a life insurance policy in the face amount of $250,000 (with

<PAGE>
the employee to name the beneficiary) provided the employee is insurable
at standard rates (and if extra premiums are incurred in order to insure
the life of the employee, the employee will be responsible for payment
of such additional premiums or may accept such reduced death benefit as
may be purchased for the cost of standard premiums) medical, health and
hospitalization insurance as provided to other employees; participation
in any bonus or profit-sharing plan, qualified salary deferral plan or
pension plan now or in the future adopted by the Company; and two weeks
paid vacation.

In the event of a termination of Mr. Mooney by the Company with or
without cause, he shall be entitled to be paid a severance allowance
equal to one year's salary (less amounts required to be withheld and
deducted) plus any performance bonus, ratably apportioned. In the event
Mr. Mooney is terminated without cause, such termination shall be
preceded by 120 days advance written notice. No advance written notice
is required to be given by the Company for a termination with cause.

Mr. Mooney's employment agreement contains confidentiality
provisions (generally requiring that all the Company's confidential and
proprietary data be kept confidential) and noncompetition provisions
(generally providing that the employee will not directly or indirectly
compete with Energy Search during the term of employment or for one year
thereafter) for the benefit of the Company.

STOCK OPTION AND RESTRICTED STOCK PLANS

1997 STOCK OPTION PLAN. Energy Search's 1997 Stock Option Plan
(effective January 1, 1997) was approved by the Board of Directors and
stockholders of the Company on September 18, 1996. The 1997 Stock
Option Plan provides for the grant of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended,
and options which do not constitute incentive options to officers,
directors (other than outside directors), employees and advisors of the
Company or a subsidiary of the Company. A total of 300,000 shares of
common stock have been authorized and reserved for issuance under the
1997 Stock Option Plan, subject to adjustment to reflect changes in
Energy Search's capitalization in the case of a stock split, stock
dividend or similar event. The 1997 Stock Option Plan is administered by
the Executive Management and Compensation Committee. The Executive
Management and Compensation Committee has the sole authority to
interpret the 1997 Stock Option Plan, to determine the persons to whom
options will be granted (the Executive Management and Compensation
Committee may receive recommendations on this subject from management),
to determine the basis upon which the options will be granted, and to
determine the exercise price, duration and other terms of options to be
granted under the 1997 Stock Option Plan. While still in existence, the
1997 Stock Option Plan has not been utilized by Energy Search since

<PAGE>
adoption of the Stock Option and Restricted Stock Plan of 1998,
discussed below.

OUTSIDE DIRECTORS STOCK OPTION PLAN. The Outside Directors Stock
Option Plan (effective January 1, 1997) was approved by the Board of
Directors and stockholders of the Company on September 18, 1996. A total
of 50,000 shares of common stock were authorized and reserved for
issuance under the Outside Directors Stock Option Plan, subject to
adjustment to reflect changes in Energy Search's capitalization in the
case of a stock split, stock dividend or similar event. The Outside
Directors Stock Option Plan is administered by the Board of Directors of
the Company. The Board of Directors determines the exercise price,
duration and other terms of options to be granted under the Outside
Directors Stock Option Plan; provided that, (i) the exercise price of
each option granted under the Plan may not be less than the fair market
value of the common stock on the day of the grant of the option, (ii)
the exercise price must be paid in cash upon exercise of the option,
(iii) no option may be exercisable more than 10 years after the date of
grant, and (iv) no option is transferable other than by will or the laws
of descent and distribution. Options under the Outside Directors Stock
Option Plan will be granted only to "outside directors" selected by the
Board of Directors. Outside directors shall mean only those directors of
the Company or a subsidiary of the Company who are "non-employee
directors" as defined under Rule 16b-3 under the Securities Exchange Act
of 1934 and who are not currently and have not in the past year been
officers or regular salaried employees of the Company. While still in
existence, the Outside Directors Stock Option Plan has not been utilized
by Energy Search since adoption of the Stock Option and Restricted Stock
Plan of 1998, discussed below.

THE STOCK OPTION AND RESTRICTED STOCK PLAN OF 1998. On June 17,
1998, the shareholders of Energy Search adopted the Company's Stock
Option and Restricted Stock Plan of 1998 (the "1998 Plan"), previously
adopted by the Board of Directors of the Company on April 13, 1998. The
1998 Plan was effective as of April 13, 1998 and is to continue until
April 12, 2008. No award may be made under the 1998 Plan after that
date. A maximum of 300,000 shares of common stock (subject to certain
antidilution adjustments) are available for stock options and restricted
stock awards under the 1998 Plan. Generally under the 1998 Plan,
corporate directors, executive officers and other full time employees of
the Company are eligible to receive stock options. The 1998 Plan is
administered by the Executive Management and Compensation Committee and
makes determinations, subject to the terms of the 1998 Plan, as to the
persons to receive stock options, the amount of stock options to be
granted to each person, the terms of each grant and all other
determinations necessary or advisable for administration of the 1998
Plan. The Executive Management and Compensation Committee may interpret
and amend the terms of stock options granted under the 1998 Plan from

<PAGE>
time to time in a manner consistent with the 1998 Plan; provided, that
no amendment may be effective relating to a particular stock option
without the consent of the relevant participant, except to the extent
the amendment operates solely to the benefit of the participant. The
Executive Management and Compensation Committee has full authority and
discretion to interpret the 1998 Plan.

In addition to the discretionary grants to executive officers and
other key employees, the 1998 Plan provides for automatic grants of
stock options to non-employee directors. A stock option to purchase
2,500 shares of stock was granted automatically on June 17, 1998, the
date of Energy Search's 1998 annual meeting of shareholders and a stock
option for an additional 2,500 shares of stock will be granted
automatically on the date of each successive annual meeting to each
director of the Company who is, at the close of each such annual
meeting, a non-employee director. In addition, each non-employee
director would, at the time of his or her initial election or
appointment, be granted a stock option to purchase 2,500 shares of
stock. These stock options will be granted at an option price equal to
the fair market value of the stock at the date of grant. Stock options
granted to non-employee directors would be treated as nonqualified
options.

On December 18, 1998, the Board of Directors of the Company authorized
the issuance of 1,000 shares of restricted stock to non-employee directors
issuable as of January 31 of each year commencing in 1999.

In addition to the authority to grant stock options under the 1998
Plan, the Executive Management and Compensation Committee also can grant
tax benefit rights, which are be subject to such terms and conditions as
the Committee determined appropriate. The Company currently has no
present intention to grant such rights. A tax benefit right is a cash
payment received by a participant upon exercise of a stock option. The
amount of the payment would not exceed the amount determined by
multiplying the ordinary income realized by the participant (and
deductible by the Company) upon exercise of a nonqualified option, or
upon a disqualifying disposition of an incentive stock option, by the
maximum federal income tax rate (including any surtax or similar charge
or assessment) for corporations plus the applicable state and local tax
imposed on the exercise of the stock option or disqualifying
disposition. Unless the Executive Management and Compensation Committee
provides otherwise, the net amount of a tax benefit right, subject to
withholding, could be used to pay a portion of the exercise price. Tax
benefit rights could be issued under the 1998 Plan with respect to stock
options granted not only under the 1998 Plan but also with respect to
existing or future stock options awarded under any other plan of the
Company that has been approved by the shareholders as of the date of the
1998 Plan.

<PAGE>
The 1998 Plan also allows the Executive Management and Compensation
Committee to award restricted stock, subject to such terms and
conditions that the Committee from time to time determined. As with
stock option grants, the Committee would set forth the terms of
individual awards of restricted stock in restricted stock agreements.
Restricted stock granted by the Committee would vest in accordance with
restricted stock agreements. Unless the Committee provides otherwise in
a restricted stock agreement, if a participant's employment is
terminated during the restricted period set by the Committee for any
reason other than death, disability, retirement (as defined in the 1998
Plan) or termination for cause, the participant's restricted stock would
be entirely forfeited. If the participant's employment terminates
during the restricted period by reason of death, disability or
retirement, the restrictions on the participant's shares would terminate
automatically and the restricted stock would vest as of the date of
termination. If the participant's employment is terminated for cause,
the participant's restricted stock automatically would be forfeited
unless the Committee and the Board determine otherwise.

Without Executive Management and Compensation Committee
authorization, a recipient of restricted stock is not be allowed to
sell, exchange, transfer, pledge, assign or otherwise dispose of the
stock other than to the Company or by will or the laws of descent and
distribution. In addition, the Committee could impose other
restrictions on shares of restricted stock. Holders of restricted stock
would enjoy all other rights of a shareholder with respect to restricted
stock, including the right to vote restricted shares at shareholders'
meetings and the right to receive all dividends paid with respect to
shares of common stock. Any securities received by a holder of
restricted stock pursuant to a stock dividend, stock split,
recapitalization, merger, consolidation, combination or exchange of
shares would be subject to the same terms, conditions and restrictions
that are applicable to the restricted stock for which the shares are
received.

REPORT ON REPRICING OF OPTIONS OR STOCK APPRECIATION RIGHTS.

ISSUANCE OF NEW COMMON STOCK PURCHASE WARRANTS IN EXCHANGE FOR
OUTSTANDING COMMON STOCK PURCHASE WARRANTS. Effective April 7, 1997,
the Board of Directors authorized the issuance of General Warrants to
certain officers and key personnel of the Company (the "Holders").
These individuals were previously the owners of certain unregistered
common stock purchase warrants issued before the Company's initial
public offering (the "Unregistered Warrants"). According to their
terms, the Unregistered Warrants entitled the Holders to one share of
Common Stock per Unregistered Warrant. The exercise price was $5.00 per
share, and the Unregistered Warrants were exercisable until April 24,
1997.

<PAGE>
The listed "ask" price on the SmallCap Stock Market of the
Company's Units (comprised of one share of Common Stock and one Series A
common stock purchase warrant) as of the close of the market on April 7,
1997 was $6.125. The Holders agreed not to exercise their Unregistered
Warrants at $5.00 per share as of April 24, 1997, if the Company issued
the General Warrants in exchange for the Unregistered Warrants. The
General Warrants entitle the Holders to purchase the same number of
shares of Common Stock as under the Unregistered Warrants, at an
exercise price of $6.50 per share. The General Warrants are exercisable
until January 30, 2002. The Holders agreed to exchange their
Unregistered Warrants for the General Warrants as evidence of their
belief in the ability of management to enhance the stock value of the
Company. The Board of Directors determined that it was in the best
interest of the Company and the shareholders to issue the General
Warrants to the Holders in exchange for the Unregistered Warrants.

Pursuant to the April 7, 1997 Board of Directors authorizing
resolution, as of June 1, 1997, the Board of Directors issued the
following General Warrants to the Holders in exchange for surrender by
the Holders of their Unregistered Warrants. All of the following
transactions were exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NAME OF WARRANT HOLDER UNREGISTERED WARRANTS NEW WARRANTS
- ---------------------- --------------------- ------------
<S> <C> <C>
Charles P. Torrey, Jr. 2,978 2,978
Robert L. Remine 2,978 2,978
Richard S. Cooper 2,978 2,978
Derry M. Thompson 6,276 6,276
James T. McKay 2,440 2,440
</TABLE>

INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Charter of Energy Search contains a provision authorized under
Tennessee law that eliminates, with certain exceptions, the personal
liability of a director to Energy Search or its shareholders for
monetary damages for breach of the director's fiduciary duties as a
director. However, monetary damages may not be eliminated for (i)
breaches of the director's duty of loyalty to the Company or its
shareholders, (ii) acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, or (iii) liability
under Section 48-18-304 of the Tennessee Business Corporation Act (which
deals with liability for unlawful dividends and other distributions).

<PAGE>
According to the Charter, Bylaws and certain indemnification
agreements of Energy Search, directors, officers and certain agents of
the Company, or their respective executors or administrators, will be
entitled to indemnification from losses and advancement of expenses
incurred personally as a result of their status as a director, officer
or agent of Energy Search in accordance with the Tennessee Business
Corporation Act.

Pursuant to a placement agent agreement, dated September 10, 1997,
as amended, between Energy Search and Neidiger, Tucker, Bruner, Inc., we
have agreed to indemnify certain selling shareholders under a Form S-3
Registration Statement declared effective by the SEC on September 22,
1998, against all loss, claim, damage, expense or liability to which
each selling shareholder may become subject under the Securities Act,
the Exchange Act or otherwise, arising from the S-3 Registration
Statement. Similarly, each selling shareholder has agreed to severally,
but not jointly, indemnify Energy Search, its officers and directors and
each person, if any, who controls Energy Search within the meaning of
Section 15 of the Securities Act, or Section 20(a) of the Exchange Act,
against all loss, claim, damage or expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under the
Securities Act, the Exchange Act or otherwise, arising from information
furnished in writing by the selling shareholder or on the selling
shareholder's behalf for specific inclusion in the S-3 Registration
Statement.

In connection with Energy Search's initial public offering, Energy
Search has agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the federal securities laws.
If such indemnification is unavailable or insufficient, Energy Search
and the underwriters agreed to damage contribution arrangements based
upon the relative benefits received from the initial public offering and
the relative fault resulting in damages. In addition, certain
representatives of the underwriters who received warrants in the initial
public offering are entitled to indemnification from Energy Search
against certain civil liabilities, including liabilities under the
federal securities laws.

Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of Energy Search pursuant to the foregoing provisions, or
otherwise, Energy Search has been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by Energy Search of expenses incurred or paid by a director,
officer or controlling person of Energy Search on the successful defense

<PAGE>
of any action, suit or proceeding) is asserted by such a director,
officer or controlling person in connection with the securities being
registered, Energy Search will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

PRINCIPAL STOCKHOLDERS

The following table sets forth information as to each individual known
to Energy Search to have been the beneficial owner of more than 5% of
Energy Search's outstanding shares of common stock as of April 24, 1998:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP OF COMMON STOCK<F1><F2>
---------------------------------
SOLE VOTING TOTAL
NAME AND ADDRESS AND DISPOSITIVE BENEFICIAL PERCENT
OF BENEFICIAL OWNER POWER OWNERSHIP <F2> OF CLASS
- ------------------- --------------- ------------- --------
<S> <C> <C> <C>
Charles P. Torrey, Jr. 391,888 391,888 10.4%
280 Fort Sanders West Boulevard,
Suite 200
Knoxville, Tennessee 37922

Richard S. Cooper 376,188 376,188 10.0%
280 Fort Sanders West Boulevard,
Suite 200
Knoxville, Tennessee 37922

Robert L. Remine 382,590 382,590 10.1%
280 Fort Sanders West Boulevard,
Suite 200
Knoxville, Tennessee 37922
<FN>
____________________________
<F1> Based on information provided by each listed individual.
<F2> Includes warrants to purchase shares which currently are
exercisable.
</FN>
</TABLE>

SECURITIES OWNERSHIP OF MANAGEMENT

The following table sets forth the number of shares of common stock
beneficially owned as of April 24, 1998 by each of Energy Search's
82

<PAGE>
directors and nominees for director, each of the named executive
officers and all of the Company's directors and executive officers as a
group:

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP OF COMMON STOCK <F1><F2>
----------------------------------
SOLE VOTING TOTAL
NAME AND ADDRESS AND DISPOSITIVE BENEFICIAL PERCENT
OF BENEFICIAL OWNER POWER OWNERSHIP <F2> OF CLASS
- ------------------- --------------- ------------- --------
<S> <C> <C> <C>
Charles P. Torrey, Jr. 391,888 391,888 10.4%
Richard S. Cooper 376,188 376,188 10.0%
Robert L. Remine 382,590 382,590 10.1%
John M. Johnston 60,000 60,000 1.6%
Michael W. Mooney 10,000 10,000 <F*>
Douglas A. Yoakley 4,770 4,770 <F*>
Kim A. Walbe 2,500 2,500 <F*>
All directors and executive
officers as a group 1,227,936 1,227,936 32.5%
<FN>
- -----------------
<F*> Less than 1%.
<F1> The numbers of shares stated are based on information provided by
each person listed and include shares personally owned of record by
the person and shares which, under applicable regulations, are
considered to be otherwise beneficially owned by the person.
<F2> These numbers include shares that may be acquired through the
exercise of stock options granted under the Stock Option Plan
(effective January 1, 1997), the Outside Directors' Stock Option Plan
(effective January 1, 1997) and Energy Search's common stock purchase
warrants programs. The number of shares subject to stock options
exercisable within 60 days after April 24, 1998, for each listed
person is shown below:

Mr. Torrey 72,738
Mr. Cooper 62,738
Mr. Remine 62,738
Mr. Johnston --
Mr. Mooney --
Mr. Yoakley 2,500
Mr. Walbe 2,500
All directors and executive
officers as a group 203,214
</FN>
</TABLE>
83
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On December 18, 1998, the Company granted Mr. Torrey the option to
purchase the Company's airplane for its depreciated book value, but not less
than 50% of its original cost, in the event the Company is sold or merged.

