TEXAS VANGUARD OIL CO - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 1995 Commission File No. 1-10437

OR

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

For the transition period from to Commission File No. 1-10437

TEXAS VANGUARD OIL COMPANY
(Exact name of registrant as specified in its charter)
Texas 74-2075344
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

9811 Anderson Mill Rd., Suite 202
Austin, Texas 78750
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code (512) 331-6781

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class: None
Name of each exchange of which registered: Boston Stock Exchange

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $.05 Par Value
(Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]

As of March 15, 1996, 1,427,087 shares of the registrant's Common Stock were
outstanding; the aggregate market value of the share of Common Stock held by
non-affiliates of the registrant (349,512 shares), based on average bid and
asked prices on the aforesaid date, was $524,268.00.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant's definitive proxy statement regarding the election of directors
at the registrant's 1996 Annual Stockholders' Meeting filed or to be filed with
the Commission on or before April 30, 1996, has been incorporated by reference
in Part III of this report.

PART I

ITEM 1. BUSINESS

General

Texas Vanguard Oil Company (the "Company" or "Registrant") was incorporated
under the laws of the state of Texas on December 4, 1979. The business of the
Company is to engage in the acquisition, exploration, development, and operation
of onshore oil and gas properties in the United States, principally in Texas.
In April 1980, the Company completed a public offering of its securities netting
approximately $1,250,000 from the sale of 1,500,000 shares of common stock to
the public.

The Company owns interests in producing properties and in undeveloped oil and
gas leases in Texas, Oklahoma, Nebraska, Wyoming, and New Mexico. Generally, the
Company seeks to attract industry partners to explore and develop its prospects,
while retaining a portion of the prospect. These transactions are structured so
that the Company's interest carries little or no cost. The involvement of out-
side participants allows the Company to reduce its exposure in any given
prospect and to ultimately spread its risks by participating in a larger number
of prospects. However, such arrangement will typically reduce the Company's
percentage interests in any production that might be realized.

The executive offices of the Company are located at 9811 Anderson Mill Rd.,
Suite 202, Austin, Texas 78750 and its telephone number is (512) 331-6781.

Markets for Oil and Gas

The market for the Company's primary products, oil and gas, depends upon a
number of factors, including the availability of other domestic production,
crude oil imports, the proximity and size of oil and gas pipelines and general
fluctuations in the supply and demand for oil and gas. At present, the Company
sells all of its production to traditional industry purchasers, such as pipeline
and crude oil companies, who have the facilities to transport the oil and gas
from the well site. The Company has recorded revenues in excess of 10% of total
revenue from Lantern Petroleum Corporation (25% in 1995, 53% in 1994, and 37%
in 1993), Scurlock Permian (46% in 1995 and 13% in 1994), and EOTT Energy (15%
in 1995 and 8% in 1994). The Company does not believe that the loss of major
customers would have a material adverse effect on the Company because oil
production can be sold to any other oil company at a comparable price. Oil
sales are not made under a written contract and the purchaser and price are not
specified in the division order for subject properties. The nature of the
Company's business is not seasonal except to the extent that adverse weather
conditions could affect oil and gas exploration and production activities. The
Company currently has no intention of refining or marketing its own oil and
gas. Since the Company engages independent contractors for the drilling of any
wells, it does not plan to own any significant amount of drilling equipment.
The Company does not contemplate any material product research and development,
any material acquisition of plants or equipment, or any material changes in its
number of employees in the near future.

Competition

The oil and gas industry is highly competitive in all aspects. The Company
competes with major oil companies, numerous independent oil and gas producers,
individual proprietors, and investment programs. Many of these competitors
possess financial and personnel resources substantially in excess of those which
are available to the Company and may, therefore, be able to pay greater amounts
for desirable leases and to define, evaluate, bid for, and purchase a greater
number of potential producing prospects than the Company's own resources permit.
The Company's ability to generate resources will depend not only on its ability
to develop existing properties, but also on its ability to identify and acquire
proven and unproven acreage and prospects for future exploration.

Environmental Matters

The Company's operations are subject to numerous federal, state and local
laws and regulations controlling the discharge of materials into the environment
or otherwise relating to the protection of the environment. Such matters have
not had a material effect on operations of the Company to date, but the Company
cannot predict whether such matters will have any material effect on its capital
expenditures, earnings or competitive position in the future.

Regulations

The production and sale of crude oil and natural gas are currently subject to
extensive regulation of both federal and state authorities. At the federal
level, there are price regulations, windfall profits tax, and income tax laws.
At the state level, there are severance taxes, proration of production, spacing
of wells, prevention and clean-up of pollution and permits to drill and produce
oil and gas. Although compliance with their laws and regulations has not had a
material adverse effect on the Company's operations, the Company cannot predict
whether its future operations will be adversely affected thereby.

Employees

At December 31, 1995, the executive officers and directors were as follows:

Name Offices Held

Robert N. Watson, Jr. President, Chairman of the
Board, Chief Executive Officer
and Director

William G. Watson Vice President-Exploration,
Director

Linda R. Watson Secretary, Treasurer and
Director

Robert L. Patterson Director

Robert N. Watson, Jr. (age 53), received his B.A. and B.B.A. degrees from
The University of Texas at Austin in 1966 and 1967. He is a director and
President of Robert Watson, Inc., an oil and gas and real estate development
firm, which he founded in 1969. He has been a director of the Company and its
Chief Executive Officer since 1982.

William G. Watson (age 47), received his B.A. degree from Texas Tech
University in 1970 and his M.S. degree from The University of Texas at
Arlington in 1974. He has been a director of Robert Watson, Inc. and a director
and President of William Watson, Inc., an independent petroleum geological firm,
which he founded in 1983, for more than the last five years. Also, he is the
brother of Robert N. Watson, Jr.

Linda R. Watson (age 52), received her B.A. degree from The University of
Texas at Austin in 1966. She has been a director and Secretary-Treasurer of
Robert Watson, Inc. for more than the last five years. Also, she is the wife of
Robert N. Watson, Jr.

Robert L. Patterson (age 56), received his B.S. and M.S. degrees from The
University of Texas at Austin in 1963 and 1964. He was employed by Union Oil
Company of California from 1965 through 1975, serving in various engineering
capacities. He was a Vice President of Argonaut Energy Corporation from 1976
through 1982. He was the President of Medallion Equipment Corporation and
President of Argonaut Energy Corporation from July, 1985 through January, 1989.
He has also been an independent consulting petroleum engineer since 1983.

The Company's officers actively manage the Company's activities. There are no
employment contracts with any officers and they earn no salary. In addition to
the Company's officers, at December 31, 1995 the Company had one full time
salaried employee. From time to time the Company engages independent petroleum
engineers, geologists and landmen on a fee basis. Robert Watson and William
Watson are also directors of companies as previously described which have oil
and gas interests. Due to this situation a conflict of interest may arise.
However, there have been no such conflicts in the past five years. Robert
Watson and William Watson are the only directors that actively review potential
oil and gas property acquisitions for the Company. After identification and
evaluation of prospects, such properties are presented first to the Company for
possible investment.

William Watson, Inc. owns a small interest in a number of the properties
that the Company has interests in as well as other similar properties in which
the Company does not have an interest. None of the Company's other directors
own interests in any oil and gas properties in areas in which the Company
operates. The Company presently acquires all of its own properties.

