SEVEN SEAS PETROLEUM INC, POS AM, 1998-07-30

SEVEN SEAS PETROLEUM INC
POS AM, 1998-07-30
OIL & GAS FIELD EXPLORATION SERVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1998.

REGISTRATION NO. 333-51009
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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POST EFFECTIVE AMENDMENT NO. 1

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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SEVEN SEAS PETROLEUM INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
YUKON TERRITORY 1311 73-1468669
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

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<TABLE>
<S> <C>
HERBERT C. WILLIAMSON, III
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
1990 POST OAK BLVD., SUITE 960 1990 POST OAK BLVD., SUITE 960
HOUSTON, TEXAS 77056 HOUSTON, TEXAS 77056
(713) 622-8218 (713) 622-8218
(Address, including zip code, and telephone (Name, address, including zip code
number, including area code, of and telephone number, including area
registrant's principal executive offices) code, of agent for service)
</TABLE>

Copies to:

T. MARK KELLY
VINSON & ELKINS L.L.P.
2300 FIRST CITY TOWER
1001 FANNIN STREET
HOUSTON, TEXAS 77002-6760
(713) 758-2222

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable following the effectiveness of this Registration
Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [X]

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

If this Form is a 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 a 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. [ ]

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

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<PAGE> 2

PROSPECTUS

SEVEN SEAS PETROLEUM INC.

COMMON SHARES AND WARRANTS

This Prospectus relates to the offering for resale by the Selling
Securityholders (the "Selling Securityholders") of (i) up to 2,173,913 common
shares of Seven Seas Petroleum Inc., a Yukon Territory corporation (the
"Company"), no par value (the "Shares"), (ii) up to 1,086,957 warrants of the
Company exercisable for one Common Share at an exercise price of $15 per share
(the "Warrants"), and (iii) up to 1,086,957 common shares of the Company
issuable upon exercise of the Warrants (the "Warrant Shares" and, collectively
with the Shares, the "Common Shares"). The Shares and Warrants are issuable as a
unit upon the conversion of up to $25,000,000 aggregate principal amount of the
Company's 6% convertible redeemable debentures (the "Convertible Debentures").
The Convertible Debentures will be issued upon the exchange of a like principal
amount of the Company's 6% exchangeable subordinated notes (the "Exchangeable
Notes"). The Exchangeable Notes were originally offered by the Company in an
underwritten private placement in the United States and Canada (the "Offering").
Pursuant to the terms of the Offering, the Company agreed to file a registration
statement covering the Common Shares and Warrants and to keep such registration
statement effective for a period of two years. The Exchangeable Notes are
exchangeable into Convertible Debentures upon the earlier of the effectiveness
of the registration statement or August 7, 1998. The registration statement
became effective on July 22, 1998.

The Company's common shares are quoted on the American Stock Exchange
("AMEX") under the symbol "SEV" and on the Toronto Stock Exchange under the
symbol "SVS.U." The last reported sale price of the common shares on the AMEX on
July 27, 1998 was $16.25 per share.

The Common Shares and Warrants may be sold from time to time pursuant to
this Prospectus by the Selling Securityholders. The Common Shares and Warrants
may be sold by the Selling Securityholders in ordinary brokerage transactions,
in transactions in which brokers solicit purchases, in negotiated transactions,
or in a combination of such methods of sale, at market prices prevailing at the
time of sale, at prices relating to such prevailing market prices or at
negotiated prices. See "Plan of Distribution." The distribution of the Common
Shares and Warrants is not subject to any underwriting agreement. The Company
will receive no part of the proceeds of sales from the offering by the Selling
Securityholders. All expenses of registration incurred in connection with this
offering are being borne by the Company, but all selling and other expenses
incurred by the Selling Securityholders will be borne by such Selling
Securityholders. None of the securities offered pursuant to this Prospectus have
been registered prior to the filing of the Registration Statement of which this
Prospectus is a part.

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON SHARES AND WARRANTS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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, 1998
<PAGE> 3

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, NW, Washington, D.C. 20549, and at the Commission's Regional
Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained by mail from the Public
Reference Section of the Commission at 450 West Fifth Street, NW, Washington,
D.C. 20549, at prescribed rates. Such reports, proxy and information statements
and other information concerning the Company can also be inspected at the
offices of the American Stock Exchange, 86 Trinity Place, New York, New York,
10006. The reports, proxy statements and other information may also be obtained
from the Web site that the Commission maintains at http:/www.sec.gov.

The Company has filed with the Commission a Registration Statement on Form
S-1 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which were omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby made
to the Registration Statement. Any statements contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission are not necessarily complete, and in each
instance reference is made to the copy of such document so filed. Each such
statement is qualified in its entirety by such reference.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements included herein other than statements of historical fact are
forward-looking statements. Such forward-looking statements include, without
limitation, the statements in "Summary," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and "Business," regarding the
Company's financial position, estimated quantities of reserves, business
strategy and plans and objectives for future operations. Forward-looking
statements in this Prospectus generally are accompanied by words such as
"anticipate," "believe," "estimate," "project," "potential" or "expect" or
similar statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, no assurance can be
given that such expectations will prove correct. Factors that could cause the
Company's results to differ materially from the results discussed in such
forward-looking statements are discussed in "Risk Factors" and elsewhere in this
Prospectus. All forward-looking statements included herein and therein are
expressly qualified in their entirety by the cautionary statements in this
paragraph.

2
<PAGE> 4

SUMMARY

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

THE COMPANY

Seven Seas is an independent international energy company engaged in the
exploration, development and production of oil and natural gas in Colombia. The
Company is the operator of an oil discovery ("Emerald Mountain") defined by two
association contracts with the Colombian national oil company (the "Dindal
Association Contract" and the "Rio Seco Association Contract", and,
collectively, the "Association Contracts") covering a total of approximately
109,000 contiguous acres in central Colombia. The Company has focused its
efforts to date on delineating the oil and gas potential of Emerald Mountain.
The five exploratory wells completed on Emerald Mountain have achieved maximum
tested actual production rates ranging from 3,415 to 13,123 barrels per day
(Bbls/d). The Company has produced approximately 300,000 barrels of oil during
test production; however, continuous production of the oil field is scheduled to
begin in mid- to late 1999. Except for additional production testing, management
has made the decision to shut in the five completed wells until completion of
the infrastructure necessary to produce, process, and transport oil production
from Emerald Mountain. The Company's 57.7% working interest in Emerald Mountain
(before Colombian government participation) was acquired through a series of
transactions from 1995 through 1997. The Company has interests in three
additional association contracts in Colombia which, together with the Emerald
Mountain association contracts, cover over one million gross acres. As of
December 31, 1997, the Company's estimated net proved reserves attributable to
the delineation of 14,459 acres of Emerald Mountain were 32.2 MMBbls with an SEC
PV-10 of $144.9 million.

Certain members of the Company's management have been involved in the
Emerald Mountain project since its inception in 1992. The Company's executive
officers average approximately 29 years of experience in the oil and gas
industry, and predecessors of the Company have operated throughout the U.S. and
Canada since 1959. As of June 30, 1998, the Company's officers and directors
beneficially owned approximately 29% of the Company's outstanding common shares.

The Company anticipates developing Emerald Mountain in two phases. Phase I
of the development program includes development and delineation drilling and the
construction of production facilities and a 36-mile pipeline, scheduled for
completion in mid- to late 1999, which will allow Emerald Mountain production to
reach an existing pipeline with approximately 50,000 Bbls/d of currently
available transportation capacity. Phase II of the development program includes
further development and delineation drilling, construction of production
facilities and construction of a 45-mile pipeline to expand the capacity for
production from the field. The Company has contracted for the basic and
conceptual engineering of the transportation system, requested bids for tubular
supplies and anticipates selecting a project manager in the near future and is
preparing to solicit bids for the detailed engineering and construction of the
pipeline. Prior to the issuance of the Senior Notes (as defined), the Company
had financed the operation, exploration and continued delineation of Emerald
Mountain primarily with private offerings of equity and convertible debt,
providing the Company with aggregate net proceeds of $47.0 million. The Company
also issued 17.8 million common shares as consideration for a portion of its
interest in Emerald Mountain. On May 7, 1998, the Company issued $110 million
aggregate principal amount of 12 1/2% Senior Notes due May 15, 2005 (the "Senior
Notes") in a private placement and received net proceeds of approximately $106
million. Approximately $37.8 million of the net proceeds are being held in a
separate account or in escrow to secure the first three years of interest
payments. The Company expects that the remaining proceeds from the offering of
Senior Notes, together with other sources of funds expected to be available to
it (including bank financing and proceeds from the exercise of warrants), will
be sufficient to finance its initial net capital expenditure requirements for
Phase I of the development program.

3
<PAGE> 5

RECENT DEVELOPMENTS

Drilling Activity. On July 8, 1998, the Company announced that it had
successfully completed drilling operations on the Tres Pasos No. 4-E well on the
Emerald Mountain project in Colombia, South America. The Tres Pasos No. 4-E well
is located on the Rio Seco Association Contract area, approximately 5 kilometers
northwest from the surface location of the previously announced El Segundo No. 1
discovery well. The well reached a total depth from the surface of approximately
6,300 feet. Approximately 292 feet of the Upper Cretaceous Cimarrona formation
was encountered. There was no apparent oil-water contact in the well.

On June 5, 1998, Seven Seas announced that it had successfully completed
drilling operations on the El Segundo 6-E well, the southernmost well on Emerald
Mountain to date. This well is located in the Dindal Association Contract area,
approximately 5.3 miles south of the El Segundo 1-E discovery well and reached a
total depth of 8,713 feet. Preliminary analyses while drilling included the
observation of highly fractured core samples and over 300 feet of Cimarrona
formation with no indication of oil-water contact.

On February 13, 1998, Seven Seas announced that the Tres Pasos 2-E well had
reached a total depth of 6,054 feet. The well is located 5.6 miles northwest of
the El Segundo 1-E discovery well in the Rio Seco contract area. The well
encountered 290 feet of Cimarrona formation with no indication of oil-water
contact. Due to an operational problem that resulted from a failure to properly
cement casing through the Cimarrona formation, the Company has decided to
sidetrack and drill a new well bore. On May 5, 1998, the Company announced that
the Tres Pasos 2-E sidetrack well reached a total depth of 5,880 feet with a
bottom hole location approximately 1,200 feet southeast of the original well
bore.

On January 30, 1998, Seven Seas announced the completion and results from
33 days of reservoir testing for the El Segundo 2-E well located in the Dindal
Association Contract area. The well encountered 314 feet of Cimarrona formation
and had a maximum production rate of 5,381 Bbls/d and 826 Mcf/d of gas per day
and there was no evidence of oil-water contact. The production rate and
interference data confirm a significant extension of the reservoir approximately
3.7 miles to the north of the El Segundo 1-E discovery well.

In November 1997, drilling commenced on the El Segundo 3-E well, the eighth
well to be drilled on Emerald Mountain and the sixth to be drilled in the Dindal
Association Contract area. The drilling of the El Segundo 3-E was completed in
February 1998, and the well encountered 292 feet of Cimarrona formation. After
the completion of drilling operations on the El Segundo 3-E, the Company
experienced significant mechanical problems while attempting to complete the
well for production testing. Due to a failure to effectively install the lower
portion of the well casing, it was not possible to achieve sufficient
communication with the Cimarrona formation to initiate production testing. The
Company has temporarily abandoned the El Segundo 3-E well pending a scheduled
return to this location in the third quarter of 1998.

Other International Interests. The Company is in the process of eliminating
any mandatory capital commitments outside of Colombia. In Papua New Guinea, the
Company signed a farm-out agreement with ARCO Papua New Guinea Inc. and retained
a 20% interest in the property covered by its exploration permit. The Company
anticipates in the future it will either farm-out its 20% interest or relinquish
its rights in the property. In the Perth Basin in Western Australia, the Company
has signed a purchase and sale agreement with Forcenergy International Inc., in
which the Company will exchange its 11.77% working interest for approximately
$0.9 million. The Company will retain a small overriding royalty interest and
will also be reimbursed approximately $0.3 million for certain capital
expenditures. The agreement is pending final approval by an aboriginal council
in Western Australia. In the Bass Strait Basin offshore southeastern Australia,
the Company is seeking to farm out its interests. The Company has no required
capital commitments for this prospect.

RISK FACTORS

See "Risk Factors," beginning on page 7 hereof, for a discussion of certain
factors that should be considered in evaluating an investment in the Common
Shares and Warrants.

4
<PAGE> 6

SUMMARY HISTORICAL FINANCIAL DATA

The following table sets forth certain consolidated historical financial
data for the Company as of and for each of the periods indicated. The results of
operations during delineation and testing are not indicative of results after
the initiation of commercial production. The following data should be read in
conjunction with the "Selected Historical Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's consolidated financial statements and notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
(IN THOUSANDS)
PERIOD FROM
INCEPTION YEARS ENDED
(FEBRUARY 3, 1995) DECEMBER 31, QUARTER ENDED MARCH 31,
THROUGH DECEMBER 31, ------------------- -----------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues...................... $ 152 $ 575 $ 1,567 $ 433 $ 184
General and administrative.... 1,071 2,455 8,714 917 1,120
Lease operating expenses...... -- 253 907 230 188
Depreciation and
amortization............... 38 111 148 17 84
Operating loss................ (2,120) (2,259) (8,222) (760) (1,178)
Net loss...................... (2,120) (2,195) (7,928) (722) (1,115)
BALANCE SHEET DATA (END OF
PERIOD):
Cash and cash equivalents..... $ 3,366 $ 10,620 $ 18,067 $ 11,637 $ 8,725
Total assets.................. 4,170 235,501 291,914 192,295 292,020
Current liabilities........... 120 2,806 8,205 1,903 6,531
Minority interest............. -- 1,060 4,087 1,348 5,297
Total debt(1)................. -- -- 25,000 -- 25,000
Stockholders' equity.......... 4,050 167,667 184,163 189,044 184,733
</TABLE>

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(1) Consists of $25.0 million of Exchangeable Notes, which are exchangeable into
Convertible Debentures that may be converted into common shares and warrants
at the option of the holders thereof and, subject to certain conditions, at
the option of the Company.

5
<PAGE> 7

SUMMARY RESERVE AND PRODUCTION DATA

The following table sets forth summary information with respect to the
Company's estimated proved oil and gas reserves and the estimated future net
cash flows attributable thereto. Unless otherwise noted, all information in this
Prospectus relating to oil and gas reserves and the estimated future net
revenues and cash flows attributable thereto are based upon estimates prepared
by Ryder Scott Company Petroleum Engineers ("Ryder Scott"), an independent
petroleum engineering firm, and are net to the Company's interest.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
<S> <C>
Total net proved reserves:
Oil (MBbls)............................................... 32,160
Gas (MMcf)................................................ --
Total (MBOE).............................................. 32,160
Net proved developed reserves:
Oil (MBbls)............................................... 11,494
Gas (MMcf)................................................ --
Total (MBOE).............................................. 11,494
Estimated future net revenues before income taxes (in
thousands)(1)............................................. $241,700
Present value of estimated future net revenues before income
taxes
(in thousands)(1)......................................... $144,866
Standardized measure of discounted future net cash flows (in
thousands)(1)(2).......................................... $100,617
</TABLE>

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(1) The present value of estimated future net revenues attributable to the
Company's proved reserves was prepared using constant prices as of December
31, 1997, discounted at 10% per annum on a pre-tax basis (SEC PV-10). The
net price was calculated using the December 31, 1997 price of $17.00 per
barrel, less $6.85 per barrel for gravity adjustment and transportation and
marketing costs, yielding a net well head price of $10.15 per barrel.

(2) The standardized measure of discounted future net cash flows represents the
present value of estimated future net revenues from proved reserves after
income tax, discounted at 10% per annum.

ACREAGE SUMMARY

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------------------------------
GROSS ACRES NET ACRES(1)
----------------------- -----------------------
DEVELOPED UNDEVELOPED DEVELOPED UNDEVELOPED
<S> <C> <C> <C> <C>
Colombia:
Rio Seco/Dindal................................ 14,459 94,579 8,343 54,572
Montecristo/Rosablanca......................... -- 692,179 -- 519,134
Tapir.......................................... -- 232,613 -- 27,623
Papua New Guinea(2).............................. -- 1,200,000 -- 1,200,000
Australia(3)..................................... -- 2,394,546 -- 429,978
------ --------- ----- ---------
Total.................................. 14,459 4,613,917 8,343 2,231,307
</TABLE>

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(1) Net acres are based on the Company's respective working interests and, in
Colombia, are before Colombian government participation. See
"Business -- Properties."

(2) The Company signed a farm-out agreement with ARCO Papua New Guinea Inc. for
all of this acreage and retained a 20% interest. The Company anticipates in
the future it will either farm-out its 20% interest or relinquish its rights
in the property.

(3) In the Perth Basin in Western Australia, the Company has signed a purchase
and sale agreement with Forcenergy Inc. The agreement is pending final
approval by an aboriginal council in Western Australia. In the Bass Strait
Basin offshore southeastern Australia, the Company is seeking to farm out
its interests.

6
<PAGE> 8

RISK FACTORS

In addition to the other information set forth elsewhere in this
Prospectus, the following factors relating to the Company and the Offering
should be carefully considered when evaluating an investment in the Common
Shares and Warrants offered hereby.

RISKS RELATED TO THE COMPANY

SUBSTANTIAL INDEBTEDNESS; LACK OF CASH FLOW

At March 31, 1998, after giving effect for the recently completed offering
of Senior Notes, the Company had $135.0 million of indebtedness outstanding,
including $25.0 million secured indebtedness represented by the Exchangeable
Notes. The Company and its subsidiaries may incur additional indebtedness under
the terms of the indenture governing the Senior Notes under certain
circumstances. This level of indebtedness may pose substantial risks to the
Company, including the possibility that the Company may not generate sufficient
cash flow from operations to pay the principal and interest on such
indebtedness. The Company is currently negotiating with its lender for a $25
million credit facility which is expected to close in the third quarter of 1998.

The Company's ability to generate revenues and cash flow to pay the
principal of and interest on its indebtedness will depend upon the drilling and
completion of additional wells. The Company has no significant income-producing
properties, and its principal assets, its interests in the Dindal and Rio Seco
Association Contracts, are in the early stage of exploration and development.
Since inception through December 31, 1997, the Company incurred cumulative
losses of $12.2 million and, because of its continued exploration and
development activities, expects that it will continue to incur losses and that
its accumulated deficit will increase until commencement of production from the
Dindal and Rio Seco Association Contracts in quantities sufficient to cover
operating expenses. The Company had oil sales in 1996 and 1997 of $0.2 million
and $0.8 million, respectively, which pertained solely to production testing of
the Company's wells in Colombia. These sales represented the Company's only
sales of production since its inception. Although the Company intends to
continue to sell oil resulting from production tests, significant production
from the wells drilled to date is not expected to commence until construction of
production facilities and pipelines. The Company has received preliminary plans
and engineering specifications for the construction of pipelines and production
facilities. The construction of the Phase I and Phase II pipelines and
production facilities is subject to a number of conditions, including
negotiating construction contracts and obtaining required environmental and
construction permits, easements and rights of way. The Company does not expect
these facilities to be completed before mid-to late 1999, and no assurances can
be given as to when such facilities will be completed. Accordingly, no assurance
can be given as to when significant production from the wells will occur, if at
all. If the Company is unsuccessful in constructing production facilities and a
pipeline or in increasing its proved reserves or realizing future production
from its properties, the Company may be unable to pay all of the principal of
and interest on its indebtedness when due. See "-- Risks Related to Construction
of Pipeline and Production Facilities" and "-- Risks Related to the Oil and Gas
Industry."

The level of the Company's indebtedness will have certain important effects
on its future operations, including the fact that a substantial portion of the
Company's cash flow from operations likely will be dedicated to payments on
indebtedness and will not be available for other purposes. In addition, such
level of indebtedness may affect the Company's ability to finance its future
operations and capital needs and may limit its ability to pursue other business
opportunities. In addition, the Company's ability to meet its debt service
obligations and to limit its total indebtedness will depend upon the Company's
future performance, which will be subject to general economic conditions, the
economic and political environment in Colombia, prices received for the
Company's production and operating hazards inherent in the oil and gas business,
all of which are beyond the control of the Company.

The proposed credit facility and any agreement governing other
indebtedness, including the indenture governing the Senior Notes, contain or
will contain a number of covenants that will restrict the ability of the Company
to dispose of assets, merge or consolidate with another entity, incur additional
indebtedness, create liens, make capital expenditures or other investments or
acquisitions and otherwise restrict corporate activities.

7
<PAGE> 9

The proposed credit facility will also contain requirements that the Company
maintain certain financial ratios and may restrict the Company from prepaying
the Company's other indebtedness. The ability of the Company to comply with such
provisions may be affected by events that are beyond the Company's control. The
breach of any of these covenants could result in a default under the proposed
credit facility, the indenture relating to the Senior Notes and agreements
governing other indebtedness. In addition, as a result of these covenants, the
ability of the Company to respond to changing business and economic conditions
and to secure additional financing, if needed, may be significantly restricted,
and the Company may be prevented from engaging in transactions that might
otherwise be considered beneficial to the Company. See "Description of Existing
Indebtedness."

RISKS RELATED TO CONSTRUCTION OF PIPELINE AND PRODUCTION FACILITIES

The marketability of the Company's production depends upon the availability
and capacity of gathering systems, pipelines, compression and production
facilities, including storage, separation and reinjection facilities, and the
unavailability or lack of capacity thereof could result in the shut-in of
producing wells or the delay or discontinuance of development plans for
properties. In addition, regulation of oil and natural gas production and
transportation, general economic conditions and changes in supply and demand
could adversely affect the Company's ability to produce and market its oil and
natural gas on a profitable basis.

The Company has received preliminary plans and engineering specifications
for the construction of pipelines and production facilities. The construction of
the pipeline and the production facilities is subject to a number of conditions,
including negotiating construction contracts and obtaining required
environmental and construction permits, easements and rights of way. The Company
does not expect the Phase I facilities to be completed before mid-to late 1999,
and no assurances can be given as to when such facilities will be completed. In
addition, the Company has not finalized its negotiations with the operator of
the Oleoductos Alto Magdalena ("OAM") pipeline for the transportation of 50,000
Bbls/d of currently available transportation capacity on the OAM pipeline. If
the Company is unsuccessful in constructing its pipeline and production
facilities or in increasing its proved reserves or realizing future production
from its properties, the Company may be unable to pay all of the principal of
and interest on its indebtedness when due. See "-- Risks Related to the Oil and
Gas Industry."

NEED FOR SIGNIFICANT CAPITAL

The exploration and development of the Company's current properties and any
properties acquired in the future is expected to require substantial amounts of
additional capital which the Company expects to fund from proceeds from debt or
equity financings, or through encumbering properties or entering into
arrangements whereby certain costs of exploration will be paid by others to earn
an interest in the property. The Company has budgeted net capital expenditures
of approximately $37.6 million for 1998 and $173.8 million for 1999 and
approximately $14.3 million to participate in a deep exploratory well on Emerald
Mountain scheduled to be commenced in late 1998. The Company believes the net
proceeds from the offering of Senior Notes, together with other sources of funds
expected to be available to it (including bank financing and proceeds from the
exercise of warrants), will be sufficient to finance its initial net capital
expenditure requirements estimated for Phase I (estimated to be $80.9 million),
although no assurance can be given as to the actual amount that will need to be
spent. Substantial amounts of capital will be needed to finance Phase II
(estimated to be $207.7 million), and no external sources of capital have yet
been identified. Certain expenditures for Phase II are expected to occur during
Phase I. The Company expects that additional amounts for capital expenditures
may be funded through cash from operations, joint ventures and other such
arrangements and debt or equity financings, although the Company does not expect
any significant revenues from operations until scheduled completion of the
initial pipeline and production facilities in mid-1999. There can be no
assurance that debt or equity financing will be available to the Company on
economically acceptable terms. The Company has additional drilling-related
commitments on its Colombian properties of approximately $3.3 million through
2001, only a small portion of which relate to the Dindal and Rio Seco
Association Contracts. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

8
<PAGE> 10

The Company's estimated capital expenditures assume in each case that each
of the associates in the Association Contracts approves and pays its
proportionate share of capital expenditures. Under the terms of the Association
Contracts, if a commercially feasible discovery is made, the Colombian national
oil company ("Ecopetrol") may acquire a 50% interest in the property, and the
interests of all other parties to the contract, including the Company, will be
reduced by 50%. Ecopetrol will bear 50% of the associated development costs and
will reimburse the other working interest owners for 50% of certain exploration
activities. The Company expects that Ecopetrol will elect to finance a
significant portion of the costs associated with its working interest from
Ecopetrol's share of future production rather than contributing its
proportionate share of development costs in cash. As a result, the Company and
the other working interest owners may be required initially to finance
Ecopetrol's share of the development costs associated with the property. While
the Association Contracts do not require Ecopetrol's participation in the
pipeline and production facilities, the Company expects that Ecopetrol will
participate to the extent of 50% of the Phase I and Phase II pipeline and
infrastructure costs. No assurances can be given, however, that an agreement
will be reached on these terms and the Company may be required to fund amounts
greater than the amounts presented as the Company's net share. See
"Business -- Properties -- Terms of Association Contracts and Related Matters".

RISKS IN COLOMBIA AND OTHER FOREIGN OPERATIONS

Foreign properties, operations or investments may be adversely affected by
local political and economic developments, exchange controls, currency
fluctuations, royalty and tax increases, retroactive tax claims, renegotiation
of contracts with governmental entities, expropriation, import and export
regulations and other foreign laws or policies governing operations of
foreign-based companies, as well as by laws and policies of the United States
affecting foreign trade, taxation and investment. In addition, as the Company's
operations are governed by foreign laws, in the event of a dispute, the Company
may be subject to the exclusive jurisdiction of foreign courts and the
application of foreign laws or may not be successful in subjecting foreign
persons to the jurisdiction of courts in the United States. The Company may also
be hindered or prevented from enforcing its rights with respect to a
governmental instrumentality because of the doctrine of sovereign immunity.

The Company's business is subject to political risks inherent in all
foreign operations. While Colombia has no history of nationalizing its business
nor expropriation of foreign assets, the Company's oil and gas operations are
subject to certain risks, including: (i) loss of revenue, property, and
equipment as a result of unforeseen events such as expropriation,
nationalization, war and insurrection, (ii) risks of increases in taxes and
governmental royalties, (iii) renegotiation of contracts with governmental
entities, and (iv) changes in laws and policies governing operations of
foreign-based companies in Colombia. Guerrilla activity in Colombia has
disrupted the operation of oil and gas projects in many areas in Colombia but to
date has not affected the Dindal and Rio Seco Association Contracts areas. No
assurances can be given as to the future level or impact of future guerilla
activities, including after the construction of pipeline and production
facilities in the Dindal and Rio Seco Association Contracts areas, or the steps,
if any, that may be taken by the government in response to such activities. The
Company's other three association contracts are located in more remote areas
that have been subject to guerrilla activity. The government continues its
efforts through negotiation and legislation to reduce the problems and effects
of insurgent groups. These efforts include regulations containing sanctions such
as impairment or loss of contract rights on companies and contractors if found
to be giving aid to such groups. To date, guerrilla activities have not
materially disrupted operations in the areas where the other three association
contracts are located.

Colombia is among several nations whose progress in stemming the production
and transit of illegal drugs is subject to annual certification by the President
of the United States. In March 1996, the President of the United States
announced that Colombia would neither be certified nor granted a national
interest waiver. The consequences of the failure to receive certification
generally include the following: all bilateral aid, except anti-narcotics and
humanitarian aid, has been or will be suspended; the Export-Import Bank of the
United States and the Overseas Private Investment Corporation ("OPIC") will not
approve financing for new projects in Colombia; United States representatives at
multilateral lending institutions will be required to vote against all loan
requests from Colombia, although such votes will not constitute vetoes; and the
President of the United

9
<PAGE> 11

States and Congress retain the right to apply future trade sanctions. In
February 1998, the United States granted Colombia a conditional certification,
thereby allowing OPIC financing to again be available. If the United States were
to decertify Colombia in the future, such actions could result in adverse
economic consequences in Colombia and could further heighten the political and
economic risks associated with the Company's operations in Colombia. In June
1998, Andres Pastrana, the Conservative Party candidate, was elected president
of Colombia, defeating the ruling Liberal party candidate in a runoff election.
Mr. Pastrana, who takes office in early August 1998, has publicly announced his
desire to bring peace to the country, and, on July 9, 1998, Mr. Pastrana
disclosed that meetings between government officials and representatives of
rebel groups had begun. However, no assurance can be given regarding the policy
changes that he may attempt to introduce.

SUBSTANTIAL CONCENTRATION OF OPERATIONS

The Company's oil and gas properties are concentrated in Colombia and
specifically in the state of Cundinamarca. As of December 31, 1997, all of the
Company's proved reserves were attributable to Emerald Mountain. There are
significant operating and economic risks associated with conducting business in
Colombia. Due to the Company's concentration in and reliance on such operations
for its future cash flow, if the operations in Colombia were adversely affected,
the Company would experience a material adverse effect. See "-- Risks Inherent
in Colombia and Other Foreign Operations" and "-- Risks Related to the Oil and
Gas Industry."

LIMITED OPERATING HISTORY AND HISTORICAL OPERATING LOSSES

The Company commenced its operations in 1995 and has only a limited
operating history. The Company also has had operating losses at an increasing
rate each year since inception. Potential investors, therefore, have limited
historical financial and operating information upon which to base an evaluation
of the Company's performance and an investment in the Common Shares and Warrants
offered hereby. For example, the only production to date has been test
production. The Company is not expected to have regular production until 1999.
Therefore, estimates of proved reserves and the level of future production
attributable to such reserves are difficult to determine, and there can be no
assurance as to the volume of recoverable reserves that will be realized. The
Company's prospects must be considered in light of the risks, expenses, delays
and difficulties frequently encountered by companies in the early stages of
their development. The development of the Company's business will continue to
require substantial expenditures. The Company's future financial results will
depend primarily on its ability to economically locate and produce hydrocarbons
in commercial quantities and on the market prices for oil and natural gas. There
can be no assurance that the Company will achieve or sustain profitability or
positive cash flows from operating activities in the future. See "-- Need for
Significant Capital," "Selected Historical Combined Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Oil and Gas Reserves."

DEPENDENCE ON KEY PERSONNEL

The Company believes that its success will depend to a significant extent
upon the continued services of certain key executive officers and operating
personnel. The Company has entered into employment agreements with certain of
its key executive officers. See "Management -- Employment Agreements." The
Company also depends on the services of professionals such as engineers,
geologists and geophysicists. The loss of the services of certain key executive
officers and operating personnel or the loss of or shortage of significant
number of professionals could have a material adverse effect on the Company. The
Company does not maintain key employee insurance on any of its personnel.

POTENTIAL CONFLICTS

Certain of the directors of Seven Seas also serve as officers, directors or
consultants of other companies involved in natural resource development which
activities may be in competition with the Company and may result in conflicts of
interest. In the event a director has an interest in an investment or proposed
investment of the Company or other conflict of interest, it is the Company's
policy that such director not participate in the
10
<PAGE> 12

Company's decision-making with respect thereto and that any transactions with
such officers or directors be on terms consistent with industry standards and
sound business practices.

SERVICE AND ENFORCEMENT OF LEGAL PROCESS

The Company is continued under the laws of the Yukon Territory in Canada.
Three of the directors of the Company, and certain experts utilized by the
Company, are not residents of the United States and all or substantially all of
such persons' assets are located outside of the United States. As a result, it
may be difficult for holders of Common Shares or Warrants to effect service
within the United States upon the directors and experts who are not residents of
the United States or to realize in the United States upon judgments of courts of
the United States against such persons and the Company predicated upon civil
liability under the United States federal securities laws. The Company has been
advised by its counsel that there is no assurance that judgments of U.S. courts
for liabilities predicated solely upon U.S. federal securities laws will be
enforceable against the Company or against any of its directors or experts who
are not residents of the United States.

RISKS RELATED TO THE OIL AND GAS INDUSTRY

UNCERTAINTY OF ESTIMATES OF OIL AND GAS RESERVES

This Prospectus contains estimates of the Company's proved oil and gas
reserves and the estimated future net revenues therefrom based upon the
Company's own estimates or on those of Ryder Scott. Such estimates rely upon
various assumptions, including assumptions required by the Commission as to oil
and gas prices, drilling and operating expenses, capital expenditures, taxes and
availability of funds. The process of estimating oil and gas reserves is
complex, requiring significant decisions and assumptions in the evaluation of
available geological, geophysical, engineering and economic data for each
reservoir. As a result, such estimates are inherently imprecise. Actual future
production, oil and gas prices, revenues, taxes, development expenditures,
operating expenses and quantities of recoverable oil and gas reserves may vary
substantially from those estimated by the Company or Ryder Scott. Any
significant variance in these assumptions could materially affect the estimated
quantity and value of reserves set forth in this Prospectus. The Company's
properties may also be susceptible to hydrocarbon drainage from production by
other operators on adjacent properties. In addition, the Company's estimated
proved reserves may be subject to downward or upward revision based upon
production history, results of future exploration and development, prevailing
oil and gas prices, mechanical difficulties, government regulation and other
factors, many of which are beyond the Company's control. Actual production,
revenues, taxes, development expenditures and operating expenses with respect to
the Company's reserves will likely vary from the estimates used, and such
variances may be material.

Approximately 64% of the Company's total estimated proved reserves at
December 31, 1997 were undeveloped, which are by their nature less certain.
Recovery of such reserves will require significant capital expenditures and
successful drilling operations. The Company's reserve data assume that
substantial capital expenditures by the Company will be required to develop such
reserves. Although cost and reserve estimates attributable to the Company's oil
and gas reserves have been prepared in accordance with industry standards, no
assurance can be given that the estimated costs are accurate, that development
will occur as scheduled or that the results will be as estimated. See
"Business -- Oil and Gas Reserves."

The present value of future net revenues (SEC PV-10) referred to in this
Prospectus should not be construed as the current market value of the estimated
oil and gas reserves attributable to the Company's properties. In accordance
with applicable requirements of the Commission, the estimated discounted future
net cash flows from proved reserves are generally based on prices and costs as
of the date of the estimate, whereas actual future prices and costs may be
materially higher or lower. Actual future net cash flows also will be affected
by increases in consumption by gas and oil purchasers and changes in
governmental regulations or taxation. The timing of actual future net cash flows
from proved reserves, and thus their actual present value, will be affected by
the timing of both the production and the incurrence of expenses in connection
with development and production of oil and gas properties. In addition, the 10%
discount factor, which is required by the Commission to be used in calculating
discounted future net cash flows for reporting purposes, is not

11
<PAGE> 13

necessarily the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with the Company or the oil and
gas industry in general.

DRILLING, EXPLORATION AND DEVELOPMENT RISKS

Oil and gas exploration and development is a speculative business and
involves a high degree of risk. The Company has expended, and plans to continue
to expend, significant amounts of capital on the exploration and development of
its oil and gas interests. Even if the results of such activities are favorable,
subsequent drilling at significant costs must be conducted on a property to
determine if commercial development of the property is feasible. Oil and gas
drilling may involve unprofitable efforts, not only from dry holes but from
wells that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs. It is difficult to project the
costs of implementing an exploratory drilling program due to the inherent
uncertainties of drilling and completing wells in unknown formations, the costs
associated with encountering various drilling conditions such as underpressured
and overpressured zones and tools lost in the hole, and changes in drilling
plans and locations as a result of prior exploratory wells or additional seismic
data and interpretations thereof. The marketability of oil and gas which may be
acquired or discovered by the Company will be affected by the quality and
viscosity of the production and by numerous factors beyond its control,
including market fluctuations, the proximity and available capacity of oil and
gas pipelines and production equipment, government regulations, including
regulations relating to prices, taxes, royalties, land tenure, importing and
exporting of oil and gas and environmental protection. The Company's future
drilling activities may not be successful, and, if unsuccessful, such failure
will have an adverse effect on the Company's future results of operations and
financial condition, including the Company's ability to pay all of the principal
and interest on its indebtedness, including the Senior Notes, when due. There
can be no assurance the Company will be able to discover, develop and produce
sufficient reserves in Colombia or elsewhere to recover the costs and expenses
incurred in connection with the acquisition, exploration and development thereof
and achieve profitability.

Acquiring, developing and exploring for oil and natural gas involves many
risks, which even a combination of experience, knowledge and careful evaluation
may not be able to overcome. These risks include encountering unexpected
formations or pressures, premature declines of reservoirs, blow-outs, equipment
failures and other accidents in completing wells and otherwise, cratering, sour
gas releases, uncontrollable flows of oil, natural gas or well fluids, adverse
weather conditions, pollution, other environmental risks, fires and spills.
Losses resulting from such events could have a material adverse effect on the
Company.

