MISSION RESOURCES CORP - 10-Q Quarterly Report

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

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

FORM 10-Q

(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
--
Exchange Act of 1934
For the quarterly period ended September 30, 2002

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 number: 0-9498

MISSION RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 74-0437769
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1331 Lamar, Suite 1455 Houston, Texas 77010-3039
(Address of principal executive offices) (ZIP Code)

Registrant's telephone number, including area code: (713) 495-3000

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

As of November 7, 2002, 23,830,771 shares of common stock of Mission Resources
Corporation were outstanding.

MISSION RESOURCES CORPORATION

INDEX

Page #
------

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Condensed Consolidated Balance Sheets:
September 30, 2002 (Unaudited) and December 31, 2001 ........................ 1
Condensed Consolidated Statements of Operations (Unaudited):
Three months and nine months ended September 30, 2002 and 2001 .............. 3
Condensed Consolidated Statements of Cash Flows (Unaudited):
Nine months ended September 30, 2002 and 2001 ............................... 4
Notes to Condensed Consolidated Financial Statements (Unaudited) .............. 6

ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................................... 20

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk .................... 33

ITEM 4. Controls and Procedures ....................................................... 34

PART II. OTHER INFORMATION .............................................................. 35

ITEM 1. Legal Proceedings ............................................................. 35

ITEM 2. Change in Securities and Use of Proceeds ...................................... 35

ITEM 3. Defaults Upon Senior Securities ............................................... 35

ITEM 4. Submission of Matters to a Vote of Security Holders ........................... 35

ITEM 5. Other Information ............................................................. 35

ITEM 6. Exhibits and Reports on Form 8-K .............................................. 36

PART I. FINANCIAL INFORMATION

MISSION RESOURCES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

ITEM I. FINANCIAL STATEMENTS

ASSETS
------
September 30, December 31,
2002 2001
------------- ------------
(Unaudited)

CURRENT ASSETS:
Cash and cash equivalents ....................................................................... $ 16,947 $ 603
Accounts receivable and accrued revenues ........................................................ 13,882 25,668
Current portion of interest rate swap ........................................................... --- 180
Commodity derivative asset ...................................................................... --- 8,359
Prepaid expenses and other ...................................................................... 3,406 3,879
--------- ---------
Total current assets ........................................................................ 34,235 38,689
--------- ---------

PROPERTY AND EQUIPMENT, at cost:
Oil and gas properties (full cost):
United States - Unproved properties of $10,412 and $15,530 excluded from
depletion as of September 30, 2002 and December 31, 2001,
respectively ............................................................................. 770,931 753,905
Accumulated depreciation, depletion and amortization--oil and gas ............................... (452,167) (374,167)
--------- ---------
Net property, plant and equipment ............................................................... 318,764 379,738

Leasehold, furniture and equipment .............................................................. 3,494 3,347
Accumulated depreciation ........................................................................ (1,320) (916)

--------- ---------
Net leasehold, furniture and equipment .......................................................... 2,174 2,431
--------- ---------
LONG TERM RECEIVABLE ............................................................................ --- 899

GOODWILL & OTHER INTANGIBLES .................................................................... 14,612 15,436

OTHER ASSETS .................................................................................... 7,044 10,571
--------- ---------
$ 376,829 $ 447,764
========= =========

See accompanying notes to condensed consolidated financial statements

MISSION RESOURCES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY

(Amounts in thousands, except share information)

September 30, December 31,
2002 2001
------------- ------------
(Unaudited)

CURRENT LIABILITIES:
Accounts payable and accrued liabilities ..................................................... $ 28,946 $ 38,584
Commodity derivative liabilities ............................................................. 5,621 ---
Current portion of interest rate swap ........................................................ 594 ---
--------- ---------
Total current liabilities ................................................................ 35,161 38,584
--------- ---------

LONG-TERM DEBT:
Revolving credit facility .................................................................... 7,000 35,000
Subordinated notes due 2007 .................................................................. 225,000 225,000
Unamortized premium on issuance of $125 million subordinated notes ........................... 1,500 1,695
--------- ---------
Total long-term debt .................................................................... 233,500 261,695
--------- ---------

INTEREST RATE SWAP, excluding current portion ................................................ 1,906 4,248

COMMODITY DERIVATIVE LIABILITIES, excluding current portion .................................. 449 ---

DEFERRED INCOME TAXES ........................................................................ 18,748 31,177

OTHER LIABILITIES ............................................................................ --- 1,820

STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; none issued or
outstanding at September 30, 2002 and December 31, 2001 .................................. --- ---
Common stock, $0.01 par value, 60,000,000 shares authorized, 23,896,959 shares
issued at September 30, 2002 and December 31, 2001, respectively ........................ 239 239
Additional paid-in capital ................................................................... 163,837 163,735
Retained deficit ............................................................................. (71,899) (54,115)
Treasury stock, at cost, 311,000 shares ...................................................... (1,905) (1,905)
Other comprehensive income (loss), net of taxes .............................................. (3,207) 2,286
--------- ---------
Total stockholders' equity .............................................................. 87,065 110,240
--------- ---------

$ 376,829 $ 447,764
========= =========

See accompanying notes to condensed consolidated financial statements

-2-

MISSION RESOURCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

(Amounts in thousands, except per share information)

Three Months Ended Nine Months Ended
September 30 September 30
------------------------ -------------------------
2002 2001 2002 2001
--------------------------------------------------------

REVENUES:
Oil revenues .......................................... $ 16,606 $ 25,128 $ 55,614 $ 56,789
Gas revenues .......................................... 9,242 12,906 30,482 46,963
Gas plant revenues .................................... --- 1,152 --- 4,275
Interest and other income (expense) ................... 1,723 1,311 (7,959) 1,528
------------------------ ------------------------
27,571 40,497 78,137 109,555
------------------------ ------------------------

COST AND EXPENSES:
Production expenses and taxes ......................... 11,008 14,940 39,881 34,590
Transportation costs .................................. 73 10 211 60
Gas plant expenses .................................... --- 559 --- 1,971
Mining venture ........................................ --- 41 --- 907
Loss on sale of assets ................................ --- 381 2,719 11,602
Depreciation, depletion and amortization .............. 9,718 13,458 31,917 33,033
General and administrative expenses ................... 5,142 3,453 10,349 9,468
Interest expense ...................................... 5,365 6,226 20,420 16,058
-------------------------------------------------------
31,306 39,068 105,497 107,689
-------------------------------------------------------

Income (loss) before income taxes and cumulative
effect of a change in accounting method ............... (3,735) 1,429 27,360) 1,866
Provision (benefit) for income taxes ................... (1,307) 736 (9,576) 784
-------------------------------------------------------
Income (loss) before income taxes and cumulative
effect of a change in accounting method ............... $ (2,428) $ 693 $ (17,784) $ 1,082
Cumulative effect of a change in accounting
method, net of deferred tax of $1,633 ................. --- --- --- 2,767
------------------------ ------------------------
Net income (loss) ...................................... $ (2,428) $ 693 $ (17,784) $ (1,685)
======================== ========================
Income (loss) before cumulative effect of a
change in accounting method per share ................ $ (0.10) $ 0.03 $ (0.75) $ 0.06
======================== ========================
Income (loss) before cumulative effect of a
change in accounting method per share-diluted ......... $ (0.10) $ 0.03 $ (0.75) $ 0.06
======================== ========================
Net income (loss) per share ............................ $ (0.10) $ 0.03 $ (0.75) $ (0.09)
======================== ========================
Net income (loss) per share-diluted .................... $ (0.10) $ 0.03 $ (0.75) $ (0.09)
======================== ========================
Weighted average common shares outstanding ............. 23,586 23,586 23,586 18,860
======================== ========================
Weighted average common shares outstanding-diluted ..... 23,586 23,681 23,586 19,189
======================== ========================

See accompanying notes to condensed consolidated financial statements

-3-

MISSION RESOURCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(Amounts in thousands)

Nine Months Ended
September 30,
-------------------------
2002 2001
---------- ---------

Cash flows from operating activities:
Net loss .................................................................. $ (17,784) $ (1,685)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization .............................. 31,917 33,033
Gain on interest rate swap ............................................ (1,567) (699)
(Gain) loss due to commodity hedge ineffectiveness .................... 9,308 (1,524)
Mining venture ........................................................ --- 729
Cumulative effect of a change in accounting method,
net of deferred tax ................................................. --- 2,767
Stock option expense .................................................. 102 799
Amortization of deferred financing costs and bond
premium ............................................................. 1,949 1,206
Loss on sale of assets ................................................ --- 11,602
Bad debt expense ...................................................... 763 183
Deferred income taxes ................................................. (9,576) (550)
Changes in assets and liabilities:
Accounts receivable and accrued revenue ............................... 8,435 3,308
Accounts payable and other liabilities ................................ (10,186) (8,790)
Abandonment costs ..................................................... (2,505) (874)
Other ................................................................. 1,631 (2,284)
---------- ---------
Net cash flows provided by operating activities ....................... 12,487 37,221
---------- ---------

Cash flows from investing activities:
Acquisition of oil and gas properties ................................... (419) (23,566)
Acquisition of Bargo oil and gas properties ............................. --- (143,886)
Additions to properties and facilities .................................. (16,607) (29,597)
Additions to leasehold, furniture and equipment ......................... (147) (529)
Proceeds on sale of Ecuador interests, net of costs ..................... --- 4,760
Proceeds on sale of oil and gas properties, net of costs ................ 49,095 16,399
Additions to gas plant facilities ....................................... --- (1,081)
---------- ---------
Net cash flows provided by (used in) investing activities ................. 31,922 (177,500)
---------- ---------

See accompanying notes to condensed consolidated financial statements

-4-

MISSION RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)

(Amounts in thousands)

Nine Months Ended
September 30,
-------------------------
2002 2001
---------- ---------

Cash flows from financing activities:
Proceeds from borrowings ......................................... 21,000 208,754
Payments of long term debt ....................................... (49,000) (195,204)
Net proceeds from issuance of common stock ....................... --- 899
Proceeds from issuance of senior subordinated notes due
2007, including premium ...................................... --- 126,875
Credit facility costs ............................................ (65) (7,055)
---------- ----------
Net cash flows (used in) provided by financing activities ........ (28,065) 134,269
---------- ----------
Net increase (decrease) in cash and cash equivalents ............. 16,344 (6,010)
Cash and cash equivalents at beginning of period ................. 603 14,464
---------- ----------
Cash and cash equivalents at end of period ......................... $ 16,947 $ 8,454
========== ==========

Nine Months Ended
September 30,
--------------------------
2002 2001
---------- ----------

Supplemental disclosures of cash flow information:

Cash paid (received) during the period:
Interest ......................................................... $ 14,003 $ 8,140
Income taxes (refunds) ........................................... $ (4,972) $ 2,185

Supplemental schedule of non-cash investing and financing
activities:

Fair value of assets and liabilities acquired:
Net current assets and other assets ............................ $ --- $ 2,453
Property, plant and equipment .................................. --- 260,893
Goodwill and intangibles ....................................... --- 20,849
Deferred tax liability ......................................... --- (59,000)
---------- ----------
Total allocated purchase price ............................ --- 225,195
Less non-cash consideration - issuance of stock .................... --- 80,000
Less cash acquired in transaction .................................. --- 1,309
---------- ----------
Cash used for business acquisition, net of cash acquired ........... $ --- $ 143,886
========== ==========

See accompanying notes to condensed consolidated financial statements

-5-

MISSION RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with instructions to Form 10-Q and,
therefore, do not include all disclosures required by accounting principles
generally accepted in the United States of America. However, in the opinion
of management, these statements include all adjustments, which are of a
normal recurring nature, necessary to present fairly the Company's
financial position at September 30, 2002, and the results of operations and
changes in cash flows for the periods ended September 30, 2002 and 2001.
Interim period results are not necessarily indicative of results of
operations or cash flows for a full year. These financial statements should
be read in conjunction with the consolidated financial statements and notes
to the consolidated financial statements in the Mission Resources
Corporation (the "Company" or "Mission") Annual Report.