Effective February 1, 1996, the Company and a management company owned by the
President of the Company extended an agreement whereby the latter provides the
Company general corporate management services. This agreement is the same as
could be obtained from an independent third party. The affiliated company will
receive $9,000 per month, for one year, effective February 1, 1996 as compen-
sation for those services. The affiliated company received $108,000, $81,000,
and $108,000 as compensation for performance of these services during the years
ended December 31, 1995, 1994 and 1993, respectively.

ITEM 2. PROPERTIES

The Company owns no significant properties other than oil and gas properties.
It leases approximately 2,000 square feet of space for its executive offices at
9811 Anderson Mill Rd., Suite 202, Austin, Texas 78750. The Company currently
has a five year lease with a company owned by the President of the Company for
these facilities which will expire on June 30, 1999. The rent for these
facilities is $1,250 per month which is the same as would be charged to an
unaffiliated party.

Well Activity

All of the Company's oil and gas working and royalty interests, reserves and
activities are located onshore in the continental United States. The following
table sets forth the acquisition activity of the Company, for the years ended
December 31, 1991 through 1995.

Fiscal years ended Oil Gas Dry
December 31, Gross Net Gross Net Gross Net

1991 19 9.64 2 .19 --- ---
1992 39 12.06 2 .53 --- ---
1993 17 3.79 1 .14 --- ---
1994 26 8.90 12 7.74 --- ---
1995 38 23.35 8 3.35 --- ---

(1) A gross well is a well in which the Company has an interest.

(2) A net well is 100% of the working interest in a well. If the Company has
a 12.5% working interest in a well, .125 is shown in the net well column.

(3) A dry well is a well found to be incapable of producing oil or gas in
sufficient quantities to justify completion of the well.

The Company is not obligated to provide a fixed and determinable quantity of
oil or gas in the future under existing contracts or agreements.

Significant Properties

Over the past three years, the Company has made investments in proven oil
and gas properties that in the aggregate have been significant to the Company.
None of the individual properties has cost more than 15% of the average balance
in oil and gas properties at the time of purchase. These investments have been
made in different fields and areas, primarily in south and west Texas. At
December 31, 1995, the Company does not have any single property that is
significant enough to materially affect its operations.

As of December 31, 1995, the Company has pledged its interest in certain
properties and well equipment against bank notes payable. None of the
individual properties are significant. Copies of the loan documents have been
included as an exhibit to the Form 10-K.

Production Wells and Acreage

The following table sets forth by Texas, Nebraska, Oklahoma, Wyoming, and New
Mexico counties the Company's gross and net productive wells and developed
acreage as of December 31, 1995.

Producing Wells (a) Developed
Oil Gas Acreage (a)
County Gross Net Gross Net Gross Net

Bastrop 32 14.82 16 9.96 959.27 457.34
Burleson 1 .71 --- --- 40.00 28.40
Chaves (c) --- --- 1 .50 160.00 80.00
Crane (b) 9 5.98 3 .97 210.00 101.60
DeWitt 1 --- 1 .15 160.00 12.43
Eastland (b) 6 .06 1 .06 242.00 2.47
Eddy (c) 2 .04 3 .07 1,040.00 22.85
Fayette (b) 3 2.06 --- --- 400.00 329.85
Garza (b) 11 8.05 --- --- 190.00 160.47
Howard (b) 2 .03 --- --- 80.00 1.25
Kent (b) 3 .91 --- --- 120.00 36.40
Kimball (d) 4 .21 --- --- 160.00 46.48
Lea (b)(c) 2 --- 1 .07 400.00 22.04
Lee 35 20.82 2 1.88 740.00 463.50
Liberty 1 .24 --- --- 40.00 9.52
Lipscomb 1 .03 --- --- 80.00 2.50
Martin 2 1.69 --- --- 120.00 105.46
Midland 1 .02 --- --- 80.00 1.67
Nolan (b) 1 .03 --- --- 40.00 1.25
Parker (b) --- --- 1 .01 136.91 .83
Pecos 2 1.70 1 .25 160.00 88.00
Reagan 1 .08 --- --- 80.00 6.21
Smith 4 1.76 --- --- 160.00 70.37
Ward --- --- 3 .22 1,360.00 68.19
Weston (e) 3 .90 --- --- 120.00 36.17
Wilson (b) 7 4.00 --- --- 520.00 319.44
Woodward (f) --- --- 1 .01 640.00 3.32
Young (b) 1 .03 --- --- 40.00 1.31
------ ------- ----- ----- -------- --------
135 64.17 34 14.15 8,478.18 2,479.32

(a) A gross well is a well in which the Company owns a working interest. A
net well is the fractional interest owned by the Company. Gross acres are
the total acres in a lease. Net acres are gross acres times the Company's
interest.

(b) The Company owns overriding royalty interest in these counties.
(c) The Eddy and Lea County wells are located in New Mexico.
(d) Kimball County wells are located in Nebraska.
(e) Weston County wells are located in Wyoming.
(f) Woodward County wells are located in Oklahoma.

Reserve Quantity Information

For information required by Statement of Financial Accounting Standards No.
69, "Disclosures About Oil and Gas Producing Activities," see the "Supplemental
Oil and Gas Information" section included in Item 8. This section also includes
estimates of proven oil and gas reserves.

OIL AND GAS STATISTICS

The following summarizes the net oil and gas production, average sales prices
and production costs per unit for the years ended December 31, 1995, 1994
and 1993.

1995 1994 1993

Oil:
Production volume (barrels) 31,846 27,063 29,619
Average sales price per barrel $ 16.43 15.07 15.95
Gas:
Production volume (MCF) 192,175 109,942 89,078
Average sales price per MCF $ 1.55 1.69 1.73

Average production costs per
equivalent barrel $ 6.34 9.05 10.89

The worldwide crude oil prices of 1995 continue to fluctuate in 1996. The
Company cannot predict how prices will vary during 1996 and what effect they
will ultimately have on the Company.

UNDEVELOPED ACREAGE

The following table sets forth by county the Company's gross and net
undeveloped acreage as of December 31, 1995.

County Gross Net

Bastrop, TX 1,722.74 1,127.69
Crane, TX 270.00 179.47
Crosby, TX 1,120.00 560.00
DeWitt, TX 308.00 47.37
Eastland, TX 79.30 1.20
Eddy, NM 3,485.00 116.36
Fayette, TX 96.00 5.91
Garza, TX 3,410.00 949.28
Howard, TX 160.00 2.50
Kent, TX 4,120.00 1,598.00
Lea, NM 1,094.90 629.90
Lee, TX 715.78 490.66
Liberty, TX 40.00 9.52
Martin, TX 40.00 29.46
Midland, TX 133.33 2.78
Pecos, TX 800.00 536.00
Smith, TX 100.00 40.69
Weston, WY 600.00 104.75
Wilson, TX 527.73 385.96
Winkler, TX 701.60 701.60
Young, TX 65.00 2.13
--------- --------
19,589.38 7,521.23
========= ========

All of the 7,521.23 net undeveloped acres under lease are being held by
production.