As protection against operating hazards, the Company maintains insurance
against some, but not all, potential losses. The Company's coverages include,
but are not limited to, operator's extra expense, physical damage on certain
assets, employer's liability, comprehensive general liability, automobile,
workers' compensation and limited coverage for sudden environmental damages, but
all such coverages are subject to certain exceptions, conditions and
limitations. The Company does not believe that insurance coverage for the full
potential liability that could be caused by sudden environmental damages and
certain other risks is available at a reasonable cost. Accordingly, the Company
may be subject to liability or may lose substantial portions of its properties
in the event of environmental damages or certain other events. The occurrence of
an event that is not fully covered by insurance could have a material adverse
effect on the Company.

VOLATILITY OF OIL AND NATURAL GAS PRICES

The Company's revenues, future rate of growth, results of operations,
financial condition and ability to borrow funds or obtain additional capital, as
well as the carrying value of its properties, are substantially dependent upon
prevailing prices of oil and natural gas. Historically, the markets for oil and
natural gas have been volatile, and such markets are likely to continue to be
volatile in the future. Prices for oil and natural gas are subject to wide
fluctuation in response to relatively minor changes in the supply of and demand
for oil and natural gas, market uncertainty and a variety of additional factors
that are beyond the control of the Company. These factors include the level of
consumer product demand, weather conditions, domestic and foreign governmental
regulations, the price and availability of alternative fuels, political
conditions in the Middle East,
12
<PAGE> 14

actions of the Organization of Petroleum Exporting Countries (OPEC), the foreign
supply of oil and natural gas, the price of foreign imports and overall economic
conditions. It is impossible to predict future oil and natural gas price
movements with certainty. Declines in oil and natural gas prices may materially
adversely affect the Company's financial condition, liquidity, ability to
finance planned capital expenditures and results of operations. Lower oil and
natural gas prices also may reduce the amount of oil and natural gas that the
Company can produce economically. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Marketing."

The Company periodically reviews the carrying value of its oil and natural
gas properties under the full cost accounting rules of the Commission. Under
these rules, capitalized costs of proved oil and natural gas properties may not
exceed the present value of estimated future net revenues from proved reserves,
discounted at 10% (SEC PV-10) and adjusted for income tax effects. Application
of this "ceiling" test generally requires pricing future revenue at the
unescalated prices in effect as of the end of each fiscal quarter and requires a
write-down for accounting purposes if the ceiling is exceeded, even if prices
were depressed for only a short period of time. The Company may be required to
write down the carrying value of its oil and natural gas properties when oil and
natural gas prices are depressed or unusually volatile. If a write-down is
required, it would result in a charge to earnings, but would not impact cash
flow from operating activities. Once incurred, a write-down of oil and natural
gas properties is not reversible at a later date.

RESERVE REPLACEMENT RISK

In general, the volume of production from oil and natural gas properties
declines as reserves are depleted, with the rate of decline depending on
reservoir characteristics. Except to the extent the Company conducts successful
exploration and development activities or acquires properties containing proved
reserves, or both, the proved reserves of the Company will decline as reserves
are produced. The Company's future oil and natural gas production is, therefore,
highly dependent upon its level of success in finding or acquiring additional
reserves. The business of exploring for, developing or acquiring reserves is
capital intensive. To the extent cash flow from operations is reduced and
external sources of capital become limited or unavailable, the Company's ability
to make necessary capital investment to maintain or expand its asset base of oil
and natural gas reserves would be impaired. The failure of an operator of the
Company's wells to adequately perform operations, or such operator's breach of
the applicable agreements, could adversely impact the Company. In addition,
there can be no assurance that the Company's future exploration, development and
acquisition activities will result in additional proved reserves or that the
Company will be able to drill productive wells at acceptable costs. Furthermore,
although the Company's revenues could increase if prices for oil and natural gas
increase significantly, the Company's finding and development costs could also
increase. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

ENVIRONMENTAL RISKS

Extensive national, provincial and/or local environmental laws and
regulations in Colombia and the other countries in which the Company operates
affect nearly all of the operations of the Company. These laws and regulations
set various standards regulating certain aspects of health and environmental
quality, provide for penalties and other liabilities for the violation of such
standards and establish in certain circumstances obligations to remediate
current and former facilities and off-site locations. In addition, special
provisions may be appropriate or required in environmentally sensitive areas of
operation, such as where the Company's Colombian interests are located and where
other independent producers of oil and gas have faced significant liability
resulting from environmental claims. There can be no assurance that the Company
will not incur substantial financial obligations in connection with
environmental compliance.

It is possible that the administration and enforcement of current
environmental laws and regulations or the passage of new environmental laws or
regulations in Colombia could result in substantial costs and liabilities in the
future or in delays in obtaining the necessary permits to conduct and expand the
Company's operations in such country. The Company has experienced and may
continue to experience delays in obtaining the necessary environmental permits
to expand its operations in Colombia.

13
<PAGE> 15

Significant liability could be imposed on the Company for damages, clean-up
costs and/or penalties in the event of certain discharges into the environment,
environmental damage caused by previous owners of property purchased by the
Company or non-compliance with environmental laws or regulations. Such liability
could have a material adverse effect on the Company. Moreover, the Company
cannot predict what environmental legislation or regulations will be enacted in
the future or how existing or future laws or regulations will be administered or
enforced. Compliance with more stringent laws or regulations, or more vigorous
enforcement policies of any regulatory agency, could in the future require
material expenditures by the Company for the installation and operation of
systems and equipment for remedial measures, any or all of which could have a
material adverse effect on the Company. See "Business -- Regulation."

MARKETS

There is substantial uncertainty as to the prices which the Company may
receive for production from its existing oil reserves or from additional oil and
gas reserves, if any, which the Company may discover. The availability of a
ready market and the prices received for oil and gas produced depend upon
numerous factors beyond the control of the Company including, but not limited
to, adequate transportation facilities (such as pipelines), the marketing of
competitive fuels, fluctuating market demand, governmental regulation and world
political and economic developments. Prices for crude oil are subject to wide
fluctuation in response to relatively minor changes in supply and demand, market
uncertainty and a variety of additional factors that are beyond the control of
the Company. It is possible that, under market conditions prevailing in the
future, the production and sale of oil, if any, from certain of the Company's
properties may not be commercially feasible and the production of gas from the
Company's oil and gas interests in Colombia is not currently commercially
feasible. The sale of oil from the production tests on the Company's properties
in Colombia has been sold to Ecopetrol.

COMPETITION

The Company encounters competition from other oil and gas companies in all
areas of its operations, including the acquisition of producing properties. The
Company's competitors in Colombia include major integrated oil and gas companies
and independent oil and gas companies. Many of its competitors are large,
well-established companies with substantially larger operating staffs and
greater capital resources than the Company's and which, in many instances, have
been engaged in the oil and gas business for a longer time than the Company.
Such companies may be able to offer more attractive terms in obtaining
concessions for exploratory prospects and secondary operations and to pay more
for productive properties and exploratory prospects and to define, evaluate, bid
for and purchase a greater number of properties and prospects than the Company's
financial or human resources permit. The Company's ability to acquire additional
properties and to discover reserves in the future will be dependent upon its
ability to evaluate and select suitable properties and to consummate
transactions in this highly competitive environment.

REGULATION

The Company's operations are subject to regulations imposed by the local
regulatory authorities including, without limitation, currency regulation,
import and export regulation, taxation and environmental controls. The
regulations also generally specify, among other things, the extent to which
properties may be acquired or relinquished, permits necessary for drilling of
wells, spacing of wells, measures required for preventing waste of oil and gas
resources and, in some cases, rates of production and sales prices to be charged
to purchasers. Specifically, Colombian operations are governed by a number of
ministries and agencies including Ecopetrol, the Ministry of Mines and Energy,
the Ministry of Public Works and the Ministry of the Environment.

14
<PAGE> 16

USE OF PROCEEDS

The Company will receive no part of the proceeds of sales from the offering
by the Selling Securityholders. Assuming exercise of all the Warrants, the
Company will receive proceeds of $16 million. The Company expects to use these
proceeds for general corporate purposes.

MARKET FOR COMMON SHARES

The Company's common shares have been listed on the American Stock Exchange
("AMEX") under the symbol "SEV" since January 9, 1998 and the Toronto Stock
Exchange ("TSE") in Toronto, Ontario, Canada under the symbol "SVS.U" since
February 10, 1997. From June 30, 1995 through February 7, 1997, the Company's
common shares traded on the Canadian Dealing Network under the symbol "SVSE"
from January to April 12, 1996 and under the symbol "SVSE.U" from April 12, 1996
to February 7, 1997. The following table summarizes the high and low closing
prices as reported on the Canadian Dealing Network for each quarterly period
since the commencement of trading on June 30, 1995 through February 7, 1997 and
the high and low sales prices as reported on the TSE from February 10, 1997
through June 30, 1998. The prices listed below are stated in U.S. dollars, which
is the currency in which they were quoted:

<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
1996
First Quarter Cdn$ 6.75 $ 0.55
Second Quarter(*) US$ 10.50 $ 5.25
Third Quarter 20.00 7.00
Fourth Quarter 25.75 14.75
1997
First Quarter (through February 7, 1997) $ 19.00 $ 15.00
First Quarter (since February 10, 1997) 17.40 9.00
Second Quarter 13.10 8.25
Third Quarter 14.10 9.60
Fourth Quarter 20.05 11.80
1998
First Quarter $ 31.40 $ 15.75
Second Quarter 26.75 17.75
</TABLE>

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

* During the first quarter and the first twelve days of the second quarter of
1996, the common shares were quoted in Canadian dollars, with the high and low
closing prices during such period of the second quarter being Cdn $7.25 and
Cdn $5.25, respectively.

The following table summarizes the high and low sales prices as expected on
the AMEX from January 9, 1998 through June 30, 1998.

<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
1998
First Quarter $31.25 $16.44
Second Quarter 26.63 17.13
</TABLE>

On July 27, 1998, the closing sale price of the common shares, as reported
on the AMEX, was $16.25 per share. The number of record holders on June 30,
1998, was approximately 9,645. The Company has never declared or paid cash
dividends on its common shares, and management anticipates that all earnings in
the foreseeable future will be retained for development of the Company's
business.

15
<PAGE> 17

SELECTED HISTORICAL FINANCIAL DATA

The following table sets forth certain historical consolidated financial
data for the Company as of and for each of the periods indicated. The following
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's consolidated
financial statements and notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM
INCEPTION
(FEBRUARY 3, 1995) YEARS ENDED
THROUGH DECEMBER 31, QUARTER ENDED MARCH 31,
DECEMBER 31, ------------------- -----------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues......................... $ 152 $ 575 $ 1,567 $ 433 $ 184
Net loss......................... (2,120) (2,195) (7,928) (722) (1,115)
Net loss per common share........ (0.23) (0.17) (0.24) (0.03) (0.03)
Weighted average shares
outstanding................... 9,247 12,972 32,505 25,245 35,126
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents........ $ 3,366 $ 10,620 $ 18,067 $ 11,637 $ 8,725
Total assets..................... 4,170 235,501 291,914 192,295 292,020
Current liabilities.............. 120 2,806 8,205 1,903 6,531
Minority interest................ -- 1,060 4,087 1,348 5,297
Stockholders' equity............. 4,050 167,667 184,163 189,044 184,733
</TABLE>

16
<PAGE> 18

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

OVERVIEW

TERMS OF ASSOCIATION CONTRACTS AND RELATED MATTERS

The Company has a 57.7% working interest (before Colombian government
participation) in the Association Contracts. An association contract gives the
parties to the contract a right to explore the contracted area and develop such
petroleum as may be found therein. The Colombian government receives a royalty
equal to 20% of production (after transportation costs are deducted). In the
event of commerciality, Ecopetrol has the right to acquire an initial 50%
working interest in the project. Ecopetrol's share of production and costs in
the Dindal Association Contract area will increase if and when a commercial
field produces in excess of 60 MMBbls, up to a maximum interest of 70% if the
field produces in excess of 150 MMBbls. In addition, Ecopetrol's share of
production and costs in the Rio Seco Association Contract area is also subject
to increase if and when a commercial field produces in excess of 60 MMBbls, up
to a maximum interest of 75% depending upon revenues and associated costs. Under
the terms of the Association Contracts, if a commercially feasible discovery is
made, Ecopetrol will acquire a 50% interest in the property, and the interests
of all other parties to the contract, including the Company, will be reduced by
50%. Ecopetrol will bear 50% of the associated development costs and will
reimburse the other working interest owners for 50% of certain exploration
activities. The Company expects that Ecopetrol will elect to finance a
significant portion of the costs associated with its working interest from
Ecopetrol's share of future production rather than contributing its
proportionate share of development costs in cash. As a result, the Company and
the other working interest owners may be required initially to finance
Ecopetrol's share of the development costs associated with the property. While
the Association Contracts do not require Ecopetrol's participation in the
pipeline and production facilities, the Company expects that Ecopetrol will
participate to the extent of 50% of the Phase I and Phase II pipeline and
infrastructure costs. No assurances can be given, however, that an agreement
will be reached on these terms and the Company may be required to fund amounts
greater than the amounts presented as the Company's net share. See
"Business -- Properties -- Terms of Association Contracts and Related Matters".

To date, all oil produced by the Company has been from production testing
on Emerald Mountain. Upon the drilling of sufficient wells to reasonably define
the hydrocarbon-producing area and acceptance by Ecopetrol that the field is
capable of commercial production, oil produced from the Dindal and Rio Seco
Association Contract areas may be sold to Ecopetrol or to third parties and
Ecopetrol may acquire their 50% working interest. In the event the production is
required to satisfy internal demand for oil in Colombia, the Company may be
required to sell some or all of its production to Ecopetrol at prevailing market
prices.

COLOMBIAN TAXES

The Company's net income, as defined under Colombian law, from Colombian
sources is subject to Colombian corporate income tax at a rate of 35%. An
additional remittance tax is imposed upon remittance of profits abroad at a rate
of 7%.

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ACCOUNTING POLICIES AND DEVELOPMENT STAGE ACCOUNTING

The Consolidated Financial Statements and Notes thereto included herein
have been prepared in accordance with generally accepted accounting principles
in the United States.

The Company's exploration and development activities have generated an
insignificant amount of revenue, thus requiring the financial statements to be
presented as a development stage enterprise. Accumulated losses are presented on
the balance sheet as "Deficit accumulated during the development stage." The
income statement presents revenues and expenses for each period presented and
also a cumulative total of both amounts from the Company's inception. The
statement of cash flows shows inflows and outflows for the each period presented
and from the Company's inception. The statement of stockholders' equity presents
the date and number of shares of each class of security issued for cash or other
consideration and the dollar amount assigned. In addition, the notes to
financial statements are required to identify the enterprise as development
stage.

The Company follows the full-cost method of accounting for oil and natural
gas properties. Under this method, all costs incurred in the acquisition,
exploration and development of oil and gas properties, including unproductive
wells, are capitalized in separate cost centers for each country. Such
capitalized costs include contract and concession acquisition, geological,
geophysical and other exploration work, drilling, completing and equipping oil
and gas wells, constructing production facilities and pipelines, and other
related costs. As of December 31, 1996, unevaluated oil and gas interests
included capitalized general and administrative costs of $0.1 million. No
additional general and administrative costs were capitalized during 1997. The
Company capitalized interest of $0.6 million in 1997.

The capitalized costs of oil and gas properties in each cost center are
amortized on the composite units of production method based on future gross
revenues from proved reserves. Sales or other dispositions of oil and gas
properties are normally accounted for as adjustments of capitalized costs. Gain
or loss is not recognized in income unless a significant portion of a cost
center's reserves is involved. Capitalized costs associated with the acquisition
and evaluation of unproved properties are excluded from amortization until it is
determined whether proved reserves can be assigned to such properties or until
the value of the properties is impaired. If the net capitalized costs of oil and
gas properties in a cost center exceed an amount equal to the sum of the present
value of estimated future net revenues from proved oil and gas reserves in the
cost center and the lower of cost or fair value of properties not being
amortized, both adjusted for income tax effects, such excess is charged to
expense.

As of December 31, 1997, the Company's exploration and development
activities have not generated significant revenues. As a result, the Company's
historical results of operations have been presented as a development stage
company; thus, period-to-period comparisons of such results and certain
financial data may not be meaningful or indicative of future results. In this
regard, future results of the Company will be materially dependent upon the
success of the Company's Emerald Mountain operations.

RESULTS OF DEVELOPMENT STAGE OPERATIONS

Three Months Ended March 31, 1998 as Compared to the Three Months Ended March
31, 1997

To date, oil revenues and lease operating expenses pertained solely to the
Company's share of crude oil produced during production testing of the Company's
wells on Emerald Mountain. Revenues from oil sales were zero and $0.3 million
for the quarter ended March 31, 1998 and 1997, respectively. Lease operating
expenses were $0.2 million and $0.2 million for the quarter ended March 31, 1998
and 1997, respectively. The 1998 lease operating expenses represent such costs
as tank rentals and other miscellaneous fixed costs.

Interest income was $0.2 million for the quarter ended March 31, 1998 as
compared to $0.1 million for the same period in 1997. The increase was the
consequence of higher cash balances resulting from the private placements of the
Company's securities.

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General and administrative costs were $1.1 million during the quarter ended
March 31, 1998 as compared to $0.9 million during the same period in 1997. The
increase was primarily attributable to the expansion of the Company's operating
activities and additions to its professional staff in the United States and
Colombia.

Depreciation and amortization was $0.1 million and zero for the quarter
ended March 31, 1998 and 1997, respectively. The increase was primarily
attributable to the amortization of costs incurred in issuing the Exchangeable
Notes in August 1997 (see "Liquidity and Capital Resources" below). As of March
31, 1998, the Company has not recorded depletion of its proved oil and gas
property as only insignificant quantities of oil have been produced during its
production testing plan.

The Company incurred net losses of $1.1 million and $0.7 million for the
quarter ended March 31, 1998 and 1997, respectively for the reasons indicated
above.

Year Ended December 31, 1997, 1996 and 1995

Oil revenues and lease operating expenses pertained solely to the Company's
share of crude oil produced during production testing of the Company's five
completed wells on Emerald Mountain, which comprised four wells producing in
1997 and two wells producing in 1996. Revenues from oil sales were $0.8 million,
$0.2 million, and zero in 1997, 1996, and for the period from inception on
February 3, 1995 to December 31, 1995 (the "1995 Period"), respectively. Lease
operating expenses were $0.9 million, $0.3 million and zero in 1997, 1996 and
the 1995 Period, respectively.

Colombian oil production (net to the Company, including minority interest)
of 56,546 barrels and 14,188 barrels in 1997 and 1996, respectively, pertained
solely to the Company's share of oil produced from production testing and was
sold to Ecopetrol at an average price of $13.79 per barrel in 1997 and $16.47
per barrel in 1996.

Interest income increased from $0.3 million in 1996 to $0.8 million in
1997. The increase was the consequence of higher cash balances resulting from
the private placements of the Company's securities. The increase from $0.2
million for the 1995 Period to $0.3 million for the year ended December 31, 1996
was also the consequence of higher cash balances resulting from private
placements of the Company's securities.

General and administrative costs were $8.7 million in 1997 as compared to
$2.5 million for 1996. The increase was primarily attributable to severance
costs paid to former executive officers and recognition of compensation expense
related to a change in the exercise period of stock options held by such
executives. In addition, the Company expanded its operating activities and added
to its professional staff in the U.S. and Colombia. General and administrative
costs increased from $1.1 million for the 1995 Period to $2.5 million for the
year ended December 31, 1996 primarily as a result of a full year of expenses
incurred by the Company in 1996 as compared to 1995, and the increase in
activities associated primarily with the acquisition of GHK Company Colombia,
("GHK Colombia"), Esmeralda Limited Liability Company ("Esmeralda LLC"), and
Cimarrona Limited Liability Company ("Cimarrona LLC").

Depreciation and amortization remained constant at $0.1 million for the
years ended December 31, 1996 and 1997. Depreciation and amortization increased
from $37,671 for the 1995 Period to $0.1 million for the year ended December 31,
1996 primarily as a result of the acquisitions mentioned above and the inclusion
of a full year of expenses incurred by the Company in 1996 as compared to 1995.

The Company incurred net losses of $7.9 million and $2.2 million for the
years ended December 31, 1997 and 1996, respectively, and $2.1 million for the
1995 Period.

LIQUIDITY AND CAPITAL RESOURCES

The Company's activities have been funded primarily by the proceeds from
private placements of the Company's securities, including the Company's common
shares, special warrants and special notes, from inception through March 31,
1998, resulting in aggregate cash proceeds of $48.1 million. In 1996, the
Company acquired an additional 36.7% interest in the Association Contracts in
Colombia in exchange for the issuance of the Company's securities valued at
$153.1 million in the aggregate. From inception through

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March 31, 1998, the Company had capital expenditures of $32.6 million for the
acquisition, exploration, and development of its oil and gas properties
including $30.5 million with respect to its interests in Colombia and
approximately $2.1 million, of which $1.1 million has been expensed, with
respect to its interests in other countries. Such expense included $0.5 million
for the cost of an option to acquire a 5% participating interest in three
exploration blocks in North Africa and $0.6 million associated with a dry hole
in the San Jorge Basin, Argentina. The Company's activities in North Africa and
Argentina have been discontinued.

Colombia. The Company's primary capital commitments include Phases I and II
of its Emerald Mountain development program. The Company's capital expenditures
estimated for Phase I include $18.1 million for field development and
delineation and $51.9 million for pipeline and production facilities, which is
scheduled for completion in mid- to late 1999. The Company's capital
expenditures estimated for Phase II include $114.7 million for field development
and delineation and $83.5 million for pipeline and production facilities, which
is scheduled for completion in mid-2000. The Company had working capital of
$15.1 million as of December 31, 1997. The Company believes that the net
proceeds of the offering of Senior Notes, together with other sources of funds
expected to be available to it (including bank financing and proceeds from the
exercise of warrants), will be sufficient to finance its initial net capital
expenditure requirements estimated for the Phase I. Substantial amounts of
capital will be needed to finance Phase II, and no external sources of capital
have yet been identified. Certain expenditures for Phase II are expected to
occur during Phase I. In addition, the Company has budgeted approximately $14.3
million to participate in drilling a deep exploratory well on Emerald Mountain
scheduled to be commenced in late 1998. While the Association Contracts do not
require Ecopetrol's participation in the pipeline and production facilities, the
Company expects that Ecopetrol will participate to the extent of 50% of the
Phase I and Phase II pipeline and infrastructure costs. No assurances can be
given, however, that an agreement will be reached on these terms and the Company
may be required to fund amounts greater than the amounts presented as the
Company's net share. The Company expects that additional amounts for capital
expenditures may be funded through cash from operations, joint ventures and
other such arrangements, and debt or equity financings. The Company does not
expect any significant funds from operations until scheduled completion of the
initial pipeline and production facilities in mid-to-late 1999. There can be no
assurance that debt or equity financing will be available to the Company on
economically acceptable terms. See "Business -- Gathering and Pipeline System."

During the remainder of 1998, the Company plans to drill a total of four
additional wells on the Dindal and Rio Seco contract areas, begin construction
of a 36-mile pipeline to provide transportation capacity of 50,000 Bbls/d,
conduct seismic operations, and carry out other development activities for an
aggregate estimated cost of $37.6 million. The pipeline is scheduled for
completion in mid-1999. An exploratory well on the Company's non-operated Tapir
contract area in Colombia commenced drilling in March 1998.

For the years ended December 31, 1997 and 1996, the Company had oil sales
of $0.8 million and $0.2 million, respectively, solely from production testing
of the Company's five completed wells on Emerald Mountain, which comprised four
wells producing in 1997 and two wells producing in 1996. Although the Company
intends to continue to sell oil resulting from production tests, significant
production is not expected until further evaluation and development of the field
through the drilling of additional wells and construction of production
facilities and pipelines. The Company has received preliminary plans for the
construction of pipelines and production facilities, and permitting and final
planning for pipelines and production facilities are now proceeding. Completion
of the first phase of these facilities is scheduled for mid-1999.

Australia and Papua New Guinea. The Company is in the process of
eliminating any mandatory capital commitments outside of Colombia. In Papua New
Guinea, the Company signed a farm-out agreement with ARCO Papua New Guinea Inc.
whereby the Company will retain a 20% carried interest with no required capital
expenditures. In the Perth Basin in Western Australia, the Company has signed a
purchase and sale agreement with Forcenergy International Inc. in which the
Company will exchange its 11.77% working interest for approximately $0.9
million. The Company will retain a small overriding royalty interest and will
also be reimbursed approximately $0.3 million for certain capital expenditures.
The agreement is pending its final approval by an aboriginal council in Western
Australia. In the Bass Strait Basin offshore southeast

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Australia, the Company is seeking to farm out its interests. The Company has no
required capital commitments for this prospect.

Exchangeable Notes. In August 1997, the Company issued $25 million of
Exchangeable Notes in a private transaction with institutional and accredited
investors. Interest on the Special Notes is payable in arrears commencing on
December 31, 1997, at a rate of 6% per annum on December 31 and June 30 in each
year until maturity on August 7, 2003.

The Exchangeable Notes are exchangeable for a like principal amount of
Convertible Debentures at any time prior to the date (the "Exchange Date") that
is the earlier to occur of (i) the third business day following (a) the
effectiveness of a registration statement under the Securities Act covering the
registration for resale of the Common Shares and Warrants issuable upon
conversion of the Convertible Debentures and (b) the issuance by certain
Canadian securities commissions of receipts for a final prospectus in compliance
with Canadian securities law requirements and (ii) August 7, 1998. The
Convertible Debentures are convertible into Units at a rate of $11.50 per Unit,
each Unit consisting of one Common Share and one-half of one Warrant, for a
total of 2,173,913 Common Shares and 1,086,957 Warrants. Each Warrant is
exercisable for one Common Share at an exercise price of $15.00.

On July 23, 1998, the Toronto Stock Exchange (the "TSE") granted an
extension of the exercise period for the Warrants from August 7, 1998 to 5:00
p.m. (Calgary time) on the earlier of:

(i) the date that is 30 calendar days following a 20 day period
during which the weighted average trading price for the Common
Shares on the TSE exceeds US$17.64; and

(ii) February 5, 1999.

After the Exchange Date, the Convertible Debentures are convertible into
Units at the option of the Company, and provided that the Company's registration
statement filed with the SEC has been effective during the seven-day notice
period prior to the Company's exercise of its conversion rights, and provided
further that the Company's Common Shares have traded at or above $14.00 per
share for 20 consecutive trading days on The Toronto Stock Exchange. The
Exchangeable Notes are, and the Convertible Debentures will be, secured by a
pledge of shares of certain of the subsidiaries of the Company and are
guaranteed by Seven Seas Petroleum Holdings Inc.

Senior Notes. In May 1998, the Company completed the offering of Senior
Notes and received net proceeds of approximately $106 million, of which
approximately $37.8 million has been held in a separate account or in escrow to
provide for the first three years of interest payable under the Senior Notes.
Interest on the Senior Notes is payable semi-annually on May 15 and November 15
of each year, commencing November 15, 1998. The Senior Notes mature on May 15,
2005. The Senior Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after May 15, 2002, at the prescribed redemption
price, plus accrued and unpaid interest, liquidated damages and additional
amounts, if any, to the date of redemption. Notwithstanding the foregoing, at
any time prior to May 15, 2001, the Company may redeem up to 33 1/3% of the
original aggregate principal amount of the Senior Notes with a portion of the
net proceeds of an equity or strategic investor offering, provided that at least
66 2/3% of the original aggregate principal amount of the Senior Notes remains
outstanding immediately after the occurrence of such redemption. The Senior
Notes may also be redeemed at the option of the Company, in whole but not in
part, at any time at a redemption price equal to 100% of the principal amount
thereof plus accrued and unpaid interest, liquidated damages and additional
amounts, if any, to the redemption date in the event of certain changes
affecting withholding taxes applicable to certain payments on the Senior Notes.
Upon the occurrence of a change of control, (i) unless the Company redeems the
Senior Notes as provided in clause (ii) below, the Company will be required to
offer to purchase the Senior Notes at a purchase price equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, liquidated
damages and additional amounts, if any, to the date of purchase, and (ii) the
Company will have the option, at any time prior to May 15, 2002, to redeem the
Senior Notes, in whole but not in part at a redemption price equal to 100% of
the principal amount thereof plus the applicable premium and accrued and unpaid
interest, liquidated damages and additional amounts, if any, to the date of
redemption.

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The Senior Notes are senior obligations of the Company and rank pari passu
in right and priority of payment with all existing and future senior
indebtedness of the Company.

Proposed Credit Facility. The Company currently is negotiating an agreement
with Banque Paribas providing for a $25 million senior secured revolving credit
facility. The revolving credit facility will have a term of not less than three
years. The Company expects that borrowings under the facility will bear
interest, at the Company's option, at LIBOR plus a margin of 2.75% or Citibank's
base rate plus a margin of 1.00%; provided, however, that the applicable margins
for both LIBOR and base rate loans will increase by 1.25% under certain
circumstances. An annual commitment fee of 0.50% is expected to be payable on
the unused available portion of the facility. In addition, the Company expects
to pay a customary underwriting fee and other expenses in connection with the
facility. The Company expects that the facility will be secured by certain
assets of the Company, including the stock of certain of the Company's
Subsidiaries and that the facility will contain certain restrictive covenants
which impose limitations on the Company and its Subsidiaries, with respect to,
among other things, (i) the creation of liens, (ii) mergers, acquisitions or
dispositions of assets, (iii) incurrence of indebtedness, (iv) transactions with
affiliates, (v) sale-leaseback transactions and (vi) dividends and other
restricted payments. The covenants are not expected to restrict the Company's
ability to divest its interests in Papua New Guinea or in Australia. The credit
facility will also require the Company to maintain a minimum current ratio, a
minimum tangible net worth, and a minimum debt coverage ratio. The credit
facility will contain customary events of default. While it is anticipated that
the credit facility will be completed in the third quarter of 1998, no assurance
can be made that the credit facility will be completed on the terms set forth
above or on terms acceptable to the Company.

YEAR 2000 DISCLOSURE

The "Year 2000 Issue" is a general term used to refer to certain business
implications of the arrival of the new millennium. In simple terms, on January
1, 2000, all hardware and software systems which use the two-digit year
convention could fail completely or create erroneous data as a result of the
system failing to recognize the two digit internal date "00" as representing the
Year 2000.

The Company does not believe that its internal systems and operations have
any material issues with respect to Year 2000 compliance and does not anticipate
incurring significant remediation costs, if any. The Company has only been
formed in the last three years and is engaged solely in the exploration,
development and production of oil and natural gas in Colombia. As such, the
Company engages in few transactions and relies minimally on the hardware and
software systems of third parties. Further, the Company's hardware and software
systems are all new and widely utilized and the Company has been advised that
all of these systems are Year 2000 compliant. The Company's internal dependence
on information systems and other operating equipment that could potentially
require remedial action to become Year 2000 compliant is low. Accordingly, the
risk of operation disruptions and the corresponding risk of liability for
disruptions caused by non-Year 2000 compliant systems are not of major concern
to the Company.

One of the next phases in the development of Emerald Mountain is the
transportation and marketing of crude oil to be produced from the Company's
properties. This project will be completed in two phases, with Phase I scheduled
for completion in mid-to late 1999 and Phase II to be commenced thereafter and
completed mid-2000. The Company is engaged in negotiations with oil pipeline,
construction and engineering firms to construct its processing, storage and
related facilities and a 36-mile pipeline from Emerald Mountain to the existing
Oleoductos Alto Magdalena ("OAM") pipeline, which terminates at Vasconia. The
Company's current Phase II pipeline construction plans would bypass the OAM
pipeline with a direct link from Emerald Mountain to Vasconia. Beyond Vasconia,
the Company's oil production may be routed through two existing pipeline
systems, Oleducto de Colombia ("ODC") and Oleducto Central S.A. ("OCENSA"). The
Company has retained Brown & Root Energy Services and Technivance Brown & Root
S.A. to conduct planning and engineering studies for its planned pipeline and
associated compression facilities from Emerald Mountain, and intends that the
technology employed in its own delivery systems will be Year 2000 compliant. The
Company has also asked these consultants to review any Year 2000 risks
associated with the planned interconnection of its delivery systems with the
OAM, ODC and OCENSA pipelines, and is reviewing the OAM delivery systems in
conjunction with its current negotiations with the operator of that pipeline.
The Company or the consultants will review and, where necessary, rectify, the
Year 2000 risks associated with Phase I prior to any interconnection with the
OAM, ODC, and OCENSA pipelines. The Company is not
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currently aware of Year 2000 limitations affecting the computer systems that
control these third party pipeline systems that would compromise the operation
of such systems. Moreover, the Company would not be responsible for remediation
costs associated with such computer systems should any technical problems arise.
However, in the event a pipeline was rendered inoperable as a result of Year
2000 issues affecting its operating systems, the Company may be required to rely
on less efficient alternate delivery systems, such as tanker trucks, to
transport any oil production to market.

As the Company develops its infrastructure at Emerald Mountain as part of
the Phase I and Phase II programs, it will continue to monitor Year 2000
compliance issues as they relate to equipment supplied by its vendors and
contractors. Since the Company does not currently supply significant oil
production to its customers, and no supply contracts have been entered into in
respect of Emerald Mountain production, the Company is unable to assess the
significance of Year 2000 issues affecting potential customers at this stage in
its operations.

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BUSINESS

OVERVIEW

Seven Seas is an independent international energy company engaged in the
exploration, development and production of oil and natural gas in Colombia. The
Company is the operator of an oil discovery ("Emerald Mountain") defined by two
association contracts covering a total of approximately 109,000 contiguous acres
in central Colombia. The Company has focused its efforts to date on delineating
the oil and gas potential of Emerald Mountain. The five exploratory wells
completed on Emerald Mountain have achieved maximum tested actual production
rates ranging from 3,415 to 13,123 Bbls/d. The Company has produced
approximately 300,000 barrels of oil during test production; however, continuous
production of the oil field is scheduled to begin in mid- to late 1999. Except
for additional production testing, management has made the decision to shut in
the five completed wells until completion of the infrastructure necessary to
produce, process and transport oil production from Emerald Mountain. The
Company's 57.7% working interest in Emerald Mountain (before Colombian
government participation) was acquired through a series of transactions from
1995 through 1997. The Company has interests in three additional association
contracts in Colombia which, together with the Emerald Mountain association
contracts, cover over one million gross acres. As of December 31, 1997 the
Company's estimated net proved reserves attributable to the delineation of
14,459 acres of Emerald Mountain were 32.2 MMBbls with an SEC PV-10 of $144.9
million.

The Company anticipates developing Emerald Mountain in two phases. Phase I
of the development program includes development and delineation drilling and the
construction of production facilities and a 36-mile pipeline, scheduled for
completion in mid- to late 1999, which will allow Emerald Mountain production to
reach an existing pipeline with approximately 50,000 Bbls/d of currently
available transportation capacity. Phase II of the development program includes
further development and delineation drilling, construction of production
facilities and construction of a 45-mile pipeline to expand the capacity for
production from the field. The Company has contracted for the basic and
conceptual engineering of the transportation system, requested bids for tubular
supplies and anticipates selecting a project manager in the near future and is
preparing to solicit bids for the detailed engineering and construction of the
pipeline. Prior to the issuance of the Senior Notes, the Company had financed
the operation, exploration and continued delineation of Emerald Mountain
primarily with private offerings of equity and convertible debt, providing the
Company with aggregate net proceeds of $47.0 million. The Company also issued
17.8 million common shares as consideration for a portion of its interest in
Emerald Mountain. On May 7, 1998, the Company issued $110 million aggregate
principal amount of 12 1/2% Senior Notes due May 15, 2005 (the "Senior Notes")
in a private placement and received net proceeds of approximately $106 million.
Approximately $37.8 million of the net proceeds are being held in a separate
account or in escrow to secure the first three years of interest payments. The
Company expects that the remaining proceeds from the offering of Senior Notes,
together with other sources of funds expected to be available to it (including
bank financing and proceeds from the exercise of warrants) will be sufficient to
finance its initial net capital expenditure requirements for Phase I of the
development program.

BUSINESS STRATEGY

The Company's strategy is to maximize value, cash flow and profitability
through: (i) continuing to develop and delineate Emerald Mountain; (ii)
maintaining a balance between development activities that generate near-term
cash flow and a longer-term exploration program; (iii) capitalizing on the
relative advantages of Emerald Mountain compared to other areas in Colombia to
achieve commercial production as soon as practicable; and (iv) mitigating the
risks of foreign operations.

