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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549

FORM 10-K

(Mark One)
		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended: December 31, 2001
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: 0-02517

Toreador Resources Corporation
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (214) 559-3933

Securities registered pursuant to Section 12(b) of the Act:
NONE

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

     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    NO

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

     The aggregate market value of the voting stock of the registrant held by non-affiliates, computed by reference to the closing sales price of such stock, as of April 12, 2002 was $16,489,328. (For purposes of determination of the aggregate market value, only directors, executive officers and 10% or greater stockholders have been deemed affiliates.)

     The number of shares outstanding of the registrant’s common stock, par value $.15625, as of April 12, 2002, was 9,377,517 shares.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s Proxy Statement for the 2002 Annual Meeting of Stockholders, expected to be filed on or prior to April 30, 2002, are incorporated by reference into Part III of this Form 10-K.

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PART I

ITEM 1. BUSINESS

GENERAL

     Toreador Resources Corporation, a Delaware corporation, is an independent international energy company engaged in oil and gas exploration, development, production and acquisition activities. We principally conduct our business through: (i) the exploration for, and the acquisition and development of, oil and natural gas reserves, and (ii) our ownership of perpetual mineral and royalty interests in approximately 2,643,000 gross (1,368,000 net) acres. We currently hold interests in foreign developed and undeveloped oil and gas properties in the Paris Basin, France, the Cendere and Zeynel Fields in Turkey and the Bonasse Field and Southwest Cedros Peninsula License in Trinidad, West Indies. Our domestic properties include 766,000 gross (461,000 net) acres located in the Texas Panhandle and West Texas. Collectively, we refer to these properties as the “Texas Holdings.” In Alabama, Mississippi and Louisiana, we own 1,775,000 gross (876,000 net) acres that we collectively describe as the “Southeastern States Holdings.” We also own various royalty interests in Arkansas, California, Kansas and Michigan covering 102,000 gross (31,000 net) acres. These properties are collectively referred to as the “Four States Holdings.” We also own various working interest properties in Texas, Kansas, New Mexico and Oklahoma. For a more detailed description of our properties please see “Item 2. Properties.”

     We were incorporated in 1951, and were formerly known as Toreador Royalty Corporation.

     On December 31, 2001, we completed an acquisition of Madison Oil Company, an independent international exploration and production company, which is now a wholly-owned subsidiary. Madison holds interests in approximately 3,098,000 gross acres (2,132,000 net acres) of developed and undeveloped oil and gas properties in the Paris Basin, France, the Cendere and Zeynel Fields in Turkey and the Bonasse Field and Southwest Cedros Peninsula Licence in Trinidad, West Indies.

     See “Glossary of Selected Oil and Gas Oil Terms” at the end of this Item 1 for a definition of certain terms used in this annual report.

BUSINESS STRATEGY

     Our strategic focus during 2001 centered on the pursuit of high quality property acquisitions, participation in exploration projects as a non-operator and the disposition of non-strategic assets. The principal elements of the our 2001 strategy were as follows:

	•		Expand our level of direct working interest participation in the United States by participating in exploration projects generated by experienced third party operators.
	•		Continue to review opportunities for high quality acquisitions of producing and non-producing properties by means of purchase or merger.
	•		Identify and dispose of non-strategic and under performing assets.

DEVELOPMENTS DURING 2001

     ACQUISITIONS AND MERGERS

     As part of our strategy to actively pursue high quality property acquisition and merger opportunities, we reviewed a number of prospective acquisition candidates during 2001. We successfully closed one merger and two property acquisitions as a result of this process.

     MADISON OIL COMPANY. Toreador, MOC Acquisition Corporation, a wholly-owned subsidiary of Toreador, and Madison entered into an Agreement and Plan of Merger dated October 3, 2001. The transaction was consummated on December 31, 2001, by the merger of MOC Acquisition Corporation with and into Madison with Madison being the surviving corporation and becoming a wholly-owned subsidiary of Toreador.

     Through Madison, we hold interests in developed and undeveloped oil and gas properties in the Paris Basin, France, the Cendere and Zeynel Fields in Turkey and the Bonasse Field and Southwest Cedros Peninsula License in Trinidad, West Indies.

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     Pursuant to the merger agreement, the issued and outstanding shares of the common stock of Madison were converted into an aggregate of 3,101,573 shares of our $0.15625 par value common stock, based on an exchange ratio of 0.118 shares of our common stock for each issued and outstanding share of Madison common stock. Holders of Madison common stock were also given the right to receive, in cash or our common stock, 30% of certain potential payments that may be received from the Turkish government for the protection of repatriated capital based on a formula specified in the merger agreement. In addition, certain stock options to acquire Madison common stock have become our stock options exercisable for 41,300 shares of our common stock, warrants to acquire Madison common stock have become our warrants exercisable for 111,509 shares of our common stock and a Madison debenture convertible into Madison common stock has been amended and is now convertible into 319,962 shares of our common stock.

     ANDERSON ET AL ACQUISITION. On July 26, 2001, we acquired royalty and working interests in approximately 800 gross wells primarily located in Kansas, New Mexico, and Oklahoma for approximately $3.8 million, funded by existing cash and borrowings under the current credit facility. This acquisition had an effective date of May 1, 2001, and resulted in reserve additions of approximately 2.7 Bcf as of that date.

     RAZORHAWK ACQUISITION. On April 26, 2001, we acquired working interests in 18 gross wells in Meade County, Kansas from Fremont Exploration, Inc. for approximately $4.0 million, funded by existing cash and borrowings under our current credit facility. This acquisition had an effective date of March 1, 2001, and resulted in reserve additions of approximately 2.5 Bcf as of that date.

     DISPOSAL OF NON-STRATEGIC ASSETS

     In 2001, we sold several non-strategic oil and gas assets for over $2,157,000. Of that amount, sixty percent (60%) of the funds received were captured through the use of the auction Internet site (www.energynet.com) owned by EnergyNet.com, Inc (we own 35% of EnergyNet). The remaining funds were received through private negotiated sales.

     EXPLORATION ACTIVITIES

     Kirby Hills 3D Seismic Project. We acquired a 12.5% working interest and an approximate 9.4% net revenue interest in a 20 square mile 3D seismic project in Solano County, California in 1999. This project, which is located in the Sacramento Basin of northern California, is designed to identify structural closures within an established gas producing area. The objective formations, the Wagenet, Domengine and Nortonville Sandstones, range in depth from 1,500 feet to 5,400 feet. As of March 16, 2001, the data acquisition and processing phases are complete. Since April 2001, we have participated in four wells drilled in the project. Of these four wells, one well has been completed and is currently waiting on pipeline construction. Two of the remaining wells have been permanently plugged and abandoned with the third being temporarily abandoned and undergoing further evaluation. Drilling depths on the first four wells were in the 3,600-foot range.

     East Texas 3D Seismic Project. We have an 18.5185% working interest (13.6667% net revenue interest) in a gas play based upon 200 square miles of 3D seismic data. This prospect area is located adjacent to a field in which similar features in the project area have resulted in some wells that have produced in excess of 15 Bcf per well. We have agreed to participate in the leasing of seven prospects identified to date. Multiple producing horizons are likely to be encountered, with the primary objective in this play targeted at a depth of approximately 9,000 feet. Thus far, we have participated in the drilling of two wells drilled within the project area. Both wells were drilled to approximately 11,000 feet and encountered no commercial accumulations of hydrocarbons, and each has been abandoned.

     Belmont Lake Prospect. We have a 25% working interest (18.75% net revenue interest) in this Wilkinson County, Mississippi prospect that is targeting potential producing zones in the Wilcox formation at depths ranging from 7,900 feet to 8,400 feet. The No. 1 Rosenblatt “BL” was spudded in November 2000 and reached a total depth of approximately 8500 feet. Eighteen feet of pay was encountered in the Wilcox Minter “B” sand. This sand was perforated in February 2001 initially flow testing at a rate of 65 BBL/D and continues to produce at that rate at the current time. In September 2001, we participated in the drilling of a west offset to this discovery with our 25% working interest. The Rosenblatt “BL” No. 2 well reached a total depth of 8,660 feet and was abandoned on September 15, 2001.