ITEM 3. LEGAL PROCEEDINGS

The Company knows of no material litigation pending, threatening or
contemplated, or unsatisfied judgments against it, or any other proceeding in
which the Company is a party. The Company knows of no material legal actions
pending or threatening or judgments entered against any officers on the board of
directors of the Company in their capacity as such.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the security holders during the
quarter ended December 31, 1995.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

The Company's common stock is traded on the Boston Stock Exchange with the
symbol (TVO). The range of high and low sales price for each quarterly period
during the past two years as quoted by the Boston Stock Exchange is as follows:

Sales Price
High Low

Fiscal 1995

First Quarter 1.500 1.000
Second Quarter 1.250 1.125
Third Quarter 1.500 1.000
Fourth Quarter 1.438 0.750

Fiscal 1994

First Quarter 0.750 0.750
Second Quarter 1.750 0.750
Third Quarter 1.500 1.125
Fourth Quarter 1.500 1.000

At December 31, 1995, the approximate number of holders of record of the
Company's common stock was 587. The Company has not paid any dividends and has
no present plans to do so in the immediate future.

ITEM 6. SELECTED FINANCIAL DATA

Years ended December 31,
1995 1994 1993 1992 1991

Oil and gas sales $ 729,536 620,742 704,091 775,287 775,947
Total revenue 896,580 714,618 832,719 882,757 802,638
Total expenses (767,799) (958,404) (884,684) (787,378) (791,626)
Net earnings (loss) 86,695 (253,896) 45,640 95,379 11,012
Net earnings (loss)
per share .06 (.18) .03 .08 .01
Total assets 2,473,759 2,053,923 1,978,107 1,930,996 1,887,384
Short-term debt 935,009 793,459 546,154 617,937 625,744
Long-term debt 252,247 None None None None
Total liabilities 1,234,352 901,211 586,499 669,028 710,795
Stockholders equity $ 1,239,407 1,152,712 1,391,608 1,261,968 1,166,589

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

ANALYSIS OF FINANCIAL CONDITION

During the year ended December 31, 1995, cash decreased by $20,473. During
the years ended December 31, 1994 and 1993, cash increased and decreased by
$175,603 and $48,746, respectively. Cash flow from operating activities in 1995
was approximately $119,000, a increase of $37,000 from 1994. The 1994 cash
flows from operating activities had shown an increase of $47,000 from 1993.
The significant use of cash, other than for operating expenses, have been
investments in producing oil and gas properties of $605,435, $465,505, an
$180,486 in 1995, 1994 and 1993, respectively. In each of the last three years,
the Company's investment in producing oil and gas properties was provided by
cash flow from operating activities, sales of other oil and gas properties,
and from borrowings on notes payable to banks.

In 1995, 1994, and 1993, the Company also increased cash by $76,000,
$357,250, and $80,569 respectively, through the sales of producing oil and gas
properties. The Company plans to continue to sell selected properties when it
is more economical to sell them rather than produce them. As of December 31,
1995, the Company had a cash balance of $383,321 which represents approximately
33% of its notes payable.

Working capital at December 31, 1995 has decreased to .42 to 1 from .50 to 1
at December 31, 1994. The Company continued it's policy of making strategic
investments in producing oil and gas properties in the same or similar fields to
properties already operated by the Company, which are primarily financed with
short-term notes payable and cash from operations.

LIQUIDITY AND CAPITAL RESOURCES

During the current fiscal year, the Company's liquidity has remained strong
enough to meet its short-term cash needs. The sources of liquidity and capital
resources are generated from cash on hand, cash provided by operations and from
credit available from financial institutions. At December 31, 1995, the Company
had borrowed $199,592 from a bank under a line of credit totaling $200,000. The
line of credit has a maturity of one year and may be renewed (see note 3 of
notes to financial statements for further explanation). Management believes
the Company will be able to meet its current operating needs through internally
generated cash from operations. Management believes that oil and gas property
investing activities in 1996 can be financed through cash on hand, cash from
operating activities, and bank borrowings. The Company anticipates continued
investments in proven oil and gas properties in 1996 when they can be purchased
at prices that will provide a short payback period. If bank credit is not
available, the Company may not be able to continue its policy of continued
investment in strategic oil and gas properties. The Company cannot predict how
oil and gas prices will fluctuate during 1996 and what effect they will
ultimately have on the Company, but management believes that the Company will
be able to generate sufficient cash from operations to service its bank debt
and provide for maintaining current production of its oil and gas properties.
The Company had no significant commitments for capital expenditures at
December 31, 1995.

As of December 31, 1995, the Company owed $364,747 and $550,000 to a bank
secured by producing oil and gas properties and well equipment purchased by the
Company. The notes are due April 1999 and July 1996, respectively.

ANALYSIS OF RESULTS OF OPERATIONS

From 1992 to 1993 there was a 9% decrease in oil and gas sales, from 1993 to
1994 oil and gas sales decreased approximately 12%, and from 1994 to 1995 oil
and gas sales increased approximately 18%. In 1993, oil production volume
decreased by 1.5% at the same time the average price per barrel decreased by
11% to an average price of $15.95 per barrel. In 1993, gas production volume
decreased by 10% but the average price per MCF increased 14% to an average of
$1.73 per MCF. Also, in 1994, oil production volume decreased by 8.6% and the
average price per barrel decreased by 5.5% to $15.07. In 1994, the gas
production volume increased 23% and the average price was $1.69 per MCF. In
1995, oil production volume increased by 18% at the same time as the average
price per barrel increased by 9% to 16.43. Also, in 1995, the gas production
volume increased by 75% which more than offset the decrease in the average
price per MCF to $1.55.

Other income increased to $41,050 in 1995 due to increased gains on sales of
producing oil and gas properties as compared to the 1994 total of $27,303. In
1994, other income decreased to $27,303 due to lower gains on sales of producing
oil and gas properties as compared to the 1993 total of $82,086. In 1994, the
Company sold several sour oil properties in order to reduce operating costs and
realized a loss of $227,277.

Prior to 1994, oil and gas production expenses had increased each of the last
three years because of increased oil and gas production between 1990 and 1991
and higher lease operating costs associated with operating more producing wells
and needing more maintenance expenditures and workovers in 1993 and 1992. In
1994, oil and gas production expenses decreased by 15% due to the sale of
several sour oil properties that were expensive to operate. In 1995, oil and
gas production expenses decreased 1% at the same time as production volumes
increased as described above.

Interest expense increased by 22% in 1994 over 1993 due to higher average
outstanding balances and higher interest rates. Interest expense increased by
58% in 1995 over 1994 due to higher average outstanding balances.

Depreciation, depletion and amortization varies from year to year because of
changes in reserve estimates, changes in quantities of oil and gas produced, as
well as the acquisition, discovery or sale of producing properties.

Total general and administrative expenses are comparable over the last three
years as the Company continues to make every effort to control the level of
these type expenses. In 1994, a company owned by the President of the Company
forgave $27,000 of management fees that otherwise would have been charged
to the Company under its management agreement.

In 1994 and 1993, the Company provided provisions of approximately
$31,000 and $117,000, respectively, for the impairment of value of oil
and gas properties due to less than expected production history of specific
wells and for wells that were plugged and abandoned.

Inflation is not anticipated to have a significant impact on the Company's
operations.

ADOPTION OF SFAS NO. 109

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109 as of January 1, 1993. The adoption resulted in a cumulative
effect of an $80,000 increase to earnings in 1993 and the establishment of a
deferred tax asset of the same amount. The 1993 deferred tax asset is net of a
valuation allowance of $25,800 at January 1, 1993.