During 1997, the Company received drilling advances from two
affiliated oil and gas partnerships for approximately $1.2 million. As
of December 31, 1997 approximately $40,000 was due from such affiliated
partnerships.

In its role as operator of the oil and gas wells owned by various
related partnerships, the Company charges a monthly wellhead and
administrative fee of between $100 and $300 for each producing well.
These fees totaled approximately $20,000 in 1997. In its role as
general partner of a partnership which owns the gas pipeline and
gathering system, the Company charges the partnership a management fee
of $5,000 per month. The Company believes that such fees are
representative of the fair value of the services provided.

On May 1, 1997, the Company acquired EFC, a Tennessee corporation
previously owned by Mr. Torrey, the Company's President, and Mr. Remine,
the Company's Secretary and Treasurer. EFC is an NASD-member broker-
dealer. The sale price for the acquisition was approximately $20,000 in
cash plus 7% of the gross commission generated by EFC (not to exceed 50%
of the net income of EFC). The acquisition was not a significant
acquisition for the Company. The Company believes that the purchase
price was representative of the fair market value of the assets
acquired.

EFC acts as placement agent for Company affiliated drilling
partnerships. The Company paid EFC approximately $10,000 in 1997 for
costs associated with program placement. The balance owed EFC was
$77,800 as of December 31, 1997. The Company believes that the cost for
program placement is representative of the fair market value of the
services provided.

The Company, in its discretion and given the business environment
existing at the time, chose not to collect certain amounts due from
partnerships affiliated with the Company and also paid certain expenses
due to third parties on behalf of such partnerships. In 1997, the
Company paid approximately $80,000 on behalf of the partnerships. The
Company is under no legal or contractual obligation to continue this
activity, and there is no expectation that it will continue in future
years.

The Company has adopted a policy concerning material loans and
advances (for amounts in excess of $1,000 outside the ordinary course of

<PAGE>
business) to Company employees, officers and directors which provides
that all such loans or advances must be evidenced by a written loan
agreement or promissory note, must be on terms that are fair and
advantageous to the Company and must be approved by the Board of
Directors. Furthermore, all transactions between the Company and any
affiliate of the Company must be on terms no less favorable than could
be obtained from an unaffiliated third party and must be approved by a
majority of the directors, including a majority of disinterested
directors.

Douglas A. Yoakley, a director of the Company, is a founder of
Pershing & Yoakley & Associates. Pershing & Yoakley & Associates, a
public accounting firm, provided consulting services to the Company
during 1997. The Company paid $75,175 to Pershing & Yoakley &
Associates in 1997.

Kim A. Walbe, a director of the Company, is an independent
consultant in the oil and gas industry. Walbe & Associates provided
consulting services to the Company during 1997. The Company paid
$44,740 to Walbe & Associates in 1997.

In the Company's primary fields of operations in southeastern Ohio
substantially all the Company's completed wells are connected to the
Company's gas gathering system (the "Ohio Gas Gathering System") which
collects gas from wells in the field, sends it through compressor
stations to enhance transportability and delivers it to pipelines. Much
of the Ohio Gas Gathering System is owned by ESI Pipeline Operating
L.P., an affiliate of the Company (the "Pipeline Operating
Partnership"). The Company, for its own account and on behalf of the
affiliated drilling partnerships it manages, has entered into a gas
servicing agreement (the "Gas Servicing Agreement") with the Pipeline
Operating Partnership pursuant to which all natural gas produced from
wells connected to the Ohio Gas Gathering System is purchased by the
Pipeline Operating Partnership and subsequently resold. The price
received by the Company for its natural gas is a function of what the
Pipeline Operating Partnership sells it for on the market (the "Adjusted
Gas Price Spread"). The Gas Servicing Agreement provides for natural
gas purchased from the Company and Affiliated Drilling Partnerships on a
"net back" basis. As of December 31, 1997, the Adjusted Gas Price
Spread with respect to the Gas Servicing Agreement ranged from
approximately $0.45 per Mcf to $0.48 per Mcf where no compression is
used.

In a transaction completed in approximately June of 1998, we
acquired from nine individuals, certain working interest and overriding
royalty interest in various oil and natural gas wells previously drilled
by Energy Search in joint venture with Affiliated Drilling Partnerships.
All the wells involved are operated by Energy Search. As consideration

<PAGE>
for these purchases, we issued 10,114 shares of our common stock and
paid $121,543 in cash. Sellers were given an option to take either stock
or cash based upon a predetermined formula.

In a transaction completed in September of 1998, we acquired from
our earliest five Affiliated Drilling Partnerships all their working
interests in various oil and natural gas wells jointly owned and
operated with Energy Search. Since these purchases, the five Affiliated
Drilling Partnerships have been liquidated and dissolved. As
consideration for these purchases, we issued 221,453 shares of common
stock and paid $507,193 in cash. Individual limited partners in each of
the Affiliated Drilling Partnership voted to approve the transaction and
were given the option to take either stock or cash as a liquidating
distribution.

86
<PAGE>
DESCRIPTION OF SECURITIES

DESCRIPTION OF CAPITAL STOCK

GENERAL. Energy Search has two classes of authorized capital stock
- -- common stock and preferred stock.

COMMON STOCK. Each share of common stock has equal voting dividend
and liquidation rights. The common stock has no par value. As of the
date of this Prospectus, there were 25,000,000 shares of common stock
authorized under Energy Search corporate charter and 4,017,308 shares
outstanding.

PREFERRED STOCK. As of the date of this Prospectus, there were
5,000,000 shares of preferred stock authorized and 175,545 shares issued
and outstanding.

The preferred stock enjoys a liquidation and dividend preference
over Energy Search's common stock. The preferred shares will bear an 9%
cumulative dividend payable quarterly. At the sole option of Energy
Search, to the extent permitted under applicable federal, state and
local law, and to the extent consistent with any stock exchange listing
requirements applicable to the Company, dividends on the preferred
shares may be payable in registered shares Energy Search common stock
issuable to the holders of preferred shares based on the closing trading
price for Energy Search's common stock as of the date the dividend
becomes payable. The preferred shares will have no voting rights (except
any which may be mandated under the Tennessee Business Corporation Act)
until conversion to common stock at which time such common stock will
enjoy the same voting rights as all other shares of common stock of the
Company.

The preferred shares are convertible to common stock at the option
of the holder at any time. Preferred shares will convert into shares of
common stock at a rate of 1.0 common share for each preferred share
converted. To convert preferred shares, a holder must notify Energy
Search in writing of intent to convert. The holder must then follow any
applicable administrative procedures required by Energy Search and its
transfer agent in connection with the conversion. Conversion of the
preferred shares into common stock will automatically occur in the event
Energy Search is acquired or the subject of a business combination (such
as a merger or consolidation) in which substantially all assets of
Energy Search are acquired by unaffiliated purchaser(s), or greater than
50% of the outstanding beneficial interest of Energy Search's common
stock is acquired by unaffiliated purchaser(s) (an "Acquisition Event.")
Upon an Acquisition Event, Energy Search will give holders of preferred
shares written notice of the Acquisition Event and instructions relating
to procedures applicable to the automatic conversion.

<PAGE>
The holders of preferred shares may require us to redeem the holder's
preferred shares if, at any time prior to October 1, 1999, we publicly
announce that Energy Search will be the subject of an Acquisition Event,
as defined above. Such announcement shall be accompanied by notice to
holders of preferred shares that their preferred shares may be redeemed,
at the option of the holder, as indicated herein. The notice shall
prescribe procedures applicable to the redemption. The redemption price
in such event will be 100% of the issue price of the preferred shares
plus accrued and unpaid dividends. This redemption feature is effective
only to the extent the Acquisition Event announced prior to October 1,
1999 results in a closed transaction.

The preferred shares are redeemable at the sole option of Energy
Search any time after September 30, 1999 providing the average trading
closing price for Energy Search's common stock exceeds 130% of the issue
price of the preferred shares over any 5 consecutive trading day period
commencing after September 30, 1999. The redemption price for the
preferred shares will be 100% of the issue price for the preferred
shares, plus accrued but unpaid dividends. Energy Search will provide
the holders of preferred shares 30 days advance written notice of its
intent to redeem the preferred shares during which such time the holders
may, at their option, convert their preferred shares to common stock.

SERIES A WARRANTS

There are currently 1,000,000 Series A Warrants, issued and
outstanding, as well as 200,000 Series A Warrants which may be issued
pursuant to the Representatives' Warrants issued to the underwriters in
connection with the IPO. Energy Search has reserved an adequate number
of shares of common stock for issuance upon exercise of all Series A
Warrants. The Series A Warrants are governed by the terms of a warrant
agreement between Energy Search and American Stock Transfer & Trust
Company, the Company's transfer agent and Series A Warrant agent, dated
as of January 24, 1997, as amended pursuant to a first amendment dated
as of December 24, 1998 (the "Series A Warrant Agreement.") The Series
A Warrant Agreement has been filed with the SEC as an exhibit to the S-3
Registration Statement of which this Prospectus is a part. Copies of
the Series A Warrant Agreement may be obtained from Energy Search or its
transfer agent and Series A Warrant agent, American Stock Transfer &
Trust Company.

Each Series A Warrant entitles the holder to purchase one share of
common stock at an exercise price of $9.60 per share exercisable at any
time commencing on February 28, 1998 until January 30, 2002, unless
earlier redeemed by the Company as described below. The exercise price
of the Series A Warrant is subject to automatic adjustment from time to
time when Energy Search issues additional shares of its common stock.
The adjusted exercise price is computed pursuant to a formula set forth

<PAGE>
in the Series A Warrant Agreement which accounts for additional
consideration received by Energy Search for the issuance of additional
common stock, as well as the new number of shares of common stock
outstanding. Since Energy Search IPO, there have been several
additional issuances of common stock which have effected an adjustment
in the exercise price of the Series A Warrants. The Company maintains
a cumulative record of the exercise price of the Series A Warrant and
computations which result in an adjustment to it. As of the date of
this Prospectus, the exercise price of the Series A Warrant, as adjusted
pursuant to the Series A Warrant Agreement was $8.83 per warrant share.

As a result of a recent amendment to the Series A Warrant
Agreement, Energy Search has provided a limited opportunity (the
"Limited Exercise Window") to exercise the Series A Warrants at a price
less than the adjusted exercise price generally provided for under the
Series A Warrant Agreement. During the Limited Exercise Window, a
Series A Warrant holder may exercise his or her Series A Warrants for a
reduced exercise price. The Limited Exercise Window will begin three
(3) days after the Post-Effective Amendment No. 1 to the Registration
Statement is declared effective by the SEC and will continue for one
year from such effective date. For the first 90 days of the Limited
Exercise Window, the exercise price shall be $5.00 per warrant share.
For the duration of the Limited Exercise Window, the exercise price
shall $6.00 per warrant share. At the end of the Limited Exercise
Window, the exercise price of the Series A Warrants will return to the
applicable adjusted exercise price per warrant share for the remaining
term of the Series A Warrants.

The Series A Warrants contain provisions that protect the warrant
holders against dilution by adjustment of the exercise price in certain
events, including, but not limited to stock dividends, stock splits,
reclassifications or mergers. A Series A Warrant holder will not possess
any rights as a shareholder of Energy Search. Shares of common stock,
when issued upon the exercise of the Series A Warrants will be fully
paid and non-assessable. No fractional shares will be issued upon the
exercise of the Series A Warrants. We will pay cash in lieu of
fractional shares.

The Series A Warrants are subject to redemption by Energy Search at
a price of $0.05 per Series A Warrant on thirty (30) days prior written
notice, provided that the closing sale price per share for the common
stock has equaled or exceeded $16.00 per share for twenty (20)
consecutive trading days within the thirty-day period immediately
preceding such notice. If the Series A Warrants are called for
redemption, they must be exercised prior to the close of business on the
date of any such redemption or the right to purchase the applicable
shares of common stock is forfeited.

<PAGE>
At any time when the Series A Warrants are exercisable, Energy
Search has agreed to have a current registration statement on file with
the SEC and to effect appropriate qualifications under the laws and
regulations of the states in which the holders of the Series A Warrants
reside in order to comply with applicable laws in connection with the
exercise of the Series A Warrants and the resale of the common stock
issued upon such exercise. So long as the Series A Warrants are
outstanding, Energy Search has agreed to file all post-effective
amendments to the Registration Statement required to be filed under the
Securities Act, and to take appropriate action under federal law and the
securities laws of those states where the Series A Warrants were
initially offered to permit the issuance and resale of the common stock
issuable upon exercise of the Series A Warrants. However, there can be
no assurance that Energy Search will be in a position to effect such
action under the federal and applicable state securities laws, and the
failure of Energy Search to effect such action may cause the exercise of
the Series A Warrants and the resale or other disposition of the common
stock issued upon such exercise to become unlawful.

TRANSFER AGENT AND REGISTRAR; WARRANT AGENT

The Transfer Agent and Registrar for Energy Search common stock and
the Warrant Agent for the Series A Warrants is American Stock Transfer &
Trust Company, 40 Wall Street, New York, NY 10005.

REPORTS TO SHAREHOLDERS

Energy Search intends to furnish its shareholders with annual
reports containing audited financial statements and such other periodic
reports as the Company may determine to be appropriate or as may be
required by law.

In connection with its IPO in January of 1997, Energy Search
registered its common stock and Series A Warrants under the provisions
of Section 12(b) and 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and has represented that it will use its
best efforts to continue to maintain such registration. Such
registration requires Energy Search to comply with periodic reporting,
proxy solicitation, and certain other requirements of the Exchange Act.

BOSTON STOCK EXCHANGE AND NASDAQ SMALL-CAP MARKET

Energy Search common stock and the Series A Warrants are listed on
the Boston Stock Exchange, under the symbols "EYS," and "EYS.WS.A,"
respectively, and for quotation on the Nasdaq SmallCap Market under the
symbols "EGAS," and "EGASW," respectively.