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Developing the Emerald Mountain Asset. As operator of Emerald Mountain, the
Company's goal is to continue rapidly and efficiently its field development and
delineation drilling program and to build the production facilities and pipeline
infrastructure to allow its production to reach existing transportation lines
for access to export markets.

- Development and Delineation Drilling Activities. The Company's Phase I
drilling program, which is scheduled to be completed by mid- to late 1999,
includes capital expenditures of $18.1 million for Emerald Mountain field
development and delineation for 1998 and 1999. The Company's Phase II
drilling program, which is scheduled to be completed by mid-2000, includes
capital expenditures of $114.7 million for Emerald Mountain field
development and delineation for 1999-2000.

- Pipeline and Infrastructure Activities. The Company is engaged in
negotiations with leading oil pipeline, construction and engineering
firms to construct its processing, storage and related facilities and a
36-mile pipeline from Emerald Mountain to a connection with the existing
Oleoductos Alto Magdalena ("OAM") pipeline. Upon its scheduled completion
in mid- to late 1999, the Phase I pipeline is expected to transport
production from Emerald Mountain to the OAM pipeline, which has
approximately 50,000 Bbls/d of currently available transportation
capacity. The Company's 1998-1999 budgeted expenditures for these
activities are approximately $51.9 million for Phase I. Phase II of the
transportation plan provides for the construction of additional
production facilities and a 45-mile pipeline, which will run parallel to
the existing OAM pipeline. The completion of Phase II is scheduled to
occur by mid-2000 and is designed to provide capacity of approximately
250,000 Bbls/d at a cost of $83.5 million to the Company. The Company may
utilize joint ventures and other arrangements to reduce its capital
outlays for pipeline infrastructure and production facilities related to
Emerald Mountain. While the Association Contracts do not require
Ecopetrol's participation in the pipeline and production facilities, the
Company expects that Ecopetrol will participate to the extent of 50% of
the Phase I and Phase II pipeline and infrastructure costs. No assurances
can be given, however, that an agreement will be reached on these terms
and the Company may be required to fund amounts greater than the amounts
presented as the Company's net share.

Balancing Development Activities with Exploration Program. The Company
seeks to balance its development drilling program with an exploration program
focused on delineating and extending the reservoir limits of Emerald Mountain.
The Company utilizes advanced technology, including 2-D and 3-D seismic
techniques as well as other proven exploratory and development analytical tools.

Capitalizing on Favorable Operating Environment. The Company intends to
capitalize on the relative advantages of the location and characteristics of
Emerald Mountain, which it believes represents a more favorable operating
environment than most other discoveries and producing fields in Colombia. These
advantages include:

- The productive Upper Cretaceous Cimarrona formation at Emerald Mountain
is at the relatively shallow vertical depth of between approximately
6,000 and 7,500 feet and does not require the relatively more complicated
and more expensive drilling procedures needed to reach the deeper
formations that are found in many other areas of Colombia.

- Emerald Mountain benefits from accessible terrain at an average of
approximately 3,000 feet above sea level in a generally unforested area,
which is served by a major highway and is located near the existing OAM
pipeline.

- Emerald Mountain is located 60 miles northwest of Bogota in the capital
state of Cundinamarca in central Colombia, which has been characterized
by greater civil and political stability and by a higher population
density and military presence than more remote areas of Colombia.

- Colombia is a relatively stable democracy with a long history of
consistent GDP growth and an announced goal of aggressively expanding its
oil exports. Colombia's sovereign U.S. dollar rating as of June 29, 1998
was Baa3/BBB-.

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Mitigating Risks of Foreign Operations. The Company seeks to mitigate
operating and financial risks associated with operating in Colombia by: (i)
building on its relationship with the Colombian government, which, through the
Colombian national oil company ("Ecopetrol"), has the right to back in to an
initial 50% working interest in Emerald Mountain upon its acceptance of a field
as commercial; (ii) continuing the high level of involvement of the Company's
Colombian advisory board consisting of prominent business and political leaders,
all of whom are shareholders of the Company, who provide advice and facilitate
operating in Colombia; (iii) building on existing favorable relationships with
the local community by, among other initiatives, providing local employment as
well as medical and educational assistance; (iv) employing local personnel with
in-country oil and gas industry expertise; and (v) operating primarily in U.S.
dollars with the right to expatriate profits from Colombia.

HISTORY

Seven Seas became subject to the laws of the Yukon Territory in August
1996. Seven Seas was formed effective June 29, 1995 as a result of an
amalgamation (the "Amalgamation"), under laws of the province of British
Columbia, of Rusty Lake Resources Ltd. ("Rusty Lake") and Seven Seas Petroleum
Inc. (the "Predecessor"), which was incorporated under the laws of British
Columbia on February 3, 1995. Rusty Lake was formed effective January 31, 1993
by an amalgamation of Lithium Corporation of Canada, Limited and Stockgold
Resources Inc. under the laws of Ontario.

Seven Seas was formed to participate in exploration and development
activities outside of North America. In August 1995, the Company purchased a
15.0% interest in Emerald Mountain from GHK Colombia, a subsidiary of The GHK
Company, L.L.C. In July 1996, the Company acquired an additional 36.7% working
interest in Emerald Mountain through its acquisition of 100% of GHK Colombia and
Esmeralda LLC and 63% of Cimarrona LLC. In March 1997, the Company acquired an
additional 6.0% working interest in Emerald Mountain through its acquisition of
Petrolinson S.A., resulting in the Company's current ownership of a 57.7%
working interest in Emerald Mountain (before Colombian government
participation). In connection with these acquisitions, the Company issued a
total of 17.8 million common shares.

PROPERTIES

COLOMBIA -- EMERALD MOUNTAIN

Overview. The Company's Colombian operations are focused on Emerald
Mountain. The Emerald Mountain discovery is located on two adjoining concession
areas in central Colombia, approximately 60 miles northwest of Bogota. The
concession areas are defined by the Association Contracts with Ecopetrol. The
area is accessible via the main road between Bogota and Honda. The OAM pipeline
is approximately 12 miles west of Emerald Mountain, at its nearest point, and
provides an opportunity for oil transportation from Emerald Mountain, although
currently available capacity is limited to approximately 50,000 Bbls/d. The
village of Guaduas lies within the block and provides infrastructure for the
local economy, which is primarily agrarian in nature. The Company owns a 57.7%
working interest in Emerald Mountain before Colombian government participation.
The remaining interests are owned by MTV Investments Limited Partnership (9.4%)
and Sociedad Internacional Petrolera, S.A. ("Sipetrol") (32.9%). Sipetrol is the
international exploration and production subsidiary of the Chilean national oil
company. As of December 31, 1997, the Company's estimated net proved reserves
attributable to the delineation of 14,459 acres of Emerald Mountain were 32.2
MMBbls with an SEC PV-10 of $144.9 million.

The Emerald Mountain geological structure is a large anticline. The primary
oil reservoir is the Upper Cretaceous Cimarrona formation, which comprises both
limestone and sandstone and is relatively under pressured. The Emerald Mountain
reserves are located at vertical depths of between approximately 6,000 and 7,500
feet and are characterized by low sulfur content (less than 1%), low paraffin
content and a medium gravity (18 degrees to 20 degrees API gravity).

The Cimarrona formation at Guaduas is an intensely fractured, highly
permeable oil reservoir with an average dip angle of 14 degrees. Special
pressure test analysis indicates the reservoir to be connected in all

26
<PAGE> 28

directions by large fractures that allow hydrocarbons to flow readily through
the reservoir. These highly permeable fractures in conjunction with the angle of
the formation dip will allow the oil to be produced by a combination of
efficient oil recovery mechanisms called gravity drainage and gravity
segregation.

Gravity drainage is a natural drive occurring when a well is drilled at a
point lower than the surrounding areas of producing formations causing the oil
to drain downhill into the well bore. Gravity drainage works particularly well
when the rock is highly permeable as is the case in the Cimarrona formation at
Guaduas Field.

Gravity segregation is the separation of oil from gas by the force of
gravity due to the density differences of the fluids. As the Cimarrona is
produced the reservoir pressure is expected to decrease, resulting in gas being
liberated from the oil. Due to the reservoir dip and the high permeability, the
gas will readily flow up dip, forming a gas cap at the highest areas in the
reservoir and allowing less gas to be produced with the oil in the producing
wells located lower in the reservoir. Gas conservation is important because it
provides energy to move the fluids through the reservoir into the producing
wells. By conserving this energy, a higher fraction of the oil-in-place can be
recovered without any type of pressure maintenance.

Drilling activity. To date, ten wells have been drilled on the Dindal and
Rio Seco Association Contract areas. The first well, the Escuela 1, which was
drilled in 1994 prior to the acquisition of an interest in Emerald Mountain by
the Company, was plugged and abandoned as non-commercial. The discovery well on
Emerald Mountain was the second well drilled on the Dindal block, the El Segundo
1-E. The El Segundo 1-E discovery well commenced drilling in December 1995 and
reached total depth in mid-January 1996. The well reached the expected Cimarrona
formation at a depth of 5,718 feet, but stopped drilling after penetrating only
88 feet of the Cimarrona formation due to circulation problems encountered while
drilling. The well was then completed for testing in February 1996. Production
testing produced oil at an actual maximum rate of 3,418 Bbls/d. A third well,
the El Segundo 1-N, reached total drilling depth of 6,820 feet in November 1996.
This well was intentionally deviated from the surface location of the El Segundo
1-E well to a bottom hole location approximately 2,000 feet north of the surface
location. The well encountered approximately 450 feet of oil saturated and
highly fractured Upper Cretaceous Cimarrona formation. During production
testing, the El Segundo 1-N produced oil at an actual maximum rate of 8,948
Bbls/d. A fourth well, the El Segundo 1-S, was drilled and completed in
September 1997 to a total depth of 6,920 feet. The bottom hole location of this
well is approximately 2,000 feet south of the surface location of the El Segundo
1-E well. In October 1997, the Company conducted production testing which
resulted in oil production at an actual maximum rate of 4,528 Bbls/d.

In October 1997, the Tres Pasos 1-E well was drilled and completed at a
vertical depth of 6,200 feet without evidence of any oil-water contact. This
well was the first to be drilled on the Rio Seco contract area and was located
approximately 1.6 miles northwest of the surface location of the El Segundo 1-E
well. Production testing of the Tres Pasos 1-E well was completed in December
1997 and resulted in oil being produced at an actual maximum rate of 13,123
Bbls/d. Analysis of reservoir pressure data during production testing indicated
pressure communication with the El Segundo 1 wells located to the southeast.
Such pressure communication over a 1.6 mile distance support drilling results
that indicate a consistently high and intensive degree of a well-connected
fracture system indicating an extensive storage capacity and permeability within
the area of the Cimarrona formation investigated during the production test.

The sixth well to be drilled on Emerald Mountain, the El Segundo 2-E,
completed drilling at a vertical depth of 6,292 feet in November 1997 on the
Dindal Association Contract area approximately 3.7 miles north of the surface
location of the El Segundo 1-E discovery well. Production testing of the El
Segundo 2-E was completed in January 1998 and resulted in a maximum actual
production rate of 5,381 Bbls/d. Analysis of pressure data during production
testing evidenced communication with the El Segundo 1-S well approximately 3.7
miles to the south. This data further confirmed the presence of a uniform and
pervasive fracture system supporting the evidence for extensive storage capacity
and permeability within the Cimarrona formation over the area investigated by
the production testing.

Drilling of the seventh well on Emerald Mountain and the second on the Rio
Seco Association Contract area, the Tres Pasos 2-E, commenced in December 1997
and was completed in February 1998 at a location

27
<PAGE> 29

approximately 5.6 miles northwest of the surface location of the El Segundo 1-E.
This well was drilled to a vertical depth of 6,054 feet and encountered 290 feet
of the Cimarrona formation with no evidence of any oil-water contact. Due to an
operational problem that resulted from a failure to properly cement liner casing
through the Cimarrona formation, the Company has decided to sidetrack and drill
a new well bore. On May 5, 1998, the Company announced that the Tres Pasos 2-E
sidetrack well had reached a total depth of 5,880 feet with a bottom hole
location approximately 1,200 feet southeast of the original well base.

In November 1997, drilling commenced on the El Segundo 3-E well located
approximately 2.8 miles south of the surface location of the El Segundo 1-E
well. This well was the eighth well to be drilled on Emerald Mountain and the
sixth to be drilled on the Dindal Association Contract area. The drilling of the
El Segundo 3-E was completed at a vertical depth of 8,021 feet in February 1998.
The well encountered 292 feet of Cimarrona formation that exhibited similar
characteristics in terms of lithology and fracturing as that exhibited in the
previous seven wells. After the completion of drilling operations on the El
Segundo 3-E, the Company experienced significant mechanical problems while
attempting to complete the well for production testing. Due to a failure to
effectively install the lower portion of the well casing, it was not possible to
achieve sufficient communication with the Cimarrona formation to initiate
production testing. The Company has temporarily abandoned the El Segundo 3-E
well pending a scheduled return to this location in the third quarter of 1998.

The Company moved the drilling rig to the surface location for the drilling
of the El Segundo 6-E well located approximately 5.3 miles south of the surface
location of the El Segundo 1-E well. The Company successfully completed drilling
operations on the El Segundo 6-E well in June 1998. The El Segundo 6-E well
reached a total depth from the surface of 8,713 feet. Preliminary analyses while
drilling included the observation of highly fractured core samples and over 300
feet of Cimarrona formation with no indication of oil-water contact.

On July 8, 1998, the Company announced that it had successfully completed
drilling operations on the Tres Pasos No. 4-E well on the Emerald Mountain
project in Colombia, South America. The Tres Pasos No. 4-E well is located on
the Rio Seco Association Contract area, approximately 5 kilometers northwest
from the surface location of the previously announced El Segundo No. 1 discovery
well. The well reached a total depth from the surface of approximately 6,300
feet. Approximately 292 feet of the Upper Cretaceous Cimarrona formation was
encountered. There was no apparent oil-water contact in the well.

<TABLE>
<CAPTION>
MAXIMUM ACTUAL MAXIMUM ACTUAL
DATE VERTICAL DEPTH OIL TEST RATE GAS TEST RATE
WELL NAME COMPLETED (FEET) (BBLS/D)(1) (MCF/D) DESCRIPTION
<S> <C> <C> <C> <C> <C>
Escuela 1(2) -- -- -- -- Non-commercial
El Segundo 1-E 2/96 5,718 3,415 1,350 Discovery well
El Segundo 1-N 11/96 6,820 8,948 3,500 Drilled from initial pad
El Segundo 1-S 9/97 6,920 4,528 451 Drilled from initial pad
Tres Pasos 1-E 10/97 6,200 13,123 6,000 Drilled 600' downdip to
northwest of ES 1-E
El Segundo 2-E 11/97 6,292 5,381 826 Drilled 3.7 miles north of ES
1-E; 1,168' below ES 1-N
El Segundo 3-E (3) 8,021 (3) (3) Drilled 2.8 miles south of ES
1-E and temporarily abandoned
Tres Pasos 2-E (4) 6,054 (4) (4) Drilled 5.6 miles to northwest
of ES 1-E
</TABLE>

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

(1) References are from production testing only and are not necessarily
indicative of flow rates that may be realized during commercial production.
Production tests are conducted to obtain an indication of the flow capacity
of individual wells and to give an indication of reservoir quality and
extent. Actual producing rates from individual wells will depend on the
results of an integrated reservoir study and an engineering production plan,
which will incorporate data from all wells in the field in a development
plan to maximize the economic recovery of oil from the reservoir.

28
<PAGE> 30

(2) The Escuela 1 well, drilled in 1994, encountered Tertiary and Cretaceous
shales and siltstones from surface to total depth. This predominantly shale
section, emplaced by thrust faulting adjacent to the Cimarrona reservoir
section, is believed to form the eastern critical element of the trap for
the Cimarrona reservoir.

(3) While the anticipated Cimarrona formation was encountered, the Company
experienced significant mechanical problems while attempting to complete the
well for production testing and has temporarily abandoned the well pending a
scheduled return to this location in the third quarter of 1998.

(4) Due to an operational problem that resulted from a failure to properly
cement liner casing through the Cimarrona formation, the Company has decided
to sidetrack and drill a new well bore. On May 5, 1998, the Company
announced that the Tres Pasos 2-E sidetrack well reached a total depth of
5,880 feet with a bottom hole location approximately 1,200 feet southeast of
the original well bore.

Prospect Geology. The Emerald Mountain structure is formed by a faulted
anticlinal closure in the foot wall of the Bituima thrust fault system on the
eastern side of the Magdalena river valley. The primary oil reservoir tested to
date is the Upper Cretaceous Cimarrona formation which comprises both limestones
and sandstones. These reservoir sequences are charged with oil generated from
the immediately underlying Villeta (also called La Luna) shale which is
considered the principal source rock for the oil accumulations throughout
Colombia and Venezuela.

The Cimarrona formation is seen in surface outcrop to the north and west of
the structure, as well as in the Lasmo Madrigal #1 well, the AIPC Quina #1 well
and the Company's five delineation wells completed as of March 1998. From this
geologic control and completed well information, the Cimarrona is shown to be
depositionally complex, with a high degree of fracturing consistent in
directional orientation. The Cimarrona formation is on average approximately 290
feet in thickness and contains limestones, calcareous sandstones and siltstones.

Evidence for the structural trap is found in both seismic data over the
prospect and in surface geologic mapping. The trapping mechanism is believed to
be formed by structural closure in three directions (north, south and west), and
an imbricate fault within the Bituima thrust fault system to the east, which is
evidenced in the Escuela 1 well which was drilled in 1994, prior to the
acquisition of an interest in Emerald Mountain by the Company, and was plugged
and abandoned as a non-commercial well. The Escuela 1 well is located 2.5 miles
southeast of the El Segundo 1-E discovery well location and encountered Tertiary
and Cretaceous shales and siltstones from surface to total depth. This
predominantly shale section, emplaced by thrust faulting adjacent to the
Cimarrona reservoir section, is believed to form the eastern critical element of
the trap for the prospect.

Terms of Association Contracts and Related Matters. Association contracts
acquired from Ecopetrol, after receipt of the necessary approval by Colombian
governmental authorities as well as the approval of the board of Ecopetrol, are
mutually executed by the parties and subsequently recorded as a public deed in
Colombia. Therefore, ownership of an association contract is protected by
Colombian law.

The Association Contracts were issued by Ecopetrol in March 1993 and August
1995, respectively, and provide generally for a six-year exploration phase
followed by a 22-year production period, with partial relinquishments of
acreage, excluding commercial fields, required commencing at the end of the
sixth year of each contract. Under the terms of the Association Contracts,
Ecopetrol will receive a royalty equal to 20% of production (after
transportation costs are deducted) on behalf of the Colombian government and, in
the event a commercially feasible discovery is made, Ecopetrol will acquire a
50% interest in the remaining production, bear 50% of the development costs, and
reimburse the working interest owners, from Ecopetrol's share of future
production, for 50% of the working interest owners' costs of certain exploration
activities. Upon its acceptance of a field as commercial, Ecopetrol will acquire
a 50% interest therein and the interests of the other parties to the contract,
including the Company, will be reduced by 50%; all decisions regarding the
development of a commercial field will be made by an Executive Committee
consisting of representatives of the parties to the contract who will vote in
proportion to their respective interests in such contract. Decisions

29
<PAGE> 31

of the Executive Committee will be made by the affirmative vote of the holders
of over 50% of the interests in the contract.

Under the terms of the Dindal Association Contract, Ecopetrol's interest in
production and costs would increase after a commercial contract area produces in
excess of 60 MMBbls. Such increases occur in 5% increments from 50% to 70% as
accumulated production from any field increases in 30 million barrel increments
from 60 MMBbls to 150 MMBbls. Under the terms of the Rio Seco Association
Contract, after a commercial contract area produces in excess of 60 MMBbls,
Ecopetrol's interest in production and costs would increase from 50% to 75% as
the ratio of the accumulated income attributable to the parties to the contract
other than Ecopetrol to the accumulated development, exploration and operating
costs of such parties (less any expenses reimbursed by Ecopetrol) increases from
a one-to-one ratio to a two-to-one ratio.

Under the terms of the Association Contracts, in the event a discovery is
made and is not deemed to be commercially feasible by Ecopetrol, the working
interest owners may expend up to $2 million over a one-year period to further
develop the field, 50% of which will be reimbursed if Ecopetrol subsequently
accepts the commercial feasibility thereof. If Ecopetrol does not declare the
field commercial, the working interest owners may continue to develop the field
at its own expense. In such event, Ecopetrol will have the right to acquire a
50% interest therein upon payment of 200% of the amounts expended by the working
interest owners, which payment may be made out of Ecopetrol's share of future
production.

The Company and the other working interest owners have paid all costs of
the exploration program under the Association Contracts to date. Under the terms
of the Dindal and Rio Seco Association Contracts, the Company and its partners
are required to drill one well on each contract per year through 1999 and 2001,
respectively, and will continue to bear all exploration costs relating to a
field until such field is declared commercial. The Company plans to submit a
commerciality application to Ecopetrol in the third quarter of 1998 with respect
to its discovery. Such application is subject to approval by Ecopetrol, which
has the right to reject or delay acceptance of commerciality or to accept
commerciality and acquire a 50% working interest in the Association Contracts.

GHK Colombia, a wholly owned subsidiary of the Company, serves as the
operator of Emerald Mountain, pursuant to the terms of operating agreements
between the Company, its respective subsidiaries and the other working interest
owners. GHK Colombia has exclusive charge of carrying out the program of
operations within the budgets approved by the Operating Committee and may demand
payment in advance from each party of its respective shares of estimated monthly
expenditures.

Under the terms of a letter agreement dated September 11, 1992, as amended,
between GHK Colombia and Dr. Jay Namson, the holders of interests in the
Association Contracts, as a group, will be required to assign a 2% working
interest in the Dindal Association Contract and the Rio Seco Association
Contract to Dr. Namson after recovery from production of 100% of all costs
incurred in connection with the exploration and development of the Dindal and
Rio Seco contract areas since the completion of the first year work obligations
under the Dindal Association Contract. Accordingly, when such costs have been
recovered, the Company will be required to assign to Dr. Namson 2% of its
interests prior to the acquisition of the 6% Petrolinson interest (or a 0.517%
interest in the Association Contracts after adjusting for the acquisition of a
50% interest by Ecopetrol which is expected to occur prior to the assignment to
Dr. Namson).

The Company currently holds a 57.7% interest in the Association Contracts,
including a 6% interest acquired indirectly through the Company's acquisition of
100% of the securities of Petrolinson, the holder of such 6% interest. As the
holders of the remaining 94% interest, including the Company, had previously
agreed to pay 100% of the exploration costs attributable to such 6% interest
through the exploration period, approximately 45% of the exploration costs for
the Association Contracts attributable to the 6% interest acquired by the
Company are paid by the other holders of interests in the Association Contracts.
The exploration period will terminate upon Ecopetrol's declaration of the
commerciality of a field, which the Company expects to occur beginning in the
second quarter of 1999.

30
<PAGE> 32

COLOMBIA -- MONTECRISTO AND ROSABLANCA ASSOCIATION CONTRACTS

The Company owns a 75% working interest in the contiguous Montecristo and
Rosablanca association contract areas, which cover a total of approximately
692,000 gross acres in the northern Middle Magdalena Basin. During 1998, the
Company expects to reprocess and evaluate 2-D seismic data on the Montecristo
and Rosablanca contract areas.

COLOMBIA -- TAPIR ASSOCIATION CONTRACT

Overview. The Company acquired an 11.875% interest in the Tapir Association
Contract (the "Tapir Association Contract") in April 1996. The Tapir contract
area consists of 233,000 gross acres located in the Llanos Basin of east central
Colombia and is crossed by two oil pipelines carrying production from nearby oil
fields. Other interests in the Tapir Association Contract are held by Ampolex
(Colombia) Inc. (56.25%), Mohave Colombia Corporation (10.205%), Doreal Energy
Corporation (11.67%) and Heritage Minerals Inc. (10%), which serves as the
operator.

Exploration Prospects. There are three exploration prospect types on the
Tapir contract area: several conventional Llanos Basin small structural
closures, a deep Paleozoic anomaly and two basal Cretaceous stratigraphic
prospects. The small structural closures are relatively low risk, but are
expected to have low reserve potential. The Paleozoic prospect is of geologic
interest, but relies on unproven source and reservoir rocks and is therefore
high risk until further geologic work can be completed. The geologic risk for
the two Cretaceous stratigraphic prospects depends on the effectiveness of the
lateral seal between the Ubaque sandstone and the adjacent Paleozoic section.

The Mateguafa prospect, one of the small structural closures in the central
portion of the Tapir contract area, was selected as the first exploration drill
site in the Tapir contract area. The Company participated in the Mateguafa well,
drilling of which was completed in April 1998 to a total depth of 10,000 feet.
Completion operations have been suspended until late 1998 due to the annual
rainy season.

Existing Well. In 1993, the Macarenas #1 well, a discovery well, was
drilled on the Tapir contract area and produced 320 Bbls/d in a short-term test,
but was not completed for production. Since the well was drilled and tested,
additional oil pipeline infrastructure has been built in the area. The operator
plans to place the well on long-term production test after the completion of the
exploratory well to determine sustainable production rates and the extent of the
reservoir.

Terms of Tapir Association Contract. The Tapir Association Contract was
effective on February 6, 1995 on terms substantially similar to the Rio Seco
Association Contract. Heritage Minerals Inc. has completed a 51.5 square-mile
seismic program in the contract area, which satisfied the work program for the
first year of the Tapir Association Contract and part of the second year. The
commitment for the second year well has been satisfied by the drilling of the
Mateguafa well.

The Company acquired its interest in the Tapir Association Contract in
April 1996 in consideration for the payment of $0.1 million, which represents
reimbursement for past seismic costs and permit administration, and its
agreement to pay its proportionate share of the costs of a seismic program, the
first exploratory well, the production test on the Macarenas #1 well (assuming
the parties elect to proceed therewith) and certain additional costs to earn its
interest in the Tapir Association Contract. The Company estimates that its
proportionate share of these costs, which are required to be paid to retain its
interest in the Tapir Association Contract, is approximately $0.4 million.

AUSTRALIA

The following is a description of the Company's interests in Australia,
which the Company plans to divest or farm out.

Perth Basin Permits. The Company holds an 11.77% working interest in
Exploration Permit 381 ("EP381") and Exploration Permit 408 ("EP408"), both of
which relate to properties that are located in the

31
<PAGE> 33

Perth Basin, Western Australia. Other interests in these permit areas are held
by: Pennzoil (44.115%), Amity Oil (30.115%) and GeoPetro Company (14%).

The Company has entered into a purchase and sale agreement with Forcenergy
International Inc. with respect to the sale of its interests in EP 381 and EP
408 for approximately $0.9 million and will be reimbursed approximately $0.3
million for certain capital expenditures. The required consents of governmental
authority and most third parties have been received. No absolute assurance can
be given that the Company will complete this sale, which is subject to obtaining
the final approval of an aboriginal council in Western Australia. Such approval
is expected to be received by September 1, 1998. If the sale is denied, the
Company will not have any continuing commitments for capital expenditures on
this property.

Bass Basin, Block T27P. The Company holds a 20% working interest in Block
T27P, a 1,800,000 acre block in approximately 70 meters of water, in the Bass
Strait Basin, the central of three basins offshore southeastern Australia. The
easternmost basin is the Gippsland Basin where BHP Petroleum and Esso have a
series of large oil and gas fields. The westernmost basin is the Otway Basin,
the site of recent gas discoveries by BHP Petroleum and others which will likely
serve the South Australia and Victoria gas markets. Block T27P lies about
halfway between the Victoria coast to the north and the Tasmania coast to the
south (about 56 miles each way). The Bass Strait Basin has been the site of a
series of gas and oil shows and discoveries, including the Yolla Field, which is
adjacent to Block T27P. The Yolla Field was discovered by Amoco in the mid-1980s
and has not yet been fully appraised or developed.

Globex Exploration, the operator of the permit with an 80% working
interest, was granted the Offshore Petroleum Exploration Permit effective August
10, 1994 (the "Bass Basin Permit"). Globex completed a 620-mile 2-D seismic
program on the block. The remaining work commitment on the block consists of a
3-D seismic survey and two exploration wells. Globex has selected a drillable
prospect some 6.2 miles north of the Yolla Field and is seeking additional
participants in the block to share the cost of an exploratory well which is
estimated to be approximately $5 million. As suitable drilling rigs are not
available in the near term, Globex has applied for a permit extension in the
block until a suitable rig can be contracted.

In March 1996, the Company acquired a six-month option to purchase its
interest in the block for $0.3 million and exercised that option in September
1996. Pursuant to the terms of the option agreement, the Company may elect to
farm out up to 50% of its interest in the Bass Basin Permit. In addition, if
Globex Exploration and the other interest holders seek to enter into a farm-out,
the Company has agreed to participate proportionally with such parties in such
farm-out provided that its interest may not be reduced below 10%.

PAPUA NEW GUINEA

The Company holds 100% of exploration permit PPL-182 in southern Papua New
Guinea effective June 11, 1996. The permit covers an area of 1,200,000 acres
located both onshore and offshore in the Fly River Delta and the Gulf of Papua.

Past exploration activity within PPL-182 has resulted in the acquisition of
seismic data and the drilling of several exploratory wells. The Company's first
year work program consisted of a geological and geophysical review of existing
data. The Company has entered into an Agreement with ARCO Papua New Guinea Inc.
("ARCO") for a farm out of its interest whereby ARCO will fund the Company's
obligation for the twelve-month period ended July 1998 for an 80% interest in
the subject exploration permit. In future periods, the Company has no obligation
to expend funds but may be subject to a forfeiture of its interest should the
Company decide not to continue to fund its remaining 20% interest. The Company
anticipates in the future it will farm-out its 20% interest or relinquish its
rights in the property.

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<PAGE> 34

OIL AND GAS RESERVES

The following table sets forth estimated net proved oil and gas reserves of
the Company, the estimated future net revenues before income taxes, the present
value of estimated future net revenues before income taxes related to proved
reserves and the standardized measure of discounted future net cash flows
related to proved reserves, in each case as of December 31, 1997. All
information in this Prospectus relating to estimated net proved oil and gas
reserves and the estimated future net revenues and cash flows attributable
thereto is based upon a report from Ryder Scott. All calculations of estimated
net proved reserves have been made in accordance with the rules and regulations
of the Commission.

<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1997
<S> <C>
Total net proved reserves:
Oil (MBbls)............................................... 32,160
Gas (MMcf)................................................ --
Total (MBOE).............................................. 32,160
Net proved developed reserves:
Oil (MBbls)............................................... 11,494
Gas (MMcf)................................................ --
Total (MBOE).............................................. 11,494
Estimated future net revenues before income taxes (in
thousands)(1)............................................. $241,700
Present value of estimated future net revenues before income
taxes
(in thousands)(1)......................................... $144,866
Standardized measure of discounted future net cash flows (in
thousands)(1)(2).......................................... $100,617
</TABLE>

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

(2) The standardized measure of discounted future net cash flows represents the
present value of estimated future net revenues from proved reserves after
income tax, discounted at 10% per annum.

There are numerous uncertainties inherent in estimating quantities of
proved reserves, future rates of production and the timing of development
expenditures, including many factors beyond the control of the Company. The
reserve data set forth herein represent only estimates. Reserve engineering is a
subjective process of estimating underground accumulations of oil and gas that
cannot be measured in an exact manner, and the accuracy of any reserve estimate
is a function of the quality of available data, engineering and geological
interpretation and judgment and the existence of development plans. As a result,
estimates of reserves made by different engineers for the same property will
often vary. Results of drilling, testing and production subsequent to the date
of an estimate may justify a revision of such estimates. Accordingly, reserve
estimates generally differ from the quantities of oil and gas ultimately
produced. Further, the estimated future net revenues from proved reserves and
the present value thereof are based upon certain assumptions, including
geological success, prices, future production levels and costs that may not
prove to be correct. Predictions about prices and future production levels are
subject to great uncertainty, and the meaningfulness of such estimates depends
on the accuracy of the assumptions upon which they are based.

33
<PAGE> 35

PRODUCTIVE WELLS

The following table sets forth the productive oil and gas wells owned by
the Company as of December 31, 1997:

<TABLE>
<CAPTION>
WELLS(1)
----------------------------
OIL GAS
------------ ------------
GROSS NET GROSS NET
<S> <C> <C> <C> <C>
Colombia................................................. 3 1.7 0 0.0
-- --- -- ---
Total.......................................... 3 1.7 0 0.0
</TABLE>

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

(1) One or more completions in the same well bore are counted as one well.

ACREAGE

The following table sets forth estimates of the developed and undeveloped
acreage for which oil and gas leases or concessions were held by the Company as
of December 31, 1997.

<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
--------------------------- ---------------------------
GROSS ACRES NET ACRES(1) GROSS ACRES NET ACRES(1)
<S> <C> <C> <C> <C>
Colombia........................... 14,459 8,343 1,019,371 601,329
Papua New Guinea................... -- -- 1,200,000 1,200,000
Australia.......................... -- -- 2,394,546 429,978
------ ----- --------- ---------
Total.................... 14,459 8,343 4,613,917 2,231,307
</TABLE>

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

(1) New acres are based on the Company's respective working interests and, in
Colombia, are before Colombian government participation. See
"-- Properties."

DRILLING ACTIVITY

The following table sets forth the number of wells drilled by the Company
from inception through December 31, 1997:

<TABLE>
<CAPTION>
EXPLORATORY DEVELOPMENT
-------------------------- -------------------------
PRODUCTIVE DRY PRODUCTIVE DRY
----------- ------------ ----------- -----------
GROSS NET GROSS NET GROSS NET GROSS NET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Colombia................................ 3 1.7 0 0.0 0 0.0 0 0.0
== === == ==== == === == ===
Year ended December 31, 1996:
Colombia................................ 2 1.2 0 0.0 0 0.0 0 0.0
Argentina............................... 0 0.0 1 0.3 0 0.0 0 0.0
-- --- -- ---- -- --- -- ---
2 1.2 1 0.3 0 0.0 0 0.0
== === == ==== == === == ===
Year ended December 31, 1995:
Australia............................... 0 0.0 1 0.1 0 0.0 0 0.0
== === == ==== == === == ===
</TABLE>

Since December 31, 1997, the Company has drilled no gross productive
exploratory wells, no gross nonproductive exploratory wells, no gross productive
development wells, and no gross nonproductive development wells. In addition,
the Company is currently drilling five gross exploration wells (2.9 net to the
Company) and no gross development wells.

GATHERING AND PIPELINE SYSTEM

Transportation and marketing of crude oil to be produced from Emerald
Mountain is expected to be achieved through the construction of a 36-mile
pipeline northwest from Emerald Mountain to connect to the existing OAM
pipeline, a regulated common carrier, at the town of La Dorada along the
Magdalena River Valley. This 36-mile pipeline, which is part of the Company's
Phase I development plan, will have the capacity for 250,000 Bbls/d but will be
constrained by the currently available capacity of 50,000 Bbls/d on the

34
<PAGE> 36

OAM pipeline. The Company is negotiating with the operator of the OAM pipeline
for the transportation of 50,000 Bbls/d on the OAM pipeline; however, a final
contract has not been executed. Through the OAM pipeline, Emerald Mountain's
production will be transported to pipeline terminal and storage facilities at
Vasconia, which is located approximately 45 miles north of La Dorada. At
Vasconia, crude oil from Emerald Mountain may then be shipped through the
existing Oleducto de Colombia ("ODC") and Oleducto Central S.A. ("OCENSA")
pipelines, regulated common carriers, to the port city of Covenas on the
Caribbean for loading, export and sale. To avoid the capacity constraints on the
OAM pipeline, the Company intends to build its Phase II pipeline from the end of
its Phase I pipeline in La Dorada to Vasconia, where it will be able to utilize
approximately 250,000 Bbls/d of currently available capacity on the ODC and
OCENSA pipelines.

Phase I of the transportation plan provides for the construction of
compression, storage, separation, gas gathering and reinjection and other
production facilities and a 24-inch buried pipeline from the center of the
project northwest to connect to the OAM pipeline. The total cost of
infrastructure and pipeline construction of the Phase I transportation plan is
estimated to be $186.2 million, and the Company's share of such costs is
estimated to be $51.9 million. The Company has contracted the basic and
conceptual engineering of the transportation system, requested bids for the
tubular supplies and anticipates selecting a project manager in the near future
and is preparing to solicit bids for the detailed engineering and construction
of the pipeline. Phase I is scheduled to be completed by mid- to late 1999.
While the Association Contracts do not require Ecopetrol's participation in the
pipeline and production facilities, the Company expects that Ecopetrol will
participate to the extent of 50% of the Phase I and Phase II pipeline and
infrastructure costs. No assurances can be given, however, that an agreement
will be reached on these terms and the Company may be required to fund amounts
greater than the amounts presented as the Company's net share.