As of December 31, 1993, the Company estimated that it must earn in the
future approximately $287,000 in order to realize the deferred tax asset
recorded in 1993. Using average earnings levels over the past five years, this
represents approximately three years worth of average earnings on a book basis.
Prior to 1994, the Company had generated financial income of $484,535 (pre-tax)
in the past five years and taxable income of $169,350 in the past five years.
The primary difference between financial income and taxable income relates to
accelerated depreciation on well equipment for income tax purposes.

As of December 31, 1994, the Company estimated that it must earn in the
future approximately $257,000 in order to realize the deferred tax asset
recorded as of December 31, 1994. Using average financial earnings levels
over the past five years (excluding the non-recurring loss on sale of oil and
gas properties in 1994), this represents approximately one year of average
earnings. The Company has generated financial income (pre-tax and exclusive of
the non-recurring loss on the sale of oil and gas properties) of $353, 367 in
the past five years.

As of December 31, 1995, the Company estimates that it must earn in the
future approximately $134,000 in order to realize the deferred tax asset
recorded as of December 31, 1995. Using average financial earnings levels
over the past five years (excluding the non-recurring loss on sale of oil and
gas properties in 1994 and 1995), this represents approximately three years of
average earnings (excluding non-recurring losses on the sale of sour oil
production). The Company has generated financial income (exclusive of the
non-recurring losses on sale of sour oil and gas properties) of $33,646 in
the past three years.

The Company's operations are stable and there are no known trends or oper-
ating factors that are expected to adversely affect future levels of taxable
income.

Based on the Company's analysis of its situation including projection of
earnings for the next three years, a valuation allowance of $46,223 has been
recorded at December 31, 1995. Management believes that it will be more likely
than not that the Company will realize the value of the net deferred tax asset
recorded at December 31, 1995.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Texas Vanguard Oil Company:

We have audited the accompanying balance sheets of Texas Vanguard Oil Company
as of December 31, 1995 and 1994 and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended 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 financial statements referred to above present fairly,
in all material respects, the financial position of Texas Vanguard Oil Company
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles.

As described in notes 1 and 5 to the financial statements, the Company adopted
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes effective
January 1, 1993.

KPMG PEAT MARWICK LLP

Austin, Texas
March 22, 1996

TEXAS VANGUARD OIL COMPANY

Balance Sheets

December 31, 1995 and 1994

ASSETS
1995 1994

Current assets:
Cash (including certificates of deposit of
$200,000 in 1995 and 1994, pledged) $ 383,321 403,794
Trade accounts receivable 26,352 44,332
---------- ---------
Total current assets 409,673 448,126
---------- ---------
Oil and gas properties, partially pledged,
successful efforts method of accounting:
Proven properties 1,938,154 1,411,408
Unproven properties 166,630 166,630
Office furniture and equipment, partially pledged 93,530 89,922
--------- ---------
2,198,314 1,667,960
Less accumulated depreciation, depletion and
amortization 200,956 166,197
--------- ---------
1,997,358 1,501,763
--------- ---------
Deferred tax asset 45,409 87,495
Other assets 21,319 16,539
--------- ---------
TOTAL ASSETS $ 2,473,759 2,053,923
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Trade accounts payable $ 47,096 107,752
Notes payable and current installments of
long-term debt 914,009 717,459
Notes payable to related parties 21,000 76,000
--------- ---------
Total current liabilities 982,105 901,211
--------- ---------
Long-term debt, excluding current installments 252,247 ---
--------- ---------
Total Liability 1,234,352 901,211

Stockholders' equity:
Common stock, par value $.05; authorized
12,500,000 shares; 1,427,087 issued and
outstanding 71,354 71,354
Additional paid-in capital 1,901,468 1,901,468
Accumulated deficit (733,415) (820,110)
--------- ---------
Total stockholders' equity 1,239,407 1,152,712

Commitments (note 4)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,473,759 2,053,923
========= =========

See accompanying notes to financial statements.

TEXAS VANGUARD OIL COMPANY
Statements of Operations

Years ended December 31, 1995, 1994 and 1993

1995 1994 1993

Revenues:
Oil and gas sales $ 729,536 620,742 704,091
Well operation fees 116,817 60,228 39,766
Other, net 41,050 27,303 82,086
Interest income 9,177 6,345 6,776
--------- --------- ---------
Total revenues 896,580 714,618 832,719
--------- --------- ---------
Expenses:
Production cost 405,053 410,593 484,192
Depreciation, depletion and amortization 51,373 44,061 45,767
Interest expense 89,748 56,665 46,560
General and administrative 193,695 188,708 190,955
Impairment in value of oil and gas property --- 31,100 117,210
Loss on sale of oil and gas property 27,930 227,277 ---
--------- --------- ---------
Total expenses 767,799 958,404 884,684
--------- --------- ---------
Earnings (loss) before income taxes, extra-
ordinary item and cumulative effect of
change in accounting for income taxes 128,781 (243,786) (51,965)

Income Taxes:
Deferred federal income tax expense (benefit) 42,086 10,110 (17,605)
-------- --------- ---------
Earnings (loss) before cumulative effect of
change in accounting for income taxes 86,695 (253,896) (34,360)

Cumulative effect of change in accounting
for income taxes (notes 1 and 5) --- --- 80,000
-------- --------- ---------
Net earnings (loss) $ 86,695 (253,896) 45,640
======== ========= =========
Weighted average number of
shares outstanding 1,427,087 1,397,087 1,313,087
========= ========= =========
Earnings (loss) per share before
accounting change $ .06 (.18) .03
========= ========= =========
Cumulative effect of change in accounting
for income taxes $ --- --- .06
========= ========= =========
Net earnings per share $ .06 (.18) .03
========= ========= =========

See accompanying notes to financial statements.

TEXAS VANGUARD OIL COMPANY
Statements of Stockholders' Equity

Years ended December 31, 1995, 1994 and 1993

Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit

Balances at December 31, 1992 1,229,087 61,454 1,812,368 (611,854)

Issuance of common stock 168,000 8,400 75,600 ---

Net earnings --- --- --- 45,640
_________ _______ _________ ________
Balances at December 31, 1993 1,397,087 69,854 1,887,968 (566,214)

Issuance of common stock 30,000 1,500 13,500 ---

Net loss --- --- --- (253,896)
_________ ________ _________ ________
Balances at December 31, 1994 1,427,087 71,354 1,901,468 (820,110)

Net earnings --- --- --- 86,695
_________ ________ _________ ________
Balances at December 31, 1995 1,427,087 71,354 1,901,468 (733,415)
========= ======== ========= ========

See accompanying notes to financial statements.