Merger

On May 16, 2001, Bellwether Exploration Company ("Bellwether") merged
with Bargo Energy Company ("Bargo") and changed its name to Mission
Resources Corporation. At that time, the Company increased its authorized
capital stock to 60 million shares of common stock and 5 million shares of
preferred stock and amended its 1996 Stock Incentive Plan to increase the
number of shares reserved for issuance under the plan by 2.0 million
shares. Under the merger agreement, holders of Bargo stock and options
received a combination of cash and Mission common stock. The merger was
accounted for using the purchase method of accounting, which generally
allows a one year window for adjustment to the purchase price allocation.
Accordingly, adjustments were made to goodwill in the first and second
quarters of 2002 relating to tax and accrual adjustments. No further
adjustments have been required. The impact of such adjustments on the
carrying value of goodwill is shown in the table in the Goodwill section of
this Note.

Oil and Gas Property Accounting

The Company utilizes the full cost method of accounting for its
investment in oil and gas properties. Under this method of accounting, all
costs of acquisition, exploration and development of oil and gas reserves
(including such costs as leasehold acquisition costs, geological
expenditures, dry hole costs, tangible and intangible development costs,
and direct internal costs) are capitalized as the cost of oil and gas
properties when incurred. To the extent that capitalized costs of oil and
gas properties, net of accumulated depreciation, depletion and
amortization, exceed the discounted future net revenues of proved oil and
gas reserves net of deferred taxes, such excess capitalized costs will be
charged to operations. No such charges to operations were required during
the three and nine month periods ending September 30, 2002 or 2001.

-6-

MISSION RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

Comprehensive Income

Comprehensive income includes all changes in a company's equity except
those resulting from investments by owners and distributions to owners. The
Company's total comprehensive income for the three months and nine months
ended September 30, 2002 and 2001 was as follows (in thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
----------- --------- ------------ ----------
2002 2001 2002 2001
----------- --------- ------------ ----------

Net income (loss) ................................... $(2,428) $ 693 $(17,784) $ (1,685)
Cumulative effect attributable to adoption of
SFAS No. 133, net of tax .......................... --- --- --- (19,328)
Accounting for commodity hedges ..................... (2,739) 3,032 (5,492) 26,380
-------------------------------------------------
Comprehensive income (loss) ......................... $(5,167) $ 3,725 $(23,276) $ 5,367
=================================================

The accumulated balance of other comprehensive income (loss) related
to commodity hedges, net of taxes, is as follows (in thousands):

Balance at December 31, 2001 ................................... $ 2,286
Net gains on hedges ............................................ 868
Reclassification adjustments ................................... (8,987)
Effectiveness of cancelled hedges (See Footnote 4) ............. (331)
Tax effect on hedging activity ................................. 2,957
--------
Balance at September 30, 2002 .................................. $ (3,207)
========

Goodwill

The Financial Accounting Standards Board ("FASB") approved Statement
of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets in June 2001. This pronouncement requires that intangible
assets with indefinite lives, including goodwill, cease being amortized and
be evaluated on an annual basis for impairment. The Company adopted SFAS
No. 142 on January 1, 2002 at which time the Company had unamortized
goodwill in the amount of $15.1 million and unamortized identifiable
intangible assets in the amount of $374,300, all subject to the transition
provisions. Upon adoption of SFAS No. 142, $277,000 of workforce intangible
assets recorded as unamortized identifiable assets was subsumed into
goodwill and was not amortized as it no longer qualified as a recognizable
intangible asset.

SFAS No. 142 requires disclosure of what reported income before
extraordinary items and net income would have been in all periods presented
exclusive of amortization expense (including any related tax effects)
recognized in those periods related to goodwill, intangible assets that are
no longer being amortized, any deferred credit related to excess over cost
equity method goodwill, and changes in amortization periods for intangible
assets that will continue to be amortized (including related tax effects).
Similarly adjusted per share amounts are also required to be disclosed for
all periods presented.

-7-

MISSION RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

The merger with Bargo, which resulted in all of the Company's goodwill,
occurred in May 2001. The following table presents the required disclosures
concerning adjusted income for the quarter and nine months ended September 30,
2001 (amounts in thousands):

Three Months Nine Months
Ended Ended
September 30, September 30,
2001 2001
------------- -------------

Net income (loss) ........................................................................ $ 693 $ (1,685)
Exclude goodwill amortization............................................................. 536 804
------------- -------------
Net income (loss) exclusive of amortization .............................................. $ 1,229 $ (881)
============= =============
Net income (loss) exclusive of amortization per share .................................... $ 0.05 $ (0.05)
Net income (loss) exclusive of amortization per share - diluted .......................... $ 0.05 $ (0.05)

The changes in the carrying amount of goodwill for the period ended
September 30, 2002, are as follows (amounts in thousands):

Intangible Total Goodwill
Goodwill Assets and Intangibles
-------- ---------- ---------------

Balance, December 31, 2001 ......................................... $ 15,061 $ 375 $ 15,436
Transferred to goodwill ............................................ 277 (277) ---
Amortization of lease .............................................. --- (98) (98)
Merger purchase price allocation adjustments ....................... (726) --- (726)
-------- -------- --------
Balance, September 30, 2002 ........................................ $ 14,612 $ --- $ 14,612
======== ======== ========

The transition and impairment test for goodwill, effective January 1, 2002,
was performed in the second quarter of 2002. As of January 1, 2002, the
Company's fair value exceeded the carrying amount; therefore, goodwill was not
impaired. Goodwill will be evaluated for impairment annually at December 31st of
each year.

Ecuador

Due to widening price differentials, higher operating costs and marginal
drilling results, the Company decided in early 2001 to seek a buyer for its
assets in Ecuador. In June 2001, with an effective date of May 31, 2001, the
Company sold its wholly-owned subsidiaries that were party to the concessions of
the Charapa and Tiguino fields. The Company retained two receivables:

1) a $1.0 million escrow receivable from the purchaser to be settled before
year end upon resolution of negotiations with the Ecuadorian government
concerning production levels, and

2) a receivable of approximately $900,000 to be collected out of oil sales
from the partner in the Tiguino field.

-8-

MISSION RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

In the fourth quarter of 2001, management deemed the $1.0 million
receivable to be uncollectible due to a lack of success in negotiating with
the Ecuador government, and recorded an increase to the loss on the sale.
In the second quarter of 2002, the partner receivable was reduced to
$559,000, with the $341,000 charged against income as bad debt expense. The
collectible portion of the receivable was determined based upon actual and
estimated future operations of the field.

In June 2002, the Company was presented with post-closing adjustments
to the final accounting for this sale. The post-closing adjustments
included reimbursements for reduction of value added tax receivable,
reimbursement of production royalties, pricing and volume adjustments
negotiated with the purchaser through June 2002 and costs of completing the
divestiture. The Company recognized the full amount of the proposed
adjustments as a $2.7 million additional loss on the property sale in the
second quarter of 2002. However, the Company continues to negotiate
specific issues.

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and
typically do not bear interest. The Company reviews collectibility of trade
accounts receivable monthly. Past due balances over ninety days and $50,000
are reviewed individually for collectibility. Account balances are charged
off against earnings when the Company determines potential for recovery is
considered remote. The Company does not have any off-balance sheet credit
exposure related to its customers.

Reclassifications

Certain reclassifications of prior period statements have been made to
conform with current reporting practices.

Use of Estimates

In order to prepare these financial statements in conformity with
accounting principles generally accepted in the United States of America,
management of the Company has made estimates and assumptions relating to
the reporting of assets and liabilities, the disclosure of contingent
assets and liabilities, and reserve information. Actual results could
differ from those estimates.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, Accounting
for Asset Retirement Obligations, which provided accounting requirements
for retirement obligations associated with tangible long-lived assets,
including:

. the timing of liability recognition;
. initial measurement of liability;
. allocation of asset retirement cost to expense;
. subsequent measure of the liability; and
. financial statement disclosures.

Statement No. 143 requires that the Company record a liability for the
fair value of its asset retirement obligation, primarily comprised of its
plugging and abandonment liabilities, in the period in which it is incurred
if a reasonable estimate of fair value can be made. The liability is
accreted at the end of each period through charges to operating expense.
The amount of the asset retirement obligation is added to the carrying
amount of the oil and gas properties and this additional carrying amount is
depreciated over the life of the properties. If the obligation is settled
for other than the carrying amount of the liability, the Company will
recognize a gain or loss on settlement.

-9-

MISSION RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

The Company is required and plans to adopt the provisions of Statement
No. 143 for the quarter ending March 31, 2003. To accomplish this, the
Company must identify all legal obligations for asset retirement
obligations, if any, and determine the fair value of these obligations on
the date of adoption. The determination of fair value is complex and will
require the Company to gather market information and develop cash flow
models. Additionally, the Company will be required to develop processes to
track and monitor these obligations. Because of the effort necessary to
comply with the adoption of Statement No. 143, it is not practicable for
management to estimate the impact of adopting this Statement at the date of
this report.

SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statements No. 13 and Technical Corrections, was issued
in April 2002. SFAS No. 145 provides guidance for income statement
classification of gains and losses on extinguishments of debt and
accounting for certain lease modifications that have economic effects that
are similar to sale-leaseback transactions. SFAS No. 145 is effective for
the Company in January 2003. The Company will apply SFAS No. 145 as
appropriate to future activities.

SFAS No. 146, Accounting for Exit or Disposal Activities, was issued
in June 2002. SFAS No. 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs that are associated with
exit and disposal activities, including restructuring activities that are
currently accounted for pursuant to the guidance set forth in EITF Issue
No. 94-3, Liability Recognition of Certain Employee Termination Benefits
and Other Costs to Exit an Activity. SFAS No. 146 is effective for the exit
and disposal activities initiated after December 31, 2002. The Company will
apply SFAS No. 146 as appropriate to future activities.

2. Stockholders' Equity

On May 16, 2001, Bellwether merged with Bargo. The resulting company
was renamed Mission Resources Corporation. As partial consideration in the
merger, 9.5 million shares of Mission common stock were issued to the
holders of Bargo common stock and options. The $80 million value of such
shares was included in the purchase price. Concurrent with the merger, all
Bellwether employees who held stock options were immediately vested in
those options upon closing of the merger. Compensation expense of $620,000
was recognized on that date for an estimate of those employee options that
would have expired unexercisable pursuant to original terms. The expense
was calculated as the excess of the stock price on the merger date over the
exercise price of the options. An additional $102,000 of compensation
expense was recognized in the nine month period ending September 30, 2002
as a result of staff reductions.

In September 1997, the Company adopted a shareholder rights plan to
protect its shareholders from coercive or unfair takeover tactics. Under
the plan, each outstanding share of the Company's common stock and each
share of subsequently issued common stock has attached to it one right. The
rights become exercisable if a person or group acquires or announces an
intention to acquire beneficial ownership of 15% or more of the outstanding
shares of common stock without the prior consent of the Company. When the
rights become exercisable, each holder of a right will have the right to
receive, upon exercise, a number of shares of the Company's common stock
having a market price of two times the exercise price of the right. The
Company may redeem the rights for $0.01 per right at any time before they
become exercisable without shareholder approval. The rights will expire on
September 26, 2007, subject to earlier redemption by the Board of Directors
of the Company.

-10-

MISSION RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

The following tables represent a reconciliation of the numerator and
denominator of the basic Earnings per Share ("EPS") computation to the
numerator and denominator of the diluted EPS computation. Potentially
dilutive options totaling 2,910,168 in the three and nine month periods
ended September 30, 2002, and 3,402,000 and 2,027,000 in the three and nine
month periods ended September 30, 2001, respectively, were not included in
the computation of diluted EPS because to do so would have been
antidilutive.