     West Shuler/Hines Creek Prospect. We have a 20% working interest (15% net revenue interest) in these Union County, Arkansas prospects that tested the Lower Cretaceous Hill sandstone at a depth of 3,100 feet. The new field discovery well was spudded in October 2000 and reached a total depth of approximately 3,600 feet. Sixteen feet of pay was encountered in the Hill sand and is currently producing. During 2001, we have participated in five development wells drilled on the prospects. Two of these wells have been completed and are currently producing. The remaining three were dry holes that have been abandoned.

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     Shallow Waters – Gulf Coast Region. We have entered into a joint venture relationship to participate in exploration prospects in the shallow waters of the Gulf of Mexico. We have the option, but not the obligation, to participate in selected prospects. To date, we have exercised our option on three prospects. The first prospect well was drilled to a total depth of 8,200 and is currently producing at rates in excess of 14,000 per/day. We participated in the well with a 5% working interest (4.02% net revenue interest). The remaining two wells were drilled to 8,300 and 8,700 feet. We have working interests in these wells of 1.5% and 10%, respectively. Both wells were drilled and have been abandoned since August 2001.

     South Conecuh Embayment Prospect. We are participating with a 6.25% working interest in this prospect targeting the Smackover formation, identified by 2D seismic and subsurface well control, at estimated depths of 13,200 feet. The prospect covers approximately 10,200 gross acres in Conecuh and Monroe Counties, Alabama. The initial prospect well has been drilled to a depth of 13,093 feet and is currently awaiting testing.

MARKETS AND COMPETITION

     In France, we currently sell all of our production to Elf Aquitaine Exploration & Production Company, the largest purchaser in the area, and such production is shipped by truck to its refinery. Alternative markets are available by pipeline to refineries in the south of France. Production in Turkey is sold to Turkish refineries.

     Our domestic oil and gas production is sold to various purchasers typically in the areas where the oil or gas is produced. Revenues from the sale of oil and gas production accounted for 89%, 98%, and 90% of our consolidated revenues for the three years ended December 31, 2001, 2000 and 1999, respectively. Generally, we do not refine or process any of the oil and gas we produce. We are currently able to sell, under contract or in the spot market through the operator, substantially all of the oil and the gas we are capable of producing at current market prices. Substantially all of our oil and gas is sold under short-term contracts or contracts providing for periodic adjustments or in the spot market; therefore, our revenue streams are highly sensitive to changes in current market prices. Our gas markets are pipeline companies as opposed to end users.

     The oil and gas industry is highly competitive. We encounter strong competition from other independent operators and from major oil companies in acquiring properties, in contracting for drilling equipment and in securing trained personnel. Many of these competitors have financial and technical resources and staffs substantially larger than those available to us. As a result, our competitors may be able to pay more for desirable leases and they may pay more to evaluate, bid for and purchase a greater number of properties or prospects than our financial or personnel resources will permit us to do.

     We are also affected by competition for drilling rigs and the availability of tubular goods and certain other equipment. While the oil and gas industry has experienced shortages of drilling rigs and equipment, pipe and personnel in the past, we are not presently experiencing any shortages and do not foresee any such shortages in the near future, however, we are unable to predict how long current market conditions will continue.

     Competition for attractive oil and gas producing properties, undeveloped leases and drilling rights is also strong, and we cannot assure you that we will be able to compete satisfactorily in acquiring properties. Many major oil companies have publicly indicated their decisions to concentrate on overseas activities and have been actively marketing certain producing properties for sale to independent oil and gas producers. We cannot assure you that we will be successful in acquiring any such properties.

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REGULATION

     INTERNATIONAL

     General. All of our current international exploration activities are conducted in France, Turkey and Trinidad. Such activities are affected in varying degrees by political stability and government regulations relating to foreign investment and the oil and gas industry. Changes in these regulations or shifts in political attitudes are beyond our control and may adversely affect our businesses. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, environmental legislation and mine safety.

     Government Regulation. Our current or future operations, including exploration and development activities on our properties, require permits from various governmental authorities and such operations are and will be governed by laws and regulations governing prospecting, development, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection and other matters. Compliance with these requirements may prove to be difficult and expensive. See “Item 1. Business – Risk Factors – Company Risks,” for further information regarding international government regulation.

     Permits and Licenses. In order to carry out exploration and development of mineral interests or to place these into commercial production, we may require certain licenses and permits from various governmental authorities. There can be no guarantee that we will be able to obtain all necessary licenses and permits that may be required. In addition, such licenses and permits are subject to change and there can be no assurances that any application to renew any existing licenses or permits will be approved. See “Item 1. Business – Risk Factors – Company Risks,” for further information regarding our French and Turkish permits and licenses.

     Repatriation of Earnings. Currently, there are no restrictions on the repatriation from France or Turkey of earnings or capital to foreign entities. However, there can be no assurance that any such restrictions or repatriation of earnings or capital from France, Turkey or any other country where we may invest, will not be imposed in the future.

     Environmental. The oil and gas industry is subject to extensive and varying environmental regulations in each of the jurisdictions in which we may operate. Environmental regulations establish standards respecting health, safety and environmental matters and place restrictions and prohibitions on emissions of various substances projected concurrently with oil and natural gas. These regulations can have an impact on the selection of drilling locations and facilities, potentially resulting in increased capital expenditures. In addition, environmental legislation may require those wells and production facilities be abandoned and sites reclaimed to the satisfaction of local authorities. We will be committed to meeting our responsibility to comply with environmental and operation legislation wherever we operate.

     DOMESTIC

     General. The availability of a ready market for oil and gas production depends upon numerous factors beyond our control. These factors include state and federal regulation of oil and gas production and transportation, as well as regulations governing environmental quality and pollution control, state limits on allowable rates of production by a well or proration unit, the amount of oil and gas available for sale, the availability of adequate pipeline and other transportation and processing facilities and the marketing of competitive fuels. For example, a productive gas well may be “shut-in” because of an over-supply of gas or lack of an available gas pipeline in the areas in which we may conduct operations. State and federal regulations generally are intended to prevent waste of oil and gas, protect rights to produce oil and gas between owners in a common reservoir, control the amount of oil and gas produced by assigning allowable rates of production and control contamination of the environment. Pipelines and gas plants also are subject to the jurisdiction of various Federal, state and local agencies.

     Our sales of natural gas are affected by the availability, terms and costs of transportation. The rates, terms and conditions applicable to the interstate transportation of gas by pipelines are regulated by the Federal Energy Regulatory Commission (“FERC”) under the Natural Gas Act (“NGA”) as well as under Section 311 of the Natural Gas Policy Act (“NGPA”). Since 1985, FERC has implemented regulations intended to increase competition within the gas industry by making gas transportation more accessible to gas buyers and sellers on an open-access, non-discriminatory basis.

     Our sales of oil are also affected by the availability, terms and costs of transportation. The rates, terms, and conditions applicable to the interstate transportation of oil by pipelines are regulated by FERC under the Interstate Commerce Act. In this connection, FERC has implemented a simplified and generally applicable ratemaking methodology for interstate oil pipelines to fulfill the requirements of

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Title VIII of the Energy Policy Act of 1992 comprised of an indexing system to establish ceilings on interstate oil pipeline rates. The FERC has announced several important transportation-related policy statements and rule changes, including a statement of policy and final rule issued February 25, 2000 concerning alternatives to its traditional cost-of-service rate-making methodology to establish the rates interstate pipelines may charge for their services. The final rule revises FERC’s pricing policy and current regulatory framework to improve the efficiency of the market and further enhance competition in natural gas markets.

     With respect to transportation of natural gas on or across the Outer Continental Shelf (“OCS”), FERC requires, as a part of its regulation under the Outer Continental Shelf Lands Act (“OCSLA”), that all pipelines provide open and non-discriminatory access to both owner and non-owner shippers. Although to date FERC has imposed light-handed regulation on offshore facilities that meet its traditional test of gathering status, it has the authority to exercise jurisdiction under the OCSLA over gathering facilities, if necessary, to permit non-discriminatory access to service. For those facilities transporting natural gas across the OCS that are not considered to be gathering facilities, the rates, terms and conditions applicable to this transportation are regulated by FERC under the NGA and NGPA, as well as the OCSLA. With respect to the transportation of oil and condensate on or across the OCS, FERC requires, as part of its regulation under the OCSLA, that all pipelines provide open and non-discriminatory access to both owner and non-owner shippers. Accordingly, FERC has the authority to exercise jurisdiction under the OCSLA, if necessary, to permit non-discriminatory access to service.