<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Energy Search common stock is quoted on the Nasdaq SmallCap Market
under the ticker symbol "EGAS." The following table sets forth for the
periods indicated, the high and low quarterly sales prices for a share
of common stock as reported on the Nasdaq SmallCap Market.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ---- ---
<S> <C> <C> <C>
June 30, 1997 $ 9.81 $ 6.75
September 30, 1997 $ 9.25 $ 7.58
December 31, 1997 $ 11.50 $ 8.00
March 31, 1998 $ 10.38 $ 9.00
June 30, 1998 $ 11.50 $ 8.25
September 30, 1998 $ 9.25 $ 5.00
October 1, 1998 through
December 22, 1998 $ 6.94 $ 4.38
</TABLE>

On January 24, 1997, the Company's SB-2 Registration Statement for
IPO of common stock was declared effective by the SEC. The IPO was
completed by January 30, 1997 at which time all of the securities
covered by the Registration Statement were sold. The managing
underwriters were Neidiger/Tucker/Bruner, Inc. and National Securities
Corporation. The securities offered and sold in the IPO were Units
comprised of one share of common stock and one Series A Warrant. The
Units have subsequently dissolved into free trading common stock and
Series A Warrants.

Underwriting discounts and commissions for the IPO totaled
$800,000. Expenses paid to or for the underwriters were $232,938.
Other expenses of the IPO amounted to $465,571. Total expenses of the
IPO were $1,498,509.

The net IPO offering proceeds to Energy Search after all offering
expenses were $6,501,491, which total was applied as follows: $5,267,492
to explore for, acquire and develop natural gas and oil reserves;
$912,500 for working capital; $261,750 for repayment of certain
indebtedness to officers of the Company; and $59,749 for payment of
accrued dividends to former Class A preferred shareholders whose
preferred stock converted to common stock upon consummation of the IPO.

<PAGE>
LEGAL MATTERS

Certain matters with respect to the validity of the securities
offered hereby has been passed upon for Energy Search by Patrick R.
Sughroue, P.C., 3777 Sparks Drive, S.E., Suite 130, Grand Rapids,
Michigan, 49546. Mr. Sughroue is the owner of 10,000 shares of Energy
Search common stock received prior to commencement of the IPO.

EXPERTS

The Consolidated Financial Statements included in this Prospectus
for the year ended December 31, 1997 and the year ended December 31,
1996, respectively, were audited by Plante & Moran, LLP, independent
public accountants, as stated in their report that is included in this
Prospectus based its authority as experts in accounting and auditing.

The oil and gas reserve information and future net revenues
attributable to Energy Search oil and gas properties included in this
for the year ended December 31, 1997, has been prepared by Wright &
Company, Inc., independent petroleum consultant (with respect to
reserves as of December 31, 1997), and by Walbe & Associates, Inc.,
independent geologist (with respect to reserves as of December 31,
1996), and as stated in their respective reports that also are included
in this Prospectus based on their authority as experts with respect to
those matters contained in the reports.

ADDITIONAL INFORMATION

Energy Search has filed with the SEC, a Registration Statement on
Form SB-2, and amendments thereto, under the Securities Act with respect
to the common stock and Series A Warrants of Energy. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the exhibits. For further information with respect to
Energy Search, its common stock and Series A Warrants, reference is made
to the Registration Statement, as amended, and the exhibits filed as a
part thereof. Statements made in this Prospectus as to the contents of
any contract or any other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference to
such exhibit.

The Registration Statement, including exhibits thereto, may be
inspected without charge at the public reference facilities maintained
by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, NW,
Washington, DC 20549 and at the regional offices of the SEC at 7 World
Trade Center, 13th Floor, New York, New York 10048 and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the
Registration Statement and the exhibits thereto may be obtained from the
92
<PAGE>
SEC at such offices upon payment of prescribed rates. Energy Search is
required to file electronic versions of these documents with the SEC
through the SEC's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The SEC maintains a World Wide Web site at
http:/www.sec.gov that contains reports, proxy and information
statements and other information regarding issuers that file
electronically with the SEC.

Energy Search is subject to the informational requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith, files reports with
the SEC.

<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

After our IPO, pursuant to directive of the Nasdaq SmallCap Stock
Market, we determined that it was necessary to replace our previous
independent auditor, Ronald D. Cameron, with a regional certified public
accounting firm experienced in auditing publicly traded companies. As a
result, on February 25, 1997, Energy Search replaced as independent
auditor, Ronald D. Cameron, certified public accountant, with Plante &
Moran, LLP, certified public accountants of Grand Rapids, Michigan.

In connection with its audits for years ended December 31, 1994 and
1995, respectively, as well as thereafter, there were no disagreements
with Ronald D. Cameron on any matter of accounting principles or
practices, financial statements disclosure or auditing scope or
procedure. The financial statements for those years contained no
adverse opinion disclaimer of opinion and were not qualified or modified
as to uncertainty, audit, scope or accounting principle. During the
1995 and 1996 fiscal years and through February 25, 1997, there were no
reportable events concerning Energy Search or its independent auditors.

Energy Search engaged Plante & Moran, LLP as its new independent
accountants as of December 2, 1996, to audit the financial statements
for the year ended December 31, 1996 as required by the Nasdaq SmallCap
Stock Market and the National Market System for the listing of Energy
Search common stock and Series A Warrants. During the most recent
fiscal year and through February 25, 1997, the Company engaged Plante &
Moran, LLP to assist its former auditor, Ronald D. Cameron, CPA, in
applying generally accepted accounting principles and SEC reporting
disclosure issues in connection with the Registration Statement, filed
with the SEC on January 24, 1997. The Registrant has not consulted with
Plante & Moran LLP on items which concerned the subject matter of a
disagreement or reportable event with the former auditor.

<PAGE>
GLOSSARY

AFFILIATE. "Affiliate" shall mean with respect to another person, (i)
any person directly or indirectly owning, controlling or holding with
power to vote 10% or more of the outstanding voting securities of or
equity interests in such other person, (ii) any person 10% or more of
whose outstanding voting securities or equity interest are directly or
indirectly controlling, controlled or held with power to vote by such
other person, (iii) any person directly or indirectly controlling,
controlled by or under common control with such other person, (iv) any
officer or director of such other person, and (v) any company for which
any such officer or director acts in any such capacity.

BBL. "Bbl" means barrel. "MBbl" means thousand barrels. "MMBbl" means
million barrels.

B/O. "B/O" means barrels of oil.

BOE. "BOE" means barrel of oil equivalent, which are determined using
the ratio of one barrel of crude oil, condensate or natural gas liquids
to 6 Mcf of natural gas so that 6 Mcf of natural gas is referred to as
one barrel of oil equivalent or "BOE". "MBOE" means thousands of
barrels of oil equivalent. "MMBOE" means millions of barrels of oil
equivalent.

B/C. "B/C" means barrels of condensate.

BOPD. "BOPD" means barrels of oil per day.

DEVELOPMENTAL WELL. "Developmental Well" shall mean a well drilled to
a known producing oil or natural gas horizon in a previously discovered
field or in an area where known producing horizons reasonably believed
by the operator, based on experience and known geological, production
and other data, to be geologically continuous.

EXPLORATORY WELL. A well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil and gas in another reservoir, or to extend a known
reservoir.

GROSS ACRES. The total acres in which an entity has an interest, either
directly or through an affiliate.

JDOA. "JDOA" shall mean a Joint Drilling and Operating Agreement
between the Company and an Affiliated Drilling Partnership.

MCF AND MCFPD. "Mcf" means one thousand cubic feet of gas, and "Mcfpd"
means one thousand cubic feet of gas per day.

<PAGE>
NET ACRES. Calculated by multiplying the number of gross acres in which
that party has an interest by the fractional interest of the party in
each such acre.

PROVED RESERVES. Those quantities of crude oil, natural gas, and
natural gas liquids which, upon analysis of geologic and engineering
data, appear with reasonable certainty to be recoverable in the future
from known oil and gas reservoirs under existing economic and operating
conditions. Proved reserves are limited to those quantities of oil and
gas which can be expected, with little doubt, to be recoverable
commercially at current prices and costs, under existing regulatory
practices and with existing conventional equipment and operating
methods. Depending upon their status of development, such Proved
Reserves shall be subdivided into the following classifications:

(A) PROVED DEVELOPED RESERVES. These are Proved reserves which can
be expected to be recovered through existing wells with existing
equipment and operating methods. This classification shall
include:

(1) PROVED DEVELOPED PRODUCING RESERVES. These are proved
developed reserves which are expected to be produced from
existing completion interval(s) now open for production in
existing wells; and

(2) PROVED DEVELOPED NON-PRODUCING RESERVES. These are proved
developed reserves which exist behind the casing of existing
wells, (but not below the depths of the present bottom of
such wells) which are expected to be produced through these
wells in the predictable future, where the cost of making
such oil and gas available for production should be
relatively small compared to the cost of a new well.

Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques of
supplementing the natural forces and mechanisms of primary recovery
shall be included as "proved developed reserves" only after testing by a
pilot project or after the operation of an installed program has
confirmed through production response that increased recovery will be
achieved.

(B) PROVED UNDEVELOPED RESERVES. These are Proved Reserves which
are expected to be recovered from new wells on undrilled
acreage, or from existing wells at depths below the present
bottom of the wells.

<PAGE>
RESERVES. Crude oil and natural gas, condensate and natural gas liquids,
are net of leasehold burdens, stated on a net revenue interest basis,
and found to be commercially recoverable.

ROYALTY INTEREST OR OVERRIDING ROYALTY INTEREST. An interest in an oil
and gas property entitling the owner to a share of oil and gas
production (or the proceeds of the sale thereof) free of the costs of
production.

SEC METHOD. The SEC method is a method of determining the present value
of proved reserves. Under the SEC method, the future net revenues from
proved reserves are estimated assuming that oil and gas prices and
production costs remain constant. The resulting stream of revenues is
then discounted at the rate of 10% per year to obtain a present value.

WORKING INTEREST. The operating interest under an oil and gas lease
which gives the owner the right to drill, produce and conduct operating
activities on the property and a share of production, subject to all
royalties, overriding royalties and other burdens and to all costs of
exploration, development and operations and all risks in connection
therewith.

<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Charter and Bylaws generally require the Company to
indemnify its directors and officers to the fullest extent permissible
under Tennessee law against all expenses (including attorneys' fees)
incurred in any proceeding (whether or not such proceeding was by or in
the right of the Company, a subsidiary or otherwise) in which they were
a party because of their position as a director or officer of the
Company or because they served at the request of the Company as a
director, officer, employee or agent of another corporation or entity.
The provision also provides for the advancement of litigation expenses
at the request of a director or officer under certain circumstances.

Tennessee law generally permits indemnification of expenses
incurred in the defense or settlement of a derivative or third-party
action, provided that there is a determination by a majority vote of (a)
a quorum of disinterested directors, or (b) if a quorum cannot be
obtained, by a majority vote of a committee of the board which consists
of at least two disinterested directors, or (c) if there are no such
directors or committee or if such directors or committee so directs, by
independent special legal counsel in a written opinion or (d) by the
shareholders, but shares owned by or voted under the control of
directors who are parties to the proceeding may not vote on the
determination, that the person seeking indemnification acted in good
faith and in a manner the person reasonably believed to be in (in the
case of action in an official capacity) or not opposed to (in the case
of action other than in an official capacity) the best interests of the
corporation. Without court approval, however, no indemnification may be
made in respect of any derivative action in which the person is adjudged
liable to the corporation. Tennessee law requires indemnification of
expenses when the individual being indemnified has successfully defended
the action on the merits or otherwise.

All of the above provisions could affect the liability of the
Company's directors and officers in their capacities as such.

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Following is information required by Item 701 of Regulation S-B as
to all equity securities of the registrant sold by the registrant within
the past three years. None of the following securities were registered
under the Securities Act of 1933.

On December 18, 1998, Energy Search closed the private placement
sale of 175,545 shares of 9% redeemable convertible preferred stock at
an issue price of $5.50 per share. The total proceeds of the sale were

<PAGE>
$900,500, which resulted in approximately $888,250 net of sales
commissions. The shares of preferred stock were sold in reliance on
the exemption under 4(2) of the Securities Act of 1933 and Regulation D,
Rule 506 promulgated thereunder. No advertising or general solicitation
of offerees was employed. Confidential Private Placement Memoranda were
delivered to each purchaser prior to investing. No more than 35
nonaccredited investors purchased securities in any offering. All
nonaccredited investors were reasonably believed by Energy Search to be
sophisticated and capable of evaluating risks and merits of the relevant
investment. A Form D was timely filed with the Securities and Exchange
Commission for each offering.

On September 29, 1998, the Board of Directors of Energy Search
authorized the issuance of 221,453 unregistered shares of common stock
to various persons, including former limited partners in certain
Affiliated Drilling Partnerships, in connection with Energy Search's
acquisition of certain working interests in certain natural gas wells
operated by Energy Search in southeastern Ohio. In this acquisition
transaction, Energy Search paid aggregate purchase consideration
amounting to $2,223,941 for the oil and gas interests acquired from the
Affiliated Drilling Partnerships. This total amount was comprised of
$1,716,748 in Energy Search common stock (221,453 shares) and $507,193
in cash.

The purchase consideration for the interests acquired by Energy
Search was based on a market valuation of the Affiliated Drilling
Partnership's oil and gas assets as of January 1, 1998, independently
reviewed as to reasonableness by an independent petroleum consultant.
The purchase consideration for each Affiliated Drilling Partnership's
subject interests was payable in cash, Energy Search common stock, or a
combination of both. The cash portion of the total purchase (the "Cash
Out Value") was equal to the percentage of the aggregate interest of
limited partners in the Affiliated Drilling Partnership who had elected
the Cash Out Option. The Common Stock portion of the total purchase
consideration of the Affiliated Drilling Partnership's subject interests
was equal to the percentage of the aggregate interest of limited
partners in the Affiliated Drilling Partnership who elected the Stock
Option. The value of Energy Search Common Stock issued in satisfaction
of the common stock portion of the purchase consideration, (the "Stock
Value"), was equal to 1.75 times what would have been the Cash Out Value
had that portion of the purchase consideration been paid for in cash
pursuant to the Cash Out Option, rather than in common stock. The number
of shares of Energy Search common stock issued to the Affiliated
Drilling Partnership was equal to the Stock Value divided by $7.75 per
share.

Each Affiliated Drilling Partnership approved the sale of its
subject interests to Energy Search by majority vote of its limited

<PAGE>
partners. The limited partners in each Affiliated Drilling Partnership
voted on a restructuring plan (the "Restructuring Plan") whereby an
Affiliated Drilling Partnership's subject interests were sold to Energy
Search in consideration for cash and Energy Search Common Stock, and the
Affiliated Drilling Partnership was thereafter to be liquidated. Each
limited partner of an Affiliated Drilling Partnership had the
opportunity to elect to have his or her Affiliated Drilling Partnership
interest liquidated for cash (the "Cash Out Option") or Energy Search
common stock (the "Stock Option"). Final tabulation of the elections of
limited partners in the Affiliated Drilling Partnerships was completed
at closing as of September 24, 1998, which was ratified by resolution of
the Board of Directors of Energy Search as of September 29, 1998.