SFAS No.128 reconciliation (amounts in thousands except per share amounts):

Three Months Ended Three Months Ended
September 30, 2002 September 30, 2001
-------------------------------------- -------------------------------------
Loss Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ----------- ------------- ---------

Net income (loss) per common share:
Net income (loss) available to
common stockholders ......................... $ (2,428) 23,586 $ (0.10) $ 693 23,586 $ 0.03
======== ========
Effect of dilutive securities:
Options and warrants .......................... $ --- --- $ -- 95
-------- -------- -------- --------
Net income (loss) per common
share-diluted:
Net income (loss) available to common
stockholders and assumed
conversions ................................. $ (2,428) 23,586 $ (0.10) $ 693 23,681 $ 0.03
======== ======== ======== ======== ======== ========

Nine Months Ended Nine Months Ended
September 30, 2002 September 30, 2001
-------------------------------------- -------------------------------------
Loss Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ----------- ------------- ---------

Net income (loss) per common share:
Net loss available to common
stockholders ................................ $(17,784) 23,586 $ (0.75) $ (1,685) 18,860 $ (0.09)
======== ========
Effect of dilutive securities:
Options and warrants .......................... $ --- --- $ --- ---
-------- -------- -------- --------
Net loss per common share-diluted:
Net loss available to common
stockholders and assumed
conversions ................................ $(17,784) 23,586 $ (0.75) $ (1,685) 18,860 $ (0.09)
======== ======== ======== ======== ======== ========

In periods of loss, the effect of potentially dilutive options and
warrants is excluded from the calculation as antidilutive. For the three
and nine months ended September 30, 2002, potential incremental shares of
275,197 and 479,052, respectively, were excluded.

-11-

MISSION RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

3. Long Term Debt

Credit Facility

On May 16, 2001, concurrent with the previously discussed merger, the
Company's existing credit facility was replaced by a $200.0 million credit
facility ("Credit Facility") that terminates in May 2004. The borrowing
base is determined from time to time by the lenders based on the Company's
reserves and other factors deemed relevant by the lenders. The interest
rate on borrowings is determined based upon the Company's credit rating and
borrowing base utilization. Interest can be either Prime plus a margin of
up to 1% or LIBOR plus a margin of 1.5% to 2.5%. The average interest rate
paid by the Company in the three and nine month periods ended September 30,
2002 was 3.9%. The Credit Facility contains various covenants including
certain required financial measurements for current ratio, ratio of total
debt to earnings before interest, taxes, depreciation, depletion,
amortization and extraordinary items ("EBITDAX") and interest coverage
ratio. Restrictions are placed on debt, liens, dividends, leases and
capital spending on foreign operations. On September 30, 2002, $7 million
was outstanding under the Credit Facility and the Company was in compliance
with its covenants under the Credit Facility.

On October 7, 2002, the Company, entered into a third amendment (the
"Amendment") to the Credit Facility. The Amendment reduces the maximum
amount available under the Credit Facility from $200 million to $150
million, and sets the borrowing base at:

(i) $50 million for the period from October 7, 2002 through March
30, 2003, and
(ii) $40 million for the period from March 31, 2003 until the next
redetermination after such date.

This modification does not limit the rights of the parties to initiate
interim borrowing base redeterminations in accordance with the Credit
Facility. Approximately $400,000 of deferred financing costs related to the
$200 million Credit Facility will be recorded as additional Interest
Expense in the fourth quarter of 2002 as a result of this modification.

The Amendment provides that the Company is obligated to grant liens on
additional oil and gas properties such that the mortgaged oil and gas
properties under the Credit Facility represent 90% of the value of the
Company's oil and gas properties evaluated in the most recently completed
reserve report. It prohibits the Company and its restricted subsidiaries
from holding in excess of $12 million in cash and cash equivalents for any
period in excess of three business days while borrowings are outstanding
under the Credit Facility.

The Amendment increases the required ratio of total debt to EBITDAX,
and decreases the required interest coverage ratio through 2003. These
ratios return to their original levels incrementally by 2004 (see table
below). The definition of consolidated net income is amended to exclude
therefrom any non-recurring items.

The tables below detail the required ratios by fiscal quarter:

Fiscal Quarter Interest Coverage Ratio
-------------- -----------------------

09/30/02 through 03/31/03 1.75 to 1.00
04/01/03 through 06/30/03 1.90 to 1.00
07/01/03 through 09/30/03 2.10 to 1.00
10/01/03 through 12/31/03 2.30 to 1.00
01/01/04 and thereafter 2.50 to 1.00

-12-

MISSION RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

Fiscal Quarter Total Debt to EBITDAX
-------------- ---------------------

09/30/02 through 12/31/02 5.50 to 1.00
01/01/03 through 03/31/03 5.00 to 1.00
04/01/03 through 06/30/03 4.75 to 1.00
07/01/03 through 09/30/03 4.50 to 1.00
10/01/03 through 12/31/03 4.00 to 1.00
01/01/04 and thereafter 3.50 to 1.00

Senior Subordinated Notes

In April 1997, the Company issued $100.0 million of 10-7/8% senior
subordinated notes due 2007. On May 29, 2001 the Company issued an
additional $125.0 million of senior subordinated notes due 2007 with
identical terms to the notes issued in April 1997 (collectively, the
"Notes") at a premium of $1.9 million. The premium is amortized as a
reduction of interest expense over the life of the notes so that the
effective interest rate on these additional bonds is 10.5%. The premium is
shown separately on the Balance Sheet. Through September 30, 2002,
approximately $375,000 of the premium had been amortized. Interest on the
Notes is payable semi-annually on April 1 and October 1. The Notes will be
redeemable, in whole or in part, at the option of the Company at any time
on or after April 1, 2002 at 105.44%, which decreases annually to 100.00%
on April 1, 2005 and thereafter, plus accrued and unpaid interest. In the
event of a change of control of the Company, as defined in the indenture,
each holder of the Notes will have the right to require the Company to
repurchase all or part of such holder's Notes at an offer price in cash
equal to 101.0% of the aggregate principal amount thereof, plus accrued and
unpaid interest to the date of purchase. The Notes contain certain
covenants, including limitations on indebtedness, liens, compliance with
requirements of existing indebtedness, dividends, repurchases of capital
stock and other payment restrictions affecting restricted subsidiaries,
issuance and sales of restricted subsidiary stock, dispositions of proceeds
of asset sales and restrictions on mergers and consolidations or sales of
assets. As of September 30, 2002, the Company was in compliance with its
covenants under the Notes. In the event the Company becomes out of
compliance with its Credit Facility covenants, the Notes will not be
impacted unless borrowings under the Credit Facility are in excess of $10.0
million. At September 30, 2002, Credit Facility borrowings had been reduced
to $7 million with the funds from the sale of assets in 2002.

-13-

MISSION RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Derivative Instruments and Hedging Activities

Effective January 1, 2001, the Company adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards requiring that
derivative instruments (including certain derivative instruments embedded
in other contracts) be recorded at fair value and included in the balance
sheet as assets or liabilities. The accounting for changes in the fair
value of a derivative instrument depends on the intended use of the
derivative and the resulting designation, which is established at the
inception of a derivative. Accounting for qualified hedges allows a
derivative's gains and losses to offset related results on the hedged item
in the Statement of Operations. For derivative instruments designated as
cash flow hedges, changes in fair value, to the extent the hedge is
effective, are recognized in Other Comprehensive Income until the hedged
item is recognized in earnings. Hedge effectiveness is measured at least
quarterly based upon the relative changes in fair value between the
derivative contract and the hedged item over time. Any change in the fair
value resulting from ineffectiveness, as defined by SFAS No. 133, is
recognized immediately in earnings. For the quarters ended September 30,
2002 and 2001, respectively, a $0.2 million loss and a $1.3 million gain
were reported in the interest and other income line of the Statement of
Operations due to commodity hedge ineffectiveness.

The Company produces and sells crude oil, natural gas and natural gas
liquids. As a result, its operating results can be significantly affected
by fluctuations in commodity prices caused by changing market forces. The
Company periodically seeks to reduce its exposure to price volatility by
hedging a portion of its production through swaps, options and other
commodity derivative instruments. A combination of options, structured as a
collar, is the Company's preferred hedge instrument because there are no
up-front costs and protection is given against low prices. Such hedges
assure that Mission receives NYMEX prices no lower than the price floor and
no higher than the price ceiling. Recently, as shown on the following
tables, the Company has entered into some commodity swaps that fix the
price to be received.

The Company's realized price for natural gas per Mcf is generally
$0.08 less than the NYMEX MMBTU price. The company's realized price for oil
is generally $1.08 per barrel less than NYMEX. Realized prices differ from
NYMEX due to factors such as the location of the property, the heating
content of natural gas and the quality of oil. The oil differential
excludes the impact of Point Pedernales field production for which the
Company's selling price is capped at $9.00 per barrel.

In May 2002, the Company saw an opportunity to enter into hedging
transactions at favorable prices. In order to maximize this opportunity,
several existing oil collars were cancelled. New swaps and collars hedging
forecast oil production were acquired. The Company paid approximately $3.3
million to counterparties, the fair value of the oil price collars at that
time, in order to cancel the transactions. As required by SFAS No. 133, the
effective portion of the hedges at termination was $418,000 that remained
in other Comprehensive Income to be amortized as a hedge loss over the
19-month life of the cancelled hedges. As of September 30, 2002, the
unamortized amount was $ 331,000.

-14-

MISSION RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

The following tables detail all hedges of future production outstanding at
September 30, 2002:

Oil Hedges

- --------------------------------------------------------------------------------------------------------
NYMEX NYMEX
BBLS Price Price
Period Per Day Total BBLS Type Floor/Swap Avg. Ceiling Avg.
- --------------------------------------------------------------------------------------------------------

Fourth Qtr. 2002 5,000 460,000 Collar $25.00 $25.54
- --------------------------------------------------------------------------------------------------------
First Qtr. 2003 4,000 360,000 Swap $24.82 n/a
- --------------------------------------------------------------------------------------------------------
Second Qtr. 2003 4,000 364,000 Swap $24.31 n/a
- --------------------------------------------------------------------------------------------------------
Third Qtr. 2003 3,500 322,000 Swap $23.95 n/a
- --------------------------------------------------------------------------------------------------------
Fourth Qtr. 2003 3,500 322,000 Swap $23.59 n/a
- --------------------------------------------------------------------------------------------------------

Gas Hedges

- --------------------------------------------------------------------------------------------------------
NYMEX
NYMEX Price
MMBTU Total Price Ceiling
Period Per Day MMBTU Type Floor Avg. Avg.
- --------------------------------------------------------------------------------------------------------

Fourth Qtr. 2002 8,500 782,000 Collar $3.40 $7.00
- --------------------------------------------------------------------------------------------------------
First Qtr. 2003 10,000 920,000 Collar $3.00 $4.65
- --------------------------------------------------------------------------------------------------------
Second Qtr. 2003 10,000 910,000 Collar $3.00 $4.00
- --------------------------------------------------------------------------------------------------------
Third Qtr. 2003 10,000 920,000 Collar $3.00 $4.10
- --------------------------------------------------------------------------------------------------------
Fourth Qtr. 2003 10,000 920,000 Collar $3.00 $4.65
- --------------------------------------------------------------------------------------------------------

By removing the price volatility from these volumes of oil and natural gas
production, the Company has mitigated, but not eliminated, the potential
negative effect of declining prices on its operating cash flow. The potential
for increased operating cash flow from increasing prices has also been reduced.