TEXAS VANGUARD OIL COMPANY

Statements of Cash Flows

Years ended December 31, 1995, 1994 and 1993

1995 1994 1993

Cash flows from operating activities:
Earnings (loss) before accounting change $ 86,695 (253,896) (34,360)
Adjustments to reconcile earnings (loss) before
accounting change to cash provided by
operating activities:
Depreciation, depletion and amortization 51,373 44,061 45,767
(Gain) loss on sale of oil and gas properties (9,520) 199,974 (54,284)
Deferred federal income tax expense (benefit) 42,086 10,110 (17,605)
Stock issued for services --- 15,000 ---
Impairment in value of oil and gas property --- 31,100 117,210
Changes in assets and liabilities:
(Increase) decrease in trade accounts
receivable 17,980 (19,486) (11,028)
Increase (decrease) in trade accounts payable (60,656) 67,407 (10,747)
Increase in other assets (9,185) (12,171) ---
--------- --------- ---------
Net cash provided by operating activities 118,773 82,099 34,953
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of oil and gas properties 76,000 357,250 80,569
Additions to oil and gas properties (605,435) (465,505) (180,486)
Additions to furniture and equipment (3,608) (844) ---
Proceeds from sale of vehicle --- --- 4,000
--------- --------- ---------
Net cash used in investing activities (533,043) (109,099) (95,917)
--------- --------- ---------
Cash flows from financing activities:
Borrowings on notes payable 1,000,000 492,000 187,000
Repayments of notes payable (606,203) (289,397) (174,782)
--------- --------- ---------
Net cash provided by (used in) financing activities 393,797 202,603 12,218

Net increase (decrease) in cash (20,473) 175,603 (48,746)

Cash and cash equivalents at
beginning of year 403,794 228,191 276,937
--------- -------- --------
Cash and cash equivalents at
end of year $ 383,321 403,794 228,191
========== ========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 89,748 56,665 46,560
========== ========== ==========

Supplemental disclosure of non cash investing and financing activity:
See note 6.

See accompanying notes to financial statements.

TEXAS VANGUARD OIL COMPANY

Notes to Financial Statements

December 31, 1995, 1994 and 1993

(1) Significant Accounting Policies

Description of Business - Texas Vanguard Oil Company (the Company) engages in
the acquisition, exploration, development, and operation of onshore oil and gas
properties in the United States, principally in Texas. The Company owns
interests in producing properties and undeveloped oil and gas leases in Texas,
Oklahoma, Nebraska, Wyoming and New Mexico. The Company sells all of its
production to traditional industry purchasers who have the facilities to
transport the oil and gas from the well site.

Oil and Gas Properties - The Company follows the "successful efforts" method of
accounting for oil and gas exploration and production operations. Accordingly,
costs incurred in the acquisition and exploratory drilling of oil and gas
properties are initially capitalized and either subsequently expensed if the
properties are determined not to have proved reserves, or reclassified as a
proven property if proved reserves are discovered. Costs of drilling development
wells are capitalized. Geological, geophysical, carrying and production costs
are charged to expense as incurred.

Costs related to acquiring unproved lease and royalty acreage are periodically
assessed for possible impairment of value. If the assessment indicates impair-
ment, the costs are charged to expense.

Depreciation, depletion and amortization of proved oil and gas property costs,
including related equipment and facilities, is provided using the units-of-
production method on a property by property basis.

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets to be Disposed of ("Statement 121") in March 1995 for implementation
in fiscal years beginning after December 15, 1995. The statement addresses
the impact on an enterprise's financial statements when circumstances indicate
the carrying amount of an asset may not be recoverable. The Company does not
expect adoption of Statement 121 to have a material affect on the financial
statements at adoption.

Office Furniture and Equipment - Office furniture and equipment is stated at
cost. Depreciation is computed using the straight-line method, based on the
following estimated useful lives:

Office furniture and equipment 7 years
Automotive equipment 5 years

Federal Income taxes - The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 - "Accounting for Income Taxes" which
is effective for fiscal years beginning after December 15, 1992. The statement
requires use of the "asset and liability method" of income tax accounting which
bases the amount of current and future taxes payable on the events recognized in
the financial statements and on tax laws existing at the balance sheet date.
Under SFAS No. 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
enactment date. The Company has adopted Statement No. 109 effective January 1,
1993 and reported the cumulative effect of that change in the method of
accounting in the 1993 Statement of Earnings.

Cash and Cash Equivalents - The Company considers cash and cash equivalents to
consist of demand deposits and certificates of deposit with an original maturity
of ninety days or less.

Concentration of Credit Risk - The Company sells all of its production to
traditional industry purchasers. Oil sales are not made under a written contract
and the purchaser and price are not specified in the division order for the
subject property. The Company has recorded revenues in excess of 10% of total
revenue from three customers in 1995, two customers in 1994 and one customer in
1993 as follows: 1995 - 46%, 25% and 15%, 1994 - 53% and 13%, and 1993 - 37%.
The Company does not believe the loss of these customers would have a material
adverse effect on its operations as it could sell its production to other
gathering companies.

Use of Estimates - Consistent with the requirements of generally accepted
accounting principles, management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities in order to
prepare these financial statements. Actual results could differ from those
estimates.

(2) Stock Option Plan

The Company enacted an Incentive Stock Option Plan in 1980 which provides for
the granting of options to officers, key employees and consultants for the
purchase of a total of 150,000 shares of common stock of the Company. At
December 31, 1994, 150,000 shares are available for grant. The option prices
may not be less than 100% of the market price on the date of the grant. Options
granted under the plan must be exercised within five years of the date of grant
in such amounts as the Board of Directors may determine.

TEXAS VANGUARD OIL COMPANY

Notes to Financial Statements

(3) Notes Payable

The Company had notes payable and long-term debt to banks as follows at
December 31:
1995 1994

Note payable under $200,000 line of credit $ 199,592 199,854

Note payable in original amount of $450,000,
due in April 1995, interest payable monthly at
prime rate plus 1% (10.5% at December 31, 1994),
secured by oil and gas properties. --- 450,000

Note payable in original amount of $450,000, due in
April 1999, payable in monthly installments of
$9,375 principal plus accrued interest
at prime rate plus 1% (10.5% at December 31, 1995),
secured by oil and gas properties. 364,747 ---

Note payable in original amount of $550,000, due in
July 1996, interest payable monthly at prime rate
plus 1% (10.5% at December 31, 1995), secured by
oil and gas properties. 550,000 ---

Other notes payable, due on demand or in
monthly installments, maturing on various
dates through October, 1998, secured by equipment. 31,917 47,605
--------- -------
Total bank debt 1,146,256 697,459
Less current installments 894,009 697,459
--------- -------
Long-term bank debt, excluding current installments $ 252,247 ---
========= =======

The Company maintained a line of credit with a bank at December 31, 1995 and
1994 in the aggregate amount of $200,000. Borrowings of $199,592 and $199,854
against the line of credit were outstanding at December 31, 1995 and 1994,
respectively. The $199,592 borrowing bears interest at the bank's certificate
of deposit rate plus 2% (7.50% at December 31, 1995). There are no commitment
fees or compensating balance arrangements. The line of credit is secured by
$200,000 of certificates of deposit and matures on April 19, 1996. At
December 31, 1995 and 1994 the Company also had a note payable to a corporation
in the amount of $20,000. The note is due on demand, bears interest at 10% and
is unsecured.

(4) Related Party Transactions

The Company and a company owned by the President of the Company have an agree-
ment whereby the latter provides the Company general corporate management
services. None of the Company's officers earn a salary. The affiliated company
received $108,000, $81,000, and $108,000 as compensation for performance of
those services during the years ended December 31, 1995, 1994 and 1993,
respectively. Management fees totaling $27,000 under this agreement were
forgiven in 1994. Effective February 1, 1996 the agreement was continued with
terms of $9,000 per month through January 31, 1997.