Phase II of the transportation plan provides for the construction of
additional production facilities and a new 24-inch pipeline parallel to the
existing OAM pipeline along the 45 miles from La Dorada to Vasconia. The
completion of Phase II is scheduled to occur by mid-2000 and is designed to
provide capacity for approximately 250,000 Bbls/d at a total cost of about
$289.6 million with the Company's share at $83.5 million.

Specifications, planning and engineering studies for the planned pipeline
and associated compression facilities to be constructed from Emerald Mountain to
Vasconia are being conducted by Brown & Root Energy Services and Technivance
Brown & Root S.A., subsidiaries of Halliburton Company. Construction of
additional pipelines beyond Phase I depends upon the negotiation and
consummation of construction and financing arrangements, availability of excess
capacity on existing pipelines and the completion of satisfactory contractual
arrangements to obtain such capacity.

MARKETING

Oil produced from the Dindal Association Contract area to date under the
long-term production tests has been sold to Ecopetrol. Upon Ecopetrol's
declaration of the commerciality of the Company's discovery, oil produced from
the Dindal and Rio Seco Association Contract areas may be sold to Ecopetrol or
to third parties. In the event the production is required to satisfy internal
demand for oil in Colombia, the Company may be required to sell some or all of
its production to Ecopetrol at prevailing market prices.

REGULATION

The Company's operations are affected by political developments and laws
and regulations in the areas in which it operates. In particular, oil and gas
production operations and economics are affected by price controls, tax and
other laws relating to the petroleum industry, by changes in such laws and by
changing administrative regulations and the interpretations and application of
such rules and regulations. Oil and gas industry legislation and agency
regulation is periodically changed for a variety of political, economic,
environmental and other reasons. Numerous governmental departments and agencies
issue rules and regulations binding on the oil and gas industry, some of which
carry substantial penalties for the failure to comply. The regulatory burden on
the oil and gas industry increases the Company's cost of doing business.

35
<PAGE> 37

The Company's operations in Colombia are subject to a variety of national,
provincial, and local environmental laws and regulations governing the discharge
of materials into the environment, the disposal of oil and gas wastes, and the
protection of human health and environmental quality. On the federal level, the
Ministry of Environment regulates all activities that could have an adverse
impact on the environment and natural resources of Colombia. The Ministry
requires specific environmental licenses for a variety of oil and gas
exploration and production activities, and individual licenses are issued only
upon completion of a detailed environmental impact study. The Company has
experienced and may continue to experience delays in obtaining the federal
environmental licenses and other, local environmental permits required for
expansion of its operations in Colombia. Nevertheless, the Company has obtained
environmental licenses for its exploration and production activities in the
Dindal and Rio Seco contract areas, and the Company is in the process of
completing the environmental impact studies that must be performed in order to
obtain an environmental license for Phase I of the transportation plan. In
addition, the Company is currently planning to commence preparation of
environmental impact studies required for the issuance of environmental licenses
for exploration and production activities for the Rosa Blanca and Montecristo
contract areas.

The Company may be subject to fines or penalties for failure to comply with
environmental laws and regulations, or the Company may be subject to extensive
environmental clean-up obligations in connection with a release of regulated
materials into the environment. In Colombia, the Company could be subject to
extensive environmental clean-up obligations with respect to contamination at
properties operated by the Company even if the contamination was created by
previous owners or operators of the contaminated property. On March 18, 1998,
the Ministry of the Environment provided notice of its intention to investigate
alleged violations of environmental requirements with respect to location work
on the Company's El Segundo-6E exploratory well. The Company responded promptly
to the notice from the Ministry of the Environment by reporting that all of the
alleged violations had been corrected. In a subsequent site visit, Ministry
officials noted that the alleged violations had indeed been properly remedied.
Although no assurances can be given, the Company does not expect any fines or
penalties to be imposed in connection with the alleged environmental violations
at the Company's El Segundo-6E well. Furthermore, no assurances can be given
that new environmental requirements will not be imposed on the Company's
operations and activities, and the Company cannot predict how environmental laws
and regulations will be administered or enforced in the future in Colombia and
the other countries in which the Company operates. Significant changes in
environmental requirements or in the administration and enforcement of
environmental laws and regulations in areas where the Company operates could
have a material adverse effect on the Company.

COMPETITION

EMPLOYEES

At June 24, 1998 the Company had 52 full time employees, primarily
professionals, including geologists, geophysicists, and engineers.

36
<PAGE> 38

LEGAL PROCEEDINGS

Petrolinson, S.A. and GHK Colombia (two of the Company's Subsidiaries),
along with Norman Rowlinson (the former owner of Petrolinson, S.A.) and the
heirs of Howard Thomas Corrigan, are defendants in a lawsuit recently filed in
the civil circuit court of Santa Fe de Bogota, Colombia by the heirs of Nicolas
Beltran Franco alleging that (i) a de facto company existed between Nicolas
Beltran Franco and the defendants with regards to the exploration and production
of the Dindal and Rio Seco contract areas and that (ii) prior to the execution
of the Dindal and Rio Seco Association Contracts the de facto company conducted
exploration works in the Dindal and Rio Seco contract areas, resulting in the
plaintiffs having the right to participate in income derived from the Dindal and
Rio Seco contract areas. Despite the fact that none of the plaintiffs is a party
to the Association Contracts, the plaintiffs are seeking 50% of the income
generated by the alleged de facto company. It is unclear from the statements
made in the lawsuit, however, what percentage of the Dindal and Rio Seco
contract areas might be covered by the plaintiffs' claims made through the
alleged defacto company.

The Company's investigation of the claims made by the plaintiffs is in the
early stages; however, the Company believes that this lawsuit is without merit
and intends to defend the lawsuit vigorously. The Company believes that the
outcome of this lawsuit will not have a material adverse effect on the Company.
The Company's Colombian counsel, Raisbeck, Lara, Rodriguez & Rueda, members of
the law firm of Baker & McKenzie, based on their review of the matter to date,
are of the opinion that if the above-described claim is litigated to its
conclusion it is remote that the plaintiffs in such lawsuit would succeed on the
merits of their claim.

Other than the foregoing, there are no material proceedings to which the
Company is a party or to which any of its properties is subject.

37
<PAGE> 39

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding each director
and executive officers the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Robert A. Hefner III......... 63 Chairman, Chief Executive Officer and Managing
Director
Breene M. Kerr............... 68 Vice Chairman
Larry A. Ray................. 50 Director, Executive Vice President and Chief
Operating Officer
Herbert C. Williamson, III... 49 Director, Executive Vice President and Chief
Financial Officer
Brian F. Egolf............... 49 Director
Sir Mark Thomson, Bt......... 57 Director
Robert B. Panero............. 68 Director
Gary F. Fuller............... 61 Director
James Scarlett............... 44 Director
</TABLE>

Set forth below is a description of the backgrounds of the directors and
executive officers of the Company.

Robert A. Hefner III has served as Chairman of the Board, Chief Executive
Officer and Managing Director of the Company since May 1997 and a director of
the Company since November 1996. Since 1959, Mr. Hefner has been Owner and
Managing Member of The GHK Company L.L.C., a private oil and gas exploration
company. See "Related Transactions -- The GHK Transaction."

Breene M. Kerr has served as Vice Chairman and director of the Company
since June 1997. Since 1994, Mr. Kerr has served as general partner of Talbot
Fairfield II L.P., an oil and gas exploration undertaking. From 1969 to 1995, he
has served as Chairman and director of Kerr Consolidated, an equipment sales and
leasing undertaking. Since 1993, Mr. Kerr has served as a director of Chesapeake
Energy Corp., a publicly traded oil and gas exploration company.

Larry A. Ray has served as Executive Vice President and Chief Operating
Officer of the Company since September 1997 and as director of the Company since
June 1997. Prior to joining the Company, he was Manager of The GHK Company
L.L.C., where he had served in various capacities since 1990.

Herbert C. Williamson, III has served as Executive Vice President, Chief
Financial Officer and director of the Company since September 1997. From 1995
through September 1997, Mr. Williamson served as Director in the Investment
Banking Department of Credit Suisse First Boston. He served as Vice Chairman and
Executive Vice President of Parker & Parsley Petroleum Company, a publicly
traded oil and gas exploration company (now Pioneer Natural Resources Company)
from 1985 through 1995.

Brian F. Egolf has been a director of the Company since November 1996. Mr.
Egolf is President of Petroleum Management Corporation, a private oil and gas
exploration company.

Sir Mark Thomson, Bt. has been a director of the Company since June 1997.
He is Managing Director of B&N Investments Limited, an investment management
company.

Robert B. Panero has been a director of the Company since June 1997. Mr.
Panero is Founder and President of Robert Panero Associates, international
strategic policy and project studies advisors.

Gary F. Fuller has been a director of the Company since June 1997. Mr.
Fuller is a Shareholder and Director of McAfee & Taft, attorneys-at-law.

38
<PAGE> 40

James Scarlett has been a director of the Company since June 1997. Mr.
Scarlett is a Partner in McMillan Binch, a Canadian law firm.

Each director holds office until the next annual meeting of stockholders
for the election of directors and until his successor has been duly elected and
qualified. Vacancies on the Board are filled by the remaining directors, and
directors elected to fill such vacancies hold office until the next annual
meeting of the Company's shareholders. Executive officers generally are elected
annually by the Board of Directors to serve, subject to the discretion of the
Board of Directors, until their successors are elected or appointed.

There is no family relationship between any of the directors or between any
director and any executive officer of the Company. For information regarding
certain business relationships between the Company and certain of its directors
and executive officers, see "Related Transactions."

COMMITTEES OF THE BOARD

The Company has established three standing committees of the Board of
Directors: an Executive Committee, an Audit Committee and a Stock Option and
Compensation Committee. Messrs. Hefner (Chairman), Kerr and Ray are members of
the Executive Committee. Messrs. Kerr, Thomson and Scarlett are members of the
Audit Committee. Messrs. Kerr, Egolf and Fuller are members of the Stock Option
and Compensation Committee (the "Compensation Committee").

The Executive Committee is delegated, during the intervals between the
meetings of the Board of Directors, all the powers of the Board in respect of
the management and direction of the business and affairs of the Company (except
only those specified in Subsection 116(2) of the Yukon Business Corporation Act)
in all cases in which specified direction in writing shall not have been given
by the Board.

The Audit Committee consults with the auditors of the Company and such
other persons as the members deem appropriate, reviews the preparations for and
scope of the audit of the Company's annual financial statements, makes
recommendations concerning the engagement and fees of the independent auditors,
and performs such other duties relating to the financial statements of the
Company as the Board of Directors may assign from time to time.

The Compensation Committee has all the powers of the Board of Directors,
including the authority to issue shares or other securities of the Company, in
respect of any matters relating to the administration of the Company's Amended
1996 Stock Option Plan, 1997 Stock Option Plan and compensation of officers,
directors, employees and other persons performing substantial services for the
Company. See "-- Executive Compensation -- Employee Benefit Plans."

DIRECTOR COMPENSATION

Directors who are also officers or employees of the Company are not
separately compensated for serving on the Board of Directors or as members of
Board committees. Directors who are not officers or employees of the Company are
eligible to participate in the Company's Amended 1996 Stock Option Plan and are
reimbursed for their out-of-pocket expenses incurred in connection with their
service as directors, including travel expenses. In June 1996, each non-employee
director received a five-year option to purchase 10,000 common shares at an
exercise price of $7.125 per share. In November 1996, upon their election as
directors, Messrs. Hefner and Egolf each received a five-year option to purchase
50,000 common shares at an exercise price of $18.75 per share. In May 1997, each
non-officer director received an option for 15,000 common shares at $10.90.
Messrs. Hefner and Egolf declined to accept such options. In June 1997, the
Company granted Mr. Ray an option to purchase 200,000 common shares at a price
of $10.70 per share. Such options vest one-third immediately with the remaining
vesting 50% at the end of one year from the date of grant and the remaining 50%
at the end of the second year from the date of grant. On September 9, 1997, the
Company granted Mr. Ray options to purchase an additional 200,000 common shares
at a price of $13.23 per share. Such options vest one-third each on the third,
fourth and fifth anniversaries of the date of grant. The Company granted options
to the other directors as follows on July 17, 1997 at an exercise price of
$10.70 per share: Mr. Hefner -- 300,000; Mr. Egolf -- 75,000; Mr.
Kerr -- 75,000; Mr. Fuller -- 75,000; Mr. Panero -- 50,000;

39
<PAGE> 41

Mr. Scarlett -- 75,000; and Mr. Thomson -- 75,000. One-third of the options are
vested immediately, with the remaining vesting 50% at the end of one year from
the date of grant and the remaining 50% at the end of the second year from the
date of grant. Mr. Panero's options will vest 50% at the end of one year from
the date of grant and the remaining 50% at the end of the second year from the
date of grant. Mr. Panero also received a payment of $37,500 in lieu of 25,000
options which would have vested immediately. In September 1997, the Company
granted Mr. Williamson an option to purchase 500,000 Common Shares at an
exercise price of $13.23 per share, of which options to purchase 150,000 Common
Shares vested immediately, options to purchase 150,000 Common Shares vest on
September 9, 1998 and options to purchase 50,000 Common Shares vest on each of
September 9, 1999, 2000, 2001 and 2002, respectively. On November 25, 1997, the
Company granted options at an exercise price of $18.55 per share to the
directors: Mr. Hefner -- 150,000; Mr. Williamson -- 150,000; Mr. Egolf -100,000;
Mr. Kerr -- 75,000; Mr. Fuller -- 75,000; Mr. Panero -- 25,000; Mr.
Scarlett -- 25,000; Mr. Thomson -- 25,000; and Mr. Ray -- 150,000. Such options
vest one-third each on the first, second, and third anniversaries of the grant
date. In each case, the Company granted these options at the approximate
prevailing market price on the date of grant.

40
<PAGE> 42

EXECUTIVE COMPENSATION

The following table sets forth certain summary information concerning the
compensation paid by the Company to its Chief Executive Officer and each of the
other persons who served as executive officers of the Company whose annual
salary and bonus exceeded $100,000 for the fiscal year ended December 31, 1997
(the "Named Executive Officers"). The table does not include perquisites and
other personal benefits for any individual for whom the aggregate amount of such
compensation does not exceed the lesser of (i) $50,000 or (ii) 10% of individual
combined salary and bonus for the Named Executive Officer in that year.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ------------------------- -------
-------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL SHARES UNDERLYING LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert A. Hefner III......... 1997 -- -- -- -- 450,000 -- --
Chairman, Chief Executive 1996 50,000(2)
Officer and Managing
Director
Malcolm Butler(3)............ 1997 $ 13,301 -- -- -- 200,000 -- $250,000
Former Chief Executive
Officer
Albert E. Whitehead(3)....... 1997 $ 77,308 -- -- -- 50,000(4) -- $125,000(3)
Former Chairman of the
Board 1996 150,000 -- -- -- 185,000 -- 14,634(5)
and Chief Executive Officer 1995 125,000 -- -- -- 200,000 -- --
Larry A. Ray(6).............. 1997 $139,062 -- -- -- 550,000 -- $ 33,330(5)
Executive Vice President,
Chief Operating Officer and
Director
John P. Dorrier(7)........... 1997 $107,981 -- -- -- 40,000 -- $392,019
Former Executive Vice 1996 120,000 83,520 -- -- 151,000 -- 11,707
President 1995 80,000 125,000
</TABLE>

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

(1) The dollar value of perquisites and other personal benefits for each of the
Named Executive Officers was less than established reporting thresholds.

(2) Mr. Hefner was granted options exercisable for 50,000 common shares at
$18.75 per share for his participation as a member of the Board of
Directors.

(3) On May 20, 1997, Mr. Whitehead resigned as an executive officer and director
of the Company. The Company entered into a consulting agreement with Mr.
Whitehead for a three-year term for $200,000 per annum. Mr. Malcolm Butler
was named Chief Executive Officer of the Company in May 1997 and received
options exercisable for 200,000 common shares at $10.90 per share, but
resigned on May 20, 1997 when Mr. Hefner was named Chief Executive Officer.
Mr. Butler received a lump sum payment of $250,000, representing one year's
salary, as part of the settlement agreement with him.

(4) In May 1997, Mr. Whitehead was granted options exercisable for 50,000 common
shares at $10.90 per share. As part of the arrangements surrounding the
resignation of such person, the exercise period of the options for Mr.
Whitehead was extended from 90 days to 18 months, which extension was
approved by the shareholders at the Company's 1998 annual meeting.

(5) Consists solely of amounts contributed by the Company to the Named Executive
Officer's account in the Company's 401(k) Plan.

(6) Represents salary received from commencement of employment through December
31, 1997 from the Company, which amount does not reflect an annual rate of
compensation.

(7) Mr. Dorrier terminated his employment by the Company in September 1997 and
received payment for the remainder of compensation due under his contract of
employment. See "Employment Agreements" below.

41
<PAGE> 43

OPTION/SAR GRANTS DURING 1997

The following table sets forth information regarding individual grants of
options by the Company during the fiscal year ended December 31, 1997 to each of
the Named Executive Officers, and their potential realizable values.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE
SHARES % OF TOTAL AT ASSUMED ANNUAL RATES OF
UNDERLYING OPTIONS/SARS EXERCISE SHARE PRICE APPRECIATION FOR
OPTIONS/SARS GRANTED TO OR BASE OPTION TERM(1)
GRANTED EMPLOYEES IN PRICE EXPIRATION ----------------------------
(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Robert A. Hefner III...... 300,000 9.4% 10.70 07/17/2007 2,018,752 5,115,913
150,000 4.7% 18.55 11/25/2007 1,749,899 4,434,538
Malcolm Butler............ 200,000 6.3% 10.90 05/01/2002 602,294 1,330,912
Albert E. Whitehead....... 50,000 1.6% 10.90 05/01/2002 150,573 332,728
Larry A. Ray.............. 200,000 6.3% 10.70 06/12/2007 1,345,835 3,410,609
200,000 6.3% 13.23 09/09/2007 1,664,835 4,217,843
150,000 4.7% 18.55 11/25/2007 1,749,899 4,434,588
John P. Dorrier........... 40,000 1.3% 10.90 05/01/2002 120,459 266,112
</TABLE>

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

(1) The assumed rates of annual appreciation are calculated from the date of
grant through the assumed expiration date. Actual gains, if any, on option
exercises and common share holdings are dependent on the future performance
of the common shares and overall stock market conditions. There can be no
assurance that the value reflected in the table will be achieved.

AGGREGATED OPTION EXERCISES DURING 1997 AND FISCAL YEAR-END OPTION VALUES

The following table provides information related to options exercised by
the Named Executive Officers during 1997 and the number and value of unexercised
options held by the Named Executive Officers at year-end. The Company does not
have any outstanding stock appreciation rights.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS, WARRANTS/SARS AT OPTIONS, WARRANTS/SARS
ON VALUE FISCAL YEAR-END(#)(1) AT FISCAL YEAR-END($)(2)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Robert A. Hefner III..... 0 0 150,000 350,000 685,000 1,370,000
Malcolm Butler........... 0 0 200,000 0 1,330,000 0
Albert E. Whitehead...... 0 0 235,000 0 1,375,000 0
Larry A. Ray............. 0 0 66,666 483,334 456,662 1,777,338
John P. Dorrier.......... 131,000 1,883,089 135,000 0 576,600 0
</TABLE>

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

(1) Represents the difference between the exercise price of the option and the
closing price on the date of exercise.

(2) Based on a closing price on December 31, 1997 of $17.55 per share.

EMPLOYMENT AGREEMENTS

The Company and Mr. Dorrier entered into a three-year employment contract
which provided that he would receive an annual base salary of $150,000 and, in
the sole discretion of the Compensation Committee of the Board, could have
received annual merit increases, annual bonuses and stock option awards. The
contract could have been terminated for "cause" which includes death or serious
incapacity and the executive officer could have resigned upon three months'
prior written notice. The Company and Mr. Dorrier also entered into an agreement
which provides for payments to the executive in the event there is a Change of
Control (as defined) of the Company and the executive's employment is terminated
(i) by the Company within twelve months thereafter, (ii) by the executive within
six months thereafter, or (iii) by the executive between six and

42
<PAGE> 44

twelve months after a Change of Control if a Triggering Event has occurred. In
any such event, the executive shall be entitled to a payment equal to the
aggregate salary payable for the remaining term of his employment agreement and
the Company shall pay the executive's health insurance premium for a period of
one year unless the executive has secured comparable health insurance prior
thereto. If bonuses were paid by the Company for the year in which the
executive's employment terminated, the executive shall be entitled to a bonus
equal to the most recent annual bonus paid to him for each year or part of the
year remaining on his employment agreement, provided that such bonus payment
shall only be paid with respect to a year that the Company otherwise pays
bonuses to some or all of its employees. In addition, all options held by the
executive shall be extended until the earlier to occur of the expiration date of
the option or eighteen months after the date of the termination of his
employment by the Company or the date of his notice of intent to terminate his
employment if he elected to resign. The agreement also provides that in the
event the exercise price of any option granted simultaneously with the option
issued to the executive is reduced, the exercise price of the executive's option
shall also be reduced. As a result of the resignation by the directors of the
Company in May 1997, a Change of Control occurred with respect to such officers.
Mr. Dorrier terminated his employment with the Company in September 1997, and
received payment for the remainder of compensation due under his contract of
employment.

The Company has entered into a five-year employment agreement with Larry A.
Ray that provides for an annual base salary of $262,500 and, in the sole
discretion of the Compensation Committee of the Board, Mr. Ray may receive
annual merit increases, annual bonuses and stock option awards. As part of his
employment agreement, Mr. Ray was granted options to purchase 200,000 common
shares at an exercise price of $10.70 per share. One-third of the options vested
immediately and the remainder vest one-half each on the first and second
anniversaries of the date of grant. On September 9, 1997, the Company granted
Mr. Ray options to purchase an additional 200,000 common shares at a price of
$13.23 per share. Of the options granted to Mr. Ray, 95,000 are under the 1996
Stock Option Plan and 105,000 are under the 1997 Stock Option Plan. Such options
vest one-third each on the third, fourth, and fifth anniversaries of the date of
grant. The employment agreement may be terminated for "cause" which includes
death or serious incapacity. Under the terms of the employment agreement, Mr.
Ray will receive payments equal to the amounts remaining to be paid under the
agreement in the event of a "Change in Control" and his employment terminates
for any reason, including resignation by Mr. Ray. For purposes of this
agreement, the term "Change in Control" means (1) any merger, consolidation, or
reorganization in which the Company is not the surviving entity (or survives
only as a subsidiary of an entity), (2) any sale, lease, exchange, or other
transfer of (or agreement to sell, lease, exchange, or otherwise transfer) all
or substantially all of the assets of the Company to any other person or entity
(in one transaction or a series of related transactions), (3) dissolution or
liquidation of the Company, (4) any person or entity, including a "group" as
contemplated by Section 13(d) of the Exchange Act acquires or gains ownership or
control (including without limitation, power to vote) of more than 45% of the
outstanding shares of the Company's voting stock (based upon voting power), or
(5) as a result of or in connection with a contested election of directors, the
persons who were directors of the Company before such election cease to
constitute a majority of the Board of Directors; provided, however, that the
term "Change in Control" shall not include any reorganization, merger,
consolidation, sale, lease, exchange, or similar transaction involving solely
the Company and one or more previously wholly owned subsidiaries of the Company.

The Company has entered into a five-year employment agreement with Mr.
Herbert C. Williamson, III that provides for an annual base salary of $100,000,
and, in the sole discretion of the Compensation Committee of the Board, Mr.
Williamson may receive annual merit increases, annual bonuses and stock option
awards. As part of his employment agreement, Mr. Williamson was granted options
to purchase 500,000 common shares at an exercise price of $13.23 per share.
Options to purchase 150,000 common shares vest immediately, options to purchase
150,000 common shares vest on September 9, 1998, and options to purchase 50,000
common shares each vest on September 9, 1999, 2000, 2001 and 2002, respectively.
Of the options granted to Mr. Williamson 150,000 are under the 1996 Stock Option
Plan and 350,000 are under the 1997 Stock Option Plan. The remaining terms and
conditions of Mr. Williamson's employment agreement are substantially similar to
Mr. Ray's employment agreement.

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<PAGE> 45

EMPLOYEE BENEFIT PLANS

AMENDED 1996 STOCK OPTION PLAN

The Company's Amended 1996 Stock Option Plan provides a means whereby
selected employees, senior officers and directors of the Company, or of any
affiliate thereof, may be granted incentive stock options to purchase common
shares of the Company in order to attract and retain the services or advice of
such employees, senior officers and directors, and to provide added incentive to
such persons by encouraging share ownership in the Company. The Amended 1996
Stock Option Plan may provide options to purchase up to 3,000,000 of the
Company's common shares that are presently authorized but unissued or
subsequently acquired by the Company. The Amended 1996 Stock Option Plan will
terminate no later than June 10, 2006.

Pursuant to the Board's authorization, the Amended 1996 Stock Option Plan
is administered by the Compensation Committee. In the event a member of the
Board or the Compensation Committee is eligible for options under the Amended
1996 Stock Option Plan, such member of the Board or Compensation Committee will
not vote with respect to the granting of any option to himself or herself, as
the case may be. The Compensation Committee has the authority, in its
discretion, to determine all matters relating to options granted under the plan,
including selection of the individuals to be granted options, the number of
shares to be subject to each option, the exercise price, and all other terms and
conditions of the options. Grants under the Amended 1996 Stock Option Plan do
not have to be identical in any respect, even when made simultaneously. The
Compensation Committee's interpretation and construction of any terms or
provisions of the Amended 1996 Stock Option Plan on any option issued
thereunder, or of any rule or regulation promulgated in connection therewith,
will be conclusive and binding on all interested parties.

Grants of incentive stock options may be made under the Amended 1996 Stock
Option Plan only to an individual who, at the time the option is granted, is an
employee, senior officer or director of the Company or an affiliate of the
Company, as that term is defined in the Business Corporations Act (Yukon
Territory), a trustee on behalf of such individual, or an entity, all of the
voting securities of which are beneficially owned by an employee or director.

The Compensation Committee will establish the maximum number of shares that
may be reserved pursuant to the exercise of each option and the price per share
at which such option is exercisable, provided that the number of shares that may
be reserved pursuant to the exercise of such options and granted to any person
shall not exceed 5% of the issued and outstanding share capital of the Company.
Furthermore, the exercise price of such options must not be less than the
closing price of the Company's shares on The Toronto Stock Exchange on the day
immediately preceding the date of grant of such options. The Compensation
Committee may establish the term of each option, but if not so established, the
term of each option will be five years from the date it is granted, but in no
event shall the term of any option exceed 10 years.

Subject to any vesting schedule established by the Compensation Committee,
each option may be exercised in whole or in part at any time and from time to
time. Options must be exercised by delivery to the Company of a notice of the
number of shares with respect to which the option is being exercised, together
with payment of the exercise price. Payment of the option exercise price must be
made in full at the time notice of exercise of the option is delivered to the
Company and may be in cash or, to the extent permitted by the Compensation
Committee and applicable laws and regulations, by delivery of Common Shares of
the Company held by the optionee having a fair market value (as determined in
the discretion of the Compensation Committee) equal to the exercise price.
Payment by the optionee in Common Shares will not be accepted unless the
optionee has owned the Common Shares for a period of at least 6 months.

Options granted under the Amended 1996 Stock Option Plan may not be
transferred, assigned, pledged, or hypothecated in any manner other than by will
or by the applicable laws of descent and distribution and shall not be subject
to execution, attachment, or similar process. In the event of death of an
optionee, the option may be exercised by the personal representative of the
optionee's estate or by the persons to whom the optionee's rights pass by will
or by the applicable laws of descent and distribution.

If the optionee's relationship with the Company or any affiliate ceases for
any reason other than termination for cause, death, or total disability, and
unless by its terms the option sooner terminates or expires,

44
<PAGE> 46

then the optionee may exercise, for a 90-day period thereafter that portion of
the optionee's option that is exercisable at the time of such cessation, but the
optionee's option shall terminate at the end of such 90-day period as to all
shares for which it has not theretofore been exercised, unless such expiration
has been waived in the agreement evidencing the option or by resolution adopted
at any time by the Compensation Committee. Upon the expiration of the 90-day
period following cessation of an optionee's relationship with the Company or an
affiliate, the Compensation Committee has sole discretion in a particular
circumstance to extend the exercise period following such cessation beyond such
90-day period, subject to any such extension being pre-cleared by the Toronto
Stock Exchange. If an optionee is terminated for cause, any option granted under
the Amended 1996 Stock Option Plan will automatically terminate as of the first
discovery by the Company of any reason for termination for cause, and such
optionee will thereupon have no right to purchase any shares pursuant to such
option. "Termination for cause" means dismissal for dishonesty, conviction or
confession of a crime punishable by law (except a minor violation), fraud,
misconduct, or disclosure of confidential information.

Subject to the terms and conditions and within the limitations of the
Amended 1996 Stock Option Plan, the Compensation Committee may modify or amend
outstanding options granted under the plan, subject to the prior approval of the
Toronto Stock Exchange. The modification or amendment of an outstanding option
will not, without the consent of the optionee, impair or diminish any of such
optionee's rights or any of the Company's obligations under such option.

The aggregate number and class of shares for which options may be granted
under the Amended 1996 Stock Option Plan, the number and class of shares covered
by each outstanding option and the exercise price per share thereof (but not the
total price), and each such option, must all be proportionately adjusted for any
increase or decrease in the number of issued common shares of the Company
resulting from a split-up or consolidation of shares or any like capital
adjustment, or the payment of any share dividend out of the ordinary course. In
the event of a liquidation or reorganization of the Company in which the
shareholders of the Company receive cash, shares, or other property in exchange
for or in connection with their common shares, any option granted under the
Amended 1996 Stock Option Plan will terminate, but the optionee will have the
right immediately prior to such liquidation or reorganization to exercise his
option to the extent the vesting requirements set forth in the option agreement
have been satisfied. If the shareholders of the Company receive shares in the
capital of another corporation in exchange for their common shares, all options
granted under the Amended 1996 Stock Option Plan must be converted into options
to purchase such other corporation's shares, unless the Company and such other
corporation, in their sole discretion, determine that any or all such options
must terminate in accordance with the foregoing provisions applicable to a
liquidation or reorganization. The amount and price of such converted options
must be adjusted in the same proportion as used for determining the number of
shares the holders of the common shares receive in any such exchange. Unless
accelerated by the Compensation Committee, the vesting schedule set forth in the
option agreement will continue to apply to such converted options.

The Board of Directors of the Company may at any time suspend, amend, or
terminate the Amended 1996 Stock Option Plan, but in the case of amendments to
the plan, such amendments must be pre-cleared with the Toronto Stock Exchange.
Any amendment to the Amended 1996 Stock Option Plan that increases the number of
shares that may be issued under the plan, changes the designation of the
participants or class of participants eligible for participation in the plan, or
otherwise materially increases the benefits accruing to the participants under
the plan, must be approved by the holders of a majority of the Company's
outstanding voting shares, voting either in person or by proxy at a duly held
shareholders meeting, within 12 months before or after any such amendment.

1997 STOCK OPTION PLAN

The 1997 Stock Option Plan gives certain directors, officers, and employees
of the Company, and its subsidiaries and affiliates an opportunity to develop a
sense of proprietorship and personal involvement in the development and
financial success of the Company, and to encourage them to remain with and
devote their best efforts to the business of the Company, thereby advancing the
interests of the Company and its shareholders. Accordingly, the Company may
grant to certain directors, officers, and employees options to
45
<PAGE> 47

purchase up to an aggregate of 3,000,000 common shares of the Company common
shares pursuant to the 1997 Stock Option Plan. Such common shares may consist of
authorized but unissued common shares or previously issued common shares
reacquired by the Company. The 1997 Stock Option Plan is an amendment and
restatement of the plan as previously adopted by the Board on September 9, 1997,
and supersedes and replaces in its entirety such previously adopted plan. The
1997 Stock Option Plan, as amended and restated, was approved by the Company's
shareholders at the annual meeting in June 1998. Except with respect to options
then outstanding, the 1997 Stock Option Plan, as amended and restated, will
terminate upon and no further options will be granted thereunder after September
8, 2007.

The 1997 Stock Option Plan is administered by the Compensation Committee,
which has sole authority to select the optionees from among those individuals
eligible under the plan and to establish the number of common shares which may
be issued under each option. The maximum number of common shares that may be
subject to options granted under the plan to an individual optionee may not
exceed 5% of the Company's total common shares outstanding and during any
calendar year may not exceed 1,000,000 (subject to adjustment under certain
conditions described below). The Compensation Committee is authorized to
interpret the 1997 Stock Option Plan and may from time to time adopt such rules
and regulations, consistent with the provisions of the plan, as it may deem
advisable to carry out the plan. All decisions made by the Compensation
Committee in selecting optionees, in establishing the number of common shares
which may be issued under each option and in construing the provisions of the
1997 Stock Option Plan will be final.

Options granted under the 1997 Stock Option Plan may be either incentive
stock options, within the meaning of section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), ("Incentive Stock Options") or options which do
not constitute Incentive Stock Options ("Non-Qualified Stock Options").
Incentive Stock Options may be granted only to individuals who are employees
(including officers and directors who are also employees) of the Company or any
parent or subsidiary corporation (as defined in section 424 of the Code) of the
Company at the time the option is granted. Non-Qualified Stock Options may be
granted to individuals who are directors (but not also employees), officers and
employees of the Company, any parent or subsidiary corporation of the Company,
or any other affiliate of the Company. Options may be granted to the same
individual on more than one occasion. No Incentive Stock Option will be granted
to an individual if, at the time the option is granted, such individual owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or of its parent or subsidiary corporation, within the
meaning of section 422(b)(6) of the Code, unless at the time such option is
granted the option price is at least 110% of the fair market value of common
shares subject to the option and such option by its terms is not exercisable
after the expiration of five years from the date of grant.

Each option that is an Incentive Stock Option and all rights granted
thereunder will not be transferable other than by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order as defined
by the Code or Title I of the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder, and will be exercisable during the
optionee's lifetime only by the optionee or the optionee's guardian or legal
representative. Each option that is a Non-Qualified Stock Option will bear the
same transfer restrictions as an Incentive that Option except a Non-Qualified
Stock Option may be assigned to a limited liability company or partnership if
(i) the terms of such transfer are approved in advance by the Compensation
Committee, (ii) 95% or more of all the member or partnership interests in such
limited liability company or partnership are held by the holder of the option
and members of his family, determined in accordance with section 318(a)(1) of
the Code, or trusts for their benefit, (iii) such limited liability company or
partnership is treated as a partnership for federal income tax purposes, and
(iv) such limited liability company or partnership is controlled, directly or
indirectly, as a fiduciary or otherwise, by the holder of the option.

The purchase price of common shares issued under each option will be
determined by the Compensation Committee, but such purchase price must not be
less than the fair market value of common shares subject to the option on the
date the option is granted. Each option must be evidenced by a written agreement
between the Company and the optionee which shall contain such terms and
conditions as may be approved by the Compensation Committee, provided that each
such option must expire not later than 10 years after its date of grant. The
terms and conditions of the respective option agreements need not be identical.
An option agreement may provide for the surrender of the right to purchase
shares of common shares under the option in
46
<PAGE> 48

return for a payment in cash or common shares equal in value to the excess of
the fair market value of the common shares with respect to which the right to
purchase is surrendered over the option price therefor ("Stock Appreciation
Rights"), on such terms and conditions as the Compensation Committee in its sole
discretion may prescribe. The Compensation Committee will retain final authority
(i) to determine whether an optionee will be permitted, or (ii) to approve an
election by an optionee, to receive cash in full or partial settlement of such
Stock Appreciation Rights. Moreover, an option agreement may provide for the
payment of the option price, in whole or in part, by the delivery of a number of
shares of (plus cash if necessary) having a fair market value equal to such
option price.

Common shares with respect to which options may be granted are common
shares as presently constituted, but if, and whenever, prior to the expiration
of an option theretofore granted, the Company effects a subdivision or
consolidation of common shares or the payment of a share dividend on common
shares without receipt of consideration by the Company, the number of shares
with respect to which such option may thereafter be exercised (i) in the event
of an increase in the number of outstanding shares will be proportionately
increased, and the purchase price per share will be proportionately reduced, and
(ii) in the event of a reduction in the number of outstanding shares will be
proportionately reduced, and the purchase price per share will be
proportionately increased.