In October 2002, the Company entered into additional hedges of future
production, taking advantage of higher natural gas future prices. The table
below details the collars that were acquired:

- --------------------------------------------------------------------------------------------------------
NYMEX
NYMEX Price
MMBTU Total Price Ceiling
Period Per Day MMBTU Type Floor Avg. Avg.
- --------------------------------------------------------------------------------------------------------

Nov. 2002-Dec. 2002 5,000 305,000 Collar $3.83 $4.36
- --------------------------------------------------------------------------------------------------------
First Qtr. 2003 5,000 450,000 Collar $3.73 $4.61
- --------------------------------------------------------------------------------------------------------
Second Qtr. 2003 5,000 455,000 Collar $3.54 $4.08
- --------------------------------------------------------------------------------------------------------
Third Qtr. 2003 5,000 460,000 Collar $3.56 $4.11
- --------------------------------------------------------------------------------------------------------
Fourth Qtr. 2003 5,000 460,000 Collar $3.73 $4.32
- --------------------------------------------------------------------------------------------------------

-15-

MISSION RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

Effective September 22, 1998, the Company entered into an eight and
one-half year interest rate swap agreement with a notional value of $80
million. Under the agreement, the Company receives a fixed interest rate
and pays a floating interest rate based on the simple average of three
foreign LIBOR rates. Floating rates are redetermined for six-month periods
each April 1 and October 1. The interest rate swap does not qualify for
hedge accounting under SFAS No. 133 and is marked to market quarterly. The
Company recognized $2.8 million, net of tax, loss as the cumulative effect
of a change in accounting method related to this interest rate swap upon
implementation of SFAS No. 133 in January 2001. Currently, the swap's fair
value of $2.5 million is shown on the Balance Sheet as a $594,000 current
liability and a $1.9 million long-term liability. The increase in the
swap's fair value of $1.8 million and $996,000 during the three months
ended September 30, 2002 and 2001, respectively, have been reported as
reductions in Interest Expense.

5. Income Taxes

The benefit for federal and state income taxes for the three and nine
months ended September 30, 2002 was based upon a 35% effective tax rate.
The $4.3 million valuation allowance on deferred taxes applicable at
December 31, 2001 has been increased to $5.1 million at September 30, 2002,
because the Company determined that the portion of deferred tax asset
relating to state tax losses generated during the period would not be
realized. In assessing the realizability of the deferred tax assets,
management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Based upon the projection for future state
taxable income, management believes it is more likely than not that the
Company will not realize its deferred tax asset related to state income
taxes.

Management believes that merger with Bargo was not an ownership change
as defined in section 382 of the Internal Revenue Code since 1994. A change
of stock ownership in the future by a shareholder of the Company may cause
an ownership change, which would affect the Company's ability to utilize
its net operating loss carryforwards in the future.

6. Pro Forma

The merger with Bargo, completed on May 16, 2001, significantly
impacted the future operating results of the Company. The merger was
accounted for as a purchase, and the results of operations are included in
the Company's results of operations from May 16, 2001. The pro forma
results are based on assumptions and estimates and are not necessarily
indicative of the Company's results of operations had the transaction
occurred as of January 1, 2001, or of those in the future.

-16-

MISSION RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

The following table presents the unaudited pro forma results of
operations as if the merger had occurred on January 1, 2001 (amounts in
thousands, except earnings per share).

Nine Months Ended
September 30, 2001
--------------------

Revenues ................................... $ 149,730
Income before cumulative effective of
change in accounting method ............. $ 3,206
Net income ................................. $ 436

Net income per share ....................... $ 0.14
Net income per share-diluted ............... $ 0.13

7. Restructuring

During 2001 the Company took several steps planned to enhance its
asset base, improve its cost structure and boost its competitive position
in the business environment presented by low oil and gas prices. Among
those steps were the reduction of staff by almost 50% and the termination
of the Company's administrative, accounting and information technology
services outsourcing contracts. In the fourth quarter of 2001, the Company
recorded a $2.1 million charge associated with these plans. The charge was
included in general and administrative expenses. During 2002, the Company
paid these restructuring costs.

In the third quarter of 2002, Mission's Chief Executive Officer and
Chief Financial Officer left the Company to pursue other activities. This
resulted in a $2.6 million charge, which is reflected in general and
administrative expenses. As a condition of the separation agreement, the
Company has signed an agreement with the former Chief Financial Officer to
provide consulting services as needed over a 12 month period.

8. Related Party Transactions

In 2002, as part of an effort to improve liquidity, the Company sold
interests in various oil and gas fields through a series of competitive
bids. In July 2002, in one of those transactions, the Company sold
interests in several properties located in New Mexico to Chisos, LTD
("Chisos"). J.P. Bryan, a member of Mission's Board of Directors until
October 2002, is the President and sole owner of Chisos. Over 25 companies
requested information packages and four submitted bids on these properties.
The bid from Chisos was approximately $4.0 million, which exceeded all
others by $250,000 and additionally provided Mission a non-competition
agreement in New Mexico, a one-year right to participate in developmental
drilling and a one-year right to participate in any preferential rights
events. These considerations were not offered to Mission by any other
bidder.

Milam Energy, LP ("Milam") is a 51% working interest owner with the
Company in several south Louisiana properties. Torch Energy Advisors
Incorporated ("Torch") is a majority owner of Milam, and J.P. Bryan, a
member of Mission's Board of Directors until October 2002 is also a
managing director and stockholder of Torch. As of September 30, 2002, Milam
owed the Company approximately $1.0 million in joint interest billings and
cash calls related to these properties. The receivable is reflected on the
accounts receivable and accrued revenues line of the consolidated Balance
Sheet. A portion of the outstanding receivable is past due. The Company is
exercising its rights under the operating agreement to net all further
revenue against all outstanding receivables until paid. As of October 31,
2002, the receivable balance has been reduced to approximately $570,000.

-17-

MISSION RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

A $250,000 payment under a non-compete agreement was paid in the
second quarter of 2002 to Tim J. Goff, Bargo's former Chief Executive
Officer and former member of Mission's Board of Directors.

During the fiscal year 1992, the Company acquired an average 24.4%
interest in three mining ventures (the "Mining Venture") from an
unaffiliated individual for $128,500. At the time of such acquisition, J.
P. Bryan, a member of Mission's Board of Directors until October 2002, his
brother, Shelby Bryan and Robert L. Gerry III (the "Affiliated Group"),
owned an average 21.5% interest in the Mining Venture. The Company's
interest in the Mining Venture increased as it paid costs of the venture
while the interest of the Affiliated Group decreased. Throughout the first
half of 2001, the Company spent $137,000 on costs of the Mining Venture,
primarily for soil core evaluations. These costs, plus the $729,000
accumulated on the Balance Sheet in Other Assets as of December 31, 2000,
were charged to earnings in 2001. No such costs were incurred in 2002.
Pursuant to contracts in place, the Company is not obligated to make any
future payments.

9. Subsequent Events

The following changes to the Company's management and Board of
Directors occurred after September 30, 2002:

. Jonathon M. Clarkson, resigned his positions as President, Chief
Financial Officer and Director effective September 30, 2002.
. Richard W. Piacenti became the company's Senior Vice President and
Chief Financial Officer on October 7, 2002.
. David A. Brown was elected to the Company's Board of Directors in
October 2002. He will also serve as Chairman of the Audit Committee.
. J.P. Bryan retired as Director of the Company in October 2002.
. John (Jack) L. Eells became Senior Vice President - Exploration and
Geoscience on November 7, 2002.
. Martin Phillips resigned as Director of the Company in
November 2002.
. Herbert C. Williamson was appointed to the Company's Board of
Directors on November 12, 2002.

Hurricane Lili passed through the Gulf of Mexico and South Louisiana
during the first week of October. Four fields in which the Company holds
interests sustained damage in the storm. Two operated platforms at Eugene
Island 307 are currently being repaired and will be producing at full rates
by the end of November. A non-operated platform in the area was heavily
damaged, and the field is expected to remain off production until
mid-November. Mission's net production at that field is 660 BOE per day.
The Lac Blanc field in inland waters of Louisiana sustained nominal damage,
and is producing. Mission has filed claims with its insurance carriers on
these properties, and we expect our financial exposure from property damage
to be only the applicable deductible. Fourth quarter production will be
affected by about 600 BOE per day as a result of Hurricane Lili, but the
impact is not expected to extend to the first quarter of 2003.

10. Contingencies

A dispute between the Minerals Management Service ("MMS") and the Company
concerning the appropriate expenses to be used in calculating royalties has
been resolved. The Company has agreed to pay the MMS approximately
$170,000, which is less than the $1.9 million reserve previously classified
as Other Liabilities on the Balance Sheet. The Company had reserved an
expense tariff each month

-18-

MISSION RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

assuming that the entire expense tariff being deducted could be disallowed
by the MMS. The Company was able to resolve the dispute on more favorable
terms, resulting in a $1.7 million gain that is included in Interest and
Other Income on the Statement of Operations.

11. Segment Reporting

The Company's operations were concentrated primarily in three
segments: exploration and production of oil and natural gas in the United
States, in Ecuador and gas plants. The Ecuadorian assets were sold in June
2001 and the gas plants were sold in October and November 2001.

Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------
2002 2001 2002 2001
----------------------------------------------

Sales to unaffiliated customers:
--------------------------------
Oil and gas - US ..................................................... $ 25,848 $ 38,034 $ 86,096 $ 101,875
Oil and gas - Ecuador ................................................ --- --- --- 1,877
Gas plants ........................................................... --- 1,152 --- 4,275
---------------------------------------------
Total sales ......................................................... $ 25,848 $ 39,186 $ 86,096 108,027
Interest and other income (expense) ................................. 1,723 1,311 (7,959) 1,528
---------------------------------------------
Total revenues ..................................................... $ 27,571 $ 40,497 $ 78,137 $ 109,555
=============================================
Operating profit (loss) before income taxes and
-----------------------------------------------
cumulative effect of change in accounting method:
-------------------------------------------------
Oil and gas - US .................................................... $ 5,049 $ 9,585 $ 14,087 $ 36,860
Oil and gas - Ecuador ............................................... --- --- --- (1,698)
Gas plants .......................................................... --- 593 --- 2,304
---------------------------------------------
5,049 10,178 14,087 37,466
Loss on sale of assets .............................................. --- 381 2,719 11,602
Unallocated corporate expenses ...................................... 3,419 2,142 18,308 7,940
Interest expense .................................................... 5,365 6,226 20,420 16,058
---------------------------------------------
Operating profit (loss) before income taxes ......................... $ (3,735) $ 1,429 $(27,360) $ 1,866
=============================================

Identifiable assets:
--------------------
Oil and gas - US .................................................... $ 318,764 $389,661 $318,764 $ 389,661
Oil and gas - Ecuador ............................................... --- --- --- ---
Gas plants .......................................................... --- 11,235 --- 11,235
---------------------------------------------
318,764 400,896 318,764 400,896
Corporate assets and investments .................................... 58,065 84,547 58,065 84,547
---------------------------------------------
Total ............................................................ $ 376,829 $485,443 $376,829 $ 485,443
=============================================

Capital expenditures:
---------------------
Oil and gas - US .................................................... $ 5,072 $ 10,840 $ 16,607 $ 49,012
Oil and gas - Ecuador ............................................... --- --- 4,151
Gas plants .......................................................... --- 464 --- 1,081
---------------------------------------------
$ 5,072 $ 11,304 $ 16,607 $ 54,244
=============================================

Depreciation, depletion, amortization and impairments:
------------------------------------------------------
Oil and gas - US .................................................... $ 9,599 $ 12,410 $ 31,411 $ 30,345
Oil and gas - Ecuador ............................................... --- --- 504
Gas plants .......................................................... --- 328 --- 953
---------------------------------------------
$ 9,599 $ 12,738 $ 31,411 $ 31,802
=============================================

-19-

MISSION RESOURCES CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

General

2001 Merger

On May 16, 2001, Bellwether Exploration Company ("Bellwether") merged
with Bargo Energy Company ("Bargo") and changed its name to Mission Resources
Corporation ("Mission" or the "Company"). Simultaneously with the merger,
Bellwether increased its authorized capital stock to 60 million shares of common
stock and 5 million shares of preferred stock and amended its 1996 Stock
Incentive Plan to increase the number of shares reserved for issuance under the
plan by 2.0 million shares. Under the merger agreement, holders of Bargo stock
and options received a combination of cash and Mission common stock. The merger
was accounted for using the purchase method of accounting.