The Company leases office space from a company owned by the President of the
Company under a non-cancelable operating lease. Rent expense incurred under this
lease was $15,000 for the year ended December 31, 1995. Future minimum lease
payments are as follows:

1996 $ 15,000
1997 15,000
1998 15,000
1999 7,500
------
$ 52,500
======

TEXAS VANGUARD OIL COMPANY

Notes to Financial Statements

(4) Related Party Transactions, continued

The Company has several notes payable to individual directors and companies
owned by certain directors of the Company in the amount of $21,000 and $76,000
at December 31, 1995 and 1994, respectively. The notes are due on demand,
bearing interest at 10% and are unsecured.

In 1994, the Company issued 30,000 shares of restricted stock to a director of
the Company for services rendered to the Company. The transaction was valued at
$15,000 which was the estimated fair market value of restricted stock.

In 1993, the President of the Company exchanged notes payable totaling $84,000
for 168,000 shares of restricted common stock of the Company. The transaction
was consummated at the current market value of the Company's common stock.

(5) Federal Income Taxes

As described in note 1, the Company adopted Statement No. 109 as of January 1,
1993. The cumulative effect of this change in accounting for income taxes of
$80,000 is determined as of January 1, 1993 and is reported separately in the
statement of operations for the year ended December 31, 1993.

The significant components of the deferred income tax expenses for the
years ended December 31, 1995 and 1994 are as follows:

1995 1994

Deferred income tax $ 50,735 82,887
(Decrease)Increase in valuation allowance
on deferred tax asset (8,649) 24,072
Other --- (96,849)
-------- --------
$ 42,086 10,110
======== ========

The tax effects of temporary differences that give rise to the deferred tax
asset at December 31, 1995 and 1994 is presented below:

1995 1994

Deferred tax asset:
Net operating loss carryforward $ 321,555 350,434
Less valuation allowance (46,223) (54,872)
--------- ---------
Net deferred tax asset 275,332 295,562
--------- ---------

Deferred tax liability:
Office furniture and equipment and oil and gas property,
due to differences in depreciation and abandonment (229,923) (208,068)
--------- ---------
Total deferred tax asset $ 45,409 87,494
========= =========

TEXAS VANGUARD OIL COMPANY

Notes to Financial Statements

(5) Federal Income Taxes, continued

The valuation allowance for the deferred tax asset at December 31, 1995 and 1994
was as follows:

1995 1994

Balance, beginning of year $ 54,872 30,800
(Decrease) Increase in valuation allowance (8,649) 24,072
------ ------
$ 46,223 54,872
====== ======

As of December 31, 1995, the Company estimates that it must earn in the future
approximately $134,000 in order to realize the deferred tax asset recorded. The
Company's operations are stable and there are no known trends or operating
factors that are expected to adversely affect future levels of taxable income.

The Company has accumulated losses for Federal income tax purposes of
approximately $945,000 as of December 31, 1995 which may be carried forward
and used to reduce taxable income in future years. The carryforwards expire as
follows:

Year of Expiration Amount

1996 107,000
1997 146,000 1999 97,000
1999 97,000
2000 48,000
2006 30,000
2008 158,000
2009 359,000
---------
$ 945,000
=========

(6) Supplemental disclosure of non-cash investing and financing activity

In 1994, the Company issued 30,000 shares of stock (at estimated market value)
for services rendered valued at $15,000. In 1994, the Company purchased
$44,702 of equipment through bank borrowings. In 1993, the Company exchanged
168,000 shares of stock (at estimated market value) for notes payable totaling
$84,000.

(7) Fair Value of Financial Instruments

Based on the borrowing rates currently available to the Company for bank loans
with similar terms and average maturities, the fair value of notes payable
approximates market value at December 31, 1995.

TEXAS VANGUARD OIL COMPANY

SUPPLEMENTAL OIL AND GAS INFORMATION

Years ended December 31, 1995, 1994 and 1993
(Unaudited)

Reserve Quantity Information (Unaudited)

The following reserve related information is based on estimates prepared by
management of the Company. Reserve estimates are inherently imprecise and are
continually subject to revisions based on production history, results of
additional exploration and development, price of oil and gas and other factors.
All of the Company's oil and gas reserves are located in the United States.

1995 1994 1993
Oil Gas Oil Gas Oil Gas
BBLS MCF BBLS MCF BBLS MCF

Proved developed
and undeveloped
reserves:
Beginning of year 1,061,861 5,492,496 1,139,611 3,561,883 1,139,939 3,924,640
Revisions of
previous estimates (82,679) 93,094 (37,541) (222,389) (50,294) 84,758
Extensions
and Discoveries --- --- 23,916 104,009 --- ---
Purchase of
minerals in place 693,553 4,248,008 395,530 3,115,903 99,527 70,093
Sale of minerals (1,700) (1,536) (432,592) (956,968) (19,942) (428,530)
Production (31,846) (192,175) (27,063) (109,942) (29,619) (89,078)
---------- ---------- ---------- ---------- ---------- ---------
End of year 1,639,189 9,639,887 1,061,861 5,492,496 1,139,611 3,561,883
========== ========== ========== ========== ========== =========
Proved developed
reserves:
Beginning of year 1,061,861 5,492,496 1,139,611 3,561,883 1,139,939 3,924,640
End of year 1,639,189 9,639,887 1,061,861 5,492,496 1,139,611 3,561,883

Standardized Measure of Discounted Future Net Cash Flows (Unaudited)

The following is a standardized measure of discounted future net cash flows and
changes therein relating to proved oil and gas reserves. Future net cash flows
were computed using year-end prices and costs and relate to existing proved oil
and gas reserves in which the enterprise has mineral interests. The Company
cannot predict price fluctuations which may occur in the future. Future income
tax expenses were provided after estimated utilization of Federal income tax
loss carryforwards.

December 31,
1995 1994 1993

Future cash inflows $ 49,604,773 27,974,770 22,223,615
Future production and development costs (17,767,270) (10,383,475) (10,459,067)
Future income tax expenses (8,982,265) (4,399,089) (2,444,941)
------------ ------------ ------------
Future net cash flows 22,855,238 13,195,206 9,319,607

10% annual discount for estimated
timing of cash flows (16,315,880) (9,474,203) (6,646,320)
------------ ------------ ------------
Standardized measure of discounted
future net cash flows $ 6,539,358 3,718,003 2,673,287
============ ============ ============

TEXAS VANGUARD OIL COMPANY

SUPPLEMENTAL OIL AND GAS INFORMATION, CONTINUED
(Unaudited)

The following are the principal sources of change in the standardized measure of
discounted future net cash flows:

1995 1994 1993

Changes:
Sale of oil and gas produced, net of
production costs $ (608,752) (506,341) (512,880)
Net changes in prices and production costs 265,251 489,836 (619,927)
Purchase of minerals in place 1,865,418 1,078,738 105,346
Extensions and discoveries --- 50,715 ---
Sales (3,022) (758,406) (81,063)
Revisions of previous quantity estimates (97,356) (68,080) (60,882)
Accretion of discount 371,800 267,329 426,542
Other 1,028,016 490,925 (849,273)
--------- --------- ----------
Net changes 2,821,355 1,044,716 (1,592,137)

Beginning balance - standardized measure
of discounted future net cash flows 3,718,003 2,673,287 4,265,424
---------- ---------- -----------
Ending balance - standardized measure of
discounted future net cash flows $ 6,539,358 3,718,003 2,673,287
========== ========== ==========

The Company has not filed with or included in reports to any Federal authority
or agency other than the Securities and Exchange Commission any estimates of
total proved net oil and gas reserves.