The issuance of Energy Search common stock to limited partners of
the Affiliated Drilling Partnerships was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, and Regulation D
promulgated thereunder. All offerees were limited partners in the
Affiliated Drilling Partnerships. Each received written disclosure
documents prior to voting on the Restructuring Plan and receiving Energy
Search common stock. No commissions were paid for soliciting limited
partners in connection with the transaction.

In July of 1998, Energy Search closed an acquisition transaction in
which it acquired minor working interests and overriding royalty
interests in certain oil and natural gas wells located in southeastern
Ohio and operated by Energy Search from 9 individuals in consideration
for cash and Energy Search common stock. The acquisition transaction
had an effective date of April 16, 1998. The total purchase
consideration for the oil and natural gas interests acquired was
$227,740, comprised of 10,114 shares of Energy Search common stock and
$121,543 in cash. The cash value, common stock value and the number of
shares of common stock issued in consideration for the interests was
determined in a similar manner as was Energy Search's purchase of oil
and natural gas well interests from certain Affiliated Drilling
Partnerships as described above. The issuance of Energy Search common
stock in this transaction was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, and Regulation D promulgated
thereunder. All offerees were minor interest owners in the wells
operated by Energy Search. Each received written disclosure documents
prior to receiving Energy Search common stock. No commissions were paid
for soliciting interest owners in connection with the transaction.

On or about October 27, 1997, Energy Search completed the private
placement sale of 749,961 shares of common stock at $7.00 per share.
The Placement Agent (the "Placement Agent") for the sale of such common
stock was Neidiger/Tucker/Bruner, Inc., of Denver, Colorado. Certain
other NASD-member broker-dealers, including Equity Financial Corporation
("EFC"), participated in the offering as selling agents (the

100

<PAGE>
"Participating Selling Agents"). The shares of common stock were sold
primarily to accredited investors, as defined in Rule 501 of Regulation
D, and to no more than 35 nonaccredited investors. The offer and sale
of common stock by Energy Search in this transaction was exempt from
registration under Rule 4(2) of the Securities Act and Rule 506 of
Regulation D, promulgated thereunder.

The total offering proceeds were $5,249,727. Total commissions
payable to the Placement Agent were $367,480.89 (7%), and nonaccountable
expense allowance payable to the Placement Agent was $157,491.81 (3%)
some of which commissions and nonaccountable expense allowance were
allowed to Participating Selling Agents.

As additional compensation for selling the common stock in this
transaction, Energy Search issued to the Placement Agent (and its
authorized designees) warrants to purchase 75,000 shares of common stock
(the "Participating Selling Agent Warrants"). The Participating Selling
Agent Warrants provide for an exercise price of $7.00 per share and an
exercise date of no later than January 30, 2002.

In March through September 1996, Energy Search sold 207,700 shares
of Class A Preferred Stock (at $10.00 per share) and 242,300 shares of
Class B Preferred Stock (at $10.00 per share) to 78 accredited investors
and 33 non-accredited investors for total consideration of $4,500,000.
The Class A Preferred Stock was offered and issued exclusively to the
holders of Energy Search's variable rate subordinated debentures (the
"Debentures") in consideration for dollar-for-dollar elimination of
principal outstanding on such Debentures. The Class B Preferred Stock
was offered and issued for cash. Energy Search paid 4% commissions for
Class A Preferred Stock to EFC, totaling $41,540. Energy Search paid 8%
commissions for Class B Preferred Stock to EFC, totaling $193,840. EFC
was permitted to reallow all or part of such compensation to other
participating NASD-member broker dealers.

In September 1994 through November 1995, Energy Search sold
43.4 Units ($30,000 each) of Debentures to 33 accredited investors and
13 non-accredited investors for total consideration of $2,169,350.
Energy Search paid 4% commissions to EFC, totaling $86,774. EFC was
permitted to reallow all or part of such compensation to other
participating NASD-member broker dealers.

The Class A and Class B Preferred Stock and the Debentures were
sold in reliance on the exemption under 4(2) of the Securities Act of
1933 and Regulation D, Rule 506 promulgated thereunder. No advertising
or general solicitation of offerees was employed. Confidential Private
Placement Memoranda were delivered to each purchaser prior to investing.
No more than 35 nonaccredited investors purchased securities in any
offering. All nonaccredited investors were reasonably believed by Energy

101

<PAGE>
Search to be sophisticated and capable of evaluating risks and merits of
the relevant investment. A Form D was timely filed with the Securities
and Exchange Commission for each offering.

ITEM 27. EXHIBITS

EXHIBIT NO. DESCRIPTIONS
- ----------- ------------

Exhibit 1.1 Form of Underwriting Agreement, Agreement Among
Underwriters, Selected Dealer Agreement<F1>
Exhibit 1.2 Form of Financial Consulting Agreement <F1>
Exhibit 1.3 Form of Underwriters' Warrant Agreement <F1>
Exhibit 1.4 Form of Redeemable Series A Common Stock Purchase Warrant
Agreement <F3>
Exhibit 1.5 First Amendment to Redeemable Series A Common Stock
Purchase Warrant Agreement
Exhibit 3.1 Third Amended and Restated Charter of the Registrant <F1>
Exhibit 3.2 Third Amended and Restated Bylaws of the Registrant <F1>
Exhibit 3.3 Fourth Amended and Restated Bylaws of the Registrant <F3>
Exhibit 4.1 Specimen of Common Stock Certificate <F3>
Exhibit 4.2 Specimen of Redeemable Series A Common Stock Purchase
Warrant Certificate <F4>
Exhibit 4.3 Specimen of Representatives' Warrant Certificate <F3>
Exhibit 4.4 Specimen of Unit Certificate <F4>
Exhibit 5.1 Opinion of Patrick R. Sughroue, P.C.<F3>
Exhibit 9.1 Shareholder Voting Agreement and Irrevocable Proxy <F1>
Exhibit 10.1 Energy Search Natural Gas 1995-A L.P. - Limited
Partnership Agreement, Dated: December 31, 1995<F1>
Exhibit 10.2 Energy Search Natural Gas 1995-A L.P. - Joint Drilling and
Operating Agreement, Dated: December 31, 1995 <F1>
Exhibit 10.3 Energy Search Natural Gas 1996 L.P. - Limited Partnership
Agreement, Dated: June 10, 1996 <F1>
Exhibit 10.4 Energy Search Natural Gas 1996 L.P. - Joint Drilling and
Operating Agreement, Dated: June 10, 1996 <F1>
Exhibit 10.5 ESI Pipeline Operating Partnership - Limited Partnership
Agreement, Dated: January 7, 1993 <F1>
Exhibit 10.6 Energy Search Natural Gas Pipeline Income Partnership -
Limited Partnership Agreement, Dated: January 7, 1993 <F1>
Exhibit 10.7 Gas Servicing Agreement between the Registrant and ESI
Pipeline Operating L.P., Dated: January 5, 1993 <F1>
Exhibit 10.8 Selling Agreement - Class B Convertible Preferred Shares
between the Registrant and Equity Financial Corporation,
Dated: March 4, 1996 <F1>
Exhibit 10.9 Selling Agreement -- Class A and Class B Preferred Shares
between Registrant and Equity Financial Corporation,
Dated: March 4, 1996 <F1>

102
<PAGE>
Exhibit 10.10 Selling Agreement -- Variable Rate Subordinated Debentures
between Registrant and Equity Financial Corporation,
Dated: September 19, 1994 <F1>
Exhibit 10.11 Aircraft Lease between Charles P. Torrey, Jr. and the
Registrant, Dated February 1, 1995 <F1>
Exhibit 10.12 Beaver Coal Company Lease between Beaver Coal Company
Limited and the Registrant, Dated September 15, 1996 <F1>
Exhibit 10.13 Employment Agreements with officers and key employees of
the Registrant <F1>
(a) Robert L. Remine
(b) Charles P. Torrey, Jr.
(c) Richard S. Cooper
Exhibit 10.14 Promissory Notes of Executive Officers in Favor of
Registrant <F1>
(a) Charles P. Torrey, Jr.
(b) Robert L. Remine
(c) Richard S. Cooper
Exhibit 10.15 Stock Option Plan <F3>
Exhibit 10.16 Outside Directors Stock Option Plan <F3>
Exhibit 10.17 Form of Lock-up Agreement <F1>
Exhibit 10.18 Employment Agreement of John M. Johnston <F4>
Exhibit 10.19 Employment Agreement of Michael W. Mooney <F5>
Exhibit 10.20 Stock Option and Restricted Stock Plan of 1998 <F8>
Exhibit 10.21 1998 Stock Option and Restricted Stock Plan for Outside
Advisors and Consultants <F7>
Exhibit 10.22 Employment Agreement Amendment: Letter from Energy Search
to Michael W. Mooney
Exhibit 23.1 Consent of Patrick R. Sughroue, P.C. (included in opinion
filed as Exhibit 5.1) <F3>
Exhibit 23.2 Consent of Ronald D. Cameron, CPA <F4>
Exhibit 23.3 Consent of Kim A. Walbe
Exhibit 23.4 Consent of Plante & Moran, L.L.P., CPA
Exhibit 23.5 Consent of Patrick R. Sughroue, P.C. for this Post-
Effective Amendment No. 1
Exhibit 23.6 Consent of D. Randall Wright
Exhibit 27.1 Financial Data Schedule <F6>, <F7>
[FN]
- ------------------------------------------------------------------------
<F1> Previously filed with the Company's Registration Statement on Form
SB-2 filed with the Securities and Exchange Commission on September
26, 1996.

<F2> Previously filed with the Company's Amendment No. 1 to Registration
Statement on Form SB-2 filed with the Securities and Exchange
Commission on November 14, 1996.

103
<PAGE>
<F3> Previously filed with the Company's Amendment No. 2 to Registration
Statement on Form SB-2 filed with the Securities and Exchange
Commission on December 27, 1996.

<F4> Previously filed with the Company's Amendment No. 3 to Registration
Statement on Form SB-2 filed with the Securities and Exchange
Commission on January 23, 1997.

<F5> Previously filed with the Company's Annual Report on Form 10-KSB
for Year ended December 31, 1997.

<F6> Previously filed with the Company's Annual Report on Form 10-KSB
(Amendment No. 1) for Year ended December 31, 1997.

<F7> Previously filed with the Company's Quarterly Report on Form 10-QSB
for Quarter ended September 30, 1998.

<F8> Previously filed with the Company's Definitive Proxy Statement
filed on April 28, 1998 with the Securities and Exchange
Commission.
</FN>

ITEM 28. UNDERTAKINGS.

The undersigned registrant hereby undertakes as follows:

(1) Insofar as indemnification for liabilities arising under the
Securities Act 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 precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.

104
<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized
this Post-Effective Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, there unto duly authorized, in
the City of Knoxville, State of Tennessee on December 30, 1998.

ENERGY SEARCH, INCORPORATED

By: /S/ RICHARD S. COOPER
Richard S. Cooper
President and Director

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement has been
signed by the following persons in the capacities and on the dates
indicated.

December 30, 1998 /S/ CHARLES P. TORREY, JR.
Charles P. Torrey, Jr.
Chief Executive Officer (Principal Executive
Officer) and Director

December 30, 1998 /S/ RICHARD S. COOPER
Richard S. Cooper
President and Director

December 30, 1998 /S/ ROBERT L. REMINE
Robert L. Remine
Secretary, Treasurer (Principal Financial and
Accounting Officer), and Director

105
<PAGE>
EXHIBIT INDEX

EXHIBIT NO. DESCRIPTIONS
- ----------- ------------

106
<PAGE>
Exhibit 10.10 Selling Agreement -- Variable Rate Subordinated Debentures
between Registrant and Equity Financial Corporation,
Dated: September 19, 1994 <F1>
Exhibit 10.11 Aircraft Lease between Charles P. Torrey, Jr. and the
Registrant, Dated February 1, 1995 <F1>
Exhibit 10.12 Beaver Coal Company Lease between Beaver Coal Company
Limited and the Registrant, Dated September 15, 1996 <F1>
Exhibit 10.13 Employment Agreements with officers and key employees of
the Registrant <F1>
(a) Robert L. Remine
(b) Charles P. Torrey, Jr.
(c) Richard S. Cooper
Exhibit 10.14 Promissory Notes of Executive Officers in Favor of
Registrant <F1>
(a) Charles P. Torrey, Jr.
(b) Robert L. Remine
(c) Richard S. Cooper
Exhibit 10.15 Stock Option Plan <F3>
Exhibit 10.16 Outside Directors Stock Option Plan <F3>
Exhibit 10.17 Form of Lock-up Agreement <F1>
Exhibit 10.18 Employment Agreement of John M. Johnston <F4>
Exhibit 10.19 Employment Agreement of Michael W. Mooney <F5>
Exhibit 10.20 Stock Option and Restricted Stock Plan of 1998 <F8>
Exhibit 10.21 1998 Stock Option and Restricted Stock Plan for Outside
Advisors and Consultants <F7>
Exhibit 10.22 Employment Agreement Amendment: Letter from Energy Search
to Michael W. Mooney
Exhibit 23.1 Consent of Patrick R. Sughroue, P.C. (included in opinion
filed as Exhibit 5.1) <F3>
Exhibit 23.2 Consent of Ronald D. Cameron, CPA <F4>
Exhibit 23.3 Consent of Kim A. Walbe
Exhibit 23.4 Consent of Plante & Moran, L.L.P., CPA
Exhibit 23.5 Consent of Patrick R. Sughroue, P.C. for this Post-
Effective Amendment No. 1
Exhibit 23.6 Consent of D. Randall Wright
Exhibit 27.1 Financial Data Schedule <F6>, <F7>
[FN]
- ------------------------------------------------------------------------
<F1> Previously filed with the Company's Registration Statement on Form
SB-2 filed with the Securities and Exchange Commission on September
26, 1996.

<F2> Previously filed with the Company's Amendment No. 1 to Registration
Statement on Form SB-2 filed with the Securities and Exchange
Commission on November 14, 1996.

107
<PAGE>
<F3> Previously filed with the Company's Amendment No. 2 to Registration
Statement on Form SB-2 filed with the Securities and Exchange
Commission on December 27, 1996.

<F4> Previously filed with the Company's Amendment No. 3 to Registration
Statement on Form SB-2 filed with the Securities and Exchange
Commission on January 23, 1997.

<F5> Previously filed with the Company's Annual Report on Form 10-KSB
for Year ended December 31, 1997.

<F6> Previously filed with the Company's Annual Report on Form 10-KSB
(Amendment No. 1) for Year ended December 31, 1997.

<F7> Previously filed with the Company's Quarterly Report on Form 10-QSB
for Quarter ended September 30, 1998.