     We conduct operations on federal, state or Indian oil and gas leases, and such operations must comply with numerous regulatory restrictions, including various nondiscrimination statutes, royalty and related valuation requirements, and certain of such operations must be conducted pursuant to certain on-site security regulations and other appropriate permits issued by the Bureau of Land Management (“BLM”) or Minerals Management Service (“MMS”) or other appropriate federal or state agencies.

     Our OCS leases in federal waters are administered by the MMS and require compliance with detailed MMS regulations and orders. The MMS has promulgated regulations implementing restrictions on various production-related activities, including restricting the flaring or venting of natural gas. Under certain circumstances, the MMS may require any operations on federal leases to be suspended or terminated. Any such suspension or termination could materially and adversely affect our financial condition and operations. On March 15, 2000, the MMS issued a final rule effective June 1, 2000, that amends its regulations governing the calculation of royalties and the valuation of crude oil produced from federal leases. Among other matters, this rule amends the valuation procedure for the sale of federal royalty oil by eliminating posted prices as a measure of value and relying instead on arm’s length sales prices and spot market prices as market value indicators. Because we generally sell our production to third parties and royalties on production from federal leases are paid on the basis of these sales, it is not anticipated that this final rule will have any substantial impact on us.

     The Mineral Leasing Act of 1920 (“Mineral Act”) prohibits direct or indirect ownership of any interest in federal onshore oil and gas leases by a foreign citizen of a country that denies “similar or like privileges” to citizens of the United States. Such restrictions on citizens of a “non-reciprocal” country include ownership or holding or controlling stock in a corporation that holds a federal onshore oil and gas lease. If this restriction is violated, the corporation’s lease can be canceled in a proceeding instituted by the United States Attorney General. Although the regulations of the BLM (which administers the Mineral Act) provide for agency designations of non-reciprocal countries, there are presently no such designations in effect. We own interest in federal onshore oil and gas leases. It is possible that our stockholders may be citizens of foreign countries, which at some time in the future might be determined to be non-reciprocal under the Mineral Act.

     Federal and State Taxation. The federal and state governments may propose tax initiatives that affect us. We are unable to determine what effect, if any, future proposals would have on product demand or our results of operations.

     Environmental Regulation. Exploration, development and production of oil and gas, including operation of saltwater injection and disposal wells, are subject to various federal, state and local environmental laws and regulations. Such laws and regulations can increase the costs of planning, designing, installing and operating oil and gas wells. Our domestic activities are subject to a variety of environmental laws and regulations, including, but not limited to:

	•		the Oil Pollution Act of 1990 (OPA);
	•		the Clean Water Act (CWA);
	•		the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA);
	•		the Resource Conservation and Recovery Act (RCRA);
	•		the Clean Air Act (CAA); and
	•		the Safe Drinking Water Act (SDWA).

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     Our domestic activities are also controlled by state regulations promulgated under comparable state statutes. We also are subject to regulations governing the handling, transportation, storage and disposal of naturally occurring radioactive materials that are found in our oil and natural gas operations. Civil and criminal fines and penalties may be imposed for non-compliance with these environmental laws and regulations. Additionally, these laws and regulations require the acquisition of permits or other governmental authorizations before undertaking certain activities, limit or prohibit other activities because of protected areas or species, can impose certain substantial liabilities for the cleanup of pollution, impose certain reporting requirements, and can require substantial expenditures for compliance.

     Under OPA and CWA, our release of oil and hazardous substances into or upon waters of the United States, adjoining shore lines and wetlands, and offshore areas could result in our being held responsible for the (1) costs of remediating a release, (2) administrative and civil penalties or criminal fines, (3) OPA specified damages such as loss of use, and for natural resource damages. The extent of liability could be extensive depending upon the circumstances of the release. Liability can be joint and several and without regard to fault. The CWA also may impose permitting obligations for certain discharges of pollutants and requirements to develop Spill Prevention Control and Countermeasure Plans and Facility Response Plans to address potential discharges of oil into or upon waters of the United States and adjoining shorelines.

     CERCLA and comparable state statutes, also known as Superfund laws, can impose joint, several and retroactive liability, without regard to fault or the legality of the original conduct, on specified classes of persons for the release of a “hazardous substance” into the environment. In practice, cleanup costs are usually allocated among various responsible parties. Liability can arise from conditions on properties where operations are conducted and/or from conditions at third party disposal facilities where wastes from operations were sent. Although CERCLA, as amended, currently exempts petroleum, (including oil, natural gas and NGLs) from the definition of hazardous substance, some similar state statutes do not provide such an exemption. Additionally, our operations may involve the use or handling of other materials that may be classified as hazardous substances under CERCLA and similar state statutes. We cannot assure you that the exemption will be preserved in any future amendments of the act.

     RCRA and comparable state and local programs impose requirements on the management, including treatment, storage and disposal, of both hazardous and nonhazardous solid wastes. Although we believe we have utilized operating and waste disposal practices that were standard in the industry at the time, hydrocarbons or other solid wastes may have been disposed or released on or under the properties owned or leased by us or on or under locations where such wastes have been taken for disposal. In addition, many of these properties have been owned or operated by third parties. We had no control over such parties’ treatment of hydrocarbons or other solid wastes and the manner in which such substances may have been disposed or released. We generate hazardous and nonhazardous solid waste in our routine operations. From time to time, proposals have been made that would reclassify certain oil and natural gas wastes, including wastes generated during pipeline, drilling and production operations, as “hazardous wastes” under RCRA, which would make these solid wastes subject to much more stringent handling, transportation, storage, disposal and clean-up requirements. This development could have a significant impact on our operating costs. While state laws vary on this issue, state initiatives to further regulate oil and natural gas wastes could have a similar impact on our operations.

     Oil and natural gas exploration and production, and possibly other activities, have been conducted at the majority of our properties by previous owners and operators. Materials from these operations remain on some of the properties and in some instances require remediation. In some instances we have agreed to indemnify the sellers of producing properties from whom we have acquired reserves against certain liabilities for environmental claims associated with the properties. We do not believe the costs to be incurred by us for compliance and remediating previously or currently owned or operated properties will be material, but we cannot guarantee that potential costs would not result in material expenditures.

     If in the course of our routine oil and natural gas operations, surface spills and leaks, including casing leaks of oil or other materials occur, we may incur penalties and costs for waste handling, remediation and third party actions for damages. Notwithstanding our lack of control over wells owned by us but operated by others, the failure of the operator to comply with applicable environmental regulations may, in certain circumstances, be attributable to us and may create legal liabilities for us.

     We do not anticipate that we will be required in the near future to expend amounts that are material in relation to our total capital expenditures program by reason of environmental laws and regulations, but inasmuch as these laws and regulations are frequently changed and interpreted, we are unable to predict the ultimate cost of compliance. We cannot assure you that more stringent laws and regulations protecting the environment will not be adopted or that we will not incur material expenses in complying with environmental laws and regulations in the future. If substantial liabilities to third parties or governmental entities were incurred, the payment of such

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claims may reduce or eliminate the funds available for project investment or result in loss of our properties. Although we maintain insurance coverage we consider to be customary in the industry, we are not fully insured against all of these risks, either because insurance is not available or because of high premium costs. Accordingly, we may be subject to liability or may lose substantial portions of properties due to hazards that cannot be insured against or have not been insured against due to prohibitive premium costs or for other reasons. The imposition of any of these liabilities on us may have a material adverse effect on our financial condition and results of operations.

     OSHA and Other Regulations. We are subject to the requirements of the federal Occupational Safety and Health Act (“OSHA”) and comparable state statutes. The OSHA hazard communication standard, the EPA community right-to-know regulations under the Title III of CERCLA and similar state statutes require us to organize and/or disclose information about hazardous materials used or produced in our operations. We believe that we are in substantial compliance with these applicable requirements and with other OSHA and comparable requirements.