The merger was financed through the issuance of $80.0 million in Mission
common stock to Bargo option holders and shareholders, and an initial draw down
under a new credit facility ("Credit Facility") of $166.0 million used to
refinance Bargo's and Bellwether's then existing credit facilities and to pay
the cash portion of the purchase price of the Bargo common stock and options,
and the amount incurred by Bargo to redeem its preferred stock immediately prior
to the merger. The Company issued $125.0 million of additional senior
subordinated notes on May 29, 2001 and used most of the net proceeds to reduce
borrowings under the Credit Facility.

Critical Accounting Policies

Mission's discussion and analysis of its financial condition and results
of operation are based upon condensed consolidated financial statements, which
have been prepared in accordance with instructions to Form 10-Q. The preparation
of these financial statements requires the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. In response to SEC Release No. 33-8040, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies," the Company has identified
certain of these policies as being of particular importance to the portrayal of
its financial position and results of operations and which require the
application of significant judgment by its management. The Company believes
these critical accounting policies affect its more significant judgments and
estimates used in the preparation of its consolidated financial statements.

Full Cost Method

The Company uses the full cost method of accounting for its investment in
oil and gas properties. Under the full cost method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
in a "full cost pool" as incurred. In accordance with the full cost method,
included in the capitalized full costs pool are a portion of certain
employee-related costs incurred for the purpose of finding and developing oil
and gas reserves. Oil and gas properties in the full cost pool, plus estimated
future expenditures to develop reserves and abandon sites, are depleted using
the unit of production method based on the ratio of current production to total
proved recoverable oil and gas reserves.

The full cost method subjects companies to a quarterly calculation of a
"ceiling" or limitation on the amount that may be capitalized on the balance
sheet related to oil and gas properties. To the extent that capitalized costs
(net of depreciation, depletion and amortization) exceed the calculated ceiling,
the excess must be written off to expense. Once incurred, the writedown of oil
and gas properties is not reversible at a later date even if oil and gas prices
increase.

-20-

MISSION RESOURCES CORPORATION

Both the depletion calculation and the "ceiling" calculation are
dependent upon the estimation of the Company's oil and natural gas reserves.
Estimates of reserves are forecasts based on engineering data, projected future
rates of production, and the timing of future expenditures. The process of
estimating reserves requires substantial judgment: different reserve engineers
may make different estimates of reserve quantities based on the same data. The
Company relies on reserve engineers from outside consultants to prepare its
reserve estimates.

While quantities of reserves require substantial judgment, the associated
prices oil and natural gas used in valuing reserves are required to be those
prices in effect as of the last day of the period, held constant indefinitely.
These prices are obtained from market postings, adjusted to the field level for
factors such as quality and location. In calculating the ceiling, the Company
adjusts the end-of-period price by the effect of cash flow hedges in place.

This requirement for constant pricing in the ceiling test, differs from
typical price trends. Oil and natural gas prices have historically been variable
and, on any particular day at the end of a quarter, can be either substantially
higher or lower than Mission's long-term price forecast more indicative of true
fair value. Oil and gas property writedowns resulting from the application of
the full cost ceiling limitation, and that are caused by fluctuation in price as
opposed to reductions in the underlying quantities of reserves, should not be
viewed as absolute indicators of a reduction in the ultimate value of the
related reserves.

Derivative Instruments

The estimated fair values of the Company's commodity derivative
instruments are recorded in the consolidated balance sheet. All of the Company's
commodity derivative instruments represent hedges of the price of future oil and
natural gas production. The changes in fair value of those derivative
instruments that qualify for treatment due to being highly effective are
recorded to Other Comprehensive Income until the hedged oil or natural gas
quantities are produced.

Estimating the fair values of hedging derivatives requires complex
calculations incorporating estimates of future prices, discount rates and price
movements. Instead, Mission chooses to obtain the fair value of its commodity
derivatives from the counterparties to those contracts. Since the counterparties
are market makers, they are able to provide Mission with a literal market value,
or what they would be willing to settle such contracts for as of the given date.

Business Combinations and Goodwill

Under the purchase method, the acquiring company adds to its balance
sheet the estimated fair values of the acquired company's assets and
liabilities. Any excess of the purchase price over the fair values of the
tangible and intangible net assets acquired is recorded as goodwill. In prior
years, goodwill was amortized over its estimated useful life. As of 2002,
goodwill with an indefinite useful life is no longer amortized, but instead is
assessed for impairment at least annually.

Various assumptions are made by the Company in determining the fair
values of an acquired company's assets and liabilities. The most significant,
requiring the most judgment, involve the estimated fair values of the oil and
gas properties acquired. First estimates of oil and gas reserves are obtained
from outside consultants. These estimates are subject to all the uncertainties
previously discussed regarding the reserve estimates used for depletion and
ceiling test calculations. Additionally, the fair value of reserves acquired in
a business combination must be based on Mission's estimates of future oil and
natural gas prices. In order to reduce the impact of management judgment and the
possibly resulting inaccuracies, the Company typically uses future price
forecasts from independent third parties, adjusted to the wellhead for its
historically realized price differentials, in estimating the fair values of
acquisitions. These estimated future prices are applied to the estimated reserve

-21-

MISSION RESOURCES CORPORATION

quantities acquired to arrive at projections of future net revenues. The future
net revenues are then discounted at a rate deemed appropriate given current
market conditions.

The Company uses these same general principles in arriving at the fair
value of unproved reserves acquired in a business combination. These unproved
reserves are generally classified as either probable or possible reserves.
Because of their very nature, probable and possible reserve estimates are more
imprecise than those of proved reserves. To compensate for the inherent risk of
estimating and valuing unproved properties, the discounted future net revenues
of probable and possible reserves are reduced by a risk-weighting factor. The
probable or possible reserves are reviewed on an individual field basis to
determine the appropriate risk-weighting factor for each field. In aggregate,
the discounted future net revenues of probable and possible reserves are reduced
by factors ranging from 30% to 90% to arrive at what Mission considers to be the
appropriate fair values.

The annual test of goodwill for impairment requires some of the same
valuation steps, and therefore the same types of estimates and management
judgment, as valuation of an acquired company.

Revenue Recognition

The Company records revenues from sales of crude oil and natural gas when
delivery to the customer has occurred and title has transferred. This occurs
when production has been delivered to a pipeline or a tanker lifting has
occurred. The Company may have an interest with other producers in certain
properties. In this case, the Company uses the sales method to account for sales
of production. It is customary in the industry for various working interest
partners to sell more or less than their entitled share of natural gas
production, creating gas imbalances. Under the sales method, gas sales are
recorded when revenue checks are received or are receivable on the accrual
basis. Typically no provision is made on the balance sheet to account for
potential amounts due to or from Mission related to gas imbalances. If the gas
reserves attributable to a property have depleted to the point that there are
insufficient reserves to satisfy existing imbalance positions, a liability or
receivable, as appropriate, should be recorded equal to the current value of the
imbalance. The Company does not currently have a significant net obligation as a
result of such situation. The settlement or disposition of existing gas
balancing positions is not anticipated to adversely impact financial condition
of the Company.

Liquidity and Capital Resources

The Company has experienced and expects to continue to experience
substantial capital requirements, primarily due to its active exploration and
development programs. The Company's current primary sources of liquidity are
internally generated cash flow, borrowings under its senior revolving credit
facility and the sale of non-core oil and gas properties. The Company has also
in the past utilized public debt and equity offerings to fund its capital
requirements.

Cash Flows

Cash flow from operations was $12.5 million and $37.2 million for the
nine month periods ending September 30, 2002 and 2001, respectively. The period
to period decrease in cash flow is primarily caused by increased interest
expense related to the $125.0 million of senior subordinated notes issued May
29, 2001, sale of properties since June 30, 2001, High Island 302 abandonment
costs, and increased production expenses related to the properties acquired in
2001.

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MISSION RESOURCES CORPORATION

Cash provided by investing activities for the nine month period ending
September 30, 2002 was $31.9 million while $177.5 million was used by investing
activities in the nine month period ending September 30, 2001. The Company
invested $16.6 million in exploration and development of oil and gas properties
for the nine month period ended September 30, 2002 compared to $29.6 million for
the same period of 2001. Spending on property acquisitions, however, was $167.4
million in 2001 and included the cost of the merger with Bargo. In 2002, the
Company has focused on evaluating existing properties and divesting those
determined to be non-core properties. In 2002, through September 30, 2002, $49
million in net proceeds were received from the sale of oil and gas properties.

Net cash outflows related to financing activities of $28.1 million in
2002 represent principal payments net of borrowings under the Credit Facility.
Financing activities provided $134.3 million for the nine month period ending
September 30, 2001. Activity in 2001 related to the Bargo merger with initial
borrowings under the Credit Facility, which borrowings were substantially repaid
with the proceeds of the $125.0 million issuance of subordinated notes.

A capital budget of $26.6 million was adopted for the year 2002, with
$21.3 million for development, $0.63 million for exploration and $4.7 million
for seismic data, land and other related items. As properties were divested,
capital spending for development has been reduced and the Company currently
anticipates its capital expenditures for 2002 to be less than $25.0 million. The
Company designed and continually adjusts its capital spending plan to make
optimal use of, but not to exceed, operating cash flow after debt service and
administrative expenses.

Natural gas and oil prices and drilling results have a significant impact
on the Company's cash flows available for capital expenditures and its ability
to borrow and raise additional capital. The amount the Company can borrow under
its Credit Facility is subject to periodic re-determination based in part on
changing expectations of future prices. Lower prices may also reduce the amount
of natural gas and oil that the Company can economically produce. Additionally,
the production declines of certain producing wells and the sale of producing
prospects have reduced cash flows in 2002. Lower prices and/or lower production
may decrease revenues, cash flows and the borrowing base under the Credit
Facility, thus reducing the amount of financial resources available to meet the
Company's capital requirements.

Credit Facility

On May 16, 2001, concurrent with the previously discussed merger, the
Company's existing credit facility was replaced by a $200.0 million credit
facility ("Credit Facility"). The borrowing base is determined from time to time
by the lenders based on the Company's reserves and other factors deemed relevant
by the lenders. The interest rate on borrowings is determined based upon the
Company's credit rating and borrowing base utilization. Interest can be either
Prime plus a margin of up to 1% or LIBOR plus a margin of 1.5% to 2.5%. The
average interest rate paid by the Company in the three and nine months ended
September 30, 2002 was 3.9%. The Credit Facility contains various covenants
including certain required financial measurements for current ratio, ratio of
total debt to earnings before interest, taxes, depreciation, depletion,
amortization and extraordinary items ("EBITDAX") and interest coverage ratio.
Restrictions are placed on debt, liens, dividends, leases and capital spending
on foreign operations. On September 30, 2002, $7 million was outstanding under
the Credit Facility. As of September 30, 2002, the Company was in compliance
with its covenants under the Credit Facility.

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MISSION RESOURCES CORPORATION

On October 7, 2002, the Company, entered into a third amendment (the
"Amendment") to the Credit Facility. The Amendment reduces the maximum amount
available under the Credit Facility from $200 million to $150 million, and sets
the borrowing base at:

(i) $50 million for the period from October 7, 2002 through March 30,
2003, and
(ii) $40 million for the period from March 31, 2003 until the next
redetermination after such date.

This modification does not limit the rights of the parties to initiate interim
borrowing base redeterminations in accordance with the Credit Facility.
Approximately $400,000 of deferred financing costs related to the $200 million
Credit Facility will be recorded as additional Interest Expense in the fourth
quarter of 2002 as a result of this modification.

The Amendment provides that the Company is obligated to grant liens on
additional oil and gas properties such that the mortgaged oil and gas properties
under the Credit Facility represent 90% of the value of the Company's oil and
gas properties evaluated in the most recently completed reserve report. It
prohibits the Company and its restricted subsidiaries from holding in excess of
$12 million in cash and cash equivalents for any period in excess of three
business days while borrowings are outstanding under the Credit Facility.