<F8> Previously filed with the Company's Definitive Proxy Statement
filed on April 28, 1998 with the Securities and Exchange
Commission.
</FN>

108
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY

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

CONTENTS

REPORT LETTER F-1

AUDITED FINANCIAL STATEMENTS
as of and for the periods ended
December 31, 1997 and 1996

Independent Auditor's Report F-1
Consolidated Balance Sheet F-2
Consolidated Statement of Operations F-3
Consolidated Statement of Stockholders' Equity F-4
Consolidated Statement of Cash Flows F-5
Notes to Consolidated Financial Statements F-7

ADDITIONAL INFORMATION

Letter from the Author F-25
Exploration and Development Activities F-26
Estimates of Natural Gas and Oil Reserves F-27

FINANCIAL STATEMENTS (UNAUDITED)
AS OF AND FOR THE PERIODS ENDED
SEPTEMBER 30, 1998 AND 1997

Balance Sheets (Unaudited) F-30
Statements of Operations (Unaudited) F-32
Statements of Cash Flows (Unaudited) F-34
Notes to Unaudited Financial Statements F-36

<PAGE>
Independent Auditor's Report

To the Stockholders of
Energy Search, Incorporated and Subsidiary

We have audited the accompanying balance sheet of Energy Search,
Incorporated and Subsidiary, (the Company) as of December 31, 1997 and 1996
and the related statements of operations, stockholders' equity, and cash
flows for the years then ended. 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 audits 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 Energy Search,
Incorporated and Subsidiary, as December 31, 1997 and 1996 and the results
of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.

/s/ Plante & Moran, LLP

Grand Rapids, Michigan
February 20, 1998

PLANTE & MORAN, LLP
====== ==========
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996
-------------- ---------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,252,316 $ 51,067
Accounts receivable (Note J) 976,065 567,376
Other current assets 91,670 66,067
Deferred tax asset (Note D) -- 55,000
-------------- ---------------
Total current assets 3,320,051 739,510
OIL AND GAS PROPERTIES
Proven properties 4,546,833 420,040
Unproven properties 193,965 186,159
Wells and related equipment 8,100,764 5,591,760
Less accumulated depreciation, depletion
and amortization (3,140,678) (2,751,099)
-------------- ---------------
Net oil and gas properties 9,700,884 3,446,860
OTHER ASSETS
Other property and equipment - net (Note C) 363,180 194,668
Investments in related partnerships (Note B) 1,649,849 1,363,423
Deferred tax asset (Note D) 650,400 413,000
Due from affiliated partnerships, net of $172,431
allowance for uncollectible accounts in 1997 and
$160,464 in 1996 (Notes B and L) 213,246 165,865
Prepaid stock offering costs (Note M) 75,336 265,948
Other 147,754 79,098
-------------- ---------------
Total other assets 3,099,765 2,482,002
-------------- ---------------
Total assets $ 16,120,700 $ 6,668,372
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (Note E) $ 650,684 $ 902,456
Current portion of long-term debt (Note F) 29,184 69,729
Accounts payable and accrued liabilities 1,356,748 1,033,463
Drilling advances (Note J) -- 1,335,124
-------------- ---------------
Total current liabilities 2,036,616 3,340,772
LONG-TERM DEBT - less current portion (Note F) 137,595 154,794

F-2
<PAGE>
STOCKHOLDERS' EQUITY (Notes G, H, I and K)
Class A convertible preferred stock (no par value;
5% cumulative; 216,945 shares authorized;
207,700 shares issued and outstanding at $10 per
share stated value) -- 2,049,307
Class B convertible preferred stock (no par value;
no dividend preference; 450,000 shares authorized;
242,300 shares issued and outstanding at $10 per share
stated value) -- 2,196,853
Common stock (no stated value, 10,000,000 shares
authorized; 3,768,241 and 1,100,000 shares issued
and outstanding at December 31, 1997, and 1996,
respectively) 15,448,073 1,200
Accumulated deficit (1,501,584) (1,074,554)
-------------- ---------------
Total stockholders' equity 13,946,489 3,172,806
-------------- ---------------
Total liabilities and stockholders' equity $ 16,120,700 $ 6,668,372
============== ===============
</TABLE>

See Notes to Financial Statements.

F-3
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
REVENUE
Net turnkey revenue $ 475,936 $ 882,237
Oil and gas sales 798,956 289,188
Management fees (Note J) 264,590 213,666
Other revenue (Note M) 693,188 56,737
-------------- ---------------
Total revenue 2,232,670 1,441,828

OPERATING EXPENSES
Production costs 274,571 171,336
Exploration costs 76,810 242,130
Depreciation, depletion and amortization 557,167 374,711
Interest 105,735 207,038
General and administrative 1,816,163 1,279,739
-------------- ---------------
Total operating expenses 2,830,446 2,274,954
-------------- ---------------

NET (LOSS) FROM OPERATIONS (597,776) (833,126)

OTHER INCOME (EXPENSE)
Program subsidies (Note J) (80,384) (197,892)
Stock issuance expense -- (83,080)
Gain on sale of assets 4,785 54,096
Equity in income of related partnerships (Note B) 123,794 37,531
-------------- ---------------
Total other income (expense) 48,195 (189,345)
-------------- ---------------

NET (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (549,581) (1,022,471)

INCOME TAX BENEFIT (Note D) 182,300 417,000
-------------- ---------------
NET (LOSS) BEFORE EXTRAORDINARY ITEM (367,281) (605,471)

EXTRAORDINARY ITEM - loss on early extinguishment of
debt, net of income tax benefit of $51,000 (Note G) -- (78,920)
-------------- ---------------

F-4

<PAGE>
NET (LOSS) $ (367,281) $ (684,391)
============== ===============

NET LOSS PER SHARE AVAILABLE TO COMMON $ (0.14) $ (0.60)

EXTRAORDINARY ITEM PER SHARE -- (0.07)
-------------- ---------------
NET LOSS PER SHARE TO COMMON STOCKHOLDERS $ (0.14) $ (0.67)
============== ===============
</TABLE>

See Notes to Financial Statements.

F-5
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------- ---------------------
ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
------ --------- ---------- ------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE-January 1, 1996 -- $ -- 1,200 $ 1,200 $ (366,163) $ (364,963)

Recapitalization of common stock (Note H) -- -- 548,800 -- -- --

Issuance of preferred stock A (Note G) 207,700 2,049,307 -- -- -- 2,049,307

Issuance of preferred stock B (Note G) 242,300 2,196,853 -- -- -- 2,196,853

Distribution of shareholders in excess of
capital -- -- -- -- (24,000) (24,000)

Two-for-one stock split (Note H) -- -- 550,000 -- -- --

Net loss for the year ended December 31,
1996 -- -- -- -- (684,391) (684,391)
--------- ----------- ---------- ----------- ----------- -----------
BALANCE - December 31, 1996 450,000 4,246,160 1,100,000 1,200 (1,074,554) 3,172,806

Issuance of common stock (Note H) -- -- 1,755,761 11,178,273 -- 11,178,273

Conversion of preferred stock A and B to
common stock (450,000) (4,246,160) 900,000 4,246,160 -- --

Exercise of pre-IPO warrants -- -- 12,480 22,440 -- 22,440

Dividends on preferred stock A -- -- -- -- (59,749) (59,749)

Net loss for the year ended December 31,
1997 -- -- -- -- (367,281) (367,281)
--------- ----------- --------- ----------- ----------- -----------
BALANCE - December 31, 1997 -- $ -- 3,768,241 $15,448,073 $(1,501,584) $13,946,489
========= =========== ========= =========== =========== ===========
</TABLE>

See Notes to Financial Statements.

F-6
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (367,281) $ (684,391)
Adjustments to reconcile net (loss) to net cash from
operating activities:
Depreciation, depletion and amortization expense 557,167 374,711
Dryholes and abandonments of previously capitalized oil
and gas properties 2,865 125,854
Loss on early extinguishment of debt -- 129,920
(Gain) on sale of assets (4,785) (54,096)
Equity in (income) losses of related partnerships (123,794) (37,531)
(Increase) in deferred taxes (182,300) (468,000)
(Increase) decrease in assets:
Accounts receivable and due from partnerships (456,070) 460,026
Other current assets (25,603) (3,902)
Other assets (91,787) --
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 323,286 340,660
Drilling advances (1,335,124) (1,079,996)
------------- --------------

Net cash used in operating activities (1,703,426) (896,745)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of proven properties (4,129,663) (170,000)
Proceeds from sale of other property and equipment 10,054 38,000
Purchase of wells and related equipment (2,513,051) --
Purchase of other property and equipment (251,244) (892,165)
Distributions from affiliated partnerships 92,426 23,934
Contributions to affiliated partnerships (318,100) (125,898)
Purchase of oil and gas leases (7,806) (46,246)
-------------- --------------

Net cash used in investing activities (7,117,384) (1,172,375)
</TABLE>

See Notes to Financial Statements.

F-7
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock $ 11,466,661 --
Net proceeds from short-term debt -- $ 265,683
Net proceeds from issuance of preferred stock -- 2,169,160
Proceeds from issuance of long-term debt 129,874 140,145
Payment of dividends on preferred stock (59,749) --
Net (increase) decrease in prepaid offering costs (75,336) (261,783)
Payments on long-term debt (439,391) (270,695)
Payments of loan issue costs -- (28,301)
--------------- -------------

Net cash provided by financing activities 11,022,059 2,014,209
--------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,201,249 (54,911)

CASH AND CASH EQUIVALENTS--Beginning of year 51,067 105,978
--------------- --------------

CASH AND CASH EQUIVALENTS--End of year $ 2,252,316 $ 51,067
=============== ===============
SUPPLEMENTAL DISCLOSURE
Cash paid for interest during the year $ 120,017 $ 192,994
=============== ===============
Cash paid for income taxes during the year $ 6,500 $ --
=============== ===============
NONCASH ACTIVITIES
Assets distributed to shareholders $ -- $ 24,000
=============== ===============
Debt converted to preferred stock (Note G) $ -- $ 2,077,000
=============== ===============
Conversion of preferred to common stock (Note G) $ 4,246,160 --
=============== ===============
</TABLE>

See Notes to Financial Statements.

F-8
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS - Energy Search, Incorporated and Subsidiary
(the Company) consists of Energy Search, Inc. (ESI), and Equity
Financial Corporation (EFC), a wholly owned subsidiary acquired
May 1, 1997.

ESI is engaged in the exploration, development, production and
marketing of oil and natural gas in the Appalachian Basin area
including southeastern Ohio and southern West Virginia. ESI's
revenue is primarily derived from the drilling of oil and gas
wells on a contract basis, the sale of natural gas and crude oil
from wells in which it has working interest, the transmission of
natural gas through a pipeline and gathering system owned by an
affiliated partnership in which ESI has an ownership interest,
the management and operation of oil and gas wells, and the
formation and management of oil and gas partnerships (Affiliated
Drilling Partnerships).

In 1997, ESI transitioned from being primarily a driller-operator
for syndicated Affiliated Drilling Partnerships to an energy
company developing reserves for its own account. The shift of
its primary operational focus was financed from public funds
raised through an initial public offering (Note L) and funds
raised through a private placement. While the Company
anticipates the continued sponsoring of Affiliated Drilling
Partnerships on a limited basis, management's primary focus will
be the development of its own reserves and acquisition of
primarily proved undeveloped properties for exploitation.

EFC is engaged in the operations of providing investment advice
and brokering and dealing in stocks, bonds, and other securities
in the east Tennessee region. EFC uses a clearing broker on a
fully disclosed basis to execute trades.

PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of ESI and its wholly owned
subsidiary, EFC, since the date of acquisition. All significant
intercompany balances and transactions have been eliminated in
consolidation.

ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
F-9
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.

OIL AND GAS PROPERTIES - ESI uses the successful efforts method
of accounting for oil and gas producing activities. Acquisition
costs for proved and unproved properties are capitalized when
incurred. Costs of unproved properties are transferred to proved
properties when proved reserves are discovered. Exploration
costs, including geological and geophysical costs and costs of
carrying and retaining unproved properties, are charged to
expense as incurred.

Exploratory drilling costs are capitalized initially; however, if
it is determined that an exploratory well does not contain proved
reserves, such capitalized costs are charged to expense, as dry
hole costs, at that time.

Prior to 1997, wells were drilled with capital raised primarily
through limited partnerships. Under the terms of the partnership
and drilling contracts, ESI does not capitalize intangible
drilling costs since these costs are the responsibility of the
contracting parties. ESI does capitalize all tangible drilling
costs when incurred, since they retain ownership of the well
equipment. For 1997 and future years, all intangible and
tangible drilling costs for successful development wells drilled
with the Company's capital will be capitalized. Costs incurred
to operate and maintain wells and equipment and to lift oil and
gas to the surface are generally expensed.

Oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is
recognized at time of impairment. Proved properties represent
purchased working interests in producing oil and gas wells, costs
to acquire oil and gas leases and intangible well development
costs. Oil and gas properties are depreciated and depleted by
the units-of-production method using estimates of proven
reserves. Because of inherent uncertainties in estimating proven
reserves, estimates of depletion and depreciation could change
significantly.

F-10
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

OTHER PROPERTY AND EQUIPMENT - Other property and equipment are
recorded at cost. Major additions and improvements are
capitalized, while repairs, replacements and maintenance that do
not improve or extend the life of the respective assets are
expensed. Depreciation is computed under the double-declining
balance method over the estimated useful lives.

INVESTMENTS IN RELATED PARTNERSHIPS - Investments in related
partnerships are accounted for by the equity method. ESI, as the
managing general partner of the oil and gas partnerships, makes
initial capital contributions to the partnerships in accordance
with provisions in the respective placement memorandum governing
the activities of the particular partnership. Income or losses
are allocated to the investments according to ESI's ownership
interest in the partnerships, and distributions or withdrawals
are deducted from the investments (see Note B for additional
partnership information).

TURNKEY DRILLING REVENUE - ESI enters into contracts with the
affiliated oil and gas partnerships to drill oil and gas wells
under turnkey agreements. Under the terms of the contracts, ESI
provides all tangible well equipment and receives working
interests in the completed wells. The partnerships pay all
intangible drilling costs and receive working interests in the
wells. The partnerships advance funds to ESI in order to finance
the drilling activity. ESI initially defers the full amount of
the drilling advances and recognizes drilling revenue as the
wells are completed. Drilling expenses are netted against
turnkey drilling revenue and were $2,209,872 and $2,046,458 in
1997 and 1996, respectively.

INCOME TAXES - The Company accounts for income taxes following
the liability method. A current tax liability or asset is
recognized for the estimated taxes payable or refundable on tax
returns. Deferred tax liabilities or assets are recognized for
the estimated future tax effect of temporary differences between
book and tax accounting and operating loss and tax credit carry
forwards. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.

FAIR VALUE OF FINANCIAL INSTRUMENTS - A summary of the methods
and significant assumptions used to estimate the fair value of
financial instruments is as follows:
F-11
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

- SHORT-TERM FINANCIAL INSTRUMENTS - The fair value of
short-term financial instruments, including cash, trade
accounts receivable and trade accounts payable, approximate
their carrying amounts in the financial statements due to
the short maturity of such instruments.

- NOTES PAYABLE AND LONG-TERM DEBT - Based on interest rates
currently available to the Company for debt instruments with
similar terms and remaining maturities, the fair values of
notes payable and long-term debt approximate their carrying
amounts in the financial statements.

STOCK OPTIONS AND WARRANTS - The Company has stock option and
stock warrant plans (Note K). Options and warrants granted to
employees are accounted for using the intrinsic value method,
under which compensation expense is recorded at the amount by
which the market price of the underlying stock at the grant date
exceeds the exercise price of an option.

EARNINGS PER SHARE - Earnings (loss) per share of common and
common equivalent stock are computed by dividing net income
(loss) less any preferred stock dividend by the weighted average
common shares outstanding and are retroactively adjusted for
stock splits. The convertible preferred stock is considered to
be the equivalent of common stock from the time of its issuance
in 1996; however, conversion was not assumed due to the net
losses for 1997 and 1996. Stock options and warrants more fully
described in Notes I and K that could potentially dilute basic
EPS in the future were not included in the computation of EPS,
since doing so would have been antidilutive.