EMPLOYEES

     As of April 12, 2002, we employed approximately 40 full-time employees. None of our employees are represented by unions or covered by collective bargaining agreements. To date, we have not experienced any strikes or work stoppages due to labor problems, and we consider our relations with our employees to be good. As needed, we also utilize the services of independent consultants on a contract basis.

RISK FACTORS

     There are various risks involved in owning our common stock, including those described below.

Industry Risks

Continued Financial Success Depends on Our Ability to Acquire Additional Reserves in the Future

     Our future success as an oil and gas producer will depend upon our ability to find, develop and acquire additional oil and gas reserves that are profitable. If we are unable to conduct successful development activities or acquire properties containing proved reserves, our proved reserves will generally decline as reserves are produced.

We Face Numerous Drilling Risks in Finding Commercially Productive Oil and Gas Reservoirs

     Our drilling will involve numerous risks, including the risk that no commercially productive oil or gas reservoirs will be encountered. We may incur significant expenditures for the identification and acquisition of properties and for the drilling and completion of wells. The cost of drilling, completing and operating wells is often uncertain, and drilling operations may be curtailed, delayed or canceled as a result of a variety of factors, including unexpected drilling conditions, pressure or irregularities in formations, equipment failures or accidents, weather conditions and shortages or delays in the delivery of equipment. In addition, any use by us of 3D seismic and other advanced technology to explore for oil and gas requires greater pre-drilling expenditures than traditional drilling strategies.

Company Risks

We May Not Realize the Benefits of the Acquisition of Madison

     We are in the process of combining and integrating our operations and Madison’s operations into one company. This process will continue to require substantial management attention and could detract attention from the day-to-day business of the combined company. We could encounter difficulties in the integration process, such as the loss of key employees. We could encounter problems in conducting foreign as well as domestic operations. If we cannot integrate our businesses successfully, we may fail to realize the benefits we expect to realize from the Madison acquisition, including any expected cost savings.

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Our High Levels of Indebtedness May Limit Our Financial and Operating Flexibility And We May Not Be Able to Repay Our Indebtedness

     At December 31, 2001, our debt to equity ratio was 1.81:1.00. We may incur additional indebtedness in the future as we continue to execute our acquisition and exploration strategy.

     Our long-term debt as of December 31, 2001, was $36.9 million. The level of indebtedness will have important effects on our future operations, including:

	•		A substantial portion of our cash flow will be used to pay interest and principal on debt and will not be available for other purposes.
	•		Covenants contained in its debt obligations will require us to meet certain financial tests (including a debt coverage ratio of 1.25 to 1.0 and a current ratio of 1.0 to 1.0), and other restrictive covenants, such as an inability to sell properties mortgaged to our lender if the sale of such properties exceeds 10% of our borrowing base or an inability to incur any indebtedness in an amount greater than $1,000,000 other than indebtedness incurred in the ordinary course of business, may affect our flexibility in planning for, and reacting to, changes in our business, including possible acquisition activities.
	•		A default under either of our current credit facilities would permit the lender to accelerate repayments of the loan and to foreclose on the collateral securing the loan, including a substantial portion of our oil and gas properties.
	•		Our ability to refinance existing debt or to obtain additional financing for capital expenditures and other purposes may be limited.
	•		We may be more leveraged than our competitors, which may place us at a competitive disadvantage.
	•		We may be unable to adjust rapidly to changing market conditions.

     These considerations may make us more vulnerable than a less leveraged competitor in the event of a downturn in our business or general economic conditions.

We May Not Be Able to Fund Our Obligations Under the Barclays Facility That Are Due During 2002

     Under the Barclays Facility (as defined under Item 7. Management’s Discussion and Analysis – Liquidity and Capital Resources), we are required to repay a total of $2.6 million by July 2002. If we are unable to repay this amount in accordance with the terms of the Barclays Facility, the lender would be allowed to accelerate repayments of the loan and to foreclose on the collateral securing the loan, including, indirectly, a substantial portion of our oil and gas properties.

A Large Percentage of Our Common Stock Is Owned by Our Officers and Directors and Such Stockholders May Control Our Business and Affairs

     At December 31, 2001, our officers and directors, as a group, held a beneficial interest in approximately 48% of our common stock (including shares issuable upon exercise of stock options for common stock, conversion of our Series A Convertible Preferred Stock, held by affiliates of certain directors and conversion of Madison’s amended and restated convertible debenture). The officers and directors control our business and affairs, and due to their large ownership percentage, they may remain entrenched in their positions.

A Significant Portion of Our Operations Is Conducted in France and Turkey and We Own Interests in Trinidad. We Are Thus Subject to Political, Economic and Other Uncertainties

     We have international operations and are subject to the following foreign issues and uncertainties:

	•		the risk of expropriation, nationalization, war, revolution, border disputes, renegotiation or modification of existing contracts, and import, export and transportation regulations and tariffs;
	•		taxation policies, including royalty and tax increases and retroactive tax claims;
	•		exchange controls, currency fluctuations and other uncertainties arising out of foreign government sovereignty over international operations;
	•		laws and policies of the United States affecting foreign trade, taxation and investment;
	•		the possibility of being subjected to the exclusive jurisdiction of foreign courts in connection with legal disputes and the possible inability to subject foreign persons to the jurisdiction of courts in the United States; and

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•

the possibility of restrictions on repatriation of earnings or capital from foreign countries.

     The occurrences of any of these uncertainties may adversely affect our foreign operations.

Our Increased Size and Scope of Operations May Prevent Us from Being Properly Managed

     The Madison and Texona Petroleum Corporation acquisitions represent major steps in our growth strategy. However, our increased size and scope of operations will require our management to expend increased time and resources, and our management may not properly be able to manage the expanded company.

Our Ability to Grow Depends on Our Ability to Obtain Additional Capital on Satisfactory Terms and Conditions

     Our growth of business requires substantial capital on a continuing basis. We may be unable to obtain additional capital on satisfactory terms and conditions. Thus, we may lose opportunities to acquire oil and gas properties and businesses. In addition, our pursuit of additional capital could result in incurring additional indebtedness or issuing and adding potentially dilutive equity securities. We also may utilize the capital currently expected to be available for our present operations. The amount and timing of our future capital requirements, if any, will depend upon a number of factors, including:

	•		drilling costs;
	•		transportation costs;
	•		equipment costs;
	•		marketing expenses;
	•		oil and gas prices;
	•		staffing levels and competitive conditions; and
	•		any purchases or dispositions of assets.

     Our failure to obtain any required additional financing could materially and adversely affect our growth, cash flow and earnings.

Our Marketing of Oil and Gas Production Principally Depends upon Facilities Operated by Others, and These Operations May Change and Have a Material Adverse Effect on Our Marketing of Oil and Gas Production

     Our marketing of oil and gas production principally depends upon facilities operated by others. The operations of those facilities may change and have a material adverse effect on our marketing of oil and gas production. In addition, we rely upon third parties to operate many of our properties and may have no control over the timing, extent and cost of development and operations. As a result of these third party operations, we cannot control the timing and volumes of production.

We May Not Be Able to Renew Our Permits

     We do not hold title to properties in France or in Turkey, but have exploration and production permits granted by the governments of France and Turkey. There can be no assurances that we will be able to renew any of these permits that expire.

We May Not Have Production to Offset Hedges. By Hedging We May Not Benefit From Price Increases

     We may, from time to time, reduce our exposure to the volatility of oil and gas prices by hedging a portion of our production. In a typical hedge transaction, we will have the right to receive from the counterparty to the hedge, the excess of the fixed price specified in the hedge over a floating price based on a market index, multiplied by the quantity hedged. If the floating price exceeds the fixed price, we will be required to pay the counterparty this difference multiplied by the quantity hedged. In such case, we will be required to pay the difference regardless of whether we have sufficient production to cover the quantities specified in the hedge. Significant reductions in production at times when the floating price exceeds the fixed price could require us to make payments under the hedge agreements even though such payments are not offset by sales of production. Hedging will also prevent us from receiving the full advantage of increases in oil or gas prices above the fixed amount specified in the hedge.

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Investment Risks

Due to the Restrictions Placed on Us by Our Credit Facility and Our Outstanding Shares of Preferred Stock, We Do Not Expect to Pay Cash Dividends in the Near Future

     From time to time, we have paid cash dividends on our common stock. However, we do not anticipate paying cash dividends on our common stock in the foreseeable future. Our credit facilities and our outstanding shares of preferred stock restrict our ability to pay dividends on our common stock. Therefore, our common stock is not a suitable investment for persons requiring current income.