The Amendment increases the required ratio of total debt to EBITDAX, and
decreases the required interest coverage ratio through 2003. These ratios return
to their original levels incrementally by 2004 (see table below). The definition
of consolidated net income is amended to exclude there from any non-recurring
items.

The tables below detail the required ratios by fiscal quarter:

Fiscal Quarter Interest Coverage Ratio
-------------- -----------------------
09/30/02 through 03/31/03 1.75 to 1.00
04/01/03 through 06/30/03 1.90 to 1.00
07/01/03 through 09/30/03 2.10 to 1.00
10/01/03 through 12/31/03 2.30 to 1.00
01/01/04 and thereafter 2.50 to 1.00

Fiscal Quarter Total Debt to EBITDAX
-------------- ---------------------
09/30/02 through 12/31/02 5.50 to 1.00
01/01/03 through 03/31/03 5.00 to 1.00
04/01/03 through 06/30/03 4.75 to 1.00
07/01/03 through 09/30/03 4.50 to 1.00
10/01/03 through 12/31/03 4.00 to 1.00
01/01/04 and thereafter 3.50 to 1.00

Senior Subordinated Notes

In April 1997, the Company issued $100.0 million of 10-7/8% senior
subordinated notes due 2007. On May 29, 2001, the Company issued an additional
$125.0 million of senior subordinated notes due 2007 with identical terms to the
notes issued in April 1997 (collectively "Notes") at a premium of $1.9 million.
The premium is amortized as a reduction of interest expense over the life of the
Notes so that the effective interest rate on these additional bonds is 10.5%.
Through September 30, 2002, approximately $375,000 of the premium had been
amortized. The premium is shown separately on the Balance Sheet. Interest on the
Notes is payable

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MISSION RESOURCES CORPORATION

semi-annually on April 1 and October 1. At September 30, 2002, the Company's
available cash was used to pay the approximately $12.0 million interest accrued
on the bonds. The Notes will be redeemable, in whole or in part, at the option
of the Company at any time on or after April 1, 2002 at 105.44% which decreases
annually to 100.00% on April 1, 2005 and thereafter, plus accrued and unpaid
interest. In the event of a change of control of the Company, as defined in the
indenture, each holder of the Notes will have the right to require the Company
to repurchase all or part of such holder's Notes at an offer price in cash equal
to 101.0% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the date of purchase. The Notes contain certain covenants, including
limitations on indebtedness, liens, compliance with requirements of existing
indebtedness, dividends, repurchases of capital stock and other payment
restrictions affecting restricted subsidiaries, issuance and sales of restricted
subsidiary stock, dispositions of proceeds of asset sales and restrictions on
mergers and consolidations or sales of assets. As of September 30, 2002, the
Company was in compliance with its covenants under the Notes. In the event the
Company becomes out of compliance with its Credit Facility covenants, the Notes
will not be impacted unless borrowings under the Credit Facility are in excess
of $10.0 million. At September 30, 2002, Credit Facility borrowings had been
reduced to $7 million with the funds from the sale of assets in 2002.

The Company receives debt ratings from two major rating agencies in the
United States. In determining the Company's debt rating, the agencies consider a
number of items including, but not limited to, debt levels, planned asset sales,
near-term and long-term production growth opportunities, capital allocation
challenges and commodity price levels. At September 30, 2002 the Company's
corporate bonds were rated "B+, Negative Watch" by Standard & Poor's and "Caa1,
Negative Outlook" by Moody's. On November 13, 2002, Standard & Poor's lowered
the Company's corporate credit rating to "B" from "B+", lowered its subordinated
debt rating to "CCC+" from "B-", lowered its senior secured debt rating to "BB-"
from "BB" and removed the ratings from CreditWatch with a negative outlook. A
change in the Company's credit rating does not constitute a default or
acceleration under the Credit Facility or the Notes.

The Company has a highly leveraged capital structure due to the Notes,
which limits its financial flexibility. In particular, the Company must pay
approximately $24.0 million in annual interest on the Notes, which limits the
amount of cash provided by operations that is available for its exploration and
development program. The Notes also contain various covenants that limit the
ability of the Company to, among other things, incur additional indebtedness,
pay dividends, purchase capital stock and sell assets. In addition, the
Company's common stock is trading at historically low levels, which limits the
ability of the Company to complete offerings of its equity securities.

Because of these issues, the Company's new management team has undertaken
a review of the various alternatives to restructure the Company and has retained
the investment banking firm of Petrie Parkman & Co. to assist in this
evaluation. Among the alternatives being considered are a refinancing of the
Notes, a new credit facility, a merger with or an acquisition by another
company, the sale of certain producing properties, the acquisition by the
Company of another company or assets, additional secured and unsecured debt
financings, and the issuance of equity securities or other debt securities for
cash or properties or in exchange for the Notes. Some of these alternatives
would require approval of the Company's shareholders, and all of them will
require the approval of other parties to the transaction. There can be no
assurances that the Company will be successful in completing any of these
possible transactions.

Related Parties

Milam Energy, LP ("Milam") is a 51% working interest owner with the
Company in several south Louisiana properties. Torch Energy Advisors
Incorporated ("Torch") is a majority owner of Milam, and J.P. Bryan, a member of
Mission's Board of Directors until October 2002, is also a managing director and
stockholder of Torch. As of September 30, 2002, Milam owed the Company
approximately $1.0 million in joint interest billings and cash calls related to
these properties. The receivable is reflected on the accounts receivable and
accrued revenues line of the consolidated Balance Sheet. A portion of the
outstanding receivable is past due.

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MISSION RESOURCES CORPORATION

The Company is exercising its rights under the joint operating agreement to net
all further revenue against all outstanding receivables until paid. Full payout
is expected in 4 to 6 months if production levels maintain. As of October 31,
2002, the receivable balance has been reduced to approximately $570,000.

In 2002, as part of an effort to improve liquidity, the Company sold
interests in various oil and gas fields through a series of competitive bids. In
July 2002, the Company sold interests in several properties located in New
Mexico to Chisos, LTD ("Chisos"). J.P. Bryan, a member of Mission's Board of
Directors until October 2002, is the President and sole owner of Chisos. Over 25
companies requested information packages and four submitted bids on the
properties. The bid from Chisos was approximately $4.0 million, which exceeded
all others by $250,000 and additionally provided Mission a non-competition
agreement in New Mexico, a one-year right to participate in developmental
drilling and a one-year right to participate in any preferential rights events.
These considerations were not offered to Mission by any other bidder.

Results of Operations

The following table sets forth certain operating information for the
Company for the periods presented:

Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------
2002 2001/(2)/ 2002 2001/(2)/
---------------------------------------------

Production:
Oil and condensate (MBbls)--US ........................................... 729 1,073 2,623 2,366
Oil and condensate (MBbls)--Ecuador ...................................... --- --- --- 95
Natural gas (MMcf) ....................................................... 3,061 4,863 10,225 13,542
Equivalent barrels (MBOE) ................................................ 1,239 1,884 4,327 4,718

Average sales price including the effect of hedges:
Oil and condensate ($ per Bbl)--US ....................................... 22.78 23.42 21.20 23.21
Oil and condensate ($ per Bbl)--Ecuador .................................. --- --- --- 19.76
Natural gas ($ per Mcf) .................................................. 3.02 2.65 2.98 3.47

Average sales price excluding the effect of hedges:
Oil and condensate ($ per Bbl)--US ....................................... 23.86 23.42 21.35 23.21
Oil and condensate per ($ per Bbl)-Ecuador ............................... --- --- --- 19.76
Natural gas ($ per Mcf) .................................................. 3.01 2.79 2.86 4.62

Average costs:
Lease operating expenses (per Boe) ....................................... $ 7.92 $ 7.19 $ 8.30 $ 6.65
Production taxes (per Boe) ............................................... $ 0.97 $ 0.74 $ 0.92 $ 0.68
General and administrative expense ....................................... $ 4.15 $ 1.83 $ 2.39 $ 1.89
(per Boe)--US ......................................................
General and administrative expense
(per Boe)--Ecuador ............................................... $ --- $ --- $ --- $ 7.60
Depreciation, depletion and amortization
(per Boe)/(1)/--US .................................................. $ 7.75 $ 6.59 $ 7.26 $ 6.56
Depreciation, depletion and amortization
(per Boe)/(1)/--Ecuador ............................................. $ --- $ --- $ --- $ 5.31

(1) Excludes depreciation, depletion and amortization on gas plants, furniture
and fixtures and other assets.
(2) Beginning with May 16, 2001, the operations of the former Bargo properties
are included.

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MISSION RESOURCES CORPORATION

Three Months Ended September 30, 2002 and 2001

Net Loss

For the three months ended September 30, 2002, the Company reported a loss
of $2.4 million or $0.10 per share, and for the same period in 2001 reported
income of $0.7 million, or $0.03 per share. The loss can be attributed to
declining production combined with increased administrative costs related to the
recent management changes.

Oil and Gas Revenues

Oil revenues decreased 34% to $16.6 million for the quarter ended September
30, 2002 from $25.1 million for the same quarter of the previous year. Average
realized oil prices for the quarter ended September 30, 2002 were $22.78 per Bbl
as compared to $23.42 per Bbl for 2001. Oil production decreased to 729 MBbls
for the quarter ended September 30, 2002 from 1,073 MBbls for the same quarter
of the previous year. Production decreased as a result of the sale of certain
oil properties in July 2002 coupled with approximately one week of downtime at
coastal and offshore properties due to Hurricane Isidore.

Gas revenues decreased 29% from $12.9 million reported for the quarter
ended September 30, 2001 to $9.2 million for the quarter ended September 30,
2002. Gas prices averaged $3.02 per Mcf, or 14% higher, in the three month
period ended September 30, 2002 as compared to $2.65 per Mcf in the comparable
period of 2001. Gas production was down 37% compared to the same quarter of 2001
with 3,061 MMcf and 4,863 MMcf for the three month periods ending September 30,
2002 and 2001, respectively. This decrease is due to the steep production
declines of the Gulf of Mexico properties, a one-week shut in of coastal and
offshore properties for Hurricane Isidore, and the impact of property sales.

The realized prices discussed above include the impact of oil and gas
hedges. A decrease of $767,000 related to hedging activity was reflected in oil
and gas revenues for the three months ended September 30, 2002, while a decrease
in oil and gas revenues of $642,000 was reflected for the same period of 2001.

Gas Plant Revenues

Gas plant revenues were $1.1 million in the quarter ended September 30,
2001. There were no gas plant revenues in the three months ended September 30,
2002 because these gas plants were sold in 2001.

Interest and Other Income

Interest and other income increased to $1.7 million in the three months
ended September 30, 2002 from $1.3 million income for the three months ended
September 30, 2001. The $1.7 million gain resulting from the settlement of the
royalty calculation dispute with the MMS was the primary reason for the
increase. The loss on ineffectiveness of commodity hedges in 2002 was $0.2
million compared to a net gain of $1.3 million for the same period of 2001.

Production Expenses

Lease operating expenses decreased 27% to $9.8 million in the three months
ended September 30, 2002, from $13.5 million in the three months ended September
30, 2001. Production taxes decreased 14% to $1.2 million in the quarter ended
September 30, 2002 from $1.4 million for the same period of the previous year.
On a barrel equivalent basis (BOE), lease operating expenses, excluding
production taxes, increased 10% per BOE for

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MISSION RESOURCES CORPORATION

the quarter ended September 30, 2002, from $7.19 per BOE for the three months
ended September 30, 2001 because production declined as discussed above. On an
aggregate basis lease operating expenses have decreased as a result of property
sales.

Transportation Costs

Transportation costs were not significant in either period presented.

Gas Plant Expenses

Gas plant expenses were $559,000 in the quarter ended September 30, 2001.
There were no gas plant expenses in the three months ended September 30, 2002
because these gas plants were sold in 2001.