CASH EQUIVALENTS - The Company considers all highly liquid
investments with a maturity of three months or less when
purchased to be cash equivalents.

NEW ACCOUNTING STANDARDS - In 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," each of
which will require expanded disclosures effective for 1998. The
Company does not expect the application of these statements to
have a material effect on its financial position, liquidity or
the results of operations.

F-12
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECLASSIFICATIONS - Certain reclassifications have been made to
1996 amounts to conform to 1997 presentations.

NOTE B - AFFILIATED OIL AND GAS PARTNERSHIP

Since 1989, ESI has sponsored the formation of partnerships for
the purpose of conducting oil and gas exploration, development,
and production activities on certain oil and gas properties.
Such partnerships include the Natural Gas/Tax Credit 1989 L.P.,
the Natural Gas/Tax Credit 1990 L.P., the Natural Gas/Tax Credit
1991 L.P., the Natural Gas/Tax Credit 1992 L.P., the Natural
Gas/Tax Credit 1992-A L.P., the Natural Gas 1993 L.P., the Energy
Search Natural Gas 1993-A L.P., the Energy Search Natural Gas
1994 L.P., the Energy Search Natural Gas 1994-A L.P., the Energy
Search Natural Gas 1995 L.P., the Energy Search Natural Gas 1995-A
L.P., the Energy Search Natural Gas 1996 L.P., the Energy
Search Natural Gas 1996-A L.P., the Energy Search Natural Gas
1997 L.P. and the Energy Search Natural Gas 1997-A L.P. ESI
serves as managing general partner of these partnerships and, as
such, has full and exclusive discretion in the management and
control of the partnerships. The turnkey drilling and operating
agreements that ESI enters into with the partnerships provide
that the partnerships pay for the intangible drilling costs of
the wells at an agreed-upon price per well. ESI provides all
tangible equipment required in the drilling, equipping, completing
and operating of the properties. Revenue from the partnership oil
and gas properties is allocated based on the working interest
ownership percentage of the properties. ESI's interests in the
limited partnerships range from .5 percent to 9 percent.

In 1993, ESI sponsored the formation of the ESI Pipeline
Operating L.P. (the Operating Partnership), which purchased a
portion of ESI's gas pipeline and gathering system. ESI
contributed its remaining interest in the pipeline system to the
new partnership in exchange for an ownership interest in the
Operating Partnership. ESI has advanced funds to the Operating
Partnership for each extension of the pipeline. ESI has no legal
obligation to continue to advance funds in the future. ESI
provided a guaranteed 10 percent return to pipeline investors
through 1997. Operations of the pipeline have been sufficient to
fund the preferential return through 1997. After preferential
returns, all cash is used to repay advances used to fund pipeline
extensions.
F-13
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE B - AFFILIATED OIL AND GAS PARTNERSHIP (CONTINUED)

Also, in 1993, ESI sponsored the formation of the ESI Natural Gas
Pipeline Income L.P. (the Pipeline Partnership). The Pipeline
Partnership made a capital contribution to the Operating
Partnership to finance the initial purchase of ESI's pipeline
system. In turn, the Pipeline Partnership received an ownership
interest in the Operating Partnership. ESI serves as managing
general partner for both of these partnerships and, as such, has
full and exclusive discretion in the management of and control of
the partnerships. The Operating Partnership earns revenue by
charging gas wells a transportation fee based on the volume of
gas moved through the pipeline system. Substantially all of
these gas wells are operated by ESI. As of December 31, 1997
and 1996, the Pipeline Partnership owned approximately 57 percent
of the Operating Partnership, with ESI owning the remaining 43
percent.

Total assets and equity of the related partnerships in the
aggregate were approximately $5,813,197 and $5,772,464,
respectively, at December 31, 1997, and $6,382,000 and
$5,808,000, respectively, at December 31, 1996.

Revenue and net income for ESI's share of such items of the
following equity investees for the years ended December 31, 1997,
and 1996, are given below. In the case of each equity investee,
the net income (loss) from continuing operations equals the net
income (loss).

F-14
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE B - AFFILIATED OIL AND GAS PARTNERSHIP (CONTINUED)
<CAPTION>
REVENUE NET INCOME (LOSS) FROM
------------------------------- CONTINUING OPERATIONS
-----------------------------
EQUITY INVESTEE 1997 1996 1997 1996
- ------------------------------------ ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Energy Search Natural Gas
Pipeline Income, L.P. $ 75 $ 5 $ (79) $ (3,169)

ESI Pipeline Operating L.P. 117,357 178,282 86,290 37,460

Energy Search Natural Gas
1993 L.P. 4,572 8,452 4,375 821

Energy Search Natural Gas
1993-A L.P. 8,931 14,315 8,541 5,506

Energy Search Natural Gas
1994 L.P. 10,684 11,607 10,387 4,604

Energy Search Natural Gas
1994-A L.P. 656 567 617 (2,056)

Energy Search Natural Gas
1995 L.P. 6,921 6,914 6,642 (1,408)

Energy Search Natural Gas
1995-A L.P. 6,454 2,879 6,287 (4,684)

Energy Search Natural Gas
1996 L.P. 536 -- 510 (32,193)

Energy Search Natural Gas
1996-A L.P. 123 -- 105 (6,400)

Energy Search Natural Gas
1997 L.P. 118 -- 117 --

Energy Search Natural Gas
1997-A L.P. -- -- -- --
</TABLE>

F-15
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE C - PROPERTY AND EQUIPMENT

The principal categories of property and equipment are as
follows:

<CAPTION>
DEPRECIABLE
1997 1996 LIFE-YEARS
--------------- -------------- ---------------
<S> <C> <C> <C>
Machinery and equipment $ 108,851 $ 39,942 5
Office furniture, equipment and software 212,860 143,785 5
Airplane 165,932 146,932 7-31
Vehicles 218,645 112,784 5
---------- ----------
Total cost 706,288 443,443

Less accumulated depreciation 343,108 248,775
---------- ----------
Net carrying amount $ 363,180 $ 194,668
========== ==========
</TABLE>

Depreciation expense totaled $74,750 and $66,445 for the years
ended December 31, 1997, and 1996, respectively.

NOTE D - INCOME TAXES

ESI and its subsidiary file a consolidated federal income tax
return. The following is a summary of the provisions for income
taxes for years ended December 31:

F-16
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE D - INCOME TAXES (CONTINUED)
<CAPTION>
1997 1996
-------------- --------------

<S> <C> <C>
Deferred benefit $ 182,300 $ 468,000
Amount allocated to extraordinary item -- (51,000)
-------------- --------------
Income tax benefit $ 182,300 $ 417,000
============== ==============
</TABLE>

The following is a reconciliation of the statutory federal income
tax rate to the Company's effective tax rate:
<TABLE>
<CAPTION>
Company's effective tax rate:
1997 1996
-------------- ------------
<S> <C> <C>
Income tax at federal statutory rate 34.0% 34.0%
State income tax, net of federal benefit 6.0% 6.0%
Other (6.8)% (0.5)%
----- ----
Actual effective tax rate 33.2% 39.5%
===== ====
</TABLE>

The significant components of ESI's deferred tax assets and
liabilities are as follows:

F-17
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE D - INCOME TAXES (CONTINUED)
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Allowance for uncollectible accounts $ 59,000 $ 55,000
Accounting for equity investments 177,000 198,000
Federal net operating loss 2,213,800 657,000
State net operating loss 125,800 102,000
Other -- 6,000
-------------- -------------
Total deferred tax asset 2,575,600 1,018,000

Valuation allowance for deferred tax assets -- --

Deferred tax liabilities:
Depreciation and pooling of capital 784,200 550,000
Intangible drilling costs 1,126,000 --
Other 15,000 --
-------------- -------------
Total deferred tax liabilities 1,925,200 550,000
-------------- -------------
Net deferred tax asset $ 650,400 $ 468,000
============== =============
</TABLE>

At December 31, 1997, the Company had federal and state operating
loss carryforwards of approximately $6,500,000 and $2,100,000
respectively, that expire in the years 2005 to 2017. These
carryforwards are available to offset future taxable income.

F-18
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE E - NOTES PAYABLE

<CAPTION>
1997 1996
-------------- ---------------
<S> <C> <C>
Notes payable to shareholders, unsecured, due on
demand, annual interest-only payments at 10% $ -- $ 251,773

Line-of-credit at bank, collateralized by lien on oil
and gas property, interest payable at prime plus
1.75% 650,684 650,683
-------------- -------------
Total $ 650,684 $ 902,456
============== =============

</TABLE>

The Company has a $920,000 line-of-credit. The initial borrowing
base is reduced by $20,000 per month. It has various loan
covenants including requirements on its tangible net worth, debt
to tangible net worth, limits on partnership subsidies,
restrictions on payment of dividends and general and
administrative costs.

The following is a summary of certain information regarding ESI's
short-term borrowings for years ended December 31:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>

Balance at end of year $ 650,684 $ 902,456

Weighted average interest rate at end of year 10.00% 9.80%

Average amount outstanding during the year $ 776,570 $ 769,614

Maximum amount outstanding at any month end
during the year $ 902,456 $ 902,456
</TABLE>
F-19
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE F - LONG-TERM DEBT

Long-term debt consisted of the following at December 31:

<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Note payable to bank, collateralized by equipment,
interest only payable at a rate of 8.5% through
March 17, 1997, monthly installments of $2,863,
including interest of 8.5% commencing April 17,
1997, paid in 1997 $ -- $ 140,145

Note payable to bank, collateralized by equipment,
payable in monthly installments of $3,600, including
interest at prime plus .50%, which was 9% at
December 31, 1997, through October 15, 2002 166,779 84,378
-------------- -------------
Total 166,779 224,523

Less current portion 29,184 69,729
-------------- -------------
Total long-term debt $ 137,595 $ 154,794
============== =============
</TABLE>

Principal maturities of long-term debt at December 31, 1997 are
as follows:
<TABLE>
<CAPTION>

<S> <C> <C>
1998 $ 29,184
1999 31,962
2000 34,976
2001 38,332
2002 32,325
-----------
Total $ 166,779
===========
</TABLE>
F-20
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE G - PREFERRED STOCK

During 1996, ESI issued 207,700 shares of Class A convertible
preferred stock with a $10 stated value in exchange for and to
retire the outstanding principal on its variable rate
subordinated debentures. Of the $2,169,500 debentures payable
outstanding at December 31, 1995, a total of $2,077,000 was
converted to Class A convertible preferred stock, with the
remaining $92,500 in debentures being retired with cash. The
write-off of the deferred loan costs of $129,920 related to the
debentures has been reflected as a loss on early extinguishment
of the debt. In addition, ESI issued 242,300 shares of Class B
convertible preferred stock with a $10 stated value during this
period. Issue costs of $27,693 and $226,147 related to the Class
A and Class B preferred stock, respectively, were netted against
the respective preferred stock accounts.

Both the Class A and B preferred stock was redeemable by the
Company, at the option of the holder, at $10 per share or, if not
redeemed, was automatically convertible on a share-by-share basis
into common stock upon the occurrence of certain events. Such
events included the undertaking of a registration and initial
public offering of any of ESI's common stock. The preferred
stock was converted to common stock in 1997 in conjunction with
the successful initial public offering of ESI's common stock.
The number of shares issued at conversion was doubled as a result
of the two-for-one stock split (Note H).

NOTE H - COMMON STOCK

RECAPITALIZATION OF COMMON STOCK - On July 1, 1996, ESI's
shareholders' surrendered 1,200 shares of common stock
outstanding in exchange for 550,000 shares of no par common stock
for no additional consideration. In January 1997, immediately
prior to completion of the initial public offering, a two-for-one
stock split was completed which doubled the number of outstanding
shares of common stock to 1,100,000. These changes were
retroactively reported in the 1996 financial statements.

INITIAL PUBLIC OFFERING - In January 1997, the Company registered
its stock in a public offering of 1,000,000 common shares and
raised $6,551,765 net of underwriter fees, professional fees, and
various other costs associated with this stock offering of
$1,498,509.
F-21
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE H - COMMON STOCK (CONTINUED)

REGULATION D OFFERING - On October 27, 1997, the Company
completed a private offering of 749,961 shares of common stock
and raised $4,671,582, net of underwriter fees, professional
fees, and various other costs associated with this stock offering
of $578,145.

OTHER - In addition to the plans described in Notes I and K, the
Company issued 2,500 warrants to each of the two outside
directors during 1997. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $6.50
and the warrants expire January 30, 2002.

NOTE I - STOCK OPTION AND WARRANT PLANS

The Company has established a stock option plan effective January
1, 1997, for officers, directors other than outside directors,
employees, and advisors of the Company. A total of 300,000
shares of common stock have been authorized and reserved for
issuance under this plan. The Company has also established an
outside directors stock option plan, effective January 1, 1997.
A total of 50,000 shares of common stock have been authorized and
reserved for issuance under this plan. The exercise price of
each option granted under both stock option plans may not be less
than the fair market value of the common stock on the day of the
grant of the option, and no option may be exercisable more than
10 years after the date of the grant. No options have been
issued under either of these plans as of December 31, 1997.

SERIES A WARRANTS - As part of ESI's public offering, the Board
of Directors issued 1,000,000 Series A warrants included in units
that consist of one share of common stock and one Series A
warrant. The Board issued additional Series A warrants
consisting of 100,000 units pursuant to the Underwriters' over-
allotment option, and 100,000 "representative's" warrants
pursuant to Underwriters' compensation. An equivalent number of
shares of common stock has been authorized and reserved for
issuance upon exercise of such Series A warrants.

Each Series A warrant entitles the holder to purchase one share
of common stock at an exercise price of $9.60 per unit
exercisable at any time after February 28, 1998, until January
30, 2002. The Series A warrants could not be traded separately

F-22
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE I - STOCK OPTION AND WARRANT PLANS (CONTINUED)

until July 24, 1997. The warrants are subject to redemption by
the Company at a price of $.05 per Series A warrant on 30 days
written notice at any time after July 24, 1998, provided that the
closing sale price per share for the common stock has equaled or
exceeded 200 percent of the offering price per unit for 20
consecutive trading days within the 30-day period immediately
preceding such notice.

REGULATION D WARRANTS - As part of ESI's private offering of
common stock that took place in October 1997, 74,996 warrants
were issued to unaffiliated parties pursuant to the Placement
Agent Agreement. The warrants entitle each holder to purchase
one share of common stock and are exercisable at $7 per share at
any time up to October 27, 2002. The number, type of security
and the exercise price is subject to adjustment upon occurrence
of certain events including consolidation, merger, subdivision or
combination of shares and issuance of stock dividends. None of
these warrants have been exercised at December 31, 1997.

NOTE J - RELATED PARTY TRANSACTIONS

Because of the nature of ESI's business, a significant number of
transactions are with related parties.

During 1997 and 1996, ESI received drilling advances from two
affiliated oil and gas partnerships in the amount of $1,156,800
and $2,037,750, respectively. Included in accounts receivable at
December 31, 1997 and 1996 is $426,800 and $456,000, respectively,
due from affiliated partnerships.