GLOSSARY OF SELECTED OIL AND GAS TERMS

     “2D” or “2D Seismic.” An exploration method of sending energy waves or sound waves into the earth and recording the wave reflections to indicate the type, size, shape, and depth of subsurface rock formations. 2D seismic provides two dimensional pictures.

     “3D” or “3D Seismic.” An exploration method of sending energy waves or sound waves into the earth and recording the wave reflections to indicate the type, size, shape, and depth of subsurface rock formations. 3D seismic provides three dimensional pictures.

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

     “BBL/D.” Barrels per day

     “Bcf.” One billion cubic feet of natural gas.

     “BOE.” Barrel of oil equivalent converting six Mcf of natural gas to one barrel of oil.

     “DEVELOPMENT WELL.” A well drilled within the proved boundaries of an oil or natural gas reservoir with the intention of completing the stratigraphic horizon known to be productive.

     “DISCOUNTED PRESENT VALUE (PRETAX).” The present value of proved reserves is an estimate of the discounted future net cash flows from each property at December 31, 2001, or as otherwise indicated. Net cash flow is defined as net revenues less, after deducting production and ad valorem taxes, future capital costs and operating expenses, but before deducting federal income taxes. The future net cash flows have been discounted at an annual rate of 10% to determine their “present value.” The present value is shown to indicate the effect of time on the value of the revenue stream and should not be construed as being the fair market value of the properties. In accordance with Securities and Exchange Commission rules, estimates have been made using constant oil and natural gas prices and operating costs, at December 31, 2001, or as otherwise indicated.

     “DRY HOLE.” A development or exploratory well found to be incapable of producing either oil or natural gas in sufficient quantities to justify completion as an oil or natural gas well.

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

     “GROSS ACRES” or “GROSS WELLS.” The total number of acres or wells, as the case may be, in which a working or any type of royalty interest is owned.

     “MBbl.” One thousand Bbls.

     “MBOE.” One thousand BOE.

     “Mcf.” One thousand cubic feet of natural gas.

     “MMBl.” One million Bbls of oil and other liquid hydrocarbons.

     “MMBOE.” One million BOE.

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     “NET ACRES.” The sum of the fractional working or any type of royalty interests owned in gross acres.

     “PRODUCING WELL” or “PRODUCTIVE WELL.” A well that is producing oil or natural gas or that is capable of production.

     “PROVED DEVELOPED RESERVES.” The oil and natural gas reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and natural gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery should be included as “proved developed reserves” only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved.

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

     “PROVED UNDEVELOPED RESERVES.” The oil and natural gas reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Under no circumstances should estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery techniques is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir.

     “ROYALTY INTEREST.” An interest in an oil and natural gas property entitling the owner to a share of oil and natural gas production free of production costs.

     “STANDARDIZED MEASURE.” Under the Standardized Measure, future cash flows are estimated by applying year-end prices, adjusted for fixed and determinable escalations, to the estimated future production of year-end proved reserves. Future cash inflows are reduced by estimated future production and development costs based on period-end costs to determine pretax cash inflows. Future income taxes are computed by applying the statutory tax rate to the excess inflows over a company’s tax basis in the associated properties.

     Tax credits, net operating loss carryforwards, and permanent differences are also considered in the future tax calculation. Future net cash inflows after income taxes are discounted using a 10% annual discount rate to arrive at the Standardized Measure.

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

     “WORKING INTEREST.” The operating interest which gives the owner the right to drill, produce and conduct operating activities on the property and a share of production, subject to all royalties, overriding royalties and other burdens and to all exploration, development and operational costs including all risks in connection therewith.

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ITEM 2. PROPERTIES.

INTERNATIONAL

     FRANCE

     We own and operate five producing oil fields in the Paris Basin, France. Four of those are located within the Neocomian Field complex and one in the Charmottes area.

     NEOCOMIAN FIELDS

     Pursuant to two production permits, we own a 100% working interest in the Neocomian Fields, a group of four oil accumulations located approximately 120 kilometers southeast of Paris. The Chateau Renard Field was discovered in 1958, Chuelles and St. Firmin-des-Bois in 1961 and Courtenay in 1964. The property currently has 68 producing oil wells. As of December 31, 2001, the Neocomian Fields had net reserves of 7,107 MBbl.

     CHARMOTTES

     We own a 100% working interest in the Charmottes Field, located 60 kilometers southeast of Paris. The property has nine oil wells of which eight are currently producing. The Charmottes Field was initially developed following the discovery well drilled in 1984. As of December 31, 2001, the Charmottes Field has net reserves of 1,165 MBbl.

     THIBIE PERMIT

     We own a 100% working interest in approximately 48,000 acres located on the east flank of the Paris Basin, about 120 kilometers east/northeast of Paris. A portion of the Thibie permit contains the northern extension of the Dommartin-Lettree oil field, which is a subsurface controlled closure against an up to the basin fault. As of December 31, 2001, the Thibie Permit did not have any net reserves.

     At the Neocomian Field, the 10-well drilling program that Madison began in 2000 was completed in 2001. Further development may include 10-20 extension and infill wells, which will target the three producing horizons in the fields. We will continue to develop opportunities for future exploration by conducting regional studies of prospective areas and augmenting our existing acreage holdings.

     TURKEY

     In Turkey, we have interests in the Zeynel and Cendere Fields.

     ZEYNEL

     We have an 8.0% royalty interest in the Zeynel Field, located in south-central Turkey, with net proved reserves of 73 MBbl at December 31, 2001.

     CENDERE

     We have an approximate 19.6% working interest in the Cendere Field, which is located in central Turkey. The property has 15 oil wells currently producing. We have net proved reserves of 863 MBbl in the Cendere Field as of December 31, 2001.

     CENTRAL AND SE EXPLORATION PERMITS

     We hold 26 exploration licenses on 2.6 million acres and have applied for seven more permits that could add 700,000 more acres to our areas of operations in Turkey. A number of producing fields in Iran and Iraq trend in a north by northwesterly direction and wrap into southern Turkey through the area encompassing many of our exploration permits. As of December 31, 2001, there were no net reserves for the land covered by the Central and SE Exploration Permits. In addition to our exploration licenses, we hold an overriding royalty interest in wells on the Calgan exploration permit, which is located in south central Turkey. We expect the operator to drill at least one well on the Calgan permit in 2002.

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     THRACE BASIN PERMITS

     In the Thrace Basin, located in the European portion of Turkey, we have a 50% interest in three exploration permits and a 25% interest in one permit. The Thrace Basin has shown potential for natural gas. In this part of the country, gas is productive from shallow depths. With a pipeline through the region from Bulgaria to Istanbul and gas-fired power plants on the coast along the Marmara Sea, we could benefit from the area’s existing infrastructure. In 2000, Madison completed a seismic survey covering 200 square kilometers. Based on the results of the survey, we plan to drill two wells in the Thrace Basin in mid 2002. The seismic survey and wells drilled on adjacent producing permits indicate similar characteristics on our acreage. As of December 31, 2001, there were no net reserves for the land covered by the Thrace Basin Permits.

     Additional development potential exists in Turkey. During 2000, the operator at the Zeynel Field drilled the number 13 well and completed it as an oil producer. At Cendere, the Turkish National Oil Company completed the Cendere number 17 well in early 2001. This well is producing at a rate of 750 BBL/D, or 150 BBL/D to our interest. We believe both of these fields have potential for additional drilling locations.

     TRINIDAD, WEST INDIES

     In Trinidad, all of our operations are conducted by, and licenses are held through, Trinidad Exploration and Development, Ltd. (“TED”), of which we are a 25% owner. In the South West Peninsula area of Trinidad, previously unperforated zones were put on production in the Bonasse Field. Four wells are currently on production at about 49 BBL/D. TED has an acreage position of 35,000 acres in Trinidad located on the Southwest Peninsula. This acreage position is located adjacent to Palo Seco to the east, Soldado and South West Soldado to the north, and the Pedernales Field in Venezuela to the west. Based on the proximity to the Palo Seco, Soldado and Pedernales Fields, we believe that there is potential to discover oil reserves on TED’s current acreage position. In addition, TED has contracted for a 3D seismic program covering 150 square kilometers on the Cedros Peninsula permit.