If the Company recapitalizes, reclassifies its capital stock, or otherwise
changes its capital structure (a "recapitalization"), the number and class of
shares covered by an option theretofore granted will be adjusted so that such
option will thereafter cover the number and class of shares and securities to
which the optionee would have been entitled pursuant to the terms of the
recapitalization if, immediately prior to the recapitalization, the optionee had
been the holder of record of the number of common shares then covered by such
option. If the Company declares an extraordinary dividend, which arises from any
sale or exchange of assets, payable in cash or any other property, then the
purchase price per common share under any option theretofore granted shall be
reduced by the amount of such extraordinary dividend payable on a common share
if paid in cash or the fair market value (as determined by the Compensation
Committee) of any property distributable on a common share if paid in kind.

If in the event of any "Corporate Change," as defined in the 1997 Stock
Option Plan, the Compensation Committee, acting in its sole discretion without
the consent or approval of any optionee, will act to effect one or more of the
following alternatives, which may vary among individual optionees and which may
vary among options held by any individual optionee: (1) accelerate the time at
which options then outstanding may be exercised so that such options may be
exercised in full for a limited period of time on or before a specified date
(before or after such Corporate Change) fixed by the Compensation Committee,
after which specified date all unexercised options and all rights of optionees
thereunder will terminate, (2) require the mandatory surrender to the Company by
selected optionees of some or all of the outstanding options held by such
optionees (irrespective of whether such options are then exercisable under the
provisions of the plan) as of a date, before or after such Corporate Change,
specified by the Compensation Committee, in which event the Compensation
Committee will thereupon cancel such options and the Company will pay to each
optionee an amount of cash per common share according to a formula specified in
the 1997 Stock Option Plan, (3) make any adjustments to options then outstanding
as the Compensation Committee, in its sole discretion, deems appropriate to
reflect such Corporate Change, or (4) provide that the number and class of
shares covered by an option theretofore granted will be adjusted so that such
option will thereafter cover the number and class of shares or securities or
property (including, without limitation, cash) to which the optionee would have
been entitled pursuant to the terms of any Corporate Change if, immediately
prior to such Corporate Change, the optionee had been the holder of record of
the number of common shares then covered by such option.

The Board in its discretion may terminate the 1997 Stock Option Plan at any
time with respect to common shares for which options have not theretofore been
granted. The Board has the right to alter or amend the plan, or any part thereof
from time to time. No change in any outstanding option will be made which would
impair the rights of the optionee without the consent of such optionee. The
Board may not make any alteration or amendment which would increase the
aggregate number of common shares which may be issued pursuant to the provisions
of the 1997 Stock Option Plan or change the class of individuals eligible to
receive options under the plan without the approval of the shareholders of the
Company.
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<PAGE> 49

RELATED TRANSACTIONS

THE GHK TRANSACTION

In April 1996, the Company and GHK Colombia, an Oklahoma corporation
controlled by Robert A. Hefner III, entered into a non-binding letter of intent
governing a proposed acquisition by the Company of an additional 35%
participating interest in the Association Contracts in consideration of the
issuance of up to 16,000,000 common shares by the Company to three entities
holding such interests or to their respective shareholders (collectively, the
"GHK Transaction"). Effective July 26, 1996, pursuant to the terms of three
separate share purchase agreements, the Company agreed to issue an aggregate of
16,777,143 common shares to nineteen unrelated parties, in consideration of the
Company's acquisition of (a) 100% of the issued and outstanding shares of GHK
Colombia which serves as the operator under the Association Contracts and holds
a 10.944% interest in such contracts, (b) 100% of the membership interests of
Esmeralda LLC which holds a 9.776% interest in the Association Contracts, and
(c) 62.963% membership interest in Cimarrona LLC which holds a 25.38% interest
in the Association Contracts. As a result of the transaction, the Company
acquired an additional 36.7% indirect interest in the Association Contracts. As
a condition to the GHK Transaction, the Company also entered into the
Registration Rights Agreement, the Escrow Agreement, the Management Agreement
and the Voting Support Agreement, each of which is more particularly described
below.

Pursuant to the terms of the share purchase agreement between the Company
and Robert A. Hefner III, the Company purchased 100% of the issued and
outstanding shares of GHK Colombia from Mr. Hefner in consideration for the
issuance of 5,002,972 Class A Preferred Shares Series 1 of the Company to him.
Pursuant to the terms of the share purchase agreement between the Company and
the members of Esmeralda LLC (the "Esmeralda Agreement"), the Company purchased
100% of the membership interests of Esmeralda LLC from such members in
consideration for the issuance of an aggregate of 4,469,028 B Special Warrants
(the "B Warrants") to such members. Pursuant to the terms of the share purchase
agreement between the Company and the members of Cimarrona LLC (the "Cimarrona
Agreement"), the Company purchased a 62.963% membership interest in Cimarrona
LLC from such members in consideration for the issuance of an aggregate of
7,305,143 B Warrants to such members. The Preferred Shares and the B Warrants
were issued at a deemed price per share of $9.125 which was based upon the
closing price of the Company's common shares on the Canadian Dealer Network on
July 26, 1996. Under the terms of the share purchase agreement each of the
parties agree to indemnify the other for certain matters relating to the
business prior to the transaction.

Each B Warrant was exercisable into one Common Share without payment of
additional consideration and was automatically converted into a Common Share, in
accordance with the terms of the Company's Articles of Continuance, in February
1997. Each Preferred Share was entitled to one vote per share, was exercisable
into one common share without payment of additional consideration and was also
automatically converted into a common share, in accordance with the terms of the
Company's Articles of Continuance, in February 1997.

The shares of GHK Colombia and the 62.963% interest in Cimarrona were
transferred to Seven Seas Petroleum Colombia Inc.; 50% of the membership
interest in Esmeralda was transferred to Seven Seas Petroleum Colombia Inc.; and
50% of such membership interest was transferred to Seven Seas Petroleum
Holdings, Inc. as a limited liability company was then required to have a
minimum of two members.

As a condition of completing the GHK Transaction, the Company also entered
into a Registration Rights Agreement with the holders of the B Warrants and the
Preferred Shares which currently entitles such holders to notice of proposed
public offerings or private placements by the Company under the Securities Act
(Ontario) and to include common shares held by such holders in such offerings
subject to limitations which may be imposed by the managing underwriter of any
such offering.

As a condition of the Company obtaining the consent of the Ontario
Securities Commission to the GHK Transaction, the Company, the holders of
Preferred Shares and B Warrants and the Montreal Trust Company of Canada, as
trustee, entered into an escrow agreement dated July 26, 1996 (the "GHK Escrow
Agreement") pursuant to which 70% of the securities issued by the Company in the
GHK Transaction, or
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<PAGE> 50

upon conversion or the securities issued therein, are held in escrow. An
aggregate of 11,744,000 common shares are currently held in escrow and such
common shares may not be sold, assigned, pledged, or transferred until released
from escrow in accordance with the terms of the GHK Escrow Agreement. Shares
held in escrow may be voted by the registered holders thereof. Pursuant to the
terms of the GHK Escrow Agreement, the securities held in escrow shall be
released as follows: (i) one-third of the securities deposited in escrow shall
be released on each of July 26, 1997, 1998 and 1999 or (ii) the securities may
be released in full if the Company or the owner of such securities provides the
Ontario Securities Commission with technical reports acceptable to the director
thereof that establish a determinate value as of April 26, 1996 for the
interests in the Association Contracts transferred to the Company or its
subsidiaries, of $118,908,000 or more. If interim technical reports establish a
determinate value of less than $118,908,000 for such interests, proportionate
releases from escrow may be permitted.

Prior to the GHK Transaction, GHK Company L.L.C. ("GHK L.L.C."), an
Oklahoma limited liability company, the principal owner of which is Robert A.
Hefner III, provided administrative and management services to GHK Colombia in
connection with its obligations as operator of the Dindal and Rio Seco contract
areas. As a condition of completing the GHK Transaction, the Company, GHK
Company Colombia and GHK L.L.C. entered into a Management Agreement pursuant to
which GHK L.L.C. was retained by GHK Colombia to perform the duties and
obligations of GHK Colombia under the Association Contracts and as operator of
the Dindal contract area under the joint operating agreement dated August 1,
1996 (the "JOA"). GHK Colombia agreed to pay GHK L.L.C. a monthly sum equal to
100% of the overhead charges authorized under the JOA relating to such blocks
(which costs are estimated to be approximately $15,000 per month) plus an
additional $15,000 per month and to reimburse GHK L.L.C. for all expenses
incurred in the performance of its duties under the Management Agreement. The
costs and expenses under the JOA are paid by the interest holders under the
Association Contracts proportionately to their percentage interests therein.
From July 26, 1996 to June 30, 1997, GHK Colombia paid an aggregate of $374,109
to GHK L.L.C. for services provided under this agreement. The Management
Agreement was terminated June 30, 1997.

Under the terms of a Voting Support Agreement executed in connection with
the GHK Transaction, Seven Seas, Robert A. Hefner III, Breene M. Kerr, Albert E.
Whitehead, George H. Plewes, and Timothy T. Stephens agreed to vote or cause to
be voted all shares owned or controlled by them in favor of the slate of
directors proposed by the Company's chief executive officer. The Voting Support
Agreement also provided that a sale by Messrs. Hefner and Kerr of a block of
10,000 common shares or more which were initially subject to the GHK Escrow
Agreement, must first be offered to be made through Yorkton Securities, Inc. or
such other investment dealer as may be designated by the Board of Directors or
the securities sold would remain subject to the Voting Support Agreement. In the
event any such dealer was unable or unwilling to sell such securities in a
timely manner at a price acceptable to the seller, the seller could sell to a
third party without being subject to the Voting Support Agreement provided that
such sale was not to a person or one or more of a group of persons acting in
concert, who was acquiring the securities of the seller in connection with a
takeover bid, other than where such takeover bid was an offer made generally to
the shareholders of the Company. The Voting Support Agreement terminated on May
20, 1997.

Prior to the GHK Transaction, neither Mr. Hefner, Mr. Egolf nor Mr. Kerr
was affiliated with the Company. As a result of the GHK Transaction, Messrs.
Hefner and Egolf were elected directors of the Company and Mr. Hefner and Mr.
Kerr became substantial shareholders of the Company. In addition, as a result of
an agreement between Mr. Hefner, in his capacity as the selling shareholder of
GHK Colombia, the members of Esmeralda LLC and Cimarrona LLC and (collectively,
the "Sellers") Mr. Egolf, the Sellers paid Mr. Egolf an aggregate of 83,886 B
Warrants, which were subsequently converted into 83,886 common shares of which
58,720 shares were held in escrow pursuant to the GHK Escrow Agreement, as
consideration for his services to the Sellers in connection with the GHK
Transaction. As of December 31, 1997, 39,147 shares remained subject to the GHK
Escrow Agreement.

TRANSACTIONS WITH FORMER DIRECTOR AND OFFICER

Mr. Albert E. Whitehead, formerly served as Chairman and Chief Executive
Officer of the Company and as a director, may be deemed to be a promotor of the
Company. In connection with the formation of the
49
<PAGE> 51

predecessor of the Company in February 1995, Mr. Whitehead received 1,000,000
common shares for a total consideration of $1.00. As of condition of the Common
Shares being listed on the Toronto Stock Exchange ("TSE"), the TSE required Mr.
Whitehead to place 500,000 common shares held by him in escrow in accordance
with the TSE's founder stock policy. Under the terms of the escrow agreement
dated January 21, 1997 (the "Founder's Escrow Agreement") between Mr. Whitehead,
the Company and Montreal Trust Company of Canada as escrow agent, one-third of
the shares subject thereto were to be released from escrow on each of June 29,
1996, 1997 and 1998. Currently, no common shares remain subject to the Founder's
Escrow Agreement. For a description of the Common Shares and options held by Mr.
Whitehead, see "Management -- Executive Compensation" and "Security Ownership of
Certain Beneficial Owners and Management."

TRANSACTIONS WITH DIRECTOR AND OFFICER

On November 1, 1997, the Executive Vice President and Chief Operating
Officer obtained a $200,000 loan from the Company, which was approved by the
disinterested members of the Board of Directors. This loan, which is secured by
Mr. Ray's personal residence, bears a 6.06% interest rate and is due November 1,
2002.

The Company's Chairman and Chief Executive Officer wholly owns GHK L.L.C.
Effective July 1, 1997, the Company entered into an administrative service
agreement with GHK L.L.C. The Company recognized $10,500 of expense in
connection with this agreement in 1997. In addition, GHK L.L.C. pays certain
miscellaneous costs incurred on behalf of the Company. The Company reimbursed
GHK L.L.C. $381,267 and $288,505 in 1997 and 1996, respectively, for such costs.
The Company believes the payments to GHK represent payment comparable to those
that would have been made in an arm's length transaction.

MTV Investments Limited Partnership ("MTV") owns 37.037% of Cimarrona LLC,
an Oklahoma Company. Cimarrona LLC is a consolidated subsidiary of the Company.
Resulting from a cash call, MTV owed $541,000 to the Company at December 31,
1997.

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<PAGE> 52

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of June 30, 1998,
with respect to the beneficial ownership of the common shares, by (i) each
person known by the Company to own beneficially more than 5% of the issued and
outstanding common shares, (ii) each director of the Company and each of the
Named Executive Officers, and (iii) all executive officers and directors of the
Company as a group.

<TABLE>
<CAPTION>
NUMBER OF
COMMON PERCENT
BENEFICIAL OWNER SHARES(1) OF CLASS
<S> <C> <C>
Robert A. Hefner III........................................ 5,387,917(2) 15%
c/o Seven Seas Petroleum Inc.
Suite 960, Three Post Oak Central
1990 Post Oak Boulevard
Houston, Texas 77056
Breene M. Kerr.............................................. 2,793,417(3) 8%
c/o Brookside Company
115 Bay Street
Easton, Maryland 21601
George Soros and Stanley F. Druckenmiller................... 3,058,000(4) 9%
888 Seventh Avenue, 33rd Floor
New York, New York 10106
Robert W. Moore............................................. 2,184,900 6%
MTV Investments Limited Partnership
3600 West Main Street, Suite 150
Norman, Oklahoma 73072
Brian F. Egolf.............................................. 126,386(5) *
Sir Mark Thomson, Bt........................................ 352,566(6) 1%
Robert B. Panero............................................ 597(7) *
Gary F. Fuller.............................................. 27,000(8) *
James Scarlett.............................................. 25,000(8) *
Herbert C. Williamson, III.................................. 150,256(9) *
Albert E. Whitehead......................................... 995,000(10) 3%
Malcolm Butler.............................................. 200,000(11) 1%
Larry A. Ray................................................ 173,886(12) *
John P. Dorrier............................................. 76,000(13) *
All Executive officers and directors as a group (12
persons).................................................. 10,308,025(14) 29%
</TABLE>

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

* Less than 1%

(1) Unless otherwise indicated, each of the parties listed has sole voting and
investment power over the common shares owned. The number of shares
indicated includes, in each case, the number of common shares issuable upon
exercise of options to purchase common shares ("Options") subject to the
Amended 1996 Stock Option Plan and 1997 Stock Option Plan, to the extent
that such Options are currently exercisable. For purposes of this table,
Options are deemed to be "currently exercisable" if they may be exercised
within 60 days following June 15, 1998.

(2) Includes 150,000 common shares currently issuable upon exercise of Options,
15,000 shares held by an entity in which Mr. Hefner has a substantial
interest and 3,360,607 common shares beneficially owned by Mr. Hefner and
held in escrow pursuant to the GHK Escrow Agreement.

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<PAGE> 53

(3) Includes 25,000 common shares currently issuable upon exercise of an
Option, consists of 853,201 shares beneficially owned by a limited
partnership in which Mr. Kerr serves as a general partner and includes
1,915,216 common shares held in escrow pursuant to the GHK Escrow
Agreement.

(4) Of the common shares identified, Mr. Soros, Mr. Drunkenmiller, and Soros
Fund Management LLC. may be deemed the beneficial owner of 1,258,700 common
shares. Mr. Drunkenmiller and Duquesne Capital Management, LLC may also be
deemed the beneficial owner of the remaining 1,799,300 common shares.

(5) Includes 12,650 common shares owned by a member of Mr. Egolf's family,
2,000 common shares owned by a trust for the benefit of members of Mr.
Egolf's family, 50,000 common shares currently issuable upon exercise of
Options and 39,147 shares held in escrow pursuant to the GHK Escrow
Agreement.

(6) Includes 25,000 common shares currently issuable upon exercise of an Option
and 199,531 common shares held in escrow pursuant to the GHK Escrow
Agreement.

(7) Includes 234 common shares held by Mr. Panero's wife and 363 common shares
held in escrow pursuant to the GHK Escrow Agreement.

(8) Includes 25,000 common shares currently issuable upon exercise of Options.

(9) Includes 150,000 common shares currently issuable upon exercise of Options.

(10) Includes 235,000 common shares currently issuable upon exercise of Options.
Mr. Whitehead resigned as an officer and director of the Company in May
1997.

(11) Includes 200,000 common shares currently issuable upon exercise of Options.

(12) Includes 66,666 common shares currently issuable upon exercise of an Option
and an additional 104,500 common shares owned by Mr. Ray's wife.

(13) Includes 71,000 common shares currently issuable upon exercise of Options.

(14) Includes 1,022,666 common shares currently issuable upon exercise of
Options and an aggregate of 5,514,501 common shares held in escrow pursuant
to the GHK Escrow Agreement.

VOTING SUPPORT AGREEMENT

Under the terms of a voting support agreement by and between the Company
and Hazel Ventures Ltd., the sole shareholder of Petrolinson S.A. ("Hazel
Ventures"), Hazel Ventures agreed that prior to July 19, 1998, it will vote all
common shares of the Company owned or controlled by it in favor of the slate of
directors proposed by the Company's Chief Executive Officer and will require any
purchaser of its shares to agree to be bound by the terms of the agreement
unless the purchaser acquires the shares in the open market. Hazel acquired
1,000,000 common shares, or 2.9% of the Company's outstanding common shares, in
exchange for the transfer of its ownership of Petrolinson S.A., the holder of a
6% interest in the Association Contracts, to a subsidiary of the Company.

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<PAGE> 54

DESCRIPTION OF EXISTING INDEBTEDNESS

Exchangeable Notes. In August 1997, the Company issued $25 million of
Exchangeable Notes in a private transaction with institutional and accredited
investors. Interest on the Exchangeable Notes is payable in arrears at a rate of
6% per annum on December 31 and June 30 in each year until maturity, commencing
on December 31, 1997.

A total of $13 million of the principal amount of the Exchangeable Notes
was issued pursuant to an agency agreement dated July 2, 1997 between the Agent
and the Company (the "Agency Agreement") and the remaining $12 million in
principal amount of Exchangeable Notes were issued pursuant to a private
placement subscription agreement with a single investor. The Exchangeable Notes
were issued pursuant to a trust indenture made as of August 7, 1997, as amended
by a supplemental indenture made as of April 24, 1998, between the Company and
Montreal Trust Company of Canada (the "Trust Indenture").

The Exchangeable Notes are exchangeable for a like principal amount of
Convertible Debentures at any time prior to the date (the "Exchange Date") that
is the earlier to occur of (i) the third business day following (a) the
effectiveness of a registration statement under the Securities Act covering the
register for resale of the common shares and warrants issuable upon conversion
of the Convertible Debentures and the exercise of Warrants and (b) the issuance
by certain Canadian securities commissions of receipts for a final prospectus in
compliance with Canadian securities law requirements; and (ii) August 7, 1998.
The Convertible Debentures are convertible into Units at $11.50 per unit, each
Unit consisting of one common share and one-half of one warrant, for a total of
2,173,913 common shares and 1,086,957 warrants. Each warrant is exercisable
pursuant to an indenture made as of August 7, 1997 between the Company and
Montreal Trust Company of Canada for one common share at an exercise price of
$15.00.

On July 23, 1998, the TSE granted an extension of the exercise period for
the Warrants from August 7, 1998 to 5:00 p.m. (Calgary time) on the earlier of:

(i) the date that is 30 calendar days following a 20 day period during
which the weighted average trading price for the Common Shares on the
TSE exceeds US$17.64; and

(ii) February 5, 1999.

Assuming exercise of all of the warrants, the Company will receive proceeds
of approximately $16.3 million. The Convertible Debentures are convertible into
Units at the option of holders at any time and are convertible at the option of
the Company after the Exchange Date provided that the Company's registration
statement filed with the SEC has been effective during the seven-day notice
period prior to the Company's exercise of its conversion rights, and provided
further that the Company's common shares have traded at or above $14.00 per
share for 20 consecutive trading days on the Toronto Stock Exchange. The
Exchangeable Notes are, and the Convertible Debentures will be, secured by a
pledge of shares of certain of the subsidiaries of the Company and are
guaranteed by Seven Seas Petroleum Holdings, Inc. pursuant to a limited recourse
guarantee security and pledge agreement made as of August 7, 1997 between the
Company and Montreal Trust Company of Canada.

The Exchangeable Notes and Convertible Debentures are subordinate in right
of payment after default to any senior bank or financial institution financing
(whether currently existing or subsequently arising) and rank pari passu
(including the security interest thereon) with any subsequently issued
non-convertible debentures. The Trust Indenture contains anti-dilution
provisions and provision for adjustments in the class, number and price of
common shares and warrants upon the occurrence of certain events, including any
subdivision, consolidation or reclassification of the common shares of the
Company, payment of stock dividends or the amalgamation or other reorganization
of the Company.

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<PAGE> 55

circumstances. An annual commitment fee of 0.50% is expected to be payable on
the unused available portion of the facility. In addition, the Company expects
to pay a customary underwriting fee and other expenses in connection with the
facility. The Company expects that the facility will be secured by certain
assets of the Company, including the stock of certain of the Company's
Subsidiaries and that the facility will contain certain restrictive covenants
which impose limitations on the Company and its Subsidiaries, with respect to,
among other things, (i) the creation of liens, (ii) mergers, acquisitions or
dispositions of assets, (iii) incurrence of indebtedness, (iv) transactions with
affiliates, (v) sale-leaseback transactions and (vi) dividends and other
restricted payments. The covenants are not expected to restrict the Company's
ability to divest its interests in Papua New Guinea or in Australia. The credit
facility will also require the Company to maintain a minimum current ratio, a
minimum tangible net worth, and a minimum debt coverage ratio. The credit
facility will contain customary events of default. While it is anticipated that
the credit facility will be completed in the third quarter of 1998, no assurance
can be made that the credit facility will be completed on the terms set forth
above or on terms acceptable to the Company.

Senior Notes. On May 7, 1998 the Company completed the sale of
$110,000,000 of its 12 1/2% Senior Notes due 2005 in a private placement.
Interest on the Senior Notes is payable semi-annually on May 15 and November 15
of each year, commencing November 15, 1998.

The Senior Notes represent senior obligations of the Company, ranking pari
passu in right and priority of payment with all existing and future senior
indebtedness of the Company and senior in right and priority of payment to all
indebtedness of the Company that is expressly subordinated to the Senior Notes.
On a pro forma basis after giving effect to the offering of the Senior Notes, as
of December 31, 1997, the Company would have had outstanding approximately
$135.0 million of indebtedness, including $25.0 million of indebtedness
represented by the Exchangeable Notes. The Company's subsidiaries would have had
approximately $7.0 million of outstanding liabilities, including trade payables
(excluding the guarantee by Seven Seas Petroleum Holdings Inc. of $25.0 million
in aggregate principal amount of the indebtedness represented by the
Exchangeable Notes).

The Senior Notes are effectively subordinated to any and all existing and
future secured indebtedness of the Company, including indebtedness under the
proposed credit facility with Banque Paribas, to the extent of the value of the
assets securing such indebtedness. The Senior Notes are effectively senior to
other senior indebtedness of the Company to the extent of the value of the
Pledged Securities (defined below). The Senior Notes will be effectively
subordinated to all liabilities of the Company's subsidiaries that are not
guarantors and to all existing and future secured indebtedness of the Company's
subsidiaries that are guarantors, to the extent of the value of the assets
securing such indebtedness. The Indenture (defined below) permits the future
incurrence of certain additional indebtedness by subsidiaries of the Company. On
the date of issuance of the Senior Notes, none of the Company's subsidiaries
guaranteed the Company's obligations under the Senior Notes. However, the
Indenture provides that if any restricted subsidiary guarantees the payment of
any indebtedness of the Company (excluding the guarantee by Seven Seas Petroleum
Holdings Inc. of $25.0 million of indebtedness represented by the Exchangeable
Notes) or any indebtedness of any guarantor, then the Company will cause the
Senior Notes to be equally and ratably guaranteed by such restricted subsidiary
on the terms set forth in the Indenture. In such event, the Company's
obligations under the Senior Notes will be fully and unconditionally guaranteed
on a senior or pari passu basis, jointly and severally, by each restricted
subsidiary of the Company that executes and delivers a supplemental indenture to
the Indenture.

The Indenture dated as of May 7, 1998 (the "Indenture") between the Company
and The Bank of Nova Scotia Trust Company of New York, as Trustee (the
"Trustee") pursuant to which the Senior Notes were issued obliged the Company to
use a portion of the proceeds of the Senior Note offering to purchase a
portfolio of U.S. government securities, the scheduled interest and principal
payments on which will be in an amount sufficient to provide for payment in full
when due of the first six regularly scheduled interest payments on the Senior
Notes. The Company is obligated to maintain in a separate account an amount of
such U.S. government securities (the "Eligible Securities") sufficient to
provide for payment in full of the first two regularly scheduled interest
payments due November 15, 1998 and May 15, 1999, until such payments are made.
The Eligible Securities will not be pledged as security for the Senior Notes. In
the event of a
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<PAGE> 56

bankruptcy of the Company or a similar event, the Eligible Securities will be
available to the general creditors of the Company as well as holders of the
Senior Notes. The Company has pledged the remaining amount of such U.S.
government securities (the "Pledged Securities"), which are sufficient to
provide for payment in full of the four regularly scheduled interest payments
due November 15, 1999 through May 15, 2001, as security for the benefit of the
holders of the Senior Notes. Such pledge will expire upon payment of such
interest payments.

The Senior Notes are redeemable, in whole or in part, at the option of the
Company at any time on or after May 15, 2002, in cash at the redemption prices
set forth in the Indenture, plus accrued and unpaid interest, liquidated damages
and additional amounts, if any, to the date of redemption. Notwithstanding the
foregoing, at any time on or prior to May 15, 2001, the Company may, at its
option, redeem up to 33 1/3% of the original aggregate principal amount of the
Senior Notes with net proceeds of an equity or strategic investor offering at a
redemption price in cash equal to 112.500% of the aggregate principal amount
thereof, plus accrued and unpaid interest, liquidated damages and additional
amounts, if any, to the date of redemption; provided that at least 66 2/3% of
the original aggregate principal amount of the Senior Notes remains outstanding
after such redemption and that no more than one-half of the net proceeds of such
equity or strategic investor offering are used to effect such redemption. In
addition, upon a change of control, the Company will have the option, at any
time prior to May 15, 2002, to redeem the Senior Notes, in whole but not in
part, at a redemption price in cash equal to 100% of the principal amount
thereof plus the applicable premium and accrued and unpaid interest, liquidated
damages and additional amounts, if any, to the date of redemption.

All payments of principal, interest and other amounts due in respect of the
Senior Notes will be made in U.S. dollars after withholding or deduction for or
on account of any taxes imposed in Canada, Colombia or any other jurisdiction;
provided, however, that the Company will pay additional amounts in respect of
any such withholding or deduction so that the holders of the Senior Notes (other
than certain excluded holders) receive the amounts that would have been received
in the absence of such withholding or deduction, subject to certain exceptions.

The Senior Notes will be redeemable, at the option of the Company, in whole
but not in part, at any time at a price in cash equal to 100% of the principal
amount thereof plus accrued and unpaid interest, liquidated damages and
additional amounts, if any, to the date of redemption if (i) the Company has or
will become obligated to pay certain additional amounts with respect to the
Senior Notes and (ii) such obligation cannot be avoided by the Company after
reasonable efforts.

Upon a change of control, (i) unless the Company redeems the Senior Notes
as provided in clause (ii) below, the Company will be required to offer to
purchase the Senior Notes at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, liquidated
damages and additional amounts, if any, to the date of purchase, and (ii) the
Company will have the option, at any time prior to May 15, 2002, to redeem the
Senior Notes, in whole but not in part, at a redemption price in cash equal to
100% of the principal amount thereof plus the applicable premium and accrued and
unpaid interest, liquidated damages and additional amounts, if any, to the date
of redemption. The Company may be required to obtain the consent of Banque
Paribas under the proposed credit facility, however, in order to purchase Senior
Notes under such circumstances and will be prohibited from repurchasing Senior
Notes if such consent is not obtained. There can be no assurance that the
Company will have sufficient funds to repurchase the Senior Notes in the event
of a change of control and in such circumstances may result in an event of
default under the Indenture and other indebtedness.

The Indenture contains certain covenants which, among other things, limit
the ability of the Company and its restricted subsidiaries to pay dividends or
make certain other distributions, repurchase equity interests, make investments,
incur additional indebtedness and issue preferred stock, engage in sale and
leaseback transactions, incur or suffer to exist certain liens, engage in
certain transactions, incur or suffer to exist certain liens, engage in certain
transactions with affiliates, sell assets and engage in certain mergers and
consolidations. In addition, under certain circumstances, the Company will be
required to make an offer to purchase the Senior Notes at a price equal to 100%
of the principal amount thereof, plus accrued and unpaid interest,

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<PAGE> 57

liquidated damages and additional amounts, if any, to the date of purchase, with
the proceeds from certain asset sales. Also, the Company has agreed to use its
reasonable best efforts to cause the exchange of the Exchangeable Notes for
Convertible Debentures and the conversion of the Convertible Debentures into
common shares and warrants. If such conversions do not occur on or before July
31, 1998 the Indenture requires the Company to pay each holder of Senior Notes
liquidated damages at the rate of 0.25% per annum until such conversions occur.

Pursuant to the Registration Rights Agreement among the Company and the
initial purchasers of the Senior Notes (the "Registration Rights Agreement"),
the Company has agreed to file with the Commission, within 60 days of the
closing date of the initial issuance of the Senior Notes (the "Closing Date") a
registration statement under the Securities Act relating to the exchange offer
for the Senior Notes (pursuant to which the Senior Notes will be exchanged for
new notes that will be registered under the Securities Act) and will use its
reasonable best efforts to cause such registration statement to become effective
within 120 days after the Closing Date. In the event that applicable law or
interpretations of the staff of the SEC do not permit the Company to effect the
exchange offer, or if certain holders of Senior Notes are not permitted to
participate in, or do not receive the benefit of, the exchange offer, the
Company will use its reasonable best efforts to cause to become effective a
shelf registration statement with respect to the resale of the Senior Notes and
to keep such shelf registration effective for two years or such shorter period
ending when all of the Senior Notes have been sold thereunder. Upon any failure
by the Company to comply with certain obligations under the Registration Rights
Agreement, liquidated damages will be payable on the Senior Notes.

DESCRIPTION OF CAPITAL STOCK

The following statements are subject to the detailed provisions of the
Company's Articles of Continuance and By-Laws, do not purport to be complete,
and are qualified in their entirety by reference thereto.

The Company's Articles of Continuance authorizes the issuance of an
unlimited number of common shares without par value and an unlimited number of
Class A Preferred Shares, without par value. As of June 30, 1998, 35,350,606
common shares were issued and outstanding. As of June 30, 1998, the Company had
9,645 shareholders of record.

COMMON SHARES

No holder of common shares has any preemptive right to subscribe for any of
the Company's securities. All outstanding shares are fully paid and
nonassessable. Holders of common shares are not entitled to cumulative voting
and are entitled to one vote per share with respect to all matters that are
required by law to be submitted to shareholders, including the election of
directors.

Subject to the prior rights of the holders of any preferred shares that may
be outstanding, holders of common shares are entitled to share pro rata in such
dividends as may be declared by the Board of Directors out of funds legally
available for that purpose. In the event of liquidation of the Company, all
assets available for distribution (after satisfaction of the prior rights of the
holders of any outstanding preferred shares) are distributable among the holders
of the common shares according to their respective holdings.

Montreal Trust Company of Canada, 8th Floor, 151 Front Street West,
Toronto, Ontario M5J 2N1, is the transfer agent and the registrar for the
Company's common shares.

The authorized but unissued common shares and preferred shares could be
used to dilute the share ownership of persons seeking to obtain control of the
Company, and thereby defeat a possible takeover attempt which, if shareholders
were offered a premium over the market value of their shares, might be viewed as
being beneficial to the Company's shareholders. In addition, the preferred
shares could be issued with voting, conversion rights and preferences which
would adversely affect the voting power and other rights of holders of common
shares.

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<PAGE> 58

PREFERRED SHARES

The Company's Articles of Continuance provide that the Board of Directors,
without shareholder approval, has the authority to issue preferred shares from
time to time in series and to fix the designation, powers (including voting
powers, if any), preferences and relative, participating, optional, conversion
and other special rights, and the qualifications, limitations, and restrictions
of each series, except that with respect to the payment of dividends and the
distribution of assets upon liquidation, each series shall rank equally with any
other series of preferred shares outstanding.

In the event of issuance, the preferred shares could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Such actions could have the effect of
discouraging bids for the Company, thereby preventing shareholders from
receiving the maximum value for their shares. Although the Company has no
present intention to issue any additional preferred shares, there can be no
assurance that the Company will not do so in the future.

WARRANTS

The Warrants will be issued as part of the Units offered in exchange for
the Convertible Debentures. The following is a summary of certain provisions of
the Warrants and the purchase warrant indenture (the "Warrant Indenture") made
as of August 7, 1997 between the Company and Montreal Trust Company of Canada
(the "Warrant Trustee") pursuant to which the Warrants will be issued. This
summary does not purport to be complete and is subject to, and qualified in its
entirety by express reference to, all the provision of the Warrants and the
Warrant Indenture.

The Warrants will be issued pursuant to the Warrant Indenture and will be
evidenced by Warrant certificates in registered form. Each warrant will entitle
the registered holder thereof to purchase from the Company one Common Share at
an exercise price of $15 per share, subject to adjustment.

On July 23, 1998, the TSE granted an extension of the exercise period for
the Warrants from August 7, 1998 to 5:00 p.m. (Calgary time) on the earlier of:

(i) the date that is 30 calendar days following a 20 day period during
which the weighted average trading price for the Common Shares on the
TSE exceeds US$17.64; and

(ii) February 5, 1999 (the "Expiration Date").

The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date of such Warrants at the offices of the Warrant
Trustee, with a duly completed exercise form, together with payment of the full
exercise price for the common shares subscribed for. Payment of the exercise
price may be made in cash or by certified check, money order, or bank draft. No
fractional common shares will be issued upon exercise but, in lieu thereof, an
appropriate amount will be paid in lawful money of the United States based upon
the weighted average trading price at which the common shares have traded on the
AMEX during the twenty consecutive trading days ending three days before the
Expiration Date.

The exercise price and the number of shares issuable upon exercise of the
Warrants will be subject to adjustment upon certain events, including: (a)
subdivisions and combinations of the common shares and (b) distributions or
dividends of (i) shares of any class; (ii) rights, options or warrants, (iii)
evidence of indebtedness, or (iv) assets.

In case of (i) any consolidation or merger of the Company with any other
person (ii) any capital reorganization or (iii) any sale or conveyance of all or
substantially all of the assets of the Company, the person formed by such
consolidation, or resulting from such capital reorganization, or merger, or
which acquires such assets, as the case may be, will be required to make
provision such that each Warrant then outstanding thereafter shall be
exercisable for the kind and amount of shares of stock, other securities, or
property receivable upon such capital reorganization, consolidation, merger,
sale or conveyance by a holder of the number of common shares which such Warrant
was exercisable immediately prior to such capital reorganization, consolidation,
merger, sale or conveyance.

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<PAGE> 59

No adjustment of the exercise price and number of shares issuable upon
exercise of Warrants will be required to be made until cumulative adjustments
amount to 1% or more of the prevailing exercise price; provided, however, that
any adjustment not made will be carried forward. Upon the expiration of any
rights, options, warrants or conversion or exchange privileges, the exercise
price of the Warrants will be readjusted and thereafter will be such as it would
have been if such unconverted convertible securities and unexercised rights,
options or warrants had not been issued. Whenever the number of shares of Common
Stock purchasable upon exercise of each Warrant or the exercise price of
Warrants is adjusted, the Warrant Trustee will promptly mail to each holder of
Warrants notice of such adjustment or adjustments.

The Warrants do not confer upon a holder of Warrants any voting or other
rights of a shareholder of the Company.

CANADIAN FEDERAL INCOME TAX CONSIDERATIONS.

The following summary is a general discussion of the material Canadian
federal income tax considerations generally applicable to a person who, for the
purposes of the Income Tax Act (Canada) (the "Act"), deals at arm's length with
the Company and holds Common Shares or Warrants as capital property. This
summary is not applicable to a holder that is a "financial institution" as
defined in the Act.