In its role as operator of the oil and gas wells owned by various
related partnerships, ESI charges a monthly wellhead and
administrative fee of between $100 and $300 for each producing
well. These fees totaled $239,433 and $158,666 for 1997 and
1996, respectively. In its role as general partner of the
partnership, which owns the gas pipeline and gathering system,
ESI charges the partnership a management fee of $5,000 per month.
These fees totaled $60,000 and $55,000 for 1997 and 1996,
respectively.

Equity Financial Corporation (EFC), a wholly owned subsidiary
acquired in 1997, acts as placement agent for ESI programs. ESI

F-23
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE J - RELATED PARTY TRANSACTIONS (CONTINUED)

paid EFC $136,950 and $183,150 in 1997 and 1996, respectively,
for costs associated with program placement. The balance owed
EFC was $77,800 and $84,900 as of December 31, 1997 and 1996,
respectively. In 1996, ESI paid EFC $83,080 in sales commissions
for conversion of subordinated debentures to preferred stock.
ESI paid EFC $0 and $28,000 in 1997 and 1996, respectively, for
rent and management fees under a monthly shared service
arrangement. Intercompany balances between ESI and EFC relating
to 1997 have been eliminated through consolidation.

The Company, in its discretion and given the business environment
existing at the time, chose not to collect certain amounts due
from partnerships and also paid certain expenses due to others on
behalf of partnerships. ESI is under no legal or contractual
obligation to continue this activity, and there is no expectation
that it will continue in future years.

The following is a summary for the years ended December 31, 1997 and
1996 of expenses paid on behalf of the partnerships and advances
forgiven:
<TABLE>
<CAPTION>
1997 1996
--------------- -------------
<S> <C> <C>

Expenses paid on behalf of partnership $ 80,834 $ 197,852
============== =============
Advances forgiven $ 11,728 $ 57,996
============== =============

</TABLE>

ESI has the contractual right to charge partnership
administrative fees and production operating fees in excess of
the aggregate amounts charged to the partnerships during 1997 and
1996.

NOTE K - EMPLOYEE BENEFIT AND STOCK-BASED COMPENSATION PLANS

The Company sponsors a simplified employee pension plan (SEP) for
qualifying employees. Employee contributions to individual

F-24
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE K - EMPLOYEE BENEFIT AND STOCK-BASED COMPENSATION PLANS
(CONTINUED)

retirement plans may not exceed the greater of 15 percent of
employee earnings or $22,500 per year per employee. The Company
contributed $25,370 and $15,726 to the SEP during 1997 and 1996,
respectively.

The Company has a fixed employee stock-based compensation plan
under which the Company has granted warrants for 55,650 shares of
restricted common stock. The exercise price of each option is
equal to the market price of the Company's stock on the date of
grant. The warrants expire January 30, 2002 and vest
immediately upon grant.

The Company also has a fixed executive officer stock-based
compensation plan under which executive officers have been
granted warrants for the purchase of up to 450,000 shares
of restricted common stock. The exercise price of each
option is $8.00 per share, which equaled the market price
of the Company's stock on the date of grant. The term
of the warrants is five years starting in 1997 and the warrants
vest at 30,000 shares per officer per year.

The Company applies intrinsic value accounting to its fixed
stock-based compensation plans. Accordingly, no compensation
cost has been recognized for the fixed plans in 1997 or 1996.
Had compensation cost been determined using the fair value
method, net loss would have been $(476,563) and $(705,511) for
1997 and 1996, respectively, and earnings per share would have
been $(.18) and $(.63) for 1997 and 1996, respectively. The fair
value of the warrants was determined using the Black-Scholes
model with application of an additional 30% discount due to the
fact that the shares are restricted. The following assumptions
were made in estimating the fair value: risk-free interest rate-6%,
expected expiration of the warrants-January 30, 2002, expected
price volatility-20% and dividend yield-0%.

The following is a summary of the status of the fixed stock-based
compensation plans during 1997.

F-25
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE K - EMPLOYEE BENEFIT AND STOCK-BASED COMPENSATION PLANS
(CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES (AFTER WEIGHTED
TWO FOR ONE AVERAGE
STOCK SPLIT) EXERCISE PRICE
-------------- --------------
<S> <C> <C>
Outstanding at January 1, 1996 -- $ --

Granted 27,950 3.57
-------------- -------------
Outstanding - December 31, 1996 27,950 3.57

Granted 505,650 7.84

Expired (15,470) 10.00

Exercised (12,480) 3.59
-------------- -------------
Outstanding - December 31, 1997 505,650 $ 7.84
============== =============
Exercisable at December 31, 1997 145,650 $ 7.43
============== =============
Weighted average per share fair value of
options granted during 1997 $ 1.29
==============
</TABLE>
The following is a summary of the status of the fixed options
outstanding at December 31, 1997.
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
- ------------------------------------------------ ---------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
REMAINING REMAINING
EXERCISE CONTRACTUAL EXERCISE CONTRACTUAL
PRICE NUMBER LIFE PRICE NUMBER LIFE
----- ------ ---- ----- ------ ----
<S><C> <C> <C> <C> <C> <C>
$6.50 55,650 5 $6.50 55,650 5
$8.00 450,000 5 $8.00 90,000 5
</TABLE>
F-26
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE L - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS

As general partner in various affiliated oil and gas
partnerships, the Company is subject to contingencies that may
arise in the normal course of business of these partnerships.
Management is of the opinion that liabilities, if any, related to
such contingencies that may arise would not be material to the
financial statements.

CONCENTRATIONS OF CREDIT RISK - The Company extends credit to
affiliated partnerships in the normal course of business. Within
this industry, certain concentrations of credit risk exist. ESI,
in its role as operator of co-owned properties, assumes
responsibility for payment to vendors for goods and services
related to joint operations and extends credit to these
partnerships as co-owners of these properties.

This concentration of credit risk may be similarly affected by
changes in economic or other conditions and may, accordingly,
impact the Company's overall credit risk. However, management
believes that its accounts receivable are well diversified,
thereby reducing potential risk to the Company.

GEOGRAPHIC CONCENTRATION - The Company plans to increase its oil
and gas reserves by continued developmental drilling in
southeastern Ohio in the area serviced by its gas gathering
system, its Dupont Field and its Beaver Coal Company Lease in
Wood and Raleigh Counties, West Virginia, respectively. The
Company may also undertake activities elsewhere in the
Appalachian Basin and the mid-continent region of the United
States. It plans to drill an increasing number of wells for its
own account, while at the same time continuing to drill wells
with future affiliated drilling partnerships to be syndicated on
a private placement basis.

NOTE M - BUSINESS SEGMENTS

The Company's operations are classified into two principal
industry segments. Oil and gas operations and brokerage
services. The oil and gas operations are conducted entirely
through ESI which is the primary industry segment. The
brokerage services are conducted exclusively through EFC.
See Note A for a description of the operations and accounting

F-27
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

NOTE M - BUSINESS SEGMENTS (CONTINUED)

policies of each Company. ESI acquired EFC during 1997 and,
therefore, prior to 1997 the Company operated only in the oil and gas
industry. The following is a summary of segment information for 1997.

<TABLE>
<CAPTION>
OIL & GAS BROKERAGE CONSOLIDATIONS
1997 OPERATIONS SERVICES & ELIMINATIONS CONSOLIDATED
- -------------------------------- ---------- -------- -------------- ------------
<S> <C> <C> <C> <C>
Net revenues to
unaffiliated customers $ 1,736,539 $ 500,131 $ -- $ 2,236,670
Intersegment revenues -- 92,400 (92,400) --
------------- ----------- --------------- ---------------
Total net revenue 1,736,539 592,531 (92,400) 2,236,670
------------- ----------- --------------- ---------------
Operating income (loss) (678,044) 185,390 (105,122) (597,776)
Other income 175,285 -- (127,090) 48,195
------------- ----------- --------------- ---------------
Net income (loss) before
income taxes $ (502,759) $ 185,390 $ (232,212) $ (549,581)
============= =========== =============== ===============
Identifiable assets $ 16,181,777 $ 276,984 $ (338,061) $ 16,120,700
============= =========== =============== ===============
Capital expenditures $ 6,901,159 $ 605 $ -- $ 6,901,764
============= =========== =============== ==============
Depreciation, depletion
and amortization $ 543,749 $ 4,696 $ 8,722 $ 557,167
============= =========== =============== ===============
</TABLE>

F-28
<PAGE>

To the Stockholders of
Energy Search, Incorporated and Subsidiary

We have audited the financial statements of Energy Search,
Incorporated and Subsidiary for the years ended December 31, 1997 and
1996. The accompanying schedules of Costs Incurred in Oil and Gas
Producing Activities and Estimates of Natural Gas and Oil Reserves on
pages 26 through 29 are not a required part of the basic financial
statements of Energy Search, Incorporated, but constitute additional
supplementary information required by the Financial Accounting
Standards Board. We have applied certain limited procedures, which
consisted principally of inquiries of management regarding the methods
of measurement and presentation of the supplementary information.
However, we did not audit the information and express no opinion on
it.

/s/ Plante & Moran, LLP

Grand Rapids, Michigan
February, 20, 1998

F-29
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY

SUPPLEMENTARY INFORMATION (UNAUDITED)

COST INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND
DEVELOPMENT ACTIVITIES

The following costs are comprised of both capitalized and expensed
costs included in the balance sheet and income statement:
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996
--------------- ----------------
<S> <C> <C>
Property acquisition costs $ 1,535,173 $ 72,640
================ ===============
Exploration costs $ 84,616 $ 288,376
================ ===============
Developments costs $ 5,683,356 $ 1,066,814
================ ===============
</TABLE>

ESTIMATES OF NATURAL GAS AND OIL RESERVES

The following estimates of proven developed natural gas and oil
reserve quantities and related standardized measure of discounted net
cash flow are estimates prepared by an independent petroleum engineer
on behalf of the Company's engineer as of December 31, 1997 and 1996.
They do not purport to reflect realizable values or fair market values
of ESI's reserves. ESI emphasizes that reserve estimates are
inherently imprecise and that estimates of new discoveries are more
imprecise than those of producing oil and gas properties.
Accordingly, these estimates are expected to change as future
information becomes available.

Proven reserves are estimated reserves of crude oil (including
condensate and natural gas liquids) and natural gas that geological
and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing
economic and operating conditions. Proven developed reserves are
those expected to be recovered through existing wells, equipment and
operating methods.

F-30
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY

SUPPLEMENTARY INFORMATION (UNAUDITED)

ESTIMATES OF NATURAL GAS AND OIL RESERVES (CONTINUED)

The standardized measure of discounted future net cash flows is
computed by applying year-end prices of oil and gas to the estimated
future production of proven oil and gas reserves, less estimated
future expenditures (based on year-end costs) to be incurred in
developing and producing the proven reserves, less estimated future
severance tax expenses and assuming continuation of existing economic
conditions. The estimated future net cash flows are then discounted
using a rate of 10 percent per year to reflect the estimated timing of
the future cash flows.
<TABLE>
<CAPTION>

OIL (BBL) GAS (MCF)
--------------- -----------------
<S> <C> <C>
Proven, developed and undeveloped reserves:

January 1, 1996 22,340 3,564,527
Revisions and other changes (2,568) (431,499)
Extensions and discoveries -- 13,471,501
Purchases of reserves (2,079) (829,969)
Production (957) (82,260)
--------------- ---------------
December 31, 1996 16,736 15,692,300
Revisions and other changes (12,583) (1,608,121)
Extensions and discoveries -- 4,649,023
Purchases and sales of reserves 20,600 12,099,800
Production (1,129) (223,025)
--------------- ---------------
December 31, 1997 23,624 30,609,977
=============== ===============
Proven developed reserves:
December 31, 1996 16,725 1,148,764
December 31, 1997 23,624 11,192,017

Equity interest in proven reserves:
December 31, 1996 1,612 145,585
December 31, 1997 268 138,228
</TABLE>

F-31
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY
<TABLE>

SUPPLEMENTARY INFORMATION (UNAUDITED)

ESTIMATES OF NATURAL GAS AND OIL RESERVES (CONTINUED)

<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE PRETAX
NET CASH FLOWS
Future cash inflows $ 105,929,500 $ 53,269,424
Future production costs (18,076,980) (6,876,455)
Future development costs (16,710,350) (10,069,585)
----------------- ----------------
Future pretax net cash flows 71,142,170 36,323,384
10% annual discount for estimated timing
of cash flows (38,780,970) (14,996,587)
----------------- ----------------
Standardized measure of discounted future
pretax net cash flows relating to proven
oil and gas reserves $ 32,361,200 $ 21,326,797
================= ================
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET
CASH FLOWS
Future cash inflows $ 105,929,500 $ 53,269,424
Future production costs (18,076,980) (6,876,455)
Future development costs (16,710,350) (10,069,585)
Future income taxes (22,149,426) (10,747,719)
----------------- ----------------
Future net cash flows 48,992,744 25,575,665
10% annual discount for estimated timing
of cash flows (24,897,377) (10,402,907)
----------------- ----------------
Standardized measure of discounted future
net cash flows relating to proven oil
and gas reserves $ 24,095,367 $ 15,172,758
================= ================
ESI's share of equity method investors' standardized
measure of discounted future cash flows $ 181,570 $ 215,995
================= ================
</TABLE>

F-32
<PAGE>
ENERGY SEARCH, INCORPORATED AND SUBSIDIARY

SUPPLEMENTARY INFORMATION (UNAUDITED)

ESTIMATES OF NATURAL GAS AND OIL RESERVES (CONTINUED)

The following reconciles the change in the standardized measure of
discounted future net cash flows for the year ended December 31,

<TABLE>
<CAPTION>
1997 1996
------------- -----------------
<S> <C> <C>
Beginning of year $ 15,172,758 $ 2,720,651
Sales of oil and gas produced, net of
production costs (524,385) (117,852)
Extensions, discoveries, and improved recovery -
Less related costs 4,853,796 23,352,526
Revisions of previous quantity estimates (394,343) (271,797)
Changes in prices 1,231,832 1,372,168
Net change from purchases and sales of
minerals in place 10,716,000 (632,667)
Net change in income taxes (11,258,007) (10,279,719)
Accretion of discount (1,517,276) (272,065)
Other 5,814,992 (698,487)
--------------- --------------
End of year $ 24,095,367 $ 15,172,758
=============== ==============
</TABLE>

F-33
<PAGE>
<TABLE>
ENERGY SEARCH, INCORPORATED
BALANCE SHEETS
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997<F*>
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS

CURRENT ASSETS
Cash and cash equivalents $ 171,767 $ 2,252,316
Accounts receivable 897,052 976,065
Other current assets 88,816 91,670
----------- -----------

Total current assets 1,157,635 3,320,051

OIL AND GAS PROPERTIES
Proven properties 12,549,502 4,546,833
Unproven properties 203,701 193,965
Wells and related equipment 10,821,782 8,100,764
Less accumulated depreciation, depletion and
amortization (3,740,081) (3,140,678)
----------- -----------

Net oil and gas properties 19,834,904 9,700,884

OTHER ASSETS
Other property and equipment, net 304,892 363,180
Investments in and advances to related partnerships 1,736,378 1,863,095
Deferred tax asset 660,100 650,400
Other assets 224,878 223,090
----------- -----------

Total other assets 2,926,248 3,099,765

Total assets $23,918,787 $16,120,700
=========== ===========
<FN>
<F*>Condensed from audited financial statements
</FN>
</TABLE>