     Most of the region’s onshore oil comes from shallow producing zones, but TED has identified an untested anticlinal feature at a deeper target horizon. It is in this horizon that we believe there exists the potential for oil discoveries.

     See “Item 3. Legal Proceedings – Trinidad Arbitration” regarding the dispute over our ownership percentage in TED.

DOMESTIC

     We own perpetual oil and gas mineral and royalty interests comprised of and commonly referred to as the Texas Holdings, the Southeastern States Holdings and the Four States Property Holdings, all of which are equal to approximately 2,643,000 gross acres.

     TEXAS HOLDINGS

     Our Texas Holdings are comprised of the Northern Ranch Minerals and the Southern Ranch Minerals and are equal to approximately 766,000 gross (461,000 net) acres.

     NORTHERN RANCH MINERALS

     We own mineral interests under approximately 334,000 gross acres located in Oldham and Hartley Counties, Texas. These minerals are all located in the geologic province commonly known as the Southern Dalhart Basin. Inquiries by third parties to evaluate the minerals in this area have diminished the past two years mainly because the basin in which our minerals are located is considered to be oil bearing and not gas bearing.

     SOUTHERN RANCH MINERALS

     We own mineral interests under an aggregate of approximately 470,000 gross acres located in three geologic provinces commonly known as the Palo Duro Basin, the Matador Arch, and the Eastern Shelf.

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     PALO DURO BASIN

     The Palo Duro Basin, where we own mineral interests under approximately 195,000 gross acres, located in Motley and Cottle Counties, Texas, is a moderate depth depression between the Matador Arch on the south and the Amarillo uplift complex to the north. There was no leasing or drilling activity with respect to our mineral interests in this region in 2001.

     MATADOR ARCH

     The Matador Arch, where we own mineral interests under approximately 90,000 gross acres, is a prominent east-west structural positive traversing north Texas and southern Oklahoma. During 2000, one gross (.15 net) well was successfully drilled and completed in the Wolfcamp at approximately 3,300 feet, pump testing at a daily rate of 50 BBL/D extending the Matador Field. We own a 15% net royalty interest in this well. That same operator re-entered a drilled and abandoned well on the same lease, but it tested dry. In February 2001, the operator drilled another dry hole on the same lease.

     EASTERN SHELF

     The Eastern Shelf of the Midland Basin, where we own mineral interests under approximately 185,000 gross acres, located primarily in Dickens County, Texas, is prospective for shallow Permian age oil accumulations in the Tannehill Sand and possible deeper objectives in the Pennsylvanian section.

     As of April 12, 2002, two wells have been drilled on our Pitchfork Ranch acreage. We participated for a 9.4% working interest and a 9.4% royalty interest in each well. Both were successful extensions to the Silver Spur (Tannehill) Field bringing the total number of producers in the field to six. These two wells were completed in the Tannehill at approximately 3,900 feet and pump tested for a combined potential rate of 140 BBL/D.

     SOUTHEASTERN STATES HOLDINGS

     In December 1998, we acquired approximately 1,775,000 gross (876,000 net) acres located in Mississippi, Alabama and Louisiana. Most of our activity is generated along the southern half of each of these three states. Unlike our Texas Holdings, our mineral spread here is diversified over several geologic provinces and not highly concentrated in one specific area. Conversely, we own a mineral position in every county in Mississippi and Alabama. The majority of the leasing and exploration activity on our minerals is in Mississippi.

     MISSISSIPPI

     We own perpetual mineral interests in approximately 1,137,000 gross acres in Mississippi. The largest concentration of activity for our Southeastern States Holdings is in the geologic province commonly known as the Mississippi Salt Basin. This province primarily stretches from northeastern Louisiana across the southern half of Mississippi and just into the southwestern portions of Alabama. In another province of more recent importance is the development of a Deep Knox Gas discovery in northeastern Mississippi located just southwest and adjacent to the Black Warrior Basin. This basin extends from northeastern Mississippi into northwestern Alabama.

     The majority of mineral leasing activity for us occurs on the Mississippi portion of its Southeastern States Holdings. For the year ending December 31, 2001, we received $422,110 in lease bonus and $70,455 rental income from the leasing of approximately 5,215 net mineral acres. In 2000, we received approximately $475,000 in lease bonus and rental income from the leasing of approximately 4,900 net mineral acres.

     Mississippi Salt Basin

     The Mississippi Salt Basin contains two major areas of exploration activity that currently provide us with the opportunity to gain significant reserve additions. The two areas are the Piercement Salt Domes and the Salt Ridges.

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     Piercement Salt Domes

     The Piercement Salt Dome activity is currently focused in the south-central portion of Mississippi in Covington, Jefferson Davis and Jones Counties, Mississippi. These geologic features have several target pay zones ranging from primary objectives in several Hosston Sandstones at depths of over 15,000 feet to secondary objectives in the Sligo and Paluxy formations at approximately 14,000 feet and 12,000 feet, respectively. The current success in this area is primarily attributed to the utilization of modern 3D seismic technology. As a royalty owner, we do not bear the burden of any expenses in exploring and developing any fields discovered.

     Salt Ridges

     Salt Ridge exploration activity is resuming in Wayne County, Mississippi. The primary objectives are the Cotton Valley, Smackover and Norphlet formations ranging from 12,000 feet to 18,000 feet. The use of modern 3D seismic technology has been critical to the success of this activity.

     Deep Knox Gas

     Current activity is centered in western Oktibbeha County, Mississippi, adjacent to the Black Warrior Basin, where several 15,000-foot plus Knox test wells have been completed since June 1998 as extensions of the Maben Field which was originally discovered in 1970. The No. 1 Irene E. Brown et al 21-3 is the fifth successful extension well drilled and completed by the operator. We own a 2.81% net royalty interest in this well and now own a royalty interest in four of the five wells drilled and completed since 1998.

     This area continues to be promising since few wells have been drilled to the Knox formation in this region near or in the Black Warrior Basin. The operator’s continued success, aided by the use of modern 3D seismic technology, should fuel future drilling interest around the Maben Field area.

     ALABAMA

     We own perpetual oil and gas mineral and royalty interests in approximately 622,000 gross acres in Alabama. We own a mineral position in every county in Alabama. Activity on our minerals in Alabama is not as significant as it is in Mississippi.

     LOUISIANA

     We own oil and gas mineral and royalty interests in approximately 16,000 gross acres in Louisiana. Unlike the other states where we own perpetual minerals, the laws in Louisiana are such that the minerals prescribe to the surface owner after 10 years have passed without any production or drilling on said lands. Since we do not own the surface rights in any of the properties that were acquired in December 1998, the consequence is that we do not maintain many of our mineral rights if production ceases for a period of 10 years.

     FOUR STATE PROPERTY HOLDINGS

     In September 1999, we acquired certain oil and gas royalty interests located in Arkansas, California, Kansas and Michigan. The holdings include approximately 140 producing wells in addition to approximately 56,000 gross (18,000 net) undeveloped acres. While we have experienced limited leasing activity on these holdings thus far, we continue to receive new revenues generated from additional drilling development in Arkansas and secondary recovery enhancements in California.

     TEXONA PETROLEUM CORPORATION ACQUISITION

     In September 2000, we acquired an interest in close to 1,000 wells as a part of the acquisition of Texona Petroleum Corporation. While the wells are located in 12 states, the primary value is concentrated in Oklahoma, Texas and Louisiana. Almost all of the interests acquired were non-operated working interests.

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     ANDERSON ET AL ACQUISITION

     On July 26, 2001, we acquired royalty and working interests in approximately 800 gross wells primarily located in Kansas, New Mexico, and Oklahoma for approximately $3.8 million, funded by existing cash and borrowings under the Facility (as defined under Item 7. Management’s Discussion and Analysis – Liquidity and Capital Resources). This acquisition had an effective date of May 1, 2001, and resulted in reserve additions of approximately 2.7 Bcf as of that date.