This summary is based on the current provisions of the Act and the
regulations thereunder, all specific proposals to amend the Act and the
regulations announced or released by the Minister of Finance, Canada prior to
the date hereof and the published administrative practices of Revenue Canada,
Customs, Excise and Taxation ("Revenue Canada"). This summary does not otherwise
take into account or anticipate any changes in law, whether by judicial,
governmental or legislative decision or action, nor does it take into account
provincial, territorial or foreign income tax considerations which may differ
from the Canadian federal income tax considerations described herein.

THIS SUMMARY IS NOT EXHAUSTIVE OF ALL FEDERAL INCOME TAX CONSIDERATIONS
THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF COMMON SHARES OR WARRANTS IN
LIGHT OF THE HOLDER'S PARTICULAR CIRCUMSTANCES NOR DOES IT ADDRESS THE FEDERAL
INCOME TAX CONSIDERATIONS RELEVANT TO CERTAIN TYPES OF HOLDERS WHO MAY BE
SUBJECT TO SPECIAL TREATMENT UNDER THE ACT. THIS SUMMARY IS NOT INTENDED TO BE,
AND SHOULD NOT BE INTERPRETED AS, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER
OF COMMON SHARES OR WARRANTS, AND NO REPRESENTATION WITH RESPECT TO THE INCOME
TAX CONSEQUENCES TO ANY PARTICULAR HOLDER IS MADE. ACCORDINGLY, PROSPECTIVE
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR INDIVIDUAL
CIRCUMSTANCES.

Residents of Canada

Exercise of Warrants. The exercise of Warrants to purchase Common Shares
should not generally result in any income or loss to the holder. The cost to the
holder of any Common Shares so acquired will be the aggregate of the exercise
price paid for the Common Shares and the adjusted cost base of the Warrants, if
any.

Dispositions of Common Shares. A disposition, or a deemed disposition, of
a Common Share will give rise to a capital gain (or a capital loss) equal to the
amount by which the proceeds of disposition, net of any costs of disposition,
exceed (or are less than) the adjusted cost base of the Common Share to the
holder. For this purpose, the adjusted cost base to a holder of a Common Share
will be determined by averaging the adjusted cost base of that Common Share with
the adjusted cost base of all Common Shares held at that time by the holder.
Three-quarters of any capital gain realized by a holder will be included in
computing the holder's income as a taxable capital gain and may, in the case of
a holder who is an individual, give rise to alternative minimum tax.
Three-quarters of any capital loss realized by a holder may generally be
deducted against taxable capital gains realized in such year or the three
preceding taxation years or any subsequent taxation year, subject to detailed
rules contained in the Act. A capital loss realized by a holder that is a
corporation or a partnership or trust of which a corporation is a member or
beneficiary will be reduced by the amount of dividends received in certain
circumstances.

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Common Share Dividends. In the case of a holder who is an individual, any
dividends received on the Common Shares will be included in computing the
holder's income and will be subject to the gross-up and dividend tax credit
rules normally applicable to taxable dividends paid by taxable Canadian
corporations. A holder that is a corporation may be liable to pay refundable tax
under Part IV of the Act.

Non-Residents of Canada

Exercise of Warrants. The exercise of Warrants to purchase Common Shares
should not generally result in any income or loss to a holder who is a
non-resident of Canada. The cost to the holder of any Common Shares so acquired
will be the aggregate of the exercise price paid for the Common Shares and the
adjusted cost base of the Warrants, if any.

Dispositions of Common Shares. A non-resident of Canada will only be
subject to taxation in Canada under the Act in respect of a disposition of
Common Shares if such shares constitute "taxable Canadian property" to such
non-resident. Provided that the Common Shares are listed on a stock exchange
prescribed by the regulations under the Act at the time of a disposition, they
will only constitute "taxable Canadian property" to a holder if the holder,
either alone or together with persons with whom the holder does not deal at
arm's length, owns or at any time in the five years prior to the date of
disposition, has owned in excess of 25% of the issued and outstanding shares of
a class or series of the capital of the Company. Persons who are related by
blood or marriage, or are subject to common control are deemed to deal otherwise
than at arm's length; other persons may also be considered to be dealing
otherwise than at arm's length in certain circumstances. For the purposes of
determining the 25% threshold, rights or options to acquire Common Shares will
be treated as ownership thereof. Subject to the comments set out below in
respect of the application of the U.S. -- Canada Income Tax Convention to U.S.
resident holders, non-residents whose shares constitute "taxable Canadian
property" will be subject to taxation thereon on the same basis as Canadian
residents. Generally speaking, three-quarters of the excess of the holder's
proceeds of disposition, over the adjusted cost base of the Common Shares, must
be included in income as a taxable capital gain, to be taxed at prevailing
federal Canadian rates.

A non-resident whose shares are repurchased by the Company, except in
respect of certain purchases made by the Company in the open market, will be
deemed to have received payment of a dividend by the Company in an amount equal
to the excess, if any, of the amount paid over the paid-up capital of the Common
Shares so repurchased. Such deemed dividend will be excluded from the former
holder's proceeds of disposition of his Common Shares for the purposes of
computing any capital gain but will be subject to Canadian non-resident
withholding tax in the manner described below under "Dividends." In certain
limited circumstances, a sale by a holder of the Common Shares to a corporation
resident in Canada with which the holder does not deal at arm's length may give
rise to the deemed payment of a dividend, to the extent the amount received in
consideration therefor exceeds the paid-up capital of the Common Shares disposed
of.

Pursuant to the U.S.-Canada Income Tax Convention (the "Convention"),
shareholders of the Company who are resident in the U.S. for the purposes of the
Convention and whose shares might otherwise be "taxable Canadian property" will
be exempt from Canadian taxation in respect of any gains on the Common Shares
provided the principal value of the Company at the time of the disposition is
not derived from real property located in Canada. The Company owns no Canadian
real property and has advised that it has no present intention to acquire
Canadian real property.

Dividends. Under the Act, withholding tax is imposed at the rate of 25% on
the amount of any dividends paid or credited on the Common Shares to a person
not resident in Canada. Pursuant to the Convention, the rate of tax on such
dividends is reduced to 5% for dividends received by any U.S. resident
corporation which owns in excess of 10% of the voting shares of the Company, and
to 15% in all other instances.

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following summary is a general discussion of the material United States
federal income tax consequences that may be relevant to holders of the Common
Shares or Warrants. Unless otherwise stated, this summary deals with Common
Shares and Warrants held as capital assets by United States Holders. A
59
<PAGE> 61

United States Holder means a holder of Common Shares or Warrants that is (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source, or
(iv) any trust if a court within the United States is able to exercise primary
supervision over the administration of such trust and one or more United States
persons have the authority to control all of the substantial decisions of such
trust. This summary does not address all the tax consequences that may be
relevant to a particular United States Holder or to United States Holders who
may be subject to special tax treatment, such as banks, real estate investment
trust, regulated investment companies, insurance companies, dealers in
securities or currencies or tax-exempt investors. In addition, this summary does
not include any description of any alternative minimum tax consequences or the
laws of any state or local or foreign government that may be applicable to a
United States Holder. This summary is based on the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury Regulations promulgated thereunder
and administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis.

Exercise of Warrants. The exercise of Warrants to purchase Common Shares by
a United States Holder will not result in a taxable event to such United States
Holder. Upon such exercise, the United States Holder's tax basis in the Common
Shares obtained will equal the sum of the United States Holder's tax basis in
the Warrants exercised and the exercise price of the Warrants.

Dispositions of Common Shares or Warrants. Upon the sale or exchange of
Common Shares or Warrants, a United States Holder will recognize gain or loss in
an amount equal to the difference between (a) the sum of the amount of cash and
the fair market value of property received therefore and (b) the United States
Holder's tax basis in the Common Shares or Warrants. Such gain or loss will be
capital gain or loss if the Common Shares or Warrants disposed of are capital
assets in the hands of the United States Holder. Any such capital gain or loss
will be long term capital gain or loss if the Common Shares or Warrants disposed
of are held for more than one year. If Warrants expire without being exercised,
a United States Holder will recognize a loss in an amount equal to its tax basis
in the expired Warrants. Such loss will be a capital loss if the Warrants are a
capital asset in the hands of the United States Holder and such capital loss
will be long-term capital loss if the Warrant was held for more than one year.

Adjustments to the conversion ratio of the Warrants, or the failure to make
adjustments, may in certain circumstances result in the receipt of taxable
constructive dividends by a United States Holder, in which event the United
States Holder's tax basis in the Warrants would be increased by the amount equal
to the constructive dividend.

Common Share Dividends. Dividends received by a United States Holder with
respect to the Common Shares will generally be required to be included in the
income of such United States Holder as ordinary income, and such dividend will
not be eligible for the dividends received deduction.

INVESTMENT CANADA ACT

The Investment Canada Act (the "ICA") prohibits the acquisition of control
of a Canadian business by non-Canadians without review and approval of the
Investment Review Division of Industry Canada, the agency that administers the
ICA, unless such acquisition is exempt from review under the provisions of the
ICA. Investment Review Division of Industry Canada must be notified of such
exempt acquisitions. The ICA covers acquisitions of control of corporate
enterprises, whether by purchase of assets, shares of "voting interests" of an
entity that controls, directly or indirectly, another entity carrying on a
Canadian business.

Apart from the ICA, there are no other limitations on the right of
nonresident or foreign owners to hold or vote securities imposed by Canadian law
or the Certificate of Continuance of the Company. There are no other decrees or
regulations in Canada which restrict the export or import of capital, including
foreign exchange controls, or that affect the remittance of dividends, interest
or other payments to nonresident holders of the Company's Common Shares except
as discussed under "Canadian Federal Income Tax Considerations -- Non-Residents
of Canada."

60
<PAGE> 62

SELLING SECURITYHOLDERS

The following table sets forth the name of each Selling Securityholder and
the relationship, if any, with the Company and (i) the amount of Convertible
Debentures owned by each Selling Securityholder as of December 31, 1997, (ii)
the maximum number of Common Shares which may be offered for the account of such
Selling Securityholder under the Prospectus after conversion of the Convertible
Debentures, and (iii) the maximum number of Warrants which may be offered for
the account of such Selling Securityholder under the Prospectus after conversion
of the Convertible Debentures.

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF MAXIMUM NUMBER OF MAXIMUM NUMBER PERCENT OF
NAME OF SELLING SECURITYHOLDER CONVERTIBLE DEBENTURES COMMON SHARES(1) OF WARRANTS CLASS(2)
<S> <C> <C> <C> <C>
Bankmont & Co. ................. 150,000 13,043 6,522 *
Bershaw & Co. .................. 100,000 8,696 4,348 *
The Canada Trust Company........ 5,175,000 449,999 225,000 2.0%
Elliott Associates, LP.......... 1,000,000 86,957 43,479 *
First Marathon.................. 400,000 34,783 17,391 *
Hare & Co. ..................... 1,500,000 130,435 65,217 *
Jasopt PTY Limited.............. 12,000,000 1,043,478 521,739 4.0%
Montgomery Securities........... 400,000 34,783 17,391 *
Nesbitt Burns Inc. ............. 900,000 78,261 39,130 *
Roycan & Co. ................... 775,000 67,391 33,696 *
Royter & Co. ................... 100,000 8,696 4,348 *
Torbay Company.................. 990,000 86,086 43,043 *
Westgate International LP....... 1,000,000 86,957 43,479 *
Yorkton Securities Inc. ........ 510,000 44,348 22,174 *
---------- --------- ---------
25,000,000 2,173,913 1,086,957
</TABLE>

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

* Less than 1%.

(1) Comprises the number of common shares into which the Convertible Debentures
held by such Selling Securityholder are convertible and assumes the exercise
of all Warrants.

(2) Assuming full conversion of all Convertible Debentures and the exercise of
all Warrants, based on outstanding Common Shares as of June 15, 1998.

Because the Selling Securityholders may, pursuant to this Prospectus, offer
all or some portion of the Common Shares or Warrants they presently hold, no
estimate can be given as to the number of Common Shares or Warrants that will be
held by the Selling Securityholders upon termination of any such sales. See
"Plan of Distribution."

Only Selling Securityholders identified above who beneficially own the
Common Shares or Warrants set forth opposite each such Selling Securityholder's
name in the foregoing table on the effective date of the Registration Statement
of which this Prospectus forms a part may sell such Common Shares or Warrants
pursuant to the Registration Statement. The Company may from time to time
include additional Selling Securityholders in supplements to this Prospectus.

The Company will pay the expenses of registering the Common Shares and
Warrants being sold hereunder.

61
<PAGE> 63

PLAN OF DISTRIBUTION

The Common Shares and Warrants may be sold from time to time by the Selling
Securityholders. The Selling Securityholders may from time to time sell all or a
portion of the Common Shares or Warrants in transactions on the American Stock
Exchange, in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Common Shares or Warrants may be sold directly or through
broker-dealers. If the Common Shares or Warrants are sold through
broker-dealers, the Selling Securityholders may pay brokerage commissions and
charges. The methods by which the Common Shares and Warrants may be sold include
(a) a block trade (which may involve crosses) in which the broker or dealer so
engaged will attempt to sell the securities as agent but may position and resell
a portion of the block as principal to facilitate the transaction; (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
own account pursuant to this Prospectus; (c) exchange distributions and/or
secondary distributions in accordance with the rules of the American Stock
Exchange; (d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and (e) privately negotiated transactions.

The Company will pay the costs and expenses incident to its registration
and qualification of the Common Shares and Warrants offered hereby, including
registration and filing fees. In addition, the Company has agreed to indemnify
the Selling Securityholders against certain liabilities, including liabilities
arising under the Securities Act.

The Selling Securityholders and any broker-dealer participating in the
distribution of the Common Shares or Warrants may be deemed to be "underwriters"
within the meaning of the Securities Act, and any profit and any commissions
paid or any discounts or concessions allowed to any such broker-dealer may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Selling Securityholders may indemnify any broker-dealer that participates in
transactions involving the sale of Common Shares or Warrants against certain
liabilities, including liabilities under the Securities Act.

There can be no assurances that the Selling Securityholders will sell any
or all of the Common Shares or Warrants offered by them hereunder.

LEGAL MATTERS

The validity of the securities offered hereby will be passed upon by
Preston, Willis & Lackowicz, Whitehorse, Yukon Territory.

EXPERTS

The audited financial statements of the Company included in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.

PETROLEUM ENGINEERS

Information relating to the estimated proved reserves of oil and natural
gas and the related estimates of future net revenues and present values thereof
as of December 31, 1997 included in this Prospectus and in the notes to the
financial statements of the Company have been prepared by Ryder Scott Company
Petroleum Engineers, independent petroleum engineers.

62
<PAGE> 64

GLOSSARY OF OIL AND GAS TERMS

The definitions set forth below shall apply to the indicated terms as used
in this Prospectus.

Anticlinal closure means a subsurface, geological structure in the form of
a sine curve (i.e., the formation rises to a rounded peak) as a result of which
any oil in the deposit will normally rise to the highest point in the structure.

API gravity means an indication of density of crude oil or other liquid
hydrocarbons as measured by a system recommended by the American Petroleum
Institute (API), measured in degrees relative to the specific gravity scale. The
higher the API gravity measure, the lighter the compound. For example, asphalt
has an API gravity of 8, and gasoline has an API gravity of 50.

Appraisal Well means a well drilled subsequent to a discovery well in order
to confirm potential recoverable reserve quantities prior to development
drilling of the field.

Bbls means barrels.

Bbls/d means barrels per day of crude oil.

Bcf means one billion cubic feet of natural gas.

BOE means barrels of oil equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.

Commerciality means the acceptance by Ecopetrol of a field as productive in
commercial quantities, in accordance with an association contract with
Ecopetrol.

Commission means the United States Securities and Exchange Commission.

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

Delineation well means an exploratory well drilled to extend a known
reservoir.

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

Drill stem test means a method of determining the presence of oil and gas
in a formation. When the depth to be tested has been reached in a well being
drilled, a special tool is lowered into the hole. The drilling mud is removed
and the contents of the formation allowed to flow into the tool while an
instrument measures the pressure.

Ecopetrol means Empresa Colombiana de Petroleos, the Colombian national oil
company.

Exploratory well means a well drilled to find and produce oil and gas
reserves 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.

Farm-out means an agreement whereby the owner of a lease agrees to assign
or transfer the lease (or some portion of it), retaining some interest (such as
an overriding royalty or right to share in production), subject to the drilling
of one or more wells as a prerequisite to completion of the transfer.

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

Gross wells or gross acres means the total number of wells or acres in
which the Company has an interest, without regard to the size of that interest.

MBbls means one thousand barrels of crude oil.

MBbls/d means one thousand barrels per day of crude oil.

MBOE means one thousand barrels of oil equivalent.

Mcf means one thousand cubic feet of natural gas.

Mcf/d means one thousand cubic feet per day of natural gas.

MMBbls means one million barrels of crude oil.

63
<PAGE> 65

MMcf means one million cubic feet of natural gas.

Net wells or net acres are determined by multiplying gross wells or acres
by the Company's working interest in those wells or acres.

Oil means crude oil and condensate.

Operator means any person, partnership, corporation or other entity engaged
in the business of exercising direct supervision over the drilling or completion
of or production from a well.

Overriding royalty interest means an interest in oil and gas produced at
the surface, free of the expense of production.

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

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

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

Proved undeveloped reserves means those reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be demonstrated with
reasonable certainty that there is continuity of production from the existing
productive formation. Estimates for proved undeveloped reserves are attributable
to any acreage for which an application of fluid injection or other improved
technique is contemplated, only when such techniques have been proved effective
by actual tests in the area and in the same reservoir.

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

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

SEC PV-10 means the present value of estimated net revenues attributable to
the Company's proved reserves prepared using constant prices as of the
calculation date, discounted at 10% per annum on a pre-tax basis using
Commission guidelines.

Seismic means the use of shock waves generated by controlled explosions of
dynamite or other means to ascertain the nature and contour of underground
geological structures.

2-D seismic survey means seismic that is run, acquired and processed to
yield a two-dimensional picture of the subsurface. Two dimensional seismic is
generally prepared in a grid or ray pattern.

3-D seismic survey means seismic that is run, acquired and processed to
yield a three-dimensional picture of the subsurface.

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

Working interest means the operating interest that gives the owner the
right to share in production or revenues from the producing venture, subject to
all royalties and other burdens and to all costs of exploration, development and
operations and all risks in connection therewith.

64
<PAGE> 66

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997...................... F-2
Condensed Statements of Consolidated Operations and
Accumulated Deficit for the three months ended March
31, 1998 and 1997 and the Cumulative Total from
Inception (February 3, 1995 to March 31, 1998
(unaudited)............................................ F-3
Condensed Statements of Consolidated Cash Flows for the
three months ended March 31, 1998 and 1997 and the
Cumulative Total from Inception (February 3, 1995) to
March 31, 1998 (unaudited)............................. F-4
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................ F-5
Report of Independent Public Accountants.................. F-8
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-9
Statements of Consolidated Operations for the years ended
December 31, 1997 and 1996 and from Inception (February
3, 1995) to December 31, 1995.......................... F-10
Statement of Consolidated Stockholders' Equity for the
years ended December 31, 1997 and 1996 and from
Inception (February 3, 1995) to December 31, 1997...... F-11
Statements of Consolidated Cash Flows for the years ended
December 31, 1997 and 1996 and from Inception (February
3, 1995) to December 31, 1995.......................... F-12
Notes to Consolidated Financial Statements................ F-13
</TABLE>

F-1
<PAGE> 67

SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
MARCH 31,
1998 DECEMBER 31,
(UNAUDITED) 1997
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents................................. $ 8,725 $ 18,067
Marketable securities..................................... -- 44
Accounts receivable....................................... 3,802 3,865
Prepaids and other........................................ 109 118
-------- --------
12,636 22,094
Note receivable from related party.......................... 200 200
Land........................................................ 441 --
Evaluated oil and gas interests, full-cost method........... 47,652 46,117
Unevaluated oil and gas interests, full-cost method......... 229,338 221,713
Fixed assets, net of accumulated depreciation of $61 at
March 31, 1998 and $43 at December 31, 1997............... 333 304
Other assets, net of accumulated amortization of $260 at
March 31, 1998 and $194 at December 31, 1997........... 1,420 1,486
-------- --------
TOTAL ASSETS................................................ $292,020 $291,914
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable.......................................... $ 5,497 $ 6,885
Accrued compensation...................................... 659 1,228
Interest payable.......................................... 375 --
Other accrued liabilities................................. -- 92
-------- --------
6,531 8,205
Long-term debt.............................................. 25,000 25,000
Deferred income taxes....................................... 70,459 70,459
Minority interest........................................... 5,297 4,087
STOCKHOLDERS' EQUITY
Share capital --
Authorized unlimited common shares without par value and
unlimited Class A preferred shares without par value;
35,226,606 and 35,071,606 issued and outstanding common
shares at March 31, 1998 and December 31, 1997,
respectively........................................... 198,091 196,406
Deficit accumulated during development stage................ (13,358) (12,243)
Treasury stock, 29 shares held at December 31, 1998 and
December 31, 1997......................................... -- --
-------- --------
Total Stockholders' Equity.................................. 184,733 184,163
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $292,020 $291,914
======== ========
</TABLE>

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

F-2
<PAGE> 68

SEVEN SEAS PETROLEUM INC AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
AND ACCUMULATED DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
CUMULATIVE TOTAL
FROM INCEPTION
(FEBRUARY 3,
THREE MONTHS ENDED MARCH 31, 1995)
---------------------------- TO MARCH 31,
1998 1997 1998
<S> <C> <C> <C>
REVENUE
Crude oil sales................................. $ -- $ 319 $ 1,013
Interest income................................. 184 114 1,465
----------- ----------- -----------
184 433 2,478
EXPENSES
General and administrative...................... 1,120 917 13,360
Lease operating expenses........................ 188 230 1,348
Depreciation and amortization................... 84 20 381
Dry hole and abandonment costs.................. -- 17 1,145
Geological and geophysical...................... -- 9 47
Other (income) expense.......................... (30) -- (55)
Loss on sale of resource properties............. -- -- 31
----------- ----------- -----------
1,362 1,193 16,257
NET LOSS BEFORE INCOME TAXES...................... (1,178) (760) (13,779)
INCOME TAX EXPENSE................................ 15 -- 15
NET LOSS BEFORE MINORITY INTEREST................. (1,193) (760) (13,794)
MINORITY INTEREST................................. 78 38 436
----------- ----------- -----------
NET LOSS.......................................... $ (1,115) $ (722) $ (13,358)
=========== =========== ===========
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE,
BEGINNING OF PERIOD............................. (12,243) (4,315) --
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE,
END OF PERIOD................................... $ (13,358) $ (5,037) $ (13,358)
=========== =========== ===========
BASIC AND DILUTED NET LOSS PER COMMON SHARE....... $ (0.03) $ (0.03) $ (0.67)
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING........ 35,126,162 25,245,027 19,812,121
=========== =========== ===========
</TABLE>

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

F-3
<PAGE> 69

SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
CUMULATIVE
TOTAL FROM
INCEPTION
THREE MONTHS ENDED (FEBRUARY 3,
MARCH 31, 1995)
------------------- TO MARCH 31,
1998 1997 1998
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $ (1,115) $ (722) $(13,358)
Add (subtract) items not requiring (providing) cash:
Compensation expense...................................... -- -- 2,140
Minority interest......................................... (78) -- (436)
Common stock contribution to 401(k) retirement plan....... -- -- 79
Dry hole and abandonment costs............................ -- 3 1,140
Gain on sale of marketable securities..................... (6) -- (6)
Loss on sale of resource properties....................... -- -- 31
Depreciation and amortization............................. 84 18 381
Changes in working capital excluding changes to cash and
cash equivalents:
Accounts receivable.................................... (478) (30) (2,920)
Prepaids and other, net................................ 9 (1) (109)
Accounts payable....................................... (427) (904) 1,065
Other accrued liabilities.............................. (92) -- --
-------- ------- --------
Cash Flow Used in Operating Activities...................... (2,103) (1,636) (11,993)
-------- ------- --------
INVESTING ACTIVITIES
Exploration of oil and gas properties..................... (9,746) (1,169) (32,112)
Purchase of land.......................................... (441) -- (441)
Proceeds from acquisition................................. -- 12 630
Proceeds from sale of property............................ -- -- 84
Proceeds from sale of marketable securities............... 50 50
Note receivable from related party........................ -- -- (200)
Other asset additions..................................... (47) (27) (561)
-------- ------- --------
Cash Flow Used in Investing Activities...................... (10,184) (1,184) (32,550)
-------- ------- --------
FINANCING ACTIVITIES
Proceeds from special warrants issued..................... -- -- 12,109
Proceeds from share capital issued........................ 1,116 3,549 12,610
Proceeds from additional paid-in capital contributed...... -- -- 1
Proceeds from issuance of special notes................... -- -- 25,000
Costs of issuing special notes............................ -- -- (1,573)
Contributions by minority interest........................ 1,829 288 5,121
Purchase of treasury stock................................ -- -- --
-------- ------- --------
Cash Flow Provided by Financing Activities.................. 2,945 3,837 53,268
-------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (9,342) 1,017 8,725
Cash and cash equivalents, beginning of period.............. 18,067 10,620 --
-------- ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 8,725 $11,637 $ 8,725
======== ======= ========
</TABLE>

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

F-4
<PAGE> 70

SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited, condensed consolidated financial statements
include the accounts of Seven Seas Petroleum Inc. and it subsidiaries
(collectively referred to as "Seven Seas" or the "Company") after elimination of
intercompany balances and transactions.

The unaudited, condensed consolidated financial statements of the Company
for the periods indicated herein have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission and in
accordance with generally accepted accounting principles for interim financial
reporting. Accordingly, they do not include all of the information and footnotes
required by the GAAP for complete financial statements. In the opinion of
management, all adjustment, consisting of normal recurring accruals, necessary
to present fairly the information in the accompanying condensed consolidated
financial statements have been included. Interim period results are not
necessarily indicative of the results of operations or cash flows for a full
year period. The condensed financial statements included herein should be read
in conjunction with the audited financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997.

Seven Seas Petroleum Inc. (a Yukon Territory, Canada corporation) was
formed on February 3, 1995. Seven Seas is a development stage enterprise
engaging in acquisition, exploration, and development of interests in oil and
gas projects worldwide. The Company's primary business operations to date have
been the exploration and development of its interests in Colombia, South
America.

The Company has yet to generate any significant revenue from oil and gas
sales and has no assurance of future revenues. The Company's principal asset is
its 57.7 percent working interest in the Dindal Association Contract and Rio
Seco Association Contract (collectively, the "Association Contracts" or the
"Emerald Mountain Project"). The Association Contracts were issued by Empresa
Colombiana de Petroleos ("Ecopetrol"), the National Oil Company of Colombia, in
March 1993 and August 1995, respectively, and entitle the Company to engage in
exploration, development, and production activities in Colombia. To date, five
exploratory wells have been drilled and completed on Emerald Mountain and have
encountered on average 303 feet of Cimarrona formation at vertical depths
between 6,000 and 7,500 feet. For the five wells where production testing has
been completed, actual per well production rates realized ranged from 3,415 to
13,123 barrels per day with an average in excess of 7,079 barrels per day.
Currently two additional wells are drilling or completing and one well has been
drilled and temporarily abandoned pending potential sidetrack operations or
re-drilling. The Company plans to rapidly and efficiently continue its field
development and delineation drilling program and to build the production
facilities and pipeline infrastructure to allow its production to reach existing
transportation lines for access to export markets.

Seven Seas is subject to several categories of risk associated with its
development stage activities. Oil and gas exploration and development is a
speculative business and involves a high degree of risk. The Company has
expended, and plans to expend, significant amounts of capital on the acquisition
and exploration of its properties, and most of such properties have not been
fully evaluated for hydrocarbon potential. The exploration and development of
current properties and any properties acquired in the future are expected to
require substantial amounts of additional capital which the Company may be
required to raise through debt or equity financings, which might involve
encumbering properties or entering into arrangements where certain costs of
exploration will be paid by others to earn an interest in the property. Seven
Seas' success currently depends to a high degree on its activities in Colombia.
However, there are risks that result because the Company has acquired, and
intends to continue to acquire, interests in properties outside of North
America, in some cases in countries that may be considered politically and
economically unstable.

F-5
<PAGE> 71

2. SUBSEQUENT EVENT

The Company issued $110 million aggregate principal amount of 12 1/2%
Senior Notes due 2005 (the "Notes") in a private transaction on May 7, 1998 that
was not subject to registration requirements of the Securities Act of 1933. The
Notes mature on May 15, 2005. Interest on the Notes will be payable semi-
annually, in arrears on May 15 and November 15 commencing November 15, 1998 to
holders of record on the immediately preceding May 1 and November 1.

The Notes will represent senior obligations of the Company, ranking pari
passu in right and priority of payment with all existing and future senior
indebtedness and senior in right and priority of payment to all indebtedness
that is expressly subordinated to the Notes.

In accordance with the terms of the Notes, the Company purchased $13.5
million of U.S. Government Securities from the proceeds of the Notes and
deposited such securities in a segregated account in an amount that will be
sufficient to provide for payment of the first two scheduled interest payments.
Additionally, the Company purchased and pledged to the Bank of Nova Scotia Trust
Company New York, the Trustee, as security for the benefit of the holders of the
Notes, U.S. Government Securities in an amount that will be sufficient to
provide payment of the four scheduled interest payments on the Notes from
November 15, 1999 through May 15, 2001.

Banque Paribas has provided a commitment letter (the "Commitment Letter")
pursuant to which Banque Paribas has agreed to provide a $25 million senior
secured revolving credit facility. The Commitment Letter provides that the
revolving credit facility will have a term of three years. Borrowings under the
facility will bear interest, at the Company's option, at LIBOR plus a margin of
2.75% or Citibank's base rate plus a margin of 1.00%. The amount available under
the facility will be subject to periodic redetermination based on the value of
the Company's reserves. A commitment fee of 0.50% is payable on the unused
portion of the facility. In addition, the indebtedness under the credit facility
will be guaranteed, subject to funding, by certain of the Company's
Subsidiaries. The facility will be secured by certain assets of the Company and
certain of its subsidiaries, including the stock of certain of the Company's
Subsidiaries, intercompany notes, equipment, inventory, contract rights, and a
collateral account that will include proceeds of sales of production under the
Association Contracts. The facility will also contain certain restrictive
covenants which impose limitations on the Company and its Subsidiaries, with
respect to, among other things, (i) the creation of liens, (ii) mergers,
acquisitions or dispositions of assets, (iii) incurrence of indebtedness, (iv)
transactions with affiliates, (v) sale-leaseback transactions and (vi) dividends
and other restricted payments. The credit facility will also require the company
to maintain a minimum current ratio, a minimum tangible net working capital, and
a minimum debt coverage ratio. The credit facility will contain customary events
of default. No assurance can be made that the credit facility will be completed
on the terms set forth in the Commitment Letter or on terms acceptable to the
Company prior to the time additional funds are required by the Company.

3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income" ("Statement No. 130") and
Statement No. 131, "Disclosures About Segments of an Enterprise and Related
Information ("Statement No. 131"). In February 1998, the FASB issued Statement
No. 132 "Employers' Disclosure About Pension and Other Post-retirement Benefits"
("Statement No. 132") that revised disclosure requirements for pension and other
post-retirement benefits. Statement No. 132 does not impact the Company's
disclosure or reporting. During the first quarter of 1998, the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants issued two Statements of Position ("SOP"), SOP 98-5 "Reporting on
the Costs of Start-up Activities and SOP 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use".

Statement No. 130 established standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. This standard does not currently alter the Company's
reporting or disclosure.

F-6
<PAGE> 72

Statement No. 131 established standards for the way public enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to share holders. It also
established standards for related disclosure about products and services,
geographic areas and major customers. Statement No. 131 will not currently
impact the Company's disclosure or reporting.

SOP 98-1 establishes guidance on the accounting for the costs of computer
software developed or obtained for internal use. The Company's current
accounting policies adhere to the provisions of the SOP.

SOP 98-5 provides guidance on the accounting for start up costs and
organization costs, and must be adopted for fiscal years beginning after
December 15, 1998. At adoption, the Company will be required to record the
cumulative effect of a change in accounting principle to write off any
unamortized start up or organization costs remaining on the balance sheet. The
Company plans to adopt the SOP in the first quarter of 1999.