Depreciation, Depletion and Amortization

Depreciation, depletion and amortization decreased 28% to $9.7 million for
the three months ended September 30, 2002 from $13.5 million for the same period
of 2001. The total amount for the quarter ended September 30, 2001 included
approximately $328,000 of depreciation on the gas plants that were sold in late
2001 and $493,000 of goodwill amortization. Neither of these items continued
into 2002. Depreciation, depletion and amortization per BOE has increased 18% to
$7.75 per BOE in the quarter ended September 30, 2002, from $6.59 per BOE in the
same period of 2001. The rate increased as a result of property sales in the
past year. None of the sales in the third quarter of 2002 significantly altered
the full cost pool and as such no gain or loss was recorded.

General and Administrative Expenses

General and administrative expenses increased 46% to $5.1 million for the
three months ended September 30, 2002 as compared to $3.5 million for the same
period of fiscal 2001. The general and administrative expense included $2.8
million for non-recurring transition costs, comprised primarily of payments to
the former Chief Executive Officer and the former Chief Financial Officer upon
their resignations. This is partially offset by salary savings attributable to
the February 2002 staff reduction.

Interest Expense

Interest expense decreased 13% to $5.4 million for the three months ended
September 30, 2002 from $6.2 million in the same period of 2001. A $1.8 million
gain on the interest rate swap was recorded for the three months ended September
30, 2002 while a $1.0 million gain was recorded for the same period of 2001. In
addition, borrowings outstanding in the Credit Facility have decreased
significantly.

Income Taxes

The benefit for federal and state income taxes for the three months ended
September 30, 2002 was based upon a 35% effective tax rate. The $4.3 million
valuation allowance on deferred taxes applicable at December 31, 2001 has been
increased to $5.1 million at September 30, 2002, because the Company determined
that the portion of deferred tax asset relating to state tax losses generated
during the period would not be realized. In assessing the realizability of the
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Based upon the projection for future state taxable income,
management believes it is more likely than not that the Company will not realize
its deferred tax asset related to state income taxes.

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MISSION RESOURCES CORPORATION

Management believes that the merger with Bargo was not an ownership change
as defined in section 382 of the Internal Revenue Code since 1994. A change of
stock ownership in the future by a shareholder of the Company may cause an
ownership change, which would affect the Company's ability to utilize its net
operating loss carryforwards in the future.

Nine Months Ended September 30, 2002 and 2001

Net Loss

For the nine months ended September 30, 2002, the Company reported a loss
of $17.8 million or $0.75 per share, while the same period in 2001 had a loss of
$1.7 million, or $0.06 per share. A $9.3 million loss on hedge ineffectiveness,
lower revenues from reduced production and lower commodity prices, were the
primary reasons for the variance.

Oil and Gas Revenues

Oil revenues decreased 2% to $55.6 million for the nine months ended
September 30, 2002 from $56.8 million for the same period of the previous year.
Lower oil prices partially offset by increased production in 2002 produced this
change. Average realized oil prices for the nine month period ended September
30, 2002 were $21.20 per Bbl as compared to $23.08 per Bbl, including Ecuadorian
oil, for the same period in 2001. Oil production increased to 2,623 MBbls for
the nine month period ended September 30, 2002 from 2,461 MBbls for the same
period of the previous year. Increased production in the nine months ended
September 30, 2002 resulted from the properties acquired in the Bargo merger and
the acquisition of properties in south Louisiana, more than offsetting
production lost as a result of the Ecuador divestiture, property sales in July
2002, and downtime along the coast due to hurricanes.

Gas revenues decreased 35% to $30.5 million reported for the nine month
period ended September 30, 2002, from $47.0 million for the same period of 2001.
Gas prices averaged $2.98 per Mcf, or 14% lower, in the nine month period ended
September 30, 2002 as compared to $3.47 per Mcf in the comparable period of
2001. Gas production decreased 24% to 10,225 Mmcf in the nine month ended
September 30, 2002, from 13,542 Mmcf in the same period of 2001. The annual
production decline on the offshore properties and downtime in coastal areas
caused by the hurricane, combined with the impact of late 2001 and 2002 property
sales, are evident in this decline. These production declines were partially
offset by inclusion of the Bargo properties' gas production after May 16, 2001.

The realized prices discussed above include the impact of oil and gas
hedges. An increase of $0.9 million related to hedging activity was reflected in
oil and gas revenues for the nine months ended September 30, 2002, while a
decrease in oil and gas revenues of $15.6 million was reflected for the same
period of 2001. Ecuadorian oil production was not hedged.

Gas Plant Revenues

Gas plant revenues were $4.3 million in the nine months ended September
30, 2001. There were no gas plant revenues in the nine months ended September
30, 2002 because these gas plants were sold in 2001.

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MISSION RESOURCES CORPORATION

Interest and Other Income

Interest and other income decreased significantly to a net expense of $7.9
million in the nine months ended September 30, 2002 from income of $1.5 million
for the nine months ended September 30, 2001. A net loss on ineffectiveness of
commodity hedges of $9.3 million in 2002 versus a net gain of $1.5 million
reflected in the same period of 2001 accounts for $10.8 million of the decrease.
This was partially offset by the resolution of the MMS dispute that resulted in
a $1.7 million gain.

Production Expenses

Lease operating expenses increased 14% to $35.9 million in the nine months
ended September 30, 2002, from $31.4 million in the nine months ended September
30, 2001. Production taxes increased 24% to $4.0 million in the nine months
ended September 30, 2002 from $3.2 million for the same period of the previous
year. Production tax increases reflect the inclusion of the Bargo properties for
the entire period of 2002 versus only four and one-half months included in 2001.
Because most of the Bargo properties are onshore, a larger proportion of the
Bargo production is burdened by production taxes. On a barrel equivalent basis
(BOE), lease operating expenses, excluding production taxes, increased 25% per
BOE for the nine months ended September 30, 2002, from $6.65 per BOE for the
nine months ended September 30, 2001.

Transportation Costs

Transportation costs were not significant in either period presented.

Gas Plant Expenses

Gas plant expenses were $2.0 million in the nine months ended September 30,
2001. There were no gas plant expenses in the nine months ended September 30,
2002 because these gas plants were sold in 2001.

Depreciation, Depletion and Amortization

Depreciation, depletion and amortization decreased 3% to $31.9 million for
the nine months ended September 30, 2002 from $33.0 million for the same period
of 2001. While the totals for the nine months ended September 30, 2001 included
approximately $953,000 of depreciation on the gas plants and $761,000 of
goodwill amortization, an increase in the per BOE rate reduced the benefit.
Depreciation, depletion and amortization per BOE has increased 11% to $7.26 per
BOE in the period ended September 30, 2002, from property sales in the past
year. Production volumes decreased on a per BOE basis by 8%.

General and Administrative Expenses

General and administrative expenses totaled $10.3 million in the nine
months ended September 30, 2002 as compared to $9.5 million for the same period
of fiscal 2001, an increase of 8%. Savings attributable to reductions in staff
and executive pay in 2002 were offset by approximately $3.4 million in
nonrecurring costs, primarily severance payments made during the period.

Interest Expense

Interest expense increased 27% to $20.4 million for the nine months ended
September 30, 2002 from $16.1 million in the same period of 2001. The additional
$125.0 million of 10-7/8% subordinated debt issued on May 29, 2001 accounts for
the increased interest expense, but the impact has been reduced by significant
declines in the interest rates paid on bank debt and a $1.6 million gain on the
interest rate swap in 2002.

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MISSION RESOURCES CORPORATION

Income Taxes

The benefit for federal and state income taxes for the nine months ended
September 30, 2002 was based upon a 35% effective tax rate. The $4.3 million
valuation allowance on deferred taxes applicable at December 31, 2001 has been
increased to $5.1 million at September 30, 2002, because the Company determined
that the portion of deferred tax asset relating to state tax losses generated
during the period would not be realized. In assessing the realizability of the
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Based upon the projection for future state taxable income,
management believes it is more likely than not that the Company will not realize
its deferred tax asset related to state income taxes.

Management believes that the merger with Bargo was not an ownership change
as defined in section 382 of the Internal Revenue Code since 1994. A change of
stock ownership in the future by a shareholder of the Company may cause an
ownership change, which would affect the Company's ability to utilize its net
operating loss carryforward in the future.

Subsequent Events

Hurricane Lili passed through the Gulf of Mexico and South Louisiana during
the first week of October. Four fields in which the Company holds interests
sustained damage in the storm. Two operated platforms at Eugene Island 307 are
currently being repaired and will be producing at full rates by the end of
November. A non-operated platform in the area was heavily damaged, and the field
is expected to remain off production until mid-November. Mission's net
production at that field is 660 BOE per day. The Lac Blanc field in inland
waters of Louisiana sustained nominal damage, and is producing. Mission has
filed claims with its insurance carriers on these properties, and we expect our
financial exposure from property damage to be only the applicable deductible.
Fourth quarter production will be affected by about 600 BOE per day as a result
of Hurricane Lili, but the impact is not expected to extend to the first quarter
of 2003.

On November 13, 2002, Standard & Poor's lowered the Company's corporate
credit rating to "B" from "B+", lowered its subordinated debt rating to "CCC+"
from "B-", lowered its senior secured debt rating to "BB-" from "BB" and removed
the ratings from CreditWatch with a negative outlook.

Ecuador

Due to widening price differentials, higher operating costs and marginal
drilling results, the Company decided in early 2001 to seek a buyer for its
assets in Ecuador. In June 2001, with an effective date of May 31, 2001, the
Company sold its wholly-owned subsidiaries that were party to the concessions of
the Charapa and Tiguino fields. The Company retained two receivables:

1) a $1.0 million escrow receivable from the purchaser to be settled
before year end upon resolution of negotiations with the Ecuadorian
government concerning production levels, and

2) a receivable of approximately $900,000 to be collected out of oil
sales from the partner in the Tiguino field.

In the fourth quarter of 2001, management deemed the $1.0 million
receivable to be uncollectible due to a lack of success in negotiating with the
Ecuador government, and recorded an increase to the loss on the sale. In the
second quarter of 2002, the partner receivable was reduced to $559,000, with the
$341,000 charged to income as bad debt expense. The collectible portion of the
receivable was determined based upon actual and estimated future operations of
the field.

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MISSION RESOURCES CORPORATION

In June 2002, the Company was presented with post-closing adjustments in
the final accounting for this sale. The post-closing adjustments included
reimbursements for reduction of value added tax receivable, reimbursement of
production royalties, pricing and volume adjustments negotiated with the
purchaser through June 2002 and costs of completing the divestiture. The Company
recognized the full amount of the proposed adjustments as a $2.7 million
additional loss on the property sale in the second quarter of 2002. However, the
Company continues to negotiate specific issues.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, Accounting for
Asset Retirement Obligations, which provided accounting requirements for
retirement obligations associated with tangible long-lived assets, including:

. the timing of liability recognition;
. initial measurement of liability;
. allocation of asset retirement cost to expense;
. subsequent measure of the liability; and
. financial statement disclosures.

Statement No. 143 requires that the Company record a liability for the fair
value of its asset retirement obligation, primarily comprised of its plugging
and abandonment liabilities, in the period in which it is incurred if a
reasonable estimate of fair value can be made. The liability is accreted at the
end of each period through charges to operating expense. The amount of the asset
retirement obligation is added to the carrying amount of the oil and gas
properties and this additional carrying amount is depreciated over the life of
the properties. If the obligation is settled for other than the carrying amount
of the liability, the Company will recognize a gain or loss on settlement.

The Company is required and plans to adopt the provisions of Statement No.
143 for the quarter ending March 31, 2003. To accomplish this, the Company must
identify all legal obligations for asset retirement obligations, if any, and
determine the fair value of these obligations on the date of adoption. The
determination of fair value is complex and will require the Company to gather
market information and develop cash flow models. Additionally, the Company will
be required to develop processes to track and monitor these obligations. Because
of the effort necessary to comply with the adoption of Statement No. 143, it is
not practicable for management to estimate the impact of adopting this Statement
at the date of this report.

SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statements No. 13 and Technical Corrections, was issued in April 2002. SFAS
No. 145 provides guidance for income statement classification of gains and
losses on extinguishments of debt and accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback transactions. SFAS
No. 145 is effective for the Company in January 2003. The Company will apply
SFAS No. 145 as appropriate to future activities.

SFAS No. 146, Accounting for Exit or Disposal Activities, was issued in
June 2002. SFAS No. 146 addresses significant issues regarding the recognition,
measurement, and reporting of costs that are associated with exit and disposal
activities, including restructuring activities that are currently accounted for
pursuant to the guidance set forth in EITF Issue No. 94-3, Liability Recognition
of Certain Employee Termination Benefits and Other Costs to Exit an Activity.
SFAS No. 146 is effective for the exit and disposal activities initiated after
December 31, 2002. The Company will apply SFAS No. 146 as appropriate to future
activities.

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MISSION RESOURCES CORPORATION

Forward Looking Statements

This Form 10-Q contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included herein, including without limitation,
statements under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and in the notes to the financial statements
regarding the Company's financial position, capital budget, intent to acquire
oil and gas properties, estimated quantities and net present values of reserves,
business strategy, plans and objectives of management of the Company for future
operations, and the effect of gas balancing, are forward-looking statements.
There can be no assurances that such forward-looking statements will be correct.
Important factors that could cause actual results to differ materially from the
Company's expectations ("Cautionary Statements") include the volatility of oil
and gas prices, operating hazards, government regulations, exploration risks and
other factors described in the Company's Form 10-K filed with the Securities and
Exchange Commission. All subsequent written and oral forward-looking statements
attributable to the Company, or persons acting on its behalf are expressly
qualified by the Cautionary Statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk, including adverse changes in
commodity prices and interest rates.

Commodity Price Risk

The Company produces and sells crude oil, natural gas and natural gas
liquids. As a result, its operating results can be significantly affected by
fluctuations in commodity prices caused by changing market forces. The Company
periodically seeks to reduce its exposure to price volatility by hedging a
portion of its production through swaps, options and other commodity derivative
instruments. The Company frequently utilizes a combination of options,
structured as a collar because there are no up-front costs and protection is
given against low prices. These collars assure that the NYMEX prices the Company
receives on the hedged production will be at NYMEX prices no lower than the
price floor and no higher than the price ceiling. Recently, as shown on the
tables below, the Company has entered into some commodity swaps that fix the
price to be received.

The Company's realized price for natural gas per Mcf is generally $0.08
less than the NYMEX MMBTU price. The company's realized price for oil is
generally $1.08 per barrel less than NYMEX. Realized prices differ from NYMEX
due to factors such as location of the property heating content of gas and
quality of oil. The oil differential excludes the impact of Point Pedernales
field production that is capped at $ 9.00 per barrel.

Currently Outstanding Oil Hedges

--------------------------------------------------------------------------------------------------------
NYMEX NYMEX
Price Price
BBLS Floor/Swap Ceiling
Period Per Day Total BBLS Type Avg. Avg.
--------------------------------------------------------------------------------------------------------

Fourth Qtr. 2002 5,000 460,000 Collar $25.00 $25.54
--------------------------------------------------------------------------------------------------------
First Qtr. 2003 4,000 360,000 Swap $24.82 n/a
--------------------------------------------------------------------------------------------------------
Second Qtr. 2003 4,000 364,000 Swap $24.31 n/a
--------------------------------------------------------------------------------------------------------
Third Qtr. 2003 3,500 322,000 Swap $23.95 n/a
--------------------------------------------------------------------------------------------------------
Fourth Qtr. 2003 3,500 322,000 Swap $23.59 n/a
--------------------------------------------------------------------------------------------------------

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MISSION RESOURCES CORPORATION

Currently Outstanding Gas Hedges

--------------------------------------------------------------------------------------------------------
NYMEX NYMEX
MMBTU Total Price Price
Period Per Day MMBTU Type Avg. Avg.
--------------------------------------------------------------------------------------------------------

Fourth Qtr. 2002 13,500 1,087,000 Collar $3.56 $6.02
--------------------------------------------------------------------------------------------------------
First Qtr. 2003 15,000 1,370,000 Collar $3.24 $4.64
--------------------------------------------------------------------------------------------------------
Second Qtr. 2003 15,000 1,365,000 Collar $3.18 $4.02
--------------------------------------------------------------------------------------------------------
Third Qtr. 2003 15,000 1,380,000 Collar $3.19 $4.10
--------------------------------------------------------------------------------------------------------
Fourth Qtr. 2003 15,000 1,380,000 Collar $3.24 $4.54
--------------------------------------------------------------------------------------------------------

These commodity derivative instruments expose the Company to counterparty
credit risk to the extent the counterparty is unable to meet its monthly
settlement commitment to the Company. The Company believes it selects
creditworthy counterparties to its hedge transactions. Each of the Company's
counterparties have long term senior unsecured debt ratings of at least A/A2 by
Standard & Poor or Moody's.

Interest Rate Risk

The Company may enter into financial instruments such as interest rate
swaps to manage the impact of interest rates. Effective September 22, 1998, the
Company entered into an eight and one-half year interest rate swap agreement
with a notional value of $80.0 million. Under the agreement, the Company
receives a fixed interest rate and pays a floating interest rate, subject to a
cap, based on the simple average of three foreign LIBOR rates. Floating rates
are re-determined for a six-month period each April 1 and October 1. After April
1, 2002, the floating rate is capped at 12.375%. The floating rate for the
period from October 1, 2002 to April 1, 2002 is 10.88%. The Company's exposure
to changes in interest rates primarily results from short-term changes in the
LIBOR rates. A 10% change in the floating LIBOR rates would change interest
costs to the Company by $870,400 per year. The maximum annual change in interest
charges is $1.2 million. This agreement is not held for trading purposes. The
swap provider is a major financial institution, and the Company does not
anticipate non-performance by the provider. The Company marks the swap value to
market quarterly, recording changes in value as reductions to interest expense
of $1.8 million and $996,000 for the three months ended September 30, 2002 and
2001, respectively.

ITEM 4. Controls and procedures

Evaluation of Disclosure Controls and Procedures

Within 90 days prior to the filing date of this Report, the Company's
principal executive officer ("CEO") and principal financial officer ("CFO")
carried out an evaluation of the effectiveness of the Company's disclosure
controls and procedures. Based on those evaluations, the Company's CEO and CFO
believe

i. that the Company's disclosure controls and procedures are designed to
ensure that information required to be disclosed by the Company in the
reports it files under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms and that such information is
accumulated and communicated to the Company's management, including
the CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure; and
ii. that the Company's disclosure controls and procedures are effective.

-34-

MISSION RESOURCES CORPORATION

Changes in Internal Controls

There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect the Company's internal
controls subsequent to the evaluation referred to above, nor have there been any
corrective actions with regard to significant deficiencies or material
weaknesses.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is involved in litigation relating to claims arising out of its
operations in the normal course of business, including workmen's compensation
claims, tort claims and contractual disputes. Some of the existing known claims
against the Company are covered by insurance subject to the limits of such
policies and the payment of deductible amounts by the Company. Management
believes that the ultimate disposition of all uninsured or unindemnified matters
resulting from existing litigation will not have a material adverse effect on
the Company's business or financial position.

ITEM 2. Changes in Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Submission of Matters to a Vote of Security Holders

None

ITEM 5. Other Information

By letter dated October 29, 2002, the Company received notification from
the Listing Qualifications Department of The Nasdaq Stock Market, Inc.,
indicating that its common stock has not maintained the required minimum bid
price for continued quotation on the Nasdaq National Market. NASD Rule
4450(a)(5) requires that, for continued quotation on the Nasdaq National Market,
the Company must maintain a minimum bid price of $1.00 for at least one day
during any period of 30 consecutive business days. Nasdaq has given the Company
a period of 90 calendar days, or until January 27, 2002, to achieve compliance
with the minimum bid requirement in order to maintain its listing on the Nasdaq
National Market. During the 90-day period, the Company will be considered to be
in compliance with Nasdaq's minimum bid price requirements if the bid price of
the Company's common stock closes at $1.00 per share or greater for a minimum of
ten consecutive business days. There can be no assurance that the Company will
be able to take actions sufficient to bring it back into compliance with the
Nasdaq National Market continued listing criteria within the allotted period of
time. If the Company's listing is transitioned to the Nasdaq Small Cap Market,
it would have until April 28, 2003 to trade above $1.00 per share for a minimum
of ten consecutive trading days to remain on the Small Cap Market. The Company
may also be eligible for an additional 180-day calendar grace period beyond
April 28, 2003 provided it meets the initial listing criteria for the Small Cap
Market. If the Company fails to do that, it would be delisted from Nasdaq and
would most likely be quoted on the OTC Bulletin Board. Furthermore, the Company
may be eligible to transfer back to the Nasdaq National Market, without paying
the listing fees, if, by October 24, 2003, its bid price per share maintains the
$1.00 per share requirement for 30 consecutive trading days and it has
maintained compliance with all other continued listing requirements on the
market. The Company is

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MISSION RESOURCES CORPORATION

reviewing all options available to it to return to compliance with Nasdaq's
continued listing requirements. The delisting of the Company's common stock from
Nasdaq may result in a reduction in some or all of the following, each of which
may have a material adverse effect on its investors:

. the market price of the Company's common stock;
. the liquidity of the Company's common stock;
. the number of institutional investors that will be allowed by their
charter to invest or consider investing in the Company's common stock;
. the number of investors in general that will consider investing in the
Company's common stock;
. the number of market makers in the Company's common stock;
. the availability of information concerning the trading prices and volume
of the Company's common stock;
. the number of broker-dealers willing to execute trades in shares of the
Company's common stock; and
. The Company's ability to obtain financing for the continuation of its
operations.

ITEM 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
a. Exhibits.

The following exhibits are filed with this Form 10-Q and are
identified by the number indicated.

10.1 Third Amendment to the Credit Agreement by and among the
Company and JPMorganChase Bank, as Administrative Agent,
BNP Paribas, as Syndication Agent, Wachovia Bank National
Association and Fleet National Bank, as Co-Documentation
Agent, and the Lenders Signatory Hereto, dated October 7,
2002 (incorporated by reference to Current Report on Form
8-K filed on October 10, 2002).

10.2 Separation Agreement between Jonathon M. Clarkson and
Mission Resources Corporation effective September 30, 2002
(filed herewith).

10.3 Employment Agreement between Robert L. Cavnar and Mission
Resources Corporation dated August 8, 2002 (filed
herewith).

10.4 Employment Agreement between Richard W. Piacenti and
Mission Resources Corporation dated October 8, 2002 (filed
herewith).

10.5 Form of Indemnification Agreement between Mission
Resources Corporation and each of its directors and
executive officers (filed herewith).

99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, of Chief Executive Officer of the Company (filed
herewith).

99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, of Chief Financial Officer of the Company (filed
herewith).

b. Reports on Form 8-K

None.

-36-

MISSION RESOURCES CORPORATION

Pursuant to the requirements 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.

MISSION RESOURCES CORPORATION
(Registrant)

Date: November 13, 2002 By: /s/ Robert L. Cavnar
----------------- ---------------------
Robert L. Cavnar
Chief Executive Officer

Date: November 13, 2002 By: /s/ Richard W. Piacenti
----------------- --------------------------
Richard W. Piacenti
Chief Financial Officer

-37-

MISSION RESOURCES CORPORATION

I, Robert L. Cavnar certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mission Resources
Corporation.

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

Date: November 13, 2002 Signature: /s/ Robert L. Cavnar
----------------- --------------------
Chief Executive Officer

-38-

I, Richard W. Piacenti certify that:

1. I have reviewed this quarterly report on Form 10-Q of Mission Resources
Corporation.

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

Date: November 13, 2002 Signature: /s/ Richard W. Piacenti
----------------- --------------------------
Chief Financial Officer

-39-