Capitalized Costs Relating to Oil and Gas Producing Activities

Years ended December 31,
1995 1994 1993

Unproven oil and gas properties
(including wells in progress) $ 166,630 166,630 13,480

Proven oil and gas properties 1,938,154 1,411,408 1,807,900

Accumulated depletion and amortization (155,627) (131,358) (220,847)
---------- ---------- ----------
Net capitalized costs $ 1,949,157 1,446,680 1,600,533
========== ========== ==========

Costs Incurred in Oil and Gas Property
Acquisition, Exploration and Development Activities

Years ended December 31,
1995 1994 1993

Acquisition of properties - unproven $ --- --- ---
Acquisition of properties - proven 555,595 387,771 53,539
Exploration costs --- --- ---
Development costs 49,840 77,734 126,947

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

PART III

Items 10, 11, 12 and 13 constituting Part III of Form 10-K have been omitted
from this annual report pursuant to the provisions of Instruction G(3) to Form
10-K, as the Company will file a definitive proxy statement pursuant to
Regulation 14A under the Securities Exchange Act of 1934 within 120 days after
the close of its fiscal year.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1). Financial Statements.

Independent Auditors' Report, Balance Sheets at December 31, 1995 and 1994 and
the related Statements of Earnings, Stockholders' Equity, and Cash Flows for
each of the years in the three-year period ended December 31, 1995, and notes
to financial statements are included in Item 8.

(a)(2) Financial Statement Schedules

Not applicable.

(a)(3). Exhibits

Number Description of Document

3 Copies of Articles of Incorporation and Bylaws - Incorporated by
reference to Exhibits 4a and 4b to Registration Statement No. 2-66693
filed by registrant on Form S-2.

3.1 Articles of Amendment to authorize capitalization of common stock,
previously filed as exhibits to Form 8-K dated May 27, 1983.

3.2 Certificate of Amendment dated February 20, 1990 of Articles of
Incorporation and Articles of Amendment dated February 16, 1990 to the
Articles of Incorporation. Filed as Exhibit to 1989 Form 10-K.

10.1 Incentive Stock Option Plan, previously filed as Exhibit 5b to
Registration Statement No. 2-66693 filed by registrant on Form S-2.

10.2 Management contract between Texas Vanguard Oil Company and Robert Watson,
Inc., previously filed with Form 8-K dated January 30, 1988.

10.4 Note payable to Austin National Bank dated April 19, 1994, previously
filed as exhibit to 1994 Form 10-K.

10.5 Note payable to Midland American Bank dated April 16, 1995.

10.6 Note payable to Midland American Bank date July 21, 1995.

(b). Reports of Form 8-K

Form 8-K filed on October 20, 1995.

SIGNATURES

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

TEXAS VANGUARD OIL COMPANY

By: Robert N. Watson, Jr.
Robert N. Watson, Jr., President
March 29, 1996

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
is the capacities and on the dates indicated.

Robert N. Watson, Jr. William G. Watson
Robert N. Watson, Jr., President, William G. Watson, Vice President
Director, Chairman of the Board, and Director
Principal Executive Officer and March 29, 1996
Principal Financial and Accounting
Officer
March 29, 1996

Linda R. Watson Robert L. Patterson
Linda R. Watson, Secretary and Robert L. Patterson, Director
Treasurer, Director March 29, 1996
March 29, 1996

OFFICERS AND DIRECTORS CORPORATE INFORMATION

Robert N. Watson, Jr. CORPORATE OFFICE
President, Chief Executive 9811 Anderson Mill Road, Suite 202
Officer and Director Austin, Texas 78750

William G. Watson
Vice President and Director INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP
Linda R. Watson Austin, Texas
Secretary/Treasurer
and Director TRANSFER AGENT
American Securities Transfer, Inc.
Robert L. Patterson P.O. Box 1596
Director Denver, Colorado 80201

COMMON STOCK
Traded on Boston Stock Exchange
Symbol: TVO

1995 ANNUAL SHAREHOLDERS MEETING
June 6, 1996, at 10:00 A.M.
9811 Anderson Mill Road, Suite 202
Austin, Texas 78750

EXHIBITS:

EXHIBIT 10.5

VARIABLE RATE COMMERCIAL PROMISSORY NOTE:

Midland American Bank ("Lender")
401 West Texas
Midland, Texas 79701
Midland County
(915) 687-3013

Texas Vanguard Oil Company ("Borrower")
PO Box 202650
Austin, Texas 78720
(512) 331-6781

TERMS:

Interest Rate: Variable
Principal Amount: $450,000.00
Funding Date: April 16, 1995
Maturity Date: April 16, 1999
Customer Number: 76384
Loan Number: 89120

PROMISE TO PAY:

For value received, Borrower promises to pay to the order of Lender indicated
above the principal amount of FOUR HUNDRED FIFTY THOUSAND AND NO/100 Dollars
($450,000.00) plus interest on the unpaid principal balance at the rate and in
the manner described below. All amounts received by Lender shall be applied
first to expenses, then to accrued unpaid interest, and then to outstanding
principal, or in any other manner as determined by Lender, in Lender's
discretion, as permitted by law.

INTEREST RATE: This Note has a variable interest rate feature. Interest on the
Note may change from time to time if the Index Rate identified below changes.
Interest shall be computed on the basis of 360 days per year (and in any event,
365 or 366 days per year during periods when the Maximum Lawful Rate, which
is defined on the reverse, is in effect) and the actual number of days elapsed.
Interest on this Note shall be calculated at the variable rate of ONE AND
NO/1000 percent (1.000%) per annum over the Index Rate provided that such rate
shall not exceed the Maximum Lawful Rate. The initial Index Rate is TEN AND
NO/1000 percent (10.000%) per annum. Therefore, the initial interest rate on
this Note shall be ELEVEN AND NO/1000 percent (11.000%) per annum. Any change
in the interest rate resulting from a change in the Index Rate will be effective
on: SAME DAY AS MIDLAND AMERICAN BANK PRIME RATE CHANGES

INDEX RATE: The Index Rate for this Note shall be: MIDLAND AMERICAN BANK PRIME

If the Index becomes unavailable during the term of the loan, Lender may
substitute another index which is similar.

MINIMUM RATE/MAXIMUM RATE: The minimum rate on this Note shall be n/a percent
(n/a %) per annum. The maximum rate on this Note shall not exceed EIGHTEEN AND
NO/1000 percent (18.000%) per annum or the Maximum Lawful Rate, whichever is
less.

DEFAULT RATE: In the event of a default under this Note, the Lender may, in
its discretion, determine that all amounts owing to Lender shall bear interest
as follows: EIGHTEEN PERCENT or the Maximum Lawful Rate, whichever is less.

PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to
the following schedule: 47 PAYMENTS OF PRINCIPAL IN THE AMOUNT OF $9,375.00
PLUS ACCRUED INTEREST BEGINNING MAY 16, 1995 AND CONTINUING AT MONTHLY TIME
INTERVALS THEREAFTER. A FINAL PAYMENT OF THE UNPAID PRINCIPAL BALANCE PLUS
ACCRUED INTEREST IS DUE AND PAYABLE ON APRIL 16, 1999.

All payments will be made to Lender at its address in the county described
above and in lawful currency of the United States of America.