F-7
<PAGE> 73

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Seven Seas Petroleum Inc.:

We have audited the accompanying consolidated balance sheets of Seven Seas
Petroleum Inc. (a Yukon Territory, Canada corporation in the development stage)
and subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations and accumulated deficit, stockholders' equity and cash
flows for the years then ended and for the period from inception (February 3,
1995) to December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Seven Seas
Petroleum Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended and
for the period from inception (February 3, 1995) to December 31, 1995 in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
February 27, 1998

F-8
<PAGE> 74

SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
<S> <C> <C>
CURRENT
Cash and cash equivalents................................. $ 18,067,189 $ 10,620,477
Marketable securities..................................... 43,795 43,795
Accounts receivable....................................... 3,865,180 1,241,430
Prepaids and other........................................ 118,447 --
------------ ------------
22,094,611 11,905,702
Note receivable from related party.......................... 200,000 --
Evaluated oil and gas interests, full-cost method........... 46,116,873 1,611,665
Unevaluated oil and gas interests, full-cost method......... 221,713,473 221,884,126
Fixed assets, net of accumulated depreciation of $42,716 at
December 31, 1997 and $12,194 at December 31, 1996........ 303,623 74,219
Other assets, net of accumulated amortization of $194,166 at
December 31, 1997 and $76,622 at December 31, 1996........ 1,485,544 25,270
------------ ------------
TOTAL ASSETS.............................................. $291,914,124 $235,500,982
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable.......................................... $ 6,885,573 $ 2,560,665
Accrued compensation...................................... 1,228,000 --
Other accrued liabilities................................. 91,917 245,000
------------ ------------
8,205,490 2,805,665
Long-term debt.............................................. 25,000,000 --
Deferred income taxes....................................... 70,458,512 63,967,775
Minority interest........................................... 4,087,022 1,060,433
COMMITMENTS AND CONTINGENCIES (Note 10)..................... -- --
STOCKHOLDERS' EQUITY
Share capital --
Authorized unlimited common shares without par value and
unlimited Class A preferred shares without par value;
35,071,606 and 13,315,796 issued and outstanding common
shares at December 31, 1997 and December 31, 1996,
respectively........................................... 196,405,889 6,781,616
Preferred share subscriptions -- 5,002,972 shares at
December 31, 1996......................................... -- 45,652,120
Special warrant subscriptions -- 14,274,171 warrants at
December 31, 1996......................................... -- 119,548,227
Deficit accumulated during development stage................ (12,242,557) (4,314,622)
Treasury stock, 29 shares held at December 31, 1997 and
December 31, 1996......................................... (232) (232)
------------ ------------
Total Stockholders' Equity................................ 184,163,100 167,667,109
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $291,914,124 $235,500,982
============ ============
</TABLE>

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

F-9
<PAGE> 75

SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF CONSOLIDATED OPERATIONS AND ACCUMULATED DEFICIT

<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM TOTAL
INCEPTION FROM INCEPTION
(FEBRUARY 3, (FEBRUARY 3,
YEAR ENDED DECEMBER 31, 1995) TO 1995) TO
--------------------------- DECEMBER 31, DECEMBER 31,
1997 1996 1995 1997
<S> <C> <C> <C> <C>
REVENUE
Crude oil sales................. $ 779,767 $ 233,682 $ -- $ 1,013,449
Interest income................. 787,189 341,599 152,383 1,281,171
------------ ----------- ----------- ------------
1,566,956 575,281 152,383 2,294,620
EXPENSES
General and administrative...... 8,714,333 2,454,884 1,070,765 12,239,982
Lease operating expenses........ 907,218 252,504 -- 1,159,722
Depreciation and amortization... 148,065 111,334 37,671 297,070
Dry hole and abandonment
costs........................ 16,952 4,910 1,122,806 1,144,668
Geological and geophysical...... 27,372 10,521 9,769 47,662
Other (income) expense.......... (25,331) -- -- (25,331)
Loss on sale of resource
properties................... -- -- 31,357 31,357
------------ ----------- ----------- ------------
9,788,609 2,834,153 2,272,368 14,895,130
NET LOSS BEFORE MINORITY
INTEREST........................ (8,221,653) (2,258,872) (2,119,985) (12,600,510)
MINORITY INTEREST................. 293,718 64,235 -- 357,953
------------ ----------- ----------- ------------
NET LOSS.......................... $ (7,927,935) $(2,194,637) $(2,119,985) $(12,242,557)
============ =========== =========== ============
DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE, beginning of
period.......................... (4,314,622) (2,119,985) -- --
DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE, end of
period.......................... $(12,242,557) $(4,314,622) $(2,119,985) $(12,242,557)
============ =========== =========== ============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE.................... $ (0.24) $ (0.17) $ (0.23) $ (0.66)
============ =========== =========== ============
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING....... 32,504,872 12,971,871 9,247,101 18,515,541
============ =========== =========== ============
</TABLE>

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

F-10
<PAGE> 76

SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (FEBRUARY 3, 1995) THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>

COMMON STOCK
-------------------------
DATE NUMBER AMOUNT
<S> <C> <C> <C>
Issuance of common share to founder....................... February 3, 1995 1 $ --
Issuance of common shares to founder for cash............. February 27, 1995 999,999 1
Issuance of common shares in a private placement for cash
($0.25 per share)........................................ March 22, 1995 4,000,000 1,000,000
Issuance of common shares in private placements for cash
($0.75 per share)........................................ May 31, 1995 5,687,666 4,265,750
June 9, 1995 979,000 734,250
Issuance of common shares in settlement of agents' fees
($0.75 per share)........................................ May 31, 1995 284,383 213,287
June 9, 1995 48,950 36,713
Less: Common share issuance cost.......................... May 31 - June 9, 1995 -- (250,000)
Issuance of common shares in connection with the May 5,
1995 amalgamation agreement with Rusty Lake Resources
($0.25 per share)........................................ June 29-30, 1995 680,464 170,116
Net loss.................................................. -- --
---------- ------------
BALANCE AT DECEMBER 31, 1995.............................. 12,680,463 6,170,117
Issuance of special warrants in a brokered private
placement for cash ($2.75 per warrant)................... March 15, 1996 -- --
Issuance of common shares to the Company's 401(k) plan
($7.875 per share)....................................... April 29, 1996 10,000 78,750
Purchase Treasury Stock ($8.00 per share)................. June 26, 1996 -- --
Exercise of stock options for cash ($.75 per share)....... Jan. - June 1996 305,000 228,750
Exercise of stock options for cash ($7.125 per share)..... April 29, 1996 10,000 71,250
Issuance of exchangeable preferred stock in connection
with business combination ($9.125 per share)............. July 26, 1996 -- --
Issuance of special warrants in connection with business
combination ($9.125 per warrant)......................... July 26, 1996 -- --
Issuance of convertible special warrants in a brokered
private placement for cash ($15.00 per warrant).......... October 16, 1996 -- --
Exercise of stock options for cash ($.75 per share)....... July - December 1996 310,333 232,749
Net loss.................................................. -- --
---------- ------------
BALANCE AT DECEMBER 31, 1996.............................. 13,315,796 6,781,616
Conversion of special warrants issued in connection with
the business combination dated July 26, 1996 ($9.125 per
share)................................................... February 7, 1997 11,774,171 107,439,309
Conversion of the preferred shares in connection with the
business combination dated July 26, 1996 ($9.125 per
share)................................................... February 7, 1997 5,002,972 45,652,120
Conversion of privately placed special warrants ($15.00
per warrant)............................................. February 7, 1997 500,000 7,013,370
Conversion of privately placed special warrants ($2.75 per
warrant)................................................. February 7, 1997 2,000,000 5,095,548
Issuance of common shares in connection with the business
combination ($18.55 per share)........................... March 5, 1997 1,000,000 18,550,000
Conversion of privately placed special warrants for cash
($3.50 per warrant)...................................... March 14, 1997 1,000,000 3,500,000
Exercise of stock options ($.75 - 10.90 per share)........ Jan. - December 1997 478,667 2,373,926
Net loss.................................................. -- --
---------- ------------
BALANCE AT DECEMBER 31, 1997.............................. 35,071,606 $196,405,889
========== ============

PREFERRED STOCK SPECIAL WARRANTS
------------------------- ---------------------------
NUMBER AMOUNT NUMBER AMOUNT
<S> <C> <C> <C> <C>
Issuance of common share to founder....................... -- $ -- -- $ --
Issuance of common shares to founder for cash............. -- -- -- --
Issuance of common shares in a private placement for cash
($0.25 per share)........................................ -- -- -- --
Issuance of common shares in private placements for cash
($0.75 per share)........................................ -- -- -- --
-- -- -- --
Issuance of common shares in settlement of agents' fees
($0.75 per share)........................................ -- -- -- --
-- -- -- --
Less: Common share issuance cost.......................... -- -- -- --
Issuance of common shares in connection with the May 5,
1995 amalgamation agreement with Rusty Lake Resources
($0.25 per share)........................................ -- -- -- --
Net loss.................................................. -- -- -- --
---------- ------------ ----------- -------------
BALANCE AT DECEMBER 31, 1995.............................. -- -- -- --
Issuance of special warrants in a brokered private
placement for cash ($2.75 per warrant)................... -- -- 2,000,000 5,095,548
Issuance of common shares to the Company's 401(k) plan
($7.875 per share)....................................... -- -- -- --
Purchase Treasury Stock ($8.00 per share)................. -- -- -- --
Exercise of stock options for cash ($.75 per share)....... -- -- -- --
Exercise of stock options for cash ($7.125 per share)..... -- -- -- --
Issuance of exchangeable preferred stock in connection
with business combination ($9.125 per share)............. 5,002,972 45,652,120 -- --
Issuance of special warrants in connection with business
combination ($9.125 per warrant)......................... -- -- 11,774,171 107,439,309
Issuance of convertible special warrants in a brokered
private placement for cash ($15.00 per warrant).......... -- -- 500,000 7,013,370
Exercise of stock options for cash ($.75 per share)....... -- -- -- --
Net loss.................................................. -- -- -- --
---------- ------------ ----------- -------------
BALANCE AT DECEMBER 31, 1996.............................. 5,002,972 45,652,120 14,274,171 119,548,227
Conversion of special warrants issued in connection with
the business combination dated July 26, 1996 ($9.125 per
share)................................................... -- -- (11,774,171) (107,439,309)
Conversion of the preferred shares in connection with the
business combination dated July 26, 1996 ($9.125 per
share)................................................... (5,002,972) (45,652,120) -- --
Conversion of privately placed special warrants ($15.00
per warrant)............................................. -- -- (500,000) (7,013,370)
Conversion of privately placed special warrants ($2.75 per
warrant)................................................. -- -- (2,000,000) (5,095,548)
Issuance of common shares in connection with the business
combination ($18.55 per share)........................... -- -- -- --
Conversion of privately placed special warrants for cash
($3.50 per warrant)...................................... -- -- -- --
Exercise of stock options ($.75 - 10.90 per share)........ -- -- -- --
Net loss.................................................. -- -- -- --
---------- ------------ ----------- -------------
BALANCE AT DECEMBER 31, 1997.............................. -- $ -- -- $ --
========== ============ =========== =============

<CAPTION>
DEFICIT
ACCUMULATED
TREASURY STOCK DURING
--------------- DEVELOPMENT
NUMBER AMOUNT PHASE TOTAL
<S> <C> <C> <C> <C>
Issuance of common share to founder....................... -- $ -- $ -- $ --
Issuance of common shares to founder for cash............. -- -- -- 1
Issuance of common shares in a private placement for cash
($0.25 per share)........................................ -- -- -- 1,000,000
Issuance of common shares in private placements for cash
($0.75 per share)........................................ -- -- -- 4,265,750
-- -- -- 734,250
Issuance of common shares in settlement of agents' fees
($0.75 per share)........................................ -- -- -- 213,287
-- -- -- 36,713
Less: Common share issuance cost.......................... -- -- -- (250,000)
Issuance of common shares in connection with the May 5,
1995 amalgamation agreement with Rusty Lake Resources
($0.25 per share)........................................ -- -- -- 170,116
Net loss.................................................. -- -- (2,119,985) (2,119,985)
--- ----- ------------ ------------
BALANCE AT DECEMBER 31, 1995.............................. -- -- (2,119,985) 4,050,132
Issuance of special warrants in a brokered private
placement for cash ($2.75 per warrant)................... -- -- -- 5,095,548
Issuance of common shares to the Company's 401(k) plan
($7.875 per share)....................................... -- -- -- 78,750
Purchase Treasury Stock ($8.00 per share)................. 29 (232) -- (232)
Exercise of stock options for cash ($.75 per share)....... -- -- -- 228,750
Exercise of stock options for cash ($7.125 per share)..... -- -- -- 71,250
Issuance of exchangeable preferred stock in connection
with business combination ($9.125 per share)............. -- -- -- 45,652,120
Issuance of special warrants in connection with business
combination ($9.125 per warrant)......................... -- -- -- 107,439,309
Issuance of convertible special warrants in a brokered
private placement for cash ($15.00 per warrant).......... -- -- -- 7,013,370
Exercise of stock options for cash ($.75 per share)....... -- -- -- 232,749
Net loss.................................................. -- -- (2,194,637) (2,194,637)
--- ----- ------------ ------------
BALANCE AT DECEMBER 31, 1996.............................. 29 (232) (4,314,622) 167,667,109
Conversion of special warrants issued in connection with
the business combination dated July 26, 1996 ($9.125 per
share)................................................... -- -- -- --
Conversion of the preferred shares in connection with the
business combination dated July 26, 1996 ($9.125 per
share)................................................... -- -- -- --
Conversion of privately placed special warrants ($15.00
per warrant)............................................. -- -- -- --
Conversion of privately placed special warrants ($2.75 per
warrant)................................................. -- -- -- --
Issuance of common shares in connection with the business
combination ($18.55 per share)........................... -- -- -- 18,550,000
Conversion of privately placed special warrants for cash
($3.50 per warrant)...................................... -- -- -- 3,500,000
Exercise of stock options ($.75 - 10.90 per share)........ -- -- -- 2,373,926
Net loss.................................................. -- -- (7,927,935) (7,927,935)
--- ----- ------------ ------------
BALANCE AT DECEMBER 31, 1997.............................. 29 $(232) $(12,242,557) $184,163,100
=== ===== ============ ============
</TABLE>

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

F-11
<PAGE> 77

SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF CONSOLIDATED CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE TOTAL
INCEPTION FROM INCEPTION
YEAR ENDED DECEMBER 31, (FEBRUARY 3, 1995) (FEBRUARY 3, 1995)
-------------------------- TO DECEMBER 31, TO DECEMBER 31,
1997 1996 1995 1997
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................... $ (7,927,935) $(2,194,637) $(2,119,985) $(12,242,557)
Add (subtract) items not requiring
(providing) cash:
Compensation Expense....................... 2,140,250 -- -- 2,140,250
Minority interest.......................... (293,718) (64,235) -- (357,953)
Common stock contribution to 401(k)
retirement plan.......................... -- 78,750 -- 78,750
Dry hole and abandonment costs............. 16,952 -- 1,122,806 1,139,758
Loss on sale of resource properties........ -- -- 31,357 31,357
Depreciation and amortization.............. 148,065 111,334 37,671 297,070
Changes in working capital excluding
changes to cash and cash equivalents:
Accounts receivable...................... (2,082,750) (316,431) (43,642) (2,442,823)
Prepaids and other, net.................. (118,447) 482 (482) (118,447)
Accounts payable......................... 1,389,194 (17,472) 120,305 1,492,027
Other accrued liabilities................ (153,083) 245,000 -- 91,917
------------ ----------- ----------- ------------
Cash Flow Used in Operating Activities....... (6,881,472) (2,157,209) (851,970) (9,890,651)
------------ ----------- ----------- ------------
INVESTING ACTIVITIES
Exploration of oil and gas properties...... (16,359,726) (4,309,446) (1,696,943) (22,366,115)
Proceeds from acquisition.................. -- 630,226 -- 630,226
Proceeds from sale of property............. -- -- 84,336 84,336
Note receivable from related party......... (200,000) -- -- (200,000)
Other asset additions...................... (280,194) (64,135) (169,821) (514,150)
------------ ----------- ----------- ------------
Cash Flow Used in Investing Activities....... (16,839,920) (3,743,355) (1,782,428) (22,365,703)
------------ ----------- ----------- ------------
FINANCING ACTIVITIES
Proceeds from special warrants issued...... -- 12,108,917 -- 12,108,917
Proceeds from share capital issued......... 4,961,726 532,750 6,000,001 11,494,477
Proceeds from additional paid-in capital
contributed.............................. -- 999 -- 999
Proceeds from issuance of special notes.... 25,000,000 -- -- 25,000,000
Costs of issuing special notes............. (1,572,929) -- -- (1,572,929)
Contributions by minority interest......... 2,779,307 513,004 -- 3,292,311
Purchase of treasury stock................. -- (232) -- (232)
------------ ----------- ----------- ------------
Cash Flow Provided by Financing Activities... 31,168,104 13,155,438 6,000,001 50,323,543
------------ ----------- ----------- ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS.................. 7,446,712 7,254,874 3,365,603 18,067,189
Cash and cash equivalents, beginning
of period.................................. 10,620,477 3,365,603 -- --
------------ ----------- ----------- ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD.............................. $ 18,067,189 $10,620,477 $ 3,365,603 $ 18,067,189
============ =========== =========== ============
</TABLE>

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

F-12
<PAGE> 78

SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DEVELOPMENT STAGE OPERATIONS:

Seven Seas Petroleum Inc. (a Yukon Territory, Canada corporation) was
formed on February 3, 1995. Seven Seas Petroleum Inc. and its subsidiaries
(collectively referred to as "Seven Seas" or the "Company") are collectively a
development stage enterprise engaging in acquisition, exploration, and
development of interests in oil and gas projects worldwide. The Company's
primary business operations to date have been the exploration and development of
its interests in Colombia, South America.

The Company has yet to generate any significant revenue from oil and gas
sales and has no assurance of future revenues. The Company's principal asset is
its 57.7 percent working interest in the Dindal Association Contract and Rio
Seco Association Contract (collectively, the "Association Contracts" or the
"Emerald Mountain Project"). The Association Contracts were issued by Empresa
Colombiana de Petroleos ("Ecopetrol"), the National Oil Company of Colombia, in
March 1993 and August 1995, respectively, and entitle the Company to engage in
exploration, development, and production activities in Colombia. In 1994, a
predecessor to the Company drilled the Escuela #1, which was non-commercial. The
five exploratory wells completed to date on Emerald Mountain have encountered on
average 303 feet of Cimarrona formation at vertical depths between 6,000 and
7,500 feet. For the five wells where production testing has been completed,
actual per well production rates realized ranged from 3,415 to 13,123 barrels
per day with an average in excess of 7,079 barrels per day. The Company plans to
rapidly and efficiently continue its field development and delineation drilling
program and to build the production facilities and pipeline infrastructure to
allow its production to reach existing transportation lines for access to export
markets.

2. BUSINESS COMBINATION:

On June 29, 1995 the Supreme Court of British Columbia approved the May 5,
1995 amalgamation of Seven Seas and Rusty Lake Resources Ltd. Stockholders of
Rusty Lake Resources Ltd. were issued one common share in Seven Seas, the new
company after the amalgamation, for each 35 common shares held in Rusty Lake
Resources Ltd. Additional shares of Seven Seas were issued in settlement of
certain indebtedness of Rusty Lake Resources Ltd. This transaction has been
reflected as an acquisition by Seven Seas using the purchase method of
accounting, whereby the assets acquired and liabilities assumed were fair valued
and Rusty Lake Resources Ltd. has been prospectively reflected in the Company's
financial statements since

F-13
<PAGE> 79
SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

June 29, 1995. The net assets of Rusty Lake Resources Ltd. were recorded on the
books of Seven Seas as follows:

<TABLE>
<S> <C>
Marketable securities....................................... $ 3,370
Goods and services tax receivable........................... 3,099
Resource properties......................................... 115,693
Other assets (organization costs)........................... 87,481
Accounts payable............................................ (39,527)
Share capital (680,464 shares).............................. (170,116)
</TABLE>

On July 26, 1996 the Company acquired 100 percent of the outstanding stock
which represented 100 percent of the voting shares held in GHK Company Colombia
and Esmeralda LLC. Additionally, on the same date, the Company acquired 62.963
percent of the outstanding shares and voting stock in Cimarrona LLC. This
transaction has been reflected as an acquisition by Seven Seas using the
purchase method of accounting, whereby the assets acquired and liabilities
assumed were fair valued and the operations of the acquired entities have been
reflected in the Company's financial statements since July 26, 1996. As
consideration for the increased interest from these acquisitions, Seven Seas
issued to the stockholders in GHK Company Colombia, Esmeralda LLC and Cimarrona
LLC a combination of preferred shares and special warrants which were
exchangeable into a total of 16,777,143 common shares upon the earlier of the
approval of a prospectus qualifying the exchange, or one year from the closing
of the transaction. Of the 16,777,143 preferred shares and special warrants,
5,002,972 preferred shares were issued for all of the common shares in GHK
Company Colombia, 4,469,028 special warrants were issued for all of the common
shares in Esmeralda LLC, and 7,305,143 special warrants were issued for 62.963
percent of the common shares in Cimarrona LLC. The remaining 37.037 percent
interest in Cimarrona LLC represents a minority interest which is reflected as
such on the balance sheet. The 16,777,143 preferred shares and special warrants
were recorded based on the closing stock price of Seven Seas on July 26, 1996 at
$9.125 totaling $153,091,430. Collectively, the acquisition of these three
companies resulted in the purchase of an additional 36.7 percent participating
interest in the Association Contracts in which the Company previously held a 15
percent participating interest. All three entities were oil and gas exploration
companies whose only material asset was the participating interest they held in
the Association Contracts in Colombia. Net assets acquired include $217,090,298
assigned to oil and gas properties (which are subject to future evaluation based
on further appraisal drilling) and other nominal net working capital, less
amounts attributable to the minority interest in Cimarrona LLC. Because of the
differences in tax basis and the financial statement valuation of such acquired
oil and gas properties, $63,967,775 of deferred Colombian and U.S. income taxes
was also recorded in this acquisition (see Notes 3 and 5) and is included in the
amount assigned to oil and gas properties. Income and expenditures incurred by
these three entities after July 26, 1996 are included in the statements of
operations and accumulated deficit for the years ended December 31, 1997 and
1996.

Of the 16,777,143 preferred shares and special warrants issued, 11,744,000
are held subject to an escrow agreement, whereby one third of the securities are
released each year for three years. The securities may be released earlier based
upon a valuation of the Seven Seas interests in the Association Contracts. On
July 26, 1997, one-third of the 11,744,000 common shares or 3,914,667 was
released from escrow pursuant to the escrow agreement.

On February 7, 1997 approvals were granted by the Ontario Securities
Commission, British Columbia Securities Commission and the Alberta Securities
Commission for the prospectus filed to qualify 11,774,171 special warrants and
5,002,972 preferred shares which were automatically converted to common shares.
These shares were issued in connection with the acquisition of a 36.7 percent
participating interest in the Association Contracts in Colombia by the Company
on July 26, 1996.

F-14
<PAGE> 80
SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On March 5, 1997 the Company acquired 100 percent of the outstanding voting
stock held in Petrolinson, S.A. The terms of the transaction were agreed to in a
letter of intent dated November 22, 1996. The principal asset owned by
Petrolinson, S.A. is a six percent participating interest in the Association
Contracts. As consideration for the six percent participating interest in the
Association Contracts, Seven Seas issued to the sole shareholder in Petrolinson,
S.A. 1,000,000 common shares of Seven Seas Petroleum Inc. The common shares
issued to the sole shareholder of Petrolinson, S.A. were subject to an escrow
agreement, the terms of which provided for a 120 day escrow of shares commencing
from March 5, 1997 with an option by the Company to extend the escrow period for
an additional 30 days. The 1,000,000 common shares issued to the sole
shareholder of Petrolinson, S.A. were released from escrow on July 3, 1997, in
accordance with the escrow agreement as described above. This six percent
interest will be carried through exploration by the other 94 percent
participating interest parties. This transaction has been reflected in 1997 as
an acquisition by Seven Seas using the purchase method of accounting, whereby
the assets acquired and liabilities assumed were fair valued and the acquired
operations have been reflected in the Company's financial statements since March
5, 1997. The 1,000,000 common shares were recorded based on the weighted average
closing stock price of Seven Seas for the period beginning 30 days prior to and
30 days subsequent to the date the Letter of Intent was signed, November 22,
1996, or $18.55. This represents a transaction cost of $18,550,000. Net assets
acquired include $25,035,701 assigned to oil and gas properties (most of which
is subject to future evaluation based on further appraisal drilling) and other
nominal net working capital. Because of the differences in tax basis and the
financial statement valuation of such acquired oil and gas properties,
$6,490,737 of deferred Colombian income tax was also recorded in this
acquisition (see Notes 3 and 5) and is included in the amount assigned to oil
and gas properties.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Company follows U.S. generally accepted accounting principles. A
summary of the Company's significant policies is set out below:

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
revenues, and expenses. Actual results could differ from the estimates and
assumptions used. Significant estimates include depreciation, depletion, and
amortization of proved oil and gas reserves. Oil and natural gas reserve
estimates, which are the basis for depletion and the ceiling test, are
inherently imprecise and expected to change as future information becomes
available.

RECLASSIFICATION OF PRIOR PERIOD STATEMENTS

Consistent with the asset/liability method of accounting for income taxes,
the Company recorded deferred income tax liabilities relating to the
acquisitions of GHK Company Colombia, Esmeralda LLC, and 62.963% of Cimarrona
LLC in 1996 and Petrolinson, S.A. on March 5, 1997. The credit to deferred
income tax liabilities and the corresponding increase in unevaluated oil and gas
interests amounted to $70,458,512 and $63,967,775 at December 31, 1997 and 1996,
respectively. The nature of the amounts recorded is described in Note 5. Certain
adjustments have been made to the 1996 net operating loss carryforward, deferred
tax assets, and the related valuation allowances, none of which affected
reported results of operations, as estimates used in the calculation of the
assets have been revised. Additionally, certain other minor reclassifications
have been made to conform to current reporting practices.

F-15
<PAGE> 81
SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly owned and majority owned subsidiaries, after eliminating all
material intercompany accounts and transactions.

STATEMENT OF CASH FLOWS

Cash and cash equivalents include bank deposits and short-term investments,
which upon acquisition have a maturity of three months or less. The Company made
a cash payment for interest of $600,000 in 1997.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The recorded amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value because of the short-term maturity of
those investments. As described in Note 6, the Company issued $25 million of
convertible Special Notes, with a 6% stated interest rate, which mature in 2003.
It is not practical to estimate the fair value of these Special Notes as a
quoted market price has not yet been obtained. The Company intends to file the
required registration statement in order to comply with the conversion option on
these notes.

MARKETABLE SECURITIES

The Company has adopted Statement of Financial Accounting Standards No. 115
("SFAS 115"), "Accounting for Certain Investments in Debt and Equity
Securities." SFAS 115 requires that all investments in debt securities and
certain investments in equity securities be reported at fair value except for
those investments which management has the intent and the ability to hold to
maturity. Investments which are held-for-sale are classified based on the stated
maturity and management's intent to sell the securities. Changes in fair value
are reported as a separate component of stockholders' equity, but were
immaterial for all periods presented herein.

ACCOUNTS RECEIVABLE

Accounts receivable included the following at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Crude oil sales.................................. $ 291,049 $ 58,845
Joint interest billing........................... 3,013,318 1,117,635
Advances......................................... 541,000 --
Other............................................ 19,813 64,950
---------- ----------
Total Accounts Receivable.............. $3,865,180 $1,241,430
========== ==========
</TABLE>

OIL AND GAS INTERESTS

The Company follows the full-cost method of accounting for oil and natural
gas properties. Under this method, all costs incurred in the acquisition,
exploration and development, including unproductive wells, are capitalized in
separate cost centers for each country. Such capitalized costs include contract
and concession acquisition, geological, geophysical and other exploration work,
drilling, completing and equipping oil and gas wells, constructing production
facilities and pipelines, and other related costs. As of December 31, 1996
unevaluated oil and gas interests include capitalized employee costs related to
exploration and property evaluation of $140,628. No additional general and
administrative costs were capitalized during 1997. The Company capitalized
interest of $600,000 in 1997.

F-16
<PAGE> 82
SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The capitalized costs of oil and gas properties in each cost center are
amortized on composite units of production method based on future gross revenues
from proved reserves. Sales or other dispositions of oil and gas properties are
normally accounted for as adjustments of capitalized costs. Gain or loss is not
recognized in income unless a significant portion of a cost center's reserves is
involved. Capitalized costs associated with the acquisition and evaluation of
unproved properties are excluded from amortization until it is determined
whether proved reserves can be assigned to such properties or until the value of
the properties is impaired. If the net capitalized costs of oil and gas
properties in a cost center exceed an amount equal to the sum of the present
value of estimated future net revenues from proved oil and gas reserves in the
cost center and the lower of cost or fair value of properties not being
amortized, both adjusted for income tax effects, such excess is charged to
expense.

Since the Company has only produced test quantities of oil, a provision for
depletion has not been made.

Substantially all the Company's exploration and production activities are
conducted jointly with others and the accounts reflect only the Company's
proportionate interest in such activities.

FOREIGN CURRENCY TRANSLATION

The Company's foreign operations are a direct and integral extension of the
parent company's operations and the majority of all costs associated with
foreign operations are paid in U.S. dollars as opposed to the local currency of
the operations; therefore, the reporting and functional currency is the U.S.
dollar. Gains and losses from foreign currency transactions are recognized in
current net income. Monetary items are translated using the exchange rate in
effect at the balance sheet date; non-monetary items are translated at
historical exchange rates. Revenues and expenses are translated at the average
rates in effect on the dates they occur. No material translation gains or losses
were incurred during the periods presented.

INCOME TAXES

The Company follows the asset/liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards 109,
"Accounting for Income Taxes." Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences of (i) temporary
differences between the tax bases of assets and liabilities and their reported
amounts in the financial statements and (ii) operating loss and tax credit
carryforwards for tax purposes. Deferred tax assets are reduced by a valuation
allowance when, based upon management's estimates, it is more likely than not
that a portion of the deferred tax assets will not be realized in a future
period.

FIXED ASSETS

Fixed assets are recorded at cost. Depreciation is provided on a
straight-line basis over three to five years.

ORGANIZATION COSTS

Organization costs represent the normal cost of incorporating the Company.
In association with the amalgamation agreement with Rusty Lake Resources Ltd.,
organization costs of $87,481 were recorded to reflect the excess purchase price
of Seven Seas common shares provided to Rusty Lake Resources Ltd. stockholders
over and above the net asset value of Rusty Lake Resources Ltd. as of June 29,
1995. Organization costs were amortized on a straight-line basis over two years.

EARNINGS PER SHARE

The Company has implemented Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share."
SFAS 128 establishes standards for computing
F-17
<PAGE> 83
SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and presenting earnings per share ("EPS") and applies to entities with publicly
held common stock or potential common stock. This statement simplifies the
standards for computing and presenting EPS previously found in Accounting
Principles Board Opinion No. 15, "Earnings Per Share," and makes them comparable
to international EPS standards. This statement is effective for financial
statements issued for periods ending after December 15, 1997. The statement
requires restatement of all prior-period EPS data presented. Considering the
guidelines as prescribed by SFAS 128, the Company's adoption of this statement
does have a significant effect on EPS since the exercise or conversion of any
potential shares would be antidilutive and result in a lower loss per share.
Options to purchase 3,878,500 common shares at a weighted average option
exercise price of $13.15 per common share were outstanding at December 31, 1997.

All shares issued in connection with the conversion of preferred shares and
special warrants during 1996 were not considered outstanding until registration
with the Canadian Securities Commissions occurred on February 7, 1997, including
the shares held in escrow for the former shareholders of GHK Company Colombia,
Esmeralda LLC and Cimarrona LLC. The common shares held in escrow were
considered in the weighted average shares outstanding since they are considered
outstanding by the transfer agent and have voting rights.

4. CASH AND CASH EQUIVALENTS:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
<S> <C> <C>
Cash...................................................... $ 2,156,973 $ 170,684
Short-term investments.................................... 15,910,216 10,449,793
----------- -----------
Total cash and cash equivalents........................... $18,067,189 $10,620,477
=========== ===========
</TABLE>

The carrying value of short-term investments approximates fair value.

5. INCOME TAXES:

The geographical sources of loss before minority interest were as follows:

<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
<S> <C> <C> <C>
United States............................... $(4,515,142) $ (277,456) $ --
Foreign..................................... (3,706,511) (1,981,416) (2,119,985)
----------- ----------- -----------
Loss before minority interest............... $(8,221,653) $(2,258,872) $(2,119,985)
=========== =========== ===========
</TABLE>

No deferred taxes were recorded during the periods presented, as there were
no significant changes in the temporary differences between the book and tax
bases of assets and liabilities. Deferred U.S. and Colombian income taxes have
been provided for the book-tax basis differences related to the Colombian
acquisitions discussed further in Note 2. These foreign subsidiaries' cumulative
undistributed earnings are considered to be

F-18
<PAGE> 84
SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

indefinitely reinvested outside of Canada and, accordingly, no Canadian deferred
income taxes have been provided thereon. The Company's net deferred income tax
liabilities consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
<S> <C> <C>
Deferred Tax Liabilities.................................. $70,458,512 $63,967,775
Deferred Tax Asset........................................ 3,128,306 2,058,506
Valuation Allowance....................................... (3,128,306) (2,058,506)
----------- -----------
Total Deferred Tax.............................. $70,458,512 $63,967,775
=========== ===========
</TABLE>

The Company did not record any current or deferred income tax provision or
benefit in any of the periods presented. The Company's provision for income
taxes differs from the amount computed by applying statutory rates, which are
45% in Canada and 35% in the United States and Colombia, due principally to the
valuation allowance recorded against its deferred tax asset account relating
primarily to net operating tax loss carryforwards.

Temporary differences included in the deferred tax liabilities relate
primarily to excess of book over tax basis on acquired oil and gas properties.
During 1997, deferred Colombian income tax in the amount of $6,490,737 was
recorded in the acquisition of Petrolinson, S.A., as described in Note 2.
Deferred tax assets principally consist of net operating loss carryforwards.

As of December 31, 1997 and 1996, the Company's subsidiaries had net
operating loss carryforwards in various foreign jurisdictions (primarily Canada)
of approximately $3,700,000 and $2,200,000, respectively. These loss
carryforwards will expire beginning in 2002 if not utilized to reduce Canadian
income taxes. In addition, the Company had during 1997 and 1996 approximately
$1,537,000 and $37,000, respectively, of U.S. tax net operating loss
carryforwards expiring in varying amounts beginning in 2011. A valuation
allowance has been provided for the deferred tax assets resulting primarily from
these loss carryforwards because their future realization is not currently
deemed probable by management.

6. LONG-TERM DEBT:

In August 1997, the Company issued $25 million of Special Notes in a
private transaction to institutional and accredited investors. Interest on the
Special Notes is due and payable in arrears at a rate of 6% per annum on
December 31 and June 30 in each year until maturity, commencing on December 31,
1997. The Special Notes are exchangeable for a like principal amount of
convertible redeemable debentures (the "Debentures") on or before August 7,
1998. At the option of the Company, the Debentures are convertible into common
shares and warrants if a registration statement for resale of the common shares
has been declared effective under the Securities Act of 1933, as amended (the
"Securities Act") and has been effective during the seven-day notice period
required by the Company to the holders of Debentures of its intent to exercise
its conversion rights, provided that the Company's common shares have traded at
or above $14.00 per share for 20 consecutive trading days on the Toronto Stock
Exchange. The Special Notes and Debentures are secured by a pledge of the shares
of the Company's subsidiaries and a guarantee by Seven Seas Petroleum Holdings
Inc.

The Special Notes will be deemed to be exchanged upon the earlier to occur
of (i) the effectiveness of a registration statement under the Securities Act,
covering the issuance of the common shares and warrants upon conversion of the
Debentures and compliance by the Company with certain Canadian securities
requirements or (ii) August 7, 1998. The Debentures are convertible into units
(the "Units") on the basis of one Unit for each $11.50 principal amount of
Debentures outstanding (initially 2,173,913 Units), subject to adjustment. Each
Unit consists of one common share and one-half of a common share purchase
warrant (the "Warrants"). The Debentures mature on August 7, 2003.
F-19
<PAGE> 85
SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Each whole Warrant is exercisable for one common share at an exercise price of
$15.00 per share. The Warrants expire August 7, 1998.

7. EQUITY:

On March 15, 1996, a brokered private placement was carried out in Canada.
The Company issued 2,000,000 special warrants at $2.75 per warrant for a net
offering after commissions and expenses of $5,095,548 to a third party financial
brokerage institution. Each special warrant was convertible into one unit. Each
unit consisted of one share of common stock and a one-half common share purchase
warrant at $3.50 per full share. The warrants were convertible at the earlier of
(a) one year from date of issuance or (b) the date an approval is issued for a
prospectus qualifying the conversion in the appropriate jurisdictions. On March
14, 1997, the 1,000,000 common share purchase warrants were exercised and
converted to common shares for net proceeds of $3,500,000.

On October 16, 1996, another brokered private placement was carried out in
Canada. Seven Seas issued to a third party financial brokerage institution
500,000 special warrants at $15.00 per warrant for a net offering after
commissions and expenses of $7,013,370. Each special warrant was convertible
into one unit. Each unit consisted of one share of common stock and a one-half
common share purchase warrant at $18.50 per full share. The warrants were
convertible at the earlier of (a) one year from date of issuance or (b) the date
an approval is issued for a prospectus qualifying the conversion in the
appropriate jurisdictions. The 250,000 common share purchase warrants were not
converted at $18.50 and expired October 16, 1997.

An approval for qualification of the conversion of the 2,000,000 and
500,000 special warrants issued in the brokered private placements on March 15
and October 16, 1996, respectively, was received on February 7, 1997 by the
Ontario, Alberta, and British Columbia Securities Commissions. All special
warrants were exercised and have been converted to common shares.

The proceeds of the brokered private placements on March 15 and October 16,
1996 were used for drilling, seismic and production facilities related to the
Company's participation in the Association Contracts and for further exploration
activities.

8. STOCK BASED COMPENSATION PLANS:

Officers, directors and employees have been granted stock options under the
Company's Amended 1996 Stock Option Plan and the 1997 Stock Option Plan, which
is subject to approval by the shareholders (collectively referred to as "the
Plans"). Pursuant to the Plans, 6,000,000 shares were authorized for issuance,
of which 3,878,500 were outstanding as of December 31, 1997. The options granted
under the Amended 1996 Stock Option Plan were not subject to vesting
requirements and expire five years from the date of grant. Options granted under
the 1997 Stock Option Plan have been granted with either no vesting requirement
or vesting cumulatively on the anniversary of the grant date over a period of
two to five years and expire ten years from the date of grant. Option agreements
between the Company and optionees under the 1997 Stock Option Plan may include
stock appreciation rights. Under each plan, the option price equals the stock's
market price on the date of grant.

The Compensation Committee of the Board of Directors is responsible for
administering the plans, determining the terms upon which options may be
granted, prescribing, amending and rescinding such interpretations and
determinations and granting options to employees, directors, and officers.

F-20
<PAGE> 86
SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents a summary of stock option transactions for the
three years ended December 31, 1997:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
COMMON SHARES OPTION PRICE PER SHARE
<S> <C> <C>
Granted......................................... 985,000 $ .75
--------- ------
December 31, 1995................................. 985,000 .75
Granted......................................... 805,000 12.86
Exercised....................................... (625,333) .85
--------- ------
December 31, 1996................................. 1,164,667 9.07
Granted......................................... 3,197,500 13.56
Exercised....................................... (478,667) 3.05
Revoked......................................... (5,000) 12.25
--------- ------
December 31, 1997................................. 3,878,500 $13.51
========= ======
</TABLE>

Exercisable stock options amounted to 1,697,665; 764,667; and 985,000 at
December 31, 1997, 1996, and 1995, respectively. The weighted average fair value
of options granted during 1997, 1996, and 1995 were $7.68; $4.65; and $0.19,
respectively. The following table summarizes stock options outstanding and
exercisable at December 31, 1997:

<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------------- ---------------------------
WEIGHTED WEIGHTED
EXERCISE PRICE AVERAGE AVERAGE
RANGE SHARES AVERAGE LIFE EXERCISE PRICE SHARES EXERCISE PRICE
<S> <C> <C> <C> <C> <C>
$.75................. 33,000 2.5 $ .75 33,000 $ .75
7.13................ 325,000 3.5 7.13 325,000 7.13
10.70-10.90......... 1,458,000 7.0 10.76 774,665 10.81
12.25-13.23......... 740,000 9.7 13.18 160,000 13.17
18.23-18.75......... 1,322,500 8.1 18.61 405,000 18.74
---------- --- ------ --------- ------
3,878,500 1,697,665
========== =========
</TABLE>

As part of the arrangements surrounding the resignations of four former
officers, the exercise period of the options during their employment was
extended from ninety days to eighteen months. This action gave rise to a new
measurement date and the Company was required to record compensation expense of
$2,140,250 during 1997, representing the market value of the common shares on
the new measurement date less the exercise price of the options granted. Only
the exercisable options granted to the former Chairman, former President, former
Chief Financial Officer, and former Vice President of Exploration were
considered in the computation. The extension of the exercise period is subject
to approval by vote of the shareholders. Should the extension of the exercise
period be approved for all employees, the Company will be required to record
additional compensation expense of $3,603,425 using the March 26, 1998 closing
stock price.