     RAZORHAWK ACQUISITION

     On April 26, 2001, we acquired working interests in 18 gross wells in Meade County, Kansas from Fremont Exploration, Inc. for approximately $4.0 million, funded by existing cash and borrowings under the Facility. This acquisition had an effective date of March 1, 2001, and resulted in reserve additions of approximately 2.5 Bcf as of that date.

TITLE TO OIL AND GAS PROPERTIES

     INTERNATIONAL

     FRANCE

     We do not hold title to properties in France, but have been granted exploration permits and production permits by the governments of France. We have three French exploration permits: Thibie, Marvilliers and Nangis. There are no proved reserves associated with any of these permits. The Thibie permit expires in 2002 and we have already submitted an application for renewal. The Marvilliers permit expires in 2004 and the Nangis permit expires in 2005. The French exploration permits contain minimum financial requirements that must be met during their term. If such obligations are not met, the permits could be subject to forfeiture.

     The French production permits cover five producing oil fields in the Paris Basin. The years the current production permits in France expire are as follows:

     We believe that, although the French government has the option to renew production permits, it will renew such production permits, so long as we, as the license holder, demonstrate financial and technical capabilities and establish the studies used in defining the work schedule. However, there can be no assurance that we will be able to renew any of its permits that expire.

     TURKEY.

     We do not hold title to properties in Turkey, but have been granted exploitation leases and exploration licenses by the government of Turkey. The years the current exploitation leases and exploration licenses expire in Turkey are as follows:

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     Under Turkish law, “exploitation leases” are generally granted for a period of twenty years and may be renewed upon application for two additional ten year periods. “Exploration licenses” are generally granted for four year terms, and may be extended for two additional two year terms, provided that drilling obligations stipulated under Turkish law are satisfied. If an exploration license is extended for development as an exploitation lease, the period of the exploration license(s) is counted towards the 20 year exploitation lease.

     DOMESTIC

     We have acquired interests in producing and non-producing acreage in the form of working interests, fee mineral interests, royalty interests and overriding royalty interests. Substantially all of our property interests are leased to third parties. The leases grant the lessee the right to explore for and extract oil and gas from specified areas. Consideration for a lease usually consists of a lump sum payment (i.e., bonus) and a fixed annual charge (i.e., delay rental) prior to production (unless the lease is paid up) and, once production has been established, a royalty based generally upon the proceeds from the sale of oil and gas. Once wells are drilled, a lease generally continues so long as production of oil and gas continues. In some cases, leases may be acquired in exchange for a commitment to drill or finance the drilling of a specified number of wells to predetermined depths. We receive annual delay rentals from lessees of certain properties in order to prevent the leases from terminating. Title to leasehold properties is subject to royalty, overriding royalty, carried, net profits and other similar interests and contractual arrangements customary in the oil and gas industry, and to liens incident to operating agreements, liens relating to amounts owed to the operator, liens for current taxes not yet due and other encumbrances.

     As is common industry practice, we conduct little or no investigation of title at the time we acquire undeveloped properties, other than a preliminary review of local mineral records. However, we do conduct title investigations and, in most cases, obtain a title opinion of local counsel before commencement of drilling operations. We believe that the methods we utilize for investigating title prior to acquiring any property are consistent with practices customary in the oil and gas industry and that such practices are adequately designed to enable us to acquire good title to such properties. Some title risks, however, cannot be avoided, despite the use of customary industry practices.

     We own oil and gas mineral and royalty interests in approximately 16,000 gross acres in Louisiana. Unlike the other states where we own perpetual minerals, the laws in Louisiana are such that the minerals prescribe to the surface owner after 10 years have passed without any production or drilling on said lands. Since we do not own the surface rights in any of the properties that were acquired in December 1998, the consequences are that we do not maintain many of our mineral rights if production ceases for a period of 10 years.

     Our properties are generally subject to:

	•		customary royalty and overriding royalty interests;
	•		liens incident to operating agreements and
	•		liens for current taxes and other burdens and minor encumbrances, easements and restrictions.

     We believe that none of these burdens either materially detract from the value of our properties or materially interfere with their use in the operation of our business. Substantially all of our properties are pledged as collateral under the Facility.

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OIL AND GAS RESERVES

     The following table sets forth information about our estimated net proved reserves at December 31, 2001 and 2000. LaRoche Petroleum Consultants, Ltd., an independent petroleum engineering firm in Dallas, Texas, prepared the estimates of proved developed reserves, proved undeveloped reserves and discounted present value (pretax). We prepared the estimate of standardized measure of proved reserves in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 69, “Disclosures about Oil and Gas Producing Activities.” Because we consummated the acquisition of Madison on December 31, 2001, the table includes information about Madison’s net proved reserves at that date.

     Reserves were estimated using oil and gas prices and production and development costs in effect on December 31, 2001 and 2000, without escalation. The reserves were determined using both volumetric and production performance methods. Proved reserves are those estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. THE VALUES REPORTED MAY NOT NECESSARILY REFLECT THE FAIR MARKET VALUE OF THE RESERVES.

     For additional information concerning our oil and gas reserves and estimates of future net revenues attributable thereto, see Note 20 of the Notes to the Consolidated Financial Statements.

PRODUCTIVE WELLS

     The following table sets forth our gross and net interests in productive oil and gas wells as of December 31, 2001. Productive wells include wells currently producing or currently capable of production. Because we consummated the acquisition of Madison on December 31, 2001, the table includes information about Madison’s productive wells at that date.

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ACREAGE

     The following table sets forth the developed and undeveloped acreage attributable to our ownership as of December 31, 2001. Because we consummated the acquisition of Madison on December 31, 2001, the table includes information about Madison’s acreage at that date.

     Undeveloped acreage is considered to be only those leased acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and gas regardless of whether or not the acreage contains proved reserves.

DRILLING ACTIVITIES

     The following table summarizes the wells drilled during the periods indicated. Because we consummated our acquisition of Madison on December 31, 2001, the table excludes information related to wells Madison drilled during the specified periods.

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NET PRODUCTION, UNIT PRICES AND COSTS

     The following table summarizes our oil, natural gas and natural gas liquids production, net of royalties, for the periods indicated. The following table also summarizes calculations of our average unit sales prices and unit costs in total. All such data relate to activities within the United States. Because we consummated our acquisition of Madison on December 31, 2001, the table excludes information related to Madison’s operations.

PRESENT ACTIVITIES

     For the period January 1, 2001 through April 12, 2002, we participated in drilling one gross (0.25 net) exploratory well. The well was successfully completed as an oil well.

OFFICE LEASE

     We occupy approximately 5,277 square feet of office space at 4809 Cole Avenue, Suite 108, Dallas, Texas 75205 under a lease from Chalk Stream Properties, L.P. Total rental expense for 2001 was approximately $130,000. As the result of the Madison acquisition, we also occupy approximately 1,377 square feet of office space at 13/15 Boulevard de la Madeleine, 75001 Paris, France from Societe la Madeleine, and approximately 621 square feet of office space at 9400 N. Central Expressway, Suite 1209, Dallas, Texas 75231. Because we consummated our acquisition of Madison on December 31, 2001, our results of operations exclude rent expense related to these locations.

ITEM 3. LEGAL PROCEEDINGS.

     Karak Petroleum. Madison and its wholly-owned subsidiary Trans-Dominion Holdings Ltd. are named as defendants in a complaint filed in Alberta, Canada, in 1999. The complaint arises from a dispute between Karak Petroleum, a subsidiary of Trans-Dominion Holdings, and the operator of an exploratory well in Pakistan in 1994 in which Karak was a joint interest partner. The plaintiffs allege that they are owed approximately $500,000. We feel that the plaintiffs claims are wholly without merit and intend to defend the case vigorously. We presently cannot predict the outcome of this matter, and accordingly, we have not accrued any amounts for this matter.

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     Turkish Registered Capital. Under the existing Petroleum Law of Turkey, capital which is invested by foreign companies for projects such as oil and gas exploration can be registered with the General Directorate of Petroleum Affairs, thereby qualifying for protection against adverse changes in the exchange rate between the time of the initial investment and the time such capital is repatriated out of Turkey. Since 1997 the Turkish government has suspended such protection for repatriated capital. As holder of more than $50 million of registered capital, we have filed suit in Turkey to attempt to restore the exchange rate protections afforded under the law. No amounts are accrued related to this contingency. Holders of Madison common stock have the right to receive, in cash or our common stock, 30% of certain potential payments that may be received from the Turkish government for the protection of repatriated capital. For additional information regarding potential payment to holders of Madison common stock, see Note 9 to the Notes to the Consolidated Financial Statements.