RENEWAL: If checked, _X_ this Note is given in renewal of, but not in novation
or discharge of, Loan Number 76384/89120.

SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest in, and pledges and
assigns to Lender all of Borrower's rights, title, and interest in all monies,
instruments, and savings, checking, and other deposit accounts of Borrower's,
(excluding IRA, Keogh, and trust accounts and deposits subject to tax penalties
if so assigned), that are now or in the future in Lender's custody or control.
Upon default, and the extent permitted by applicable law, Lender may exercise
its security interest in all such property which shall be in addition to and
cumulative of Lender's right of common law setoff. __X__ If checked, the
obligations under this note are also secured by a lien and/or security interest
in the property described in the documents executed in connection with this
Note as well as any other property designated as security for this Note now or
in the future.

PREPAYMENT: This Note may be prepaid in part or in full on or before its
maturity date. If this Note contains more than one installment, all prepayments
shall be as determined by Lender and as permitted by law.

ADDITIONAL TERMS:

Collateral: Oil and Gas properties in various counties, Texas. Negative pledge
on other oil properties. Purpose: Property Acquisitions.

BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.

THIS NOTE AND RELATED DOCUMENTS HAVE BEEN SIGNED IN THE COUNTY OF LENDER'S
ADDRESS UNLESS OTHERWISE SPECIFIED: MIDLAND.

NOTE DATE: APRIL 16, 1995

BORROWER: TEXAS VANGUARD OIL COMPANY
ROBERT N. WATSON, JR.
PRESIDENT

EXHIBIT 10.6

COMMERCIAL REVOLVING OR DRAW NOTE-VARIABLE RATE:

Midland American Bank ("Lender")
401 West Texas
Midland, Texas 79701
Midland County
(915) 687-3013

Texas Vanguard Oil Company ("Borrower")
PO Box 202650
Austin, Texas 78720
(512) 331-6781

TERMS:

Interest Rate: Variable
Principal Amount: $550,000.00
Funding Date: July 21, 1995
Maturity Date: July 21, 1996
Customer Number: 76384
Loan Number: 100840

PROMISE TO PAY:

For value received, Borrower promises to pay to the order of Lender indicated
above the principal amount of FIVE HUNDRED FIFTY THOUSAND AND NO/100 Dollars
($550,000.00) plus interest on the unpaid principal balance at the rate and in
the manner described below. All amounts received by Lender shall be applied
first to expenses, then to accrued unpaid interest, and then to outstanding
principal, or in any other manner as determined by Lender, in Lender's
discretion, as permitted by law.

INTEREST RATE: This Note has a variable interest rate feature. Interest on the
Note may change from time to time if the Index Rate identified below changes.
Interest shall be computed on the basis of 360 days per year (and in any event,
365 or 366 days per year during periods when the Maximum Lawful Rate, which
is defined on the reverse, is in effect) and the actual number of days elapsed.
Interest on this Note shall be calculated at the variable rate of ONE AND
NO/1000 percent (1.000%) per annum over the Index Rate provided that such rate
shall not exceed the Maximum Lawful Rate. The initial Index Rate is currently
NINE AND 750/1000 percent (9.750%) per annum. Therefore, the initial interest
rate on this Note shall be TEN AND 750/1000 percent (10.750%) per annum. Any
change in the interest rate resulting from a change in the Index Rate will be
effective on: SAME DAY AS MIDLAND AMERICAN BANK PRIME RATE CHANGES

INDEX RATE: The Index Rate for this Note shall be: MIDLAND AMERICAN BANK PRIME

If the Index becomes unavailable during the term of the loan, Lender may
substitute another index which is similar.

MINIMUM RATE/MAXIMUM RATE: The minimum rate on this Note shall be n/a percent
(n/a %) per annum. The maximum rate on this Note shall not exceed EIGHTEEN AND
NO/1000 percent (18.000%) per annum or the Maximum Lawful Rate, whichever is
less.

DEFAULT RATE: In the event of a default under this Note, the Lender may, in
its discretion, determine that all amounts owing to Lender shall bear interest
as follows: EIGHTEEN PERCENT or the Maximum Lawful Rate, whichever is less.

PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to
the following schedule: ON DEMAND OR IF NO DEMAND IS MADE-INTEREST ONLY
PAYMENTS ARE DUE SEPTEMBER 1, 1995 AND CONTINUING AT MONTHLY TIME INTERVALS
THEREAFTER. A FINAL PAYMENT OF THE UNPAID PRINCIPAL BALANCE PLUS ACCRUED
INTEREST IS DUE AND PAYABLE ON JULY 21, 1999.

All payments will be made to Lender at its address in the county described
above and in lawful currency of the United States of America.

RENEWAL: If checked, _X_ this Note is given in renewal of, but not in novation
or discharge of, Loan Number 40060.

SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest in, and pledges and
assigns to Lender all of Borrower's rights, title, and interest in all monies,
instruments, and savings, checking, and other deposit accounts of Borrower's,
(excluding IRA, Keogh, and trust accounts and deposits subject to tax penalties
if so assigned), that are now or in the future in Lender's custody or control.
Upon default, and the extent permitted by applicable law, Lender may exercise
its security interest in all such property which shall be in addition to and
cumulative of Lender's right of common law setoff. __X__ If checked, the
obligations under this note are also secured by a lien and/or security interest
in the property described in the documents executed in connection with this
Note as well as any other property designated as security for this Note now or
in the future.

PREPAYMENT: This Note may be prepaid in part or in full on or before its
maturity date. If this Note contains more than one installment, all prepayments
shall be as determined by Lender and as permitted by law.

REVOLVING OR DRAW FEATURE: This Note possesses a revolving or draw feature as
indicated below.

_X_ This Note possesses a revolving feature. Borrower shall be entitle to
borrow up to the full amount of the Note from time to time during the term of
this Note.

___ This Note possesses a draw feature. Borrower shall be entitled to make
one or draws under this Note. The aggregate amount of such draws shall not
exceed the full principal amount of this Note.

Lender shall maintain a written ledger of the amounts loaned to and repaid by
Borrower under this Note. The aggregate unpaid principal amount shown on such
ledger shall be rebuttable presumptive evidence of the outstanding principal
amount owing and unpaid on this Note. The Lender's failure to record the date
and amount of any advance on such ledger shall not limit or otherwise affect
the obligations of the Borrower under this Note to repay the outstanding
principal amount of the advances together with all accrued, unpaid interest
thereon. Lender shall not be obligated to provide Borrower a copy of the ledger
on a periodic basis, however, Borrower shall be entitled to inspect or obtain
a copy of the ledger during Lender's business hours.

CONDITIONS FOR ADVANCES: Borrower shall be entitled to borrow monies under
this Note (subject to the limitations described above) under the following
conditions: UPON OFFICER APPROVAL.

ADDITIONAL TERMS:

Collateral: Oil and Gas properties in various counties, Texas. Negative pledge
on other oil properties. Purpose: Property Acquisitions.

BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.

THIS NOTE AND RELATED DOCUMENTS HAVE BEEN SIGNED IN THE COUNTY OF LENDER'S
ADDRESS UNLESS OTHERWISE SPECIFIED: MIDLAND.

NOTE DATE: JULY 21, 1995

BORROWER: TEXAS VANGUARD OIL COMPANY
ROBERT N. WATSON, JR.
PRESIDENT