In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the
Company applies APB Opinion 25 in accounting for its stock option plan, and
accordingly does not recognize compensation cost as it relates to SFAS 123.

F-21
<PAGE> 87
SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

If the Company had elected to recognize compensation cost based on the fair
value of the options granted at the grant date as prescribed by SFAS 123, net
loss and net loss per share would have increased to the proforma amounts shown
below:

<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
<S> <C> <C> <C>
Pro Forma Net Loss................ ($32,426,733) ($5,938,372) ($2,309,940)
Pro Forma Net Loss Per Share...... ($1.00) ($.46) ($.25)
</TABLE>

The effects of applying SFAS 123 in this proforma are not indicative of
future amounts.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants during the year ended December 31, 1997: weighted average risk free
interest rate of 6.28 percent; no dividend yield; volatility of .3555; and
expected life of five to ten years. The Company granted options prior to public
trading on the Canadian Dealer Network on June 30, 1995. Consequently, the
underlying common shares had no historic volatility prior to June 30, 1995. The
fair values of the options granted prior to June 30, 1995 were based on the
difference between the present value of the exercise price of the option and the
estimated fair value price of the common shares.

9. OPERATIONS BY GEOGRAPHIC AREA:

The Company operates in one industry segment. Information about the
Company's operations for 1997, 1996, and from inception (February 3, 1995) to
December 31, 1995 by geographic area is shown below:

<TABLE>
<CAPTION>
OTHER
FOREIGN
CANADA UNITED STATES COLOMBIA AREAS TOTAL
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Revenues..................... $ 753,433 $ 2,020 $ 810,077 $ 1,426 $ 1,566,956
Operating Loss............... (1,780,784) (4,515,142) (1,837,368) (88,359) (8,221,653)
Capital Expenditures......... -- 57,572 19,050,432 471,046 19,579,050
Identifiable Assets.......... 17,462,002 488,463 272,981,939 981,720 291,914,124
Depreciation and
Amortization.............. 110,695 20,708 16,662 -- 148,065
Year ended December 31, 1996
Revenues..................... $ 333,598 $ -- $ 239,345 $ 2,338 $ 575,281
Operating Loss............... (1,402,204) (277,456) (438,948) (140,264) (2,258,872)
Capital Expenditures......... -- -- 4,335,166 271,405 4,606,571
Identifiable Assets.......... 10,497,084 46,939 224,436,899 520,060 235,500,982
Depreciation and
Amortization.............. -- 66,490 42,755 2,089 111,334
</TABLE>

<TABLE>
<CAPTION>
OTHER
FOREIGN
CANADA COLOMBIA ARGENTINA NORTH AFRICA AREAS TOTAL
<S> <C> <C> <C> <C> <C> <C>
Period from inception
through December 31, 1995
Revenues................. $ 147,372 $ -- $ -- $ -- $ 5,011 $ 152,383
Operating Loss........... (863,787) (3,147) (625,771) (509,878) (117,402) (2,119,985)
Capital Expenditures..... -- 369,723 622,006 500,800 204,414 1,696,943
Identifiable Assets...... 3,565,647 385,999 -- -- 218,791 4,170,437
Depreciation and
Amortization.......... 36,875 297 -- -- 499 37,671
</TABLE>

F-22
<PAGE> 88
SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. COMMITMENTS AND CONTINGENCIES:

The Company is, from time to time, party to certain legal actions and
claims arising in the ordinary course of business. While the outcome of these
events cannot be predicted with certainty, management does not expect these
matters to have a materially adverse effect on the financial position or results
of the Company.

The Company leases property and equipment under various operating leases.
Aggregate minimum lease payments under existing contracts as of December 31,
1997, are as follows: $84,732 for 1998; $41,182 for 1999; $4,495 for 2000 and
thereafter. Rental expense amounted to $84,492 in 1997; $82,928 in 1996; $58,536
in 1995.

The Company has certain related commitments under existing oil and gas
exploration concession agreements. Management estimates future expenditures for
such commitments to be approximately of $863,000 in 1998; $2,385,000 in 1999;
$30,000 in 2000; and $30,000 in 2001.

11. RELATED PARTY TRANSACTIONS:

On November 1, 1997, the Executive Vice President and Chief Operating
Officer obtained a $200,000 loan from the Company. This loan bears a 6.06%
interest rate and is due November 1, 2002. The Company recognized interest
income of $2,020 in 1997.

The Company's Chairman and Chief Executive Officer wholly owns GHK Company
LLC ("GHK"). Effective July 1, 1997, the Company has entered into an
administrative service agreement with GHK. The Company recognized $10,500 of
such expenses in 1997. In addition, GHK pays certain miscellaneous costs
incurred on behalf of the Company. The Company reimbursed GHK $381,267 and
$288,505 in 1997 and 1996, respectively, for such costs.

MTV Investments Limited Partnership ("MTV") owns 37.037 percent of
Cimarrona LLC ("Cimarrona"), an Oklahoma company; Cimarrona is a consolidated
subsidiary of the Company. Resulting from cash calls, MTV owed $541,000 to the
Company at December 31, 1997.

12. SUBSEQUENT EVENTS (UNAUDITED):

The Company has signed a letter of intent to sell its 11.77 percent
interest in the Southern Perth Basin Permits (EP381 and EP408) located in
Southwestern Australia. The Company will receive cash of $850,000, reimbursement
of $263,000 for certain capital expenditures, and retain a small overriding
royalty interest in each permit. Completion of the transaction contemplated by
the letter of intent is subject to several conditions, including obtaining
approvals of third parties and governmental authorities. No assurance can be
given that the Company will complete this sale.

F-23
<PAGE> 89
SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED):

Capitalized costs at December 31, 1997 and 1996, respectively, relating to
the Company's oil and gas activities are shown below:

<TABLE>
<CAPTION>
COLOMBIA OTHERS TOTAL
<S> <C> <C> <C>
As of December 31, 1997
Proved properties......................... $ 46,116,873 $ -- $ 46,116,873
============ ======== ============
Unproved properties....................... $220,771,518 $941,955 $221,713,473
Less: Dry Hole and Abandonment............ -- -- --
------------ -------- ------------
Unproved properties, net.................. $220,771,518 $941,955 $221,713,473
============ ======== ============
As of December 31, 1996
Proved properties......................... $ 1,611,665 $ -- $ 1,611,665
============ ======== ============
Unproved properties....................... $221,413,217 $475,819 $221,889,036
Less: Dry Hole and Abandonment............ -- (4,910) (4,910)
------------ -------- ------------
Unproved properties, net.................. $221,413,217 $470,909 $221,884,126
============ ======== ============
</TABLE>

Costs incurred during the years ended December 31, 1997, 1996, and 1995,
respectively, were as follows:

<TABLE>
<CAPTION>
COLOMBIA ARGENTINA NORTH AFRICA OTHERS TOTAL
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Development cost............ $ 165,829 $ -- $ -- $ -- $ 165,829
Property acquisition cost:
Proved.................... 4,331,169 -- -- -- 4,331,169
Unproved.................. 20,704,532 -- -- -- 20,704,532
Exploration cost............ 18,661,979 -- -- 471,046 19,133,025
------------ -------- -------- -------- ------------
Total cost
incurred........ $ 43,863,509 $ -- $ -- $471,046 $ 44,334,555
============ ======== ======== ======== ============
Year ended December 31, 1996
Property acquisition cost:
Proved.................... $ 1,554,041 $ -- $ -- $ -- $ 1,554,041
Unproved.................. 215,536,257 -- -- 250,000 215,786,257
Exploration cost............ 5,564,861 -- -- 21,405 5,586,266
------------ -------- -------- -------- ------------
Total cost
incurred........ $222,655,159 $ -- $ -- $271,405 $222,926,564
============ ======== ======== ======== ============
Year ended December 31, 1995
Property acquisition cost:
Proved.................... $ -- $ -- $ -- $ -- $ --
Unproved.................. 106,383 75,000 500,800 6,073 688,256
Exploration cost............ 263,340 547,006 -- 198,341 1,008,687
------------ -------- -------- -------- ------------
Total cost
incurred........ $ 369,723 $622,006 $500,800 $204,414 $ 1,696,943
============ ======== ======== ======== ============
</TABLE>

As of December 31, 1997, the Company has not made a provision for
depletion. The Company has produced only insignificant amounts of oil under its
production-testing plan. At such time that the Company completes its evaluation
of the Association Contracts and if a significant level of production of proved
reserves occurs, the currently excluded oil and gas properties will be included
in the amortization base. The Company anticipates completion of its evaluation
of the Association Contracts mid-year 1998 and will commence development
immediately if the evaluation proves successful.

F-24
<PAGE> 90
SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EXPLORATION COSTS

The Company has been involved in exploration activities in Colombia,
Australia, Argentina, Turkey and Papua New Guinea. Also, the Company purchased
an option for the right to participate in future exploration activities in North
Africa, but the option was never exercised. Additionally, the Company acquired
oil and gas properties in Colombia totaling $25,035,701 and $217,090,298 in 1997
and 1996, respectively. Capitalized acquisition costs incurred during 1997 and
1996 include $6,490,737 and $63,967,775, respectively, of deferred income tax as
disclosed in Note 2, Business Combination.

The Company had oil and gas sales of $779,767 and $233,682 in 1997 and
1996, respectively, pertaining to production testing of the exploratory wells on
the Association Contracts in Colombia.

On May 16, 1995, the Company entered into an agreement whereby Seven Seas
purchased an option for $500,000 to acquire a 5 percent participating interest
in three exploration blocks in North Africa upon completion of the first
exploration well drilled. The first exploration well was completed as a dry hole
in July of 1995. After careful review, Seven Seas decided not to exercise its
option. The cost of the option, $500,000, plus additional costs of $800 incurred
toward purchasing this option was originally recorded as unproved oil and gas
interests and was subsequently expensed.

The El Catamarqueno X-1 test well on the Sur Rio Deseado Block in the San
Jorge Basin, Argentina, was determined to be unsuccessful during the first week
of January 1996, prior to release of the 1995 financial statements.
Consequently, the Company determined that further drilling on the block was not
justified and exploration costs of $622,006 incurred in Argentina during 1995
were expensed in 1995.

Ecopetrol has the right to back into Seven Seas' participating interest in
the Association Contracts upon declaration of commerciality at an initial 50
percent participating interest. Ecopetrol's interest can increase based upon
accumulated production levels. Ecopetrol will at the time of commerciality bear
50 percent of the future costs in the field and reimburse the other parties in
these two blocks for 50 percent of previously incurred costs associated with
successful wells.

PROVED RESERVES (UNAUDITED)

Proved reserves represent estimated quantities of crude oil which
geological and engineering data demonstrate to be reasonably recoverable in the
future from known reservoirs under existing economic and operating conditions.
Estimates of proved developed oil reserves are subject to numerous uncertainties
inherent in the process of developing the estimates including the estimation of
the reserve quantities and estimated future rates of production and timing of
development expenditures. The accuracy of any reserve estimate is a function of
the quantity and quality of available data and of engineering and geological
interpretation and judgement. Results of drilling, testing and production
subsequent to the date of the estimate may justify revision of such estimate.
Additionally, the estimated volumes to be commercially recoverable may fluctuate
with changes in the price of oil.

Estimates of future recoverable oil reserves and projected future net
revenues as of December 31, 1997 were provided by Ryder Scott Company Petroleum
Engineers. The Company's proved reserves were comprised entirely of crude oil in
Colombia.

F-25
<PAGE> 91
SEVEN SEAS PETROLEUM INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Proved developed and undeveloped reserves (barrels):

<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Beginning of year........................................... 818,000 --
Extensions and discoveries.................................. 31,342,245 818,000
---------- -------
End of year................................................. 32,160,245 818,000
========== =======
Proved developed............................................ 11,494,236 408,000
========== =======
</TABLE>

The following table presents the standardized measure of discounted future
net cash flows relating to proved oil reserves. Future cash inflows and costs
were computed using prices and costs in effect at the end of the year without
escalation less a gravity and transportation adjustment of $6.85 to reference
prices. The reference price for the year end was West Texas Intermediate $17.00
per barrel. Future income taxes were computed by applying the appropriate
statutory income tax rate to the pretax future net cash flows reduced by future
tax deductions and net operating loss carryforwards.

Standardized Measure of Discounted Future Net Cash Flows:

<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Future cash inflows...................................... $326,426,492 $12,520,000
Future costs
Production............................................. 50,986,737 2,112,000
Development............................................ 33,740,255 1,939,000
------------ -----------
Future net cash flows before income taxes................ 241,699,500 8,469,000
Future income taxes...................................... 78,141,020 4,027,000
------------ -----------
Future net cash flows.................................... 163,558,480 4,442,000
10% discount factor...................................... 62,941,503 641,000
------------ -----------
Standardized measure of discounted future net cash
flows.................................................. $100,616,977 $ 3,801,000
============ ===========
</TABLE>

Principal sources of changes in the standardized measure of discounted
future net cash flows during 1997:

<TABLE>
<S> <C>
Beginning of year........................................... $ 3,801,000
Net change in production costs.............................. (1,741,552)
Extensions, discoveries, and additions, less related
costs..................................................... 141,402,293
Net change in future development costs...................... (1,611,820)
Net change in income taxes.................................. (41,969,044)
Accretion of discount....................................... 736,100
------------
End of year................................................. $100,616,977
============
</TABLE>

The standardized measure of discounted future net cash flows shown above
relates to the Company's discovery of oil on the Association Contracts in
Colombia.

The standardized measure of discounted future net cash flows does not
purport to present the fair market value of the Company's proved reserves. An
estimate of fair value would also take into account, among other things, the
recovery of reserves in excess of proved reserves, anticipated future changes in
prices and costs and a discount factor more representative of the time value of
money and the risks inherent in reserve estimates.

F-26
<PAGE> 92

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................... 3
Risk Factors................................ 7
Use of Proceeds............................. 15
Market For Common Shares.................... 15
Selected Historical Financial Data.......... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 17
Business.................................... 23
Management.................................. 37
Related Transactions........................ 47
Security Ownership of Certain Beneficial
Owners and Management..................... 50
Description of Existing Indebtedness........ 52
Description of Capital Stock................ 55
Selling Securityholders..................... 59
Plan of Distribution........................ 60
Legal Matters............................... 60
Experts..................................... 60
Petroleum Engineers......................... 60
Glossary.................................... 61
Index to Consolidated Financial
Statements................................ F-1
</TABLE>

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

PROSPECTUS

(SEVEN SEAS PETROLEUM INC. LOGO)

SEVEN SEAS PETROLEUM, INC.

COMMON SHARES
AND
WARRANTS
, 1998

------------------------------------------------------------
------------------------------------------------------------
<PAGE> 93

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following is a list of all estimated expenses to be incurred by the
Registrant in connection with the issuance and distribution of the Common Stock
and Warrants offered hereby.

<TABLE>
<CAPTION>
TOTAL
<S> <C>
Securities and Exchange Commission registration fee......... $20,740
Printing and engraving costs................................ 20,000
Legal fees and expenses..................................... 25,000
Accounting fees and expenses................................ 3,000
Other....................................................... 3,000
-------
Total............................................. $71,740
=======
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Yukon Business Corporations Act and the Company's Bylaws provide the
following authority to indemnify directors or officers or former directors or
officers of the Company or of a company of which the Company is or was a
shareholder:

(1) Except in respect of an action by or on behalf of the corporation
or a body corporate to procure a judgment in its favor, a corporation may
indemnify a director or officer of the corporation, a former director or
officer of the corporation or a person who acts or acted at the
corporation's request as a director or officer of a body corporate of which
the corporation is or was a shareholder or creditor, and his heirs and
legal representatives, against all costs, charges and expenses, including
an amount paid to settle an action or satisfy a judgment, reasonably
incurred by him in respect of any civil, criminal or administrative action
or proceeding to which he is made a party by reason of being or having been
a director or officer of that corporation or body corporate, if (a) he
acted honestly and in good faith with a view to the best interests of the
corporation, and (b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he had reasonable
grounds for believing that his conduct was lawful.

(2) A corporation may, with the approval of the Supreme Court,
indemnify a person referred to in subsection (1) in respect of an action by
or on behalf of the corporation or body corporate to procure a judgment in
its favor, to which he is made a party by reason by being or having been a
director or an officer of the corporation or body corporate, against all
costs, charges and expenses reasonably incurred by him in connection with
the action if he fulfills the conditions set out in paragraphs (1)(a) and
(b).

The Yukon Business Corporations Act also provides that:

(3) Notwithstanding anything in subsections (1) through (6), a person
referred to in subsection (1) is entitled to indemnity from the corporation
in respect of all costs, charges and expenses reasonably incurred by him in
connection with the defense of any civil, criminal or administrative action
or proceeding to which he is made a party by reason of being or having been
a director or officer of the corporation or body corporate, if the person
seeking indemnity (A) was substantially successful on the merits of his
defense of the action or proceeding, (B) fulfills the conditions set out in
paragraphs (1)(a) and (b), and (C) is fairly and reasonably entitled to
indemnity.

(4) A corporation may purchase and maintain insurance for the benefit
of any person referred to in subsection (1) against any liability incurred
by him (a) in his capacity as a director or officer of the corporation,
except when the liability relates to his failure to act honestly and in
good faith with a view to the best interests of the corporation, or (b) in
his capacity as a director or officer of another body

II-1
<PAGE> 94

corporate if he acts or acted in that capacity at the corporation's
request, except when the liability relates to his failure to act honestly
and in good faith with a view to the best interests of the body corporate.

(5) A corporation or a person referred to in subsection (1) may apply
to the Supreme Court for an order approving an indemnity under this section
and the Supreme Court may so order and make any further order it thinks
fit.

(6) On an application under subsection (5), the Supreme Court may
order notice to be given to any interested person and that person is
entitled to appear and be heard in person or by counsel.

The Bylaws of the Company also provide that the provisions for
indemnification contained in the Bylaws (outlined in subsections (1) and (2)
above) shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under any Bylaws, agreement, vote of
shareholders or disinterested directors or otherwise both as to an action in his
official capacity and as to an action in any other capacity while holding such
office and shall continue as to a person who has ceased to be a director of
officer and shall enure to the benefit of the heirs and legal representatives of
such person. The Company maintains director's and officer's insurance.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed 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.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Within the last three years, the Company issued the following securities
which were not registered under the Securities Act of 1933, as amended (the
"Securities Act"):

On June 30, 1995, upon the Amalgamation, 11,999,999 Common Shares of the
Company were issued to the holders of the common shares of the Predecessor and
680,464 Common Shares of the Company were issued to the holders of shares of
Rusty Lake. The Amalgamation was conducted in Canada, was effected in accordance
with the laws of British Columbia and approved by the Supreme Court of British
Columbia.

In March 1996, 2,000,000 Special Warrants were issued at a purchase price
of $2.75 per Unit pursuant to a brokered private offering of units conducted in
Canada pursuant to the British Columbia securities laws. The Units were
convertible into one common share and one half of one Class A share purchase
warrant (the "Class A Warrants"). Each whole Class A Warrant entitled the holder
thereof to acquire one additional Common Share at a price of $3.50 per share at
any time on or before March 14, 1997. Yorkton Securities Inc., First Marathon
Securities Limited and Griffiths McBurney & Partners Inc. served as agents for
the private placement and received a 7% commission on the gross proceeds
thereof. To the extent U.S. residents were involved in this transaction, the
Company believes that the issuance of securities was exempt from registration
under the Securities Act by virtue of the provision of Section 4(2) thereof.

In July 1996, the Company issued the following securities in the GHK
Transaction: (i) an aggregate of 7,305,143 B Special Warrants to certain members
of Cimarrona Limited Liability Company as consideration for the transfer of a
62.963% membership interest in Cimarrona Limited Liability Company by such
members to a subsidiary of the Company,; (ii) 4,469,028 B Special Warrants to
the members of Esmeralda Limited Liability Company as consideration for the
transfer of a 100% membership interest in Esmeralda by such members to a
subsidiary of the Company, and (iii) 5,002,972 Class A Preferred Shares to
Robert A. Hefner III as consideration for the transfer of all of the issued and
outstanding shares of GHK Company Colombia to a subsidiary of the Company. The B
Special Warrants and the Class A Preferred Shares were each issued at a deemed
purchase price of $9.125 per Special Warrant and per Preferred Share. Each B
Special Warrant and each Class A Preferred Share was convertible in each case
into one Common Share of the Company. To the extent U.S. residents were involved
in this transaction, the Company believes that the issuance of securities was
exempt from registration under the Securities Act by virtue of the provision of
Section 4(2) thereof.

II-2
<PAGE> 95

In October 1996, 500,000 C Special Warrants were issued at a purchase price
of $15.00 per Unit pursuant to a brokered private offering of Units conducted in
Canada pursuant to the British Columbia securities laws. The Units were
convertible into one common share and one half of one Class B share purchase
warrant (the "Class B Warrants"). Each whole Class B Warrant entitles the holder
thereof to acquire one additional Common Share at a price of $18.50 per share at
any time on or before October 15, 1997. Yorkton Securities and Tuscarora
Capital, Inc. jointly served as the agent for the private placement and jointly
received a 6% commission on the gross proceeds thereof. To the extent U.S.
residents were involved in this transaction, the Company believes that the
issuance of securities was exempt from registration under the Securities Act by
virtue of the provisions of Section 4(2) thereof.

In February 1997, 19,277,143 Common Shares were issued upon the automatic
conversion of (i) the Special Warrants issued in March 1996, (ii) the B Special
Warrants and the Class A Preferred Shares issued in July 1996, and (iii) the C
Special Warrants issued in October 1996. As the conversion of such securities
was automatic, to the extent U.S. residents were involved in such transaction,
the Company relied on the exemption from registration under the Securities Act
by virtue of the provisions of Section 3(a)(9) thereof, since the securities
issued were exchanged by the Company with existing security holders exclusively
and no commission or other remuneration was paid or given directly or indirectly
for soliciting such exchange.

In February 1997, 1,000,000 Common Shares were issued in a private
transaction to Hazel Ventures Ltd., a British Virgin Islands company, in
consideration of the transfer of 100% of the capital stock of Petrolinson S.A.
to a subsidiary of the Company in a transaction conducted outside of the United
States.

From February 1996 through December 1997, an aggregate of 1,104,000 Common
Shares were issued to former directors and former and current employees of the
Company upon the exercise of employee stock options at purchase prices of $0.75
to $10.90 per share. To the extent U.S. residents were involved in these
transactions, the Company believes that the issuance of securities was exempt
from registration under the Securities Act by virtue of the provisions of
Section 4(2) thereof.

In March 1997, 1,000,000 Common Shares were issued upon exercise of the
Class A Warrants at an exercise price of $3.50 per share. To the extent U.S.
residents were involved in this transaction, the Company believes that the
issuance of securities was exempt from registration under the Securities Act by
virtue of the provisions of Section 4(2) thereof.

On August 7, 1997, the Company issued $25,000,000 principal amount of
Exchangeable Notes. See "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Convertible Debentures." To the
extent U.S. residents were involved in this transaction, the Company believes
that the issuance of securities was exempt from registration under the
Securities Act by virtue of the provisions of Section 4(2) thereof and Rule 506
of Regulation D.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

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

II-3
<PAGE> 96

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DOCUMENT
------- ----------------
<C> <S>
*(B) -- Excerpts from the By-laws
*(C) -- Specimen stock certificate
*(D) -- Form of Class B Warrant
*(E) -- Class B Warrant Indenture dated as of October 15, 1996 by
and between the Company of Canada and Montreal Trust
Company
(5) -- Opinion re Legality
(A) -- Opinion of Preston, Willis & Lackowicz
(B) -- Opinion of McMillan Binch
(C) -- Opinion of Preston, Willis & Lackowicz
(10) -- Material Contracts
*(A) -- Agreement dated August 14, 1995 by and between the
Company and GHK Company Colombia, as amended by letter
agreement dated November 30, 1995
*(B) -- The Association Contract by and between Ecopetrol, GHK
Company Colombia and Petrolinson, S.A. relating to the
Dindal block, as amended
*(C) -- The Association Contract by and between Ecopetrol and GHK
Company Colombia relating to the Rio Seco block
*(D) -- Joint Operating Agreement dated as of August 1, 1994 by
and between GHK Company Colombia and the holders of
interests in the Dindal block
*(E) -- The GHK Company Colombia Share Purchase Agreement dated
as of July 26, 1996 by and between Robert A. Hefner III,
Seven Seas Petroleum Colombia Inc. and the Company
*(F) -- The Cimarrona Purchase Agreement dated as of July 26,
1996 by and between the members of Cimarrona Limited
Liability Company, the Company, Seven Seas Petroleum
Colombia Inc., and Robert A. Hefner III
*(G) -- The Esmeralda Purchase Agreement dated as of July 26,
1996 by and between the members of Esmeralda Limited
Liability Company, Robert A. Hefner III, the Company,
Seven Seas Petroleum Holdings, Inc. and Seven Seas
Petroleum Colombia Inc.
*(H) -- The Registration Rights Agreement dated as of July 26,
1996 by and between the Company and certain individuals
*(I) -- Shareholders' Voting Support Agreement dated as of July
26, 1996 by and between Seven Seas Petroleum Inc. and
Messrs. Hefner, Kerr, Whitehead, Plewes and Stephens
*(J) -- Management Services Agreement by and among GHK Company
Colombia, the Company and The GHK Company LLC
*(K) -- The Escrow Agreement for a Natural Resources Company by
and among Montreal Trust Company as trustee, the Company
and certain individuals and entities
*(L) -- The Escrow Agreement for a Natural Resources Company by
and among Montreal Trust Company, as trustee, the Company
and Albert E. Whitehead
*(M) -- Amended 1996 Stock Option Plan
*(N) -- Form of Incentive Stock Option Agreement
*(O) -- Form of Directors' Stock Option Agreement
*(P) -- Form of Employment Agreement between the Company and each
of Messrs. Stephens, Dorrier and DeCort
*(Q) -- Form of Agreement between the Company and each of Messrs.
Stephens, Dorrier and DeCort relating to a change of
control
*(R) -- Form of Employment Agreement between the Company and
Larry A. Ray
*(S) -- Settlement Agreement between the Company and Mr.
Whitehead dated May 20, 1997
*(T) -- Petrolinson S.A. Share Purchase Agreement dated February
14, 1997, between Hazel Ventures LTD., Seven Seas
Petroleum Colombia Inc. and Seven Seas Petroleum Inc.
</TABLE>

II-4
<PAGE> 97

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DOCUMENT
------- ----------------
<C> <S>
*(U) -- Pledge Agreement dated March 5, 1997 among Hazel Ventures
LTD., Seven Seas Petroleum Inc., Seven Seas Petroleum
Colombia Inc., and Integro Trust (BVI Limited)
*(V) -- Shareholder Voting Support Agreement made as of March 5,
1997 between Seven Seas Petroleum Inc. and Hazel Ventures
LTD.
*(W) -- Purchase Warrant Indenture made as of August 7, 1997
between Seven Seas Petroleum Inc. and Montreal Trust
Company of Canada
*(X) -- Indenture made as of August 7, 1997 between Seven Seas
Petroleum Inc. and Montreal Trust Company of Canada
*(Y) -- Limited Recourse Guarantee, Security and Pledge Agreement
made as of August 7, 1997 between Seven Seas Petroleum
Holdings Inc. and Montreal Trust Company of Canada
*(Z) -- Limited Recourse Guarantee, Security and Pledge Agreement
made as of August 7, 1997 between Seven Seas Petroleum
Colombia Inc. and Montreal Trust Company of Canada
*(AA) -- Private Placement Subscription Agreement made as of
August 7, 1997 between Seven Seas Petroleum Inc. and
Jasopt Pty Limited
*(BB) -- 1997 Stock Option Plan
*(21) -- Subsidiaries of the Registrant
(23) -- Consent of experts and counsel
(A) -- Consent of Ryder Scott Company Petroleum Engineers
(B) -- Consent of Arthur Andersen LLP
(C) -- Consent of Raisbeck, Lana, Rodriguez & Rueda, members of
the law firm of Baker & McKenzie
(D) -- Consent of Servipetrol Ltd.
*(27) -- Financial Data Schedule
99 -- Powers of Attorney (included on the signature page of the
registration statement as initially filed)
</TABLE>

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

* Incorporated herein by reference to like exhibit in Registration on Form 10
(File No. 022483).

(b) Consolidated Financial Statement Schedules

All schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes:

(1) (i) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

(ii) To include any prospectus required in Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");

(iii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of Prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement;

II-5
<PAGE> 98

(iv) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;

PROVIDED, HOWEVER, that paragraphs (1)(ii) and (1)(iii) do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") that are incorporated by reference in
the Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
section 13(a)or section 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

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 Securities 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 Securities Act and will be governed by the final
adjudication of such issue.

II-6
<PAGE> 99

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, the State of
Texas on July 30, 1998.

SEVEN SEAS PETROLEUM INC.

By: /s/ LARRY A. RAY

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

Name: Larry A. Ray

Title: Executive Vice President
and Chief Operating
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

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

* Chairman, Chief Executive Officer July 30, 1998
ROBERT A. HEFNER III and Managing Director (Principal
- ----------------------------------------------------- Executive Officer)
Robert A. Hefner III

/s/ LARRY A. RAY Director, Executive Vice President July 30, 1998
- ----------------------------------------------------- and Chief Operating Officer
Larry A. Ray

* Director, Executive Vice President July 30, 1998
HERBERT C. WILLIAMSON, III and Chief Financial Officer
- ----------------------------------------------------- (Principal Financial and
Herbert C. Williamson, III Accounting Officer)

* Vice Chairman July 30, 1998
BREENE M. KERR
- -----------------------------------------------------
Breene M. Kerr

* Director July 30, 1998
BRIAN F. EGOLF
- -----------------------------------------------------
Brian F. Egolf

* Director July 30, 1998
SIR MARK THOMSON, BT.
- -----------------------------------------------------
Sir Mark Thomson, Bt.

* Director July 30, 1998
ROBERT B. PANERO
- -----------------------------------------------------
Robert B. Panero
</TABLE>

II-7
<PAGE> 100

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Director July 30, 1998
GARY F. FULLER
- -----------------------------------------------------
Gary F. Fuller

* Director July 30, 1998
JAMES SCARLETT
- -----------------------------------------------------
James Scarlett

*By: /s/ LARRY A. RAY
------------------------------------------------
Larry A. Ray, Attorney-in-Fact
</TABLE>

II-8
<PAGE> 101

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DOCUMENT
------- ----------------
<C> <S>
(3) -- Articles of Incorporation and By-laws
*(A) -- The Amalgamation Agreement effective June 29, 1995 by and
between Seven Seas Petroleum Inc., a British Columbia
corporation; and Rusty Lake Resources Ltd.
*(B) -- Certificate of Continuance and Articles of Continuance
into the Yukon Territory
*(C) -- By-Laws
(4) -- Instruments defining the rights of security holders,
including indentures
*(A) -- Excerpts from the Articles of Continuance
*(B) -- Excerpts from the By-laws
*(C) -- Specimen stock certificate
*(D) -- Form of Class B Warrant
*(E) -- Class B Warrant Indenture dated as of October 15, 1996 by
and between the Company of Canada and Montreal Trust
Company
(5) -- Opinion re Legality
(A) -- Opinion of Preston, Willis & Lackowicz
(B) -- Opinion of McMillan Binch
(C) -- Opinion of Preston, Willis & Lackowicz
(10) -- Material Contracts
*(A) -- Agreement dated August 14, 1995 by and between the
Company and GHK Company Colombia, as amended by letter
agreement dated November 30, 1995
*(B) -- The Association Contract by and between Ecopetrol, GHK
Company Colombia and Petrolinson, S.A. relating to the
Dindal block, as amended
*(C) -- The Association Contract by and between Ecopetrol and GHK
Company Colombia relating to the Rio Seco block
*(D) -- Joint Operating Agreement dated as of August 1, 1994 by
and between GHK Company Colombia and the holders of
interests in the Dindal block
*(E) -- The GHK Company Colombia Share Purchase Agreement dated
as of July 26, 1996 by and between Robert A. Hefner III,
Seven Seas Petroleum Colombia Inc. and the Company
*(F) -- The Cimarrona Purchase Agreement dated as of July 26,
1996 by and between the members of Cimarrona Limited
Liability Company, the Company, Seven Seas Petroleum
Colombia Inc., and Robert A. Hefner III
*(G) -- The Esmeralda Purchase Agreement dated as of July 26,
1996 by and between the members of Esmeralda Limited
Liability Company, Robert A. Hefner III, the Company,
Seven Seas Petroleum Holdings, Inc. and Seven Seas
Petroleum Colombia Inc.
*(H) -- The Registration Rights Agreement dated as of July 26,
1996 by and between the Company and certain individuals
*(I) -- Shareholders' Voting Support Agreement dated as of July
26, 1996 by and between Seven Seas Petroleum Inc. and
Messrs. Hefner, Kerr, Whitehead, Plewes and Stephens
*(J) -- Management Services Agreement by and among GHK Company
Colombia, the Company and The GHK Company LLC
*(K) -- The Escrow Agreement for a Natural Resources Company by
and among Montreal Trust Company as trustee, the Company
and certain individuals and entities
*(L) -- The Escrow Agreement for a Natural Resources Company by
and among Montreal Trust Company, as trustee, the Company
and Albert E. Whitehead
*(M) -- Amended 1996 Stock Option Plan
*(N) -- Form of Incentive Stock Option Agreement
</TABLE>

<PAGE> 102

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DOCUMENT
------- ----------------
<C> <S>
*(O) -- Form of Directors' Stock Option Agreement
*(P) -- Form of Employment Agreement between the Company and each
of Messrs. Stephens, Dorrier and DeCort
*(Q) -- Form of Agreement between the Company and each of Messrs.
Stephens, Dorrier and DeCort relating to a change of
control
*(R) -- Form of Employment Agreement between the Company and
Larry A. Ray
*(S) -- Settlement Agreement between the Company and Mr.
Whitehead dated May 20, 1997
*(T) -- Petrolinson S.A. Share Purchase Agreement dated February
14, 1997, between Hazel Ventures LTD., Seven Seas
Petroleum Colombia Inc. and Seven Seas Petroleum Inc.
*(U) -- Pledge Agreement dated March 5, 1997 among Hazel Ventures
LTD., Seven Seas Petroleum Inc., Seven Seas Petroleum
Colombia Inc., and Integro Trust (BVI Limited)
*(V) -- Shareholder Voting Support Agreement made as of March 5,
1997 between Seven Seas Petroleum Inc. and Hazel Ventures
LTD.
*(W) -- Purchase Warrant Indenture made as of August 7, 1997
between Seven Seas Petroleum Inc. and Montreal Trust
Company of Canada
*(X) -- Indenture made as of August 7, 1997 between Seven Seas
Petroleum Inc. and Montreal Trust Company of Canada
*(Y) -- Limited Recourse Guarantee, Security and Pledge Agreement
made as of August 7, 1997 between Seven Seas Petroleum
Holdings Inc. and Montreal Trust Company of Canada
*(Z) -- Limited Recourse Guarantee, Security and Pledge Agreement
made as of August 7, 1997 between Seven Seas Petroleum
Colombia Inc. and Montreal Trust Company of Canada
*(AA) -- Private Placement Subscription Agreement made as of
August 7, 1997 between Seven Seas Petroleum Inc. and
Jasopt Pty Limited
*(BB) -- 1997 Stock Option Plan
*(21) -- Subsidiaries of the Registrant
(23) -- Consent of experts and counsel
(A) -- Consent of Ryder Scott Company Petroleum Engineers
(B) -- Consent of Arthur Andersen LLP
(C) -- Consent of Raisbeck, Lara, Rodriguez & Rueda, members of
the law firm of Baker & McKenzie
(D) -- Consent of Servipetrol Ltd.
*(27) -- Financial Data Schedule
(99) -- Powers of Attorney (included on the signature page of the
Registration Statement as initially filed)
</TABLE>

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

* Incorporated herein by reference to like exhibit in Registration on Form 10
(File No. 022483).