F-34
<PAGE>
<TABLE>
ENERGY SEARCH, INCORPORATED
BALANCE SHEETS (CONTINUED)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997<F*>
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Current portion of long-term debt 31,245 29,184
Accounts payable and accrued expenses 1,122,624 1,356,748
----------- -----------

Total current liabilities 1,153,869 1,385,932

LONG-TERM DEBT, less current portion 6,856,674 788,279

SHAREHOLDERS' EQUITY

Common stock (no par value, 25,000,000 shares
authorized; 4,005,308 and 3,768,241 shares issued
and outstanding as of September 30, 1998 and
December 31, 1997, respectively) 17,231,343 15,448,073

Preferred stock (no par value, 5,000,000 shares
authorized; 36,000 shares of 9% Redeemable
Convertible issued and outstanding at $7.50 per
share initial issue price) 201,255 --

Retained earnings (deficit) (1,524,354) (1,501,584)
----------- -----------

Total shareholders' equity 15,908,244 13,946,489
----------- -----------

Total liabilities and shareholders' equity $23,918,787 $16,120,700
=========== ===========
<FN>
<F*>Condensed from audited financial statements
</FN>
</TABLE>

See notes to financial statements

F-35
<PAGE>
<TABLE>
ENERGY SEARCH INCORPORATED
STATEMENTS OF OPERATION (UNAUDITED)
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUE
Net turnkey revenue $ 77,241 $ 670,892
Oil & gas revenue 1,969,650 335,454
Management fees 118,366 210,708
Other revenue 528,918 264,110
---------- ----------

Total revenue 2,694,175 1,481,164

OPERATING EXPENSES
Production expenses 514,756 175,064
Exploration expenses 147,107 74,535
Depreciation, depletion and amortization 769,077 400,187
Interest 221,175 63,045
General and administrative 1,013,610 1,234,597
---------- ----------

Total operating expenses 2,665,725 1,947,428

NET INCOME (LOSS) FROM OPERATIONS 28,450 (466,264)

OTHER INCOME (EXPENSE)
Program reimbursement (146,034) (35,395)
Equity in income of related partnerships 85,114 92,844
Gain on sale of assets -- 4,177
---------- ----------

Total other income (expense) (60,920) 61,626

NET INCOME (LOSS) BEFORE INCOME TAX (32,470) (404,638)

INCOME TAX BENEFIT 9,700 121,000
---------- ----------
NET (LOSS) $ (22,770) $ (283,638)

Earnings (loss) per common and common
equivalent share (0.01) (0.12)

F-36
<PAGE>
Earnings (loss) per common share - assuming full
dilution (0.01) (0.12)
</TABLE>
See notes to financial statements

F-37
<PAGE>
<TABLE>
ENERGY SEARCH, INCORPORATED
STATEMENTS OF OPERATION (UNAUDITED) (CONTINUED)
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUE
Net turnkey revenue $ 35,762 $ (14,386)
Oil & gas revenue 749,029 195,890
Management fees 13,963 53,532
Other revenue 154,757 124,220
---------- ----------

Total net revenue 953,511 359,256

OPERATING EXPENSES
Production expenses 195,455 53,923
Exploration expenses 53,468 30,781
Depreciation, depletion and amortization 314,992 142,754
Interest 147,583 20,519
General and administrative 161,949 296,486
---------- ----------

Total operating expenses 873,447 544,463

NET INCOME (LOSS) FROM OPERATIONS 80,064 (185,207)
OTHER INCOME (EXPENSE)
Program reimbursement (51,508) (11,722)
Equity in income of related partnerships 38,124 30,948
Gain on sale of assets -- 1,214
---------- ----------

Total other income (expense) (13,384) 20,440

NET INCOME (LOSS) BEFORE INCOME TAX 66,680 (164,767)

INCOME TAX BENEFIT (EXPENSE) (18,700) 49,100
---------- ----------

NET INCOME (LOSS) $ 47,980 $(115,667)

Earnings (loss) per common and common
equivalent share 0.01 (0.06)

F-38
<PAGE>
Earnings (loss) per common share - assuming
full dilution 0.01 (0.06)
</TABLE>
See notes to financial statements

F-39
<PAGE>
<TABLE>
ENERGY SEARCH, INCORPORATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (22,770) $ (283,638)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation, depletion and amortization expense 769,077 400,187
Dry holes and abandonments of previously capitalized oil 2,865
and gas properties:
(Gain) on sale of assets -- (4,177)
Equity in (income) losses of related partnerships (85,114) (92,844)
(Increase) decrease in deferred tax asset (9,700) (121,000)
(Increase) decrease in assets
Accounts receivable and due from partnerships 212,963 319,794
Other current assets 2,854 (17,235)
Other assets (29,726) 250,786
Increase (decrease) in liabilities
Accounts payable and accrued liabilities (234,124) (264,923)
Drilling advances -- (1,335,124)
----------- -----------

Net cash provided (used) in operating
activities 603,460 (1,145,309)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of proven properties (6,189,460) (2,392,152)
Proceeds from sale of other property and equipment -- 10,048
Purchase of wells and other related equipment (2,721,018) (1,153,815)
Purchase of other property and equipment (30,951) (114,073)
Distributions from affiliated partnerships 58,894 72,521
Contributions to affiliated partnerships (33,510) (237,215)
----------- -----------
Net cash used in investing activities (8,916,045) (3,814,686)

CASH FLOWS FROM FINANCING ACTIVITIES:
Gross proceeds from issuance of common stock -- 8,000,000
Gross proceeds from issuance of preferred stock 270,000
Proceeds from long-term debt 6,092,093 --
</TABLE>

F-40
<PAGE>
<TABLE>
ENERGY SEARCH, INCORPORATED
STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Payments of stock issuance costs-common stock (39,675) (1,448,235)
Payments of stock issuance costs-preferred stock (68,745)
Payment of dividends on preferred stock -- (59,749)
Payments on long-term debt (21,637) (300,995)
----------- -----------
Net cash provided in financing activities 6,232,036 6,191,021

NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (2,080,549) 1,231,026

CASH AND CASH EQUIVALENTS - Beginning of period 2,252,316 51,067
----------- -----------

CASH AND CASH EQUIVALENTS - End of period $ 171,767 $ 1,282,093
=========== ===========

Supplemental Schedule of Non-cash Investing
And Financing Activities

Purchase of proven properties from issuance $ 1,822,945 $ --
of common stock =========== ===========
</TABLE>

See notes to financial statements

F-41
<PAGE>
ENERGY SEARCH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

BASIS OF PRESENTATION

The condensed Balance Sheets as of September 30, 1998 and December 31,
1997, the Statements of Operations for the three and nine-month period
ended September 30, 1998 and September 30, 1997, and the Statements of
Condensed Cash Flows for the nine month periods ended September 30, 1998
and September 30, 1997 have been prepared by the Company.

In the opinion of management all adjustments (which include
reclassifications and normal recurring adjustments) necessary to present
fairly the financial position, results of operations, and cash flows at
September 30, 1998 and for all periods presented, have been made.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues, and expenses. Actual results may differ from these estimates.
Interim results are not necessarily indicative of results for a full year.

Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these condensed financial statements be read in conjunction with the 1997
audited financial statements and notes thereto included in the Company's
Form 10-KSB for the year ended December 31, 1997.

EARNINGS PER SHARE

Earnings (loss) per share of common and common equivalent stock are
based on the weighted average common shares outstanding and are
retroactively adjusted for stock splits.

F-42

<PAGE>

EXHIBIT 1.5

ENERGY SEARCH, INCORPORATED

and

AMERICAN STOCK TRANSFER & TRUST COMPANY

AMENDMENT NUMBER 1
TO THE WARRANT AGREEMENT

DATED AS OF DECEMBER 28, 1998

<PAGE>
AMENDMENT NUMBER 1 TO THE WARRANT AGREEMENT

This AMENDMENT NUMBER 1 (the "Amendment") amends the Warrant Agreement
(the "Agreement") dated January 24, 1997 between Energy Services,
Incorporated (the "Company") and American Stock Transfer & Trust Company
(the "Warrant Agent"). Capitalized terms used herein and not otherwise
defined shall have their respective meanings ascribed to them in the
Agreement.

The Company has advised the Warrant Agent that it proposes to file a
Post-Effective Amendment No. 1 to the Registration Statement during the
month of December of 1998, or shortly thereafter. The effective date of
that Registration Statement is not presently known. The parties agree to
amend the Agreement as follows:

1. SECTION 8(A). Pursuant to Section 18 of the Agreement
("Supplements and Amendments"), the Company and the Warrant Agent agree to
amend the Agreement by adding a new Section 8(A)(1) to Section 8(A) as
follows:

8. WARRANT PRICE; ADJUSTMENTS.
A.
(1) The price at which Common Stock shall be
purchasable upon exercise of Warrants for a period of 90
consecutive days commencing 3 days after the effective date
of the Post-Effective Amendment No. 1 to the Registration
Statement as filed with the Securities and Exchange
Commission shall be $5.00 per share of Common Stock, or, if
such exercise price is adjusted as provided in this Section
8, the exercise price shall be such price as so adjusted,
provided such adjusted price is less than $5.00 per share.
Commencing after the conclusion of the 90 day period
referred to above, and continuing through the date which is
one year from the effective date of the Post-Effective
Amendment No. 1 to the Registration Statement, the exercise
price for the Warrants shall be $6.00 per share of Common
Stock, or, if such exercise price is adjusted as provided in
this Section 8, the exercise price shall be as so adjusted,
provided such adjusted price is less than $6.00 per share.
Thereafter, the price per share of Common Stock shall be
$9.60 per share of Common Stock, subject to adjustment as
provided in this Section 8.

2. OTHER TERMS. Except as amended hereby, all of the terms
and conditions of the Agreement shall remain in full force and effect.

<PAGE>
3. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, each of which, when so executed and delivered, shall
be deemed to be an original, but all such counterparts taken together
shall constitute but one and the same Amendment.

This Amendment to the Agreement is signed as of December 28,
1998.

IN WITNESS WHEREOF, Energy Search, Incorporated has caused to be
printed herein the facsimile signature of its President as of the date
written above.

ENERGY SEARCH, INCORPORATED

By:____________________________________
Richard S. Cooper, President

AMERICAN STOCK TRANSFER & TRUST COMPANY
As Warrant Agent

By:_____________________________________
Authorized Signature

-2-

<PAGE>
EXHIBIT 10.22

November 12,1998

Michael W. Mooney
503 Warren Street
Marietta, OH 45750

RE: EMPLOYMENT AGREEMENT

Dear Mike:

To confirm our conversation and agreement between you and the Company as of
November 1, 1998, with respect to your Employment Agreement.

1. Your contract per paragraph 1 is automatically renewed through October
31, 1999 with the following additional modifications.

2. Salary increase of six percent (6%) from $86,400 to $91,584.

3. ESI has and will continue to provide a life insurance policy
benefitting your designee (1999 cost $690) in the amount of $250,000.

4. Although not a change, the Company confirms the expected issuance of
5,000 shares of EGAS common stock as of January 5, 1999, pursuant to
paragraph 3(c) of your Contract.

5. Modify paragraph 3(d) of your Contract as follows: Instead of two
bonuses of 5,000 shares of EGAS common stock to be paid when EGAS
trades at $12 and $16, the Company agrees to pay the 10,000 shares to
you, 2,500 shares per year for four years commencing on January 5,
1999, and continuing for the next four years. This stock issuance is
contingent upon your continued employment with the Company, but shall
be considered fully earned and payable if the Company should sell all
or substantially all of the stock or assets of the Company within the
four year period.

Also in response to your questions, enclosed is a copy of a portion of the
provisions adopted by the shareholders on June 17, 1998, as an Amendment to
the Company Charter. It requires indemnity to the full extent permitted by
law of executive officers of which you are one.

<PAGE>
MICHAEL W. MOONEY NOVEMBER 22, 1998 PAGE 2

Lastly, the stock you have and will be receiving will not be registered
stock. As such it cannot be sold except pursuant to exemption from the SEC
registration requirements. The primary exemption is <Section>144. Under
this section, you as an "officer" must hold the stock for two years prior
to sale. After two years you may sell the stock with the purchaser
receiving unrestricted stock. You must, however, file a Form 4 reflecting
to the public a sale by an officer of stock.

If you are in agreement with the above please indicate by initialing and
returning an original of this letter for our files and retaining one for
yours.

Yours truly,

Richard S. Cooper, JD
President, ESI

RSC:lhg

Enclosures

<PAGE>
EXHIBIT 23.3

CONSENT OF INDEPENDENT GEOLOGIST

I hereby consent to the incorporation by reference this Post-Effective
Amendment No. 1 to Registration Statement on Form SB-2 of my report dated
August 31, 1997, on the oil and gas reserves of Energy Search, Incorporated
as of December 31, 1996, as included in the Company's annual report on Form
10-KSB for the year ended December 31, 1997. I also consent to the
reference to me under the caption "Experts" in this document.

WALBE & ASSOCIATES, INC.

By:________________________
Kim A. Walbe, President

December 28, 1998
Charleston, West Virginia

<PAGE>
EXHIBIT 23.4

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in this Post-
Effective Amendment No. 1 to Registration Statement on Form SB-2 of our
report dated February 20, 1998, on the financial statements of the Company
for the years ended December 31, 1996 and December 31, 1997 included in the
Company's annual report on Form 10-KSB for the year ended December 31,
1997. We also consent to the reference to our firm under the caption
"Experts" in this document.

PLANTE & MORAN, LLP

By:______________________
Jonathan M. Chism, CPA

December 28, 1998
Grand Rapids, Michigan

<PAGE>
EXHIBIT 23.5

LAW OFFICES
PATRICK R. SUGHROUE, P.C.

3777 SPARKS DRIVE S.E. TEL: (616) 940-3399
SUITE 130 FAX: (616) 940-3592
GRAND RAPIDS, MI 49546 E-MAIL: [email protected]

December 29, 1998

Securities and Exchange Commission
Atlanta District Office
3475 Lenox Road, NE
Suite 100
Atlanta, Georgia 30326-1232

RE: Energy Search, Incorporated
Post - Effective Amendment No. 1
To Registration Statement on Form SB-2
File No. 333-12755

Ladies and Gentlemen:

I am acting as counsel to Energy Search, Incorporated a Tennessee
corporation (the "Company"), in connection with the above-referenced
post effective amendment no. 1 to registration statement on Form SB-2 (the
"Registration Statement").

I hereby consent the reference to my law firm under the caption "Legal
Matters" in the Prospectus included in the Registration Statement, as
amended.

Very truly yours,

PATRICK R. SUGHROUE, P.C.

/S/ PATRICK R. SUGHROUE
Patrick R. Sughroue

PRS:prs
cc: Mr. Richard S. Cooper

<PAGE>
EXHIBIT 23.6

CONSENT OF INDEPENDENT PETROLEUM CONSULTANT

We hereby consent to the incorporation by reference in this Post-
Effective Amendment No. 1 to Registration Statement on Form SB-2 of our
report dated March 4, 1998, on the oil and gas reserves of Energy Search,
Incorporated as of January 1, 1998, as included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1997. We also
consent to the reference to our firm under the caption "Experts" in this
document.

WRIGHT & COMPANY, INC.

By:___________________________
D. Randall Wright, President

December 28, 1998
Brentwood, Tennessee