     Trinidad Arbitration. We hold a 25% interest in Trinidad Exploration and Development, Ltd., a Trinidad company engaged in oil and gas exploration. Until August 2000, Trinidad Exploration and Development was a wholly-owned subsidiary of Madison, at which time Madison sold a 75% interest to another company. Under the terms of the sale, the buyer was required to fund $4.0 million in costs of drilling and exploration before Madison was required to contribute additional amounts in accordance with its 25% shareholding. During 2001, Trinidad Exploration and Development has been primarily engaged in a seismic program to conduct exploration on a license interest in the South West Peninsula of Trinidad. In late August, Madison received an initial billing for capital contributions to fund the ongoing exploration. The operator claims, however, that Madison did not make timely payments and that Madison’s interest in Trinidad Exploration and Development is therefore reduced from 25% to 12.5%. We are currently disputing any reduction in our interest and, pursuant to the shareholder agreement between the parties, we have engaged counsel to pursue arbitration proceedings to settle the dispute. The preliminary arbitration hearing is scheduled for June 2002. We are currently unable to predict the outcome of the arbitration proceedings.

     From time to time, we are named as a defendant in other legal proceedings arising in the normal course of business. In our opinion, the final judgment or settlement, if any, which may be awarded with any suit or claim would not have a material adverse effect on our financial position.

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

     On December 3, 2001, we submitted a Joint Proxy Statement/Prospectus to our stockholders as of record date November 5, 2001, requesting them to consider and vote at the special meeting on December 31, 2001, upon (1) a proposal to issue up to 6,800,000 shares of our common stock pursuant to the terms of that certain Agreement and Plan of Merger, dated October 3, 2001, by and among Toreador, MOC Acquisition Corporation and Madison; and (2) a proposed 2002 Stock Option Plan pursuant to which 500,000 shares of Toreador common stock will be reserved for issuance pursuant to future stock option grants. The following table summarizes the votes received related to the above matters. As of the record date, there were 6,296,944 shares issued and outstanding.

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PART II

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

MARKET INFORMATION

     Our shares of common stock, par value $.15625 per share, are traded on the Nasdaq National Market System under the trading symbol “TRGL”. Effective January 8, 2002 our shares of common stock started trading on the Toronto Stock Exchange under the symbol “TRX”. The following table sets forth the high and low sale prices per share for the common stock for each quarterly period during the past two fiscal years as reported by Nasdaq based upon quotations which reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

HOLDERS AND CLOSING PRICE

     As of April 12, 2002, there were 9,377,517 shares of common stock outstanding and held of record by approximately 890 holders (inclusive of those brokerage firms, clearing houses, banks and other nominee holders, holding common stock for clients, with all such nominees being considered as one holder).

     The closing price of the common stock on the Nasdaq National Market System on April 12, 2002 was $3.97. The closing price on the Toronto Stock Exchange on April 12, 2002 was Canadian $6.00.

DIVIDENDS

     Dividends on the common stock may be declared and paid out of funds legally available when and as determined by our board of directors. We paid cash dividends totaling $52,000 during 2000. Our board of directors plans to continue our policy of holding and investing corporate funds on a conservative basis, and thus we do not anticipate paying cash dividends on our common stock in the foreseeable future. In addition, under the terms of the Facility described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation – Liquidity and Capital Resources,” we are prohibited from paying dividends on the common stock without prior consent from Bank of Texas, National Association (other than dividends payable in shares of common stock).

     Dividends on our Series A Convertible Preferred Stock are paid on a quarterly basis per the terms of the Certificate of Designation, as amended. Cash dividends totaling $360,000 were paid for the years ended December 31, 2001, 2000 and 1999. Future dividends will be paid in cash only at a rate of $90,000 per calendar quarter.

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SALES OF UNREGISTERED SECURITIES

     In the fourth quarter of 2001, we issued the following equity securities that were not registered under the Securities Act of 1933, as amended:

     On December 31, 2001, pursuant to Section 4(2) of the Securities Act of 1933 (the “1933 Act”), as amended, we issued to J. Joseph Ciavarra a warrant to purchase up to 29,500 shares of common stock pursuant to the terms of the merger agreement for the acquisition of Madison at an exercise price of $7.51 per share. The warrant expires on July 9, 2002.

     Also pursuant to Section 4(2) of the 1933 Act, as amended, on December 31, 2001, we issued to PHD Partners, L.P., through our subsidiary, Madison, an amended and restated convertible debenture in the principal amount of $2,159,746. Interest on the convertible debenture is payable in cash or shares of our common stock and the principal is convertible into shares of common stock at a conversion price of $6.75 per share of our common stock.

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ITEM 6. SELECTED FINANCIAL DATA.

     The following table summarizes certain selected financial data with respect to our financial condition and results of operations for the periods indicated. The selected financial data should be read in conjunction with the financial statements and related notes set forth in “Item 8. Financial Statements and Supplementary Data” of this Part II.

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     Certain of the matters discussed under the captions “Business,” “Properties,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this annual report may constitute “forward-looking” statements for purposes of the 1933 Act, and the Securities Exchange Act of 1934 and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of us to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. When used in this report, the words “anticipates,” “estimates,” “plans,” “believes,” “continues,” “expects,” “projections,” “forecasts,” “intends,” “may,” “might,” “could,” “should,” and similar expressions are intended to be among the statements that identify forward-looking statements. Various factors that could cause the actual results, performance or achievements of us to differ materially from our expectations are disclosed in this report (“Cautionary Statements”), including, without limitation, those statements made in conjunction with the forward-looking statements included under the captions identified above and otherwise herein. All written and oral forward-looking statements attributable to us are expressly qualified in their entirety by the Cautionary Statements.

INTRODUCTION

     In Management’s Discussion and Analysis, we explain our general financial condition and the results of operations including:

	•		what factors affect our business;
	•		what our earnings and costs were in 2001, 2000 and 1999;
	•		why those earnings and costs were different from the year before;
	•		where our earnings came from;
	•		how all of this affects our overall financial condition;
	•		what our expenditures for capital projects were in 1999 through 2001 and what we expect them to be in 2002 and
	•		where cash will come from to pay for future capital expenditures.

     As you read Management’s Discussion and Analysis, it may be helpful to refer to our Consolidated Statements of Operations on page F-4, which present the results of our operations for 2001, 2000 and 1999. In Management’s Discussion and Analysis, we analyze and explain the annual changes in the specific line items in the Consolidated Statements of Operations.

CRITICAL ACCOUNTING POLICIES

     The process of preparing financial statements in conformity with accounting principles generally accepted in the United States requires us to use estimates and assumptions to determine certain of our assets, liabilities, revenues and expenses. We base these estimates and assumptions upon the best information available to us at the time of the estimates or assumptions. Our estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, our actual results could differ materially from our estimates. The most significant estimates made by our management include future net cash flow for purposes of evaluating oil and gas properties for impairment, unrealized gains and losses on commodity derivatives, oil and gas sales receivable, and valuation of goodwill. The following is a discussion of our critical accounting policies and the related management estimates and assumptions necessary in determining the value of related assets or liabilities. A full description of all of our significant accounting policies is included in Note 2 to our Consolidated Financial Statements included in this annual report.

     We follow the successful efforts method of accounting for our oil and gas properties. Under this method, we capitalize the costs of successful wells and expense the costs of dry holes. Accordingly, our operations can be materially impacted if our drilling efforts are unsuccessful. Dry hole costs amounted to $1.8 million in 2001, $51,000 in 2000, and $10,000 in 1999. Under the successful efforts method, we must also evaluate our investments in each producing field. If such investments are greater than our estimates of undiscounted future net cash flow, then we must record a charge to impairment for the difference between our investment and the discounted future net cash flow. Accordingly, any year in which oil and/or gas prices decline, our operations and financial position could be materially impacted by a charge to impairment. Such charges amounted to $1.3 million in 2001, zero in 2000, and $14,000 in 1999.