SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

(MARK ONE)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994

OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 1-7667
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SANTA FE ENERGY RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 36-2722169
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)

1616 SOUTH VOSS, SUITE 1000
HOUSTON, TEXAS 77057
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 507-5000
-------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
Common Stock, $.01 par value New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None

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 / /

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 held by non-affiliates of
the Registrant as of February 1, 1995 was approximately $739 million.

Shares of Common Stock outstanding at February 1, 1995 -- 90,027,986.

DOCUMENTS INCORPORATED BY REFERENCE:

PROXY STATEMENT DATED MARCH 21, 1995 ........... PART III

TABLE OF CONTENTS

PAGE
----
PART I
Items 1 and 2. Business and
Properties ................................................................ 1
General ............................................................... 1
Corporate Restructuring
Program ............................................................... 2
Reserves .............................................................. 4
Domestic Development
Activities ............................................................ 5
Domestic Exploration
Activities ............................................................ 7
International Development
Activities ............................................................ 8
International Exploration
Activities ............................................................ 9
Drilling Activities ................................................... 11
Producing Wells ....................................................... 11
Domestic Acreage ...................................................... 12
Foreign Acreage ....................................................... 12
Current Markets for Oil and Gas ....................................... 12
Santa Fe Energy Trust ................................................. 14
Other Business Matters ................................................ 14

Item 3. Legal Proceedings ............................................... 19
Item 4. Submission of Matters to a Vote of Security Holders ............. 19
Executive Officers of the Registrant ............................ 19

PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ............................................. 21
Item 6. Selected Financial Data ......................................... 22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results Of Operations ............................. 24
Item 8. Financial Statements and Supplementary Data ..................... 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ........................................ 30

PART III
Item 10. Directors and Executive Officers of the Registrant .............. 31
Item 11. Executive Compensation .......................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management ...................................................... 31
Item 13. Certain Relationships and Related Transactions .................. 31

PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K ........................................................ 31
Signatures ................................................................ 67

PART I

CERTAIN DEFINITIONS

As used herein, the following terms have the specific meanings set out:
"Bbl" means barrel. "MBbl" means thousand barrels. "MMBbl" means million
barrels. "Mcf" means thousand cubic feet. "MMcf" means million cubic feet.
"Bcf" means billion cubic feet. "BOE" means barrel of oil equivalent. "MBOE"
means thousand barrels of oil equivalent and "MMBOE" means million barrels of
oil equivalent. Natural gas volumes are converted to barrels of oil equivalent
using the ratio of 6.0 Mcf of natural gas to 1.0 barrel of crude oil. Unless
otherwise indicated, natural gas volumes are stated at the official
temperature and pressure basis of the area in which the reserves are located.
"Finding cost" refers to a fraction, of which the numerator is equal to the
costs incurred by the Company for property acquisition, exploration and
development and of which the denominator is equal to proved reserve additions
from extensions, discoveries, improved recovery, acquisitions and revisions of
previous estimates. "Improved recovery," "enhanced oil recovery" and "EOR"
include all methods of supplementing natural reservoir forces and energy, or
otherwise increasing ultimate recovery from a reservoir, such as waterfloods,
cyclic steam, steam drive and CO2 (carbon dioxide) injection and fireflood
projects. "Heavy oil" is low gravity, high viscosity crude oil.

ITEMS 1 AND 2. BUSINESS AND PROPERTIES

GENERAL

Santa Fe Energy Resources, Inc. ("Santa Fe" or the "Company") is engaged
in the exploration, development and production of oil and natural gas in the
continental United States and in certain foreign areas. At December 31, 1994,
the Company had worldwide proved reserves totaling 298.7 MMBOE (consisting of
approximately 258.3 MMBbls of oil and approximately 242.4 Bcf of natural gas),
of which approximately 92% were domestic reserves and approximately 8% were
foreign reserves. During 1994, the Company's worldwide production aggregated
approximately 88.5 MBOE per day, of which approximately 74% was crude oil and
approximately 26% was natural gas. A substantial portion of the Company's
domestic oil production is in long-lived fields with well-established
production histories. With recent sales of non-core properties pursuant to the
Company's corporate restructuring program (see "-- Corporate Restructuring
Program"), the Company has focused its activities on its three domestic core
areas -- the Permian Basin in Texas and New Mexico, the offshore Gulf of
Mexico and the San Joaquin Valley of California -- as well as in Argentina and
Indonesia.

Santa Fe was incorporated in Delaware in 1971 as Santa Fe Natural
Resources, Inc., a wholly owned subsidiary of a predecessor of Santa Fe
Pacific Corporation ("SFP"). SFP was formed as a result of a business
combination on December 23, 1983, between Santa Fe Industries, Inc., the
parent company of Santa Fe at that time and Southern Pacific Company. On
January 8, 1990, Santa Fe Energy Company, which previously conducted a
substantial portion of Santa Fe's domestic exploration and development
operations, merged into Santa Fe. Santa Fe thereafter changed its name to
Santa Fe Energy Resources, Inc. On March 8, 1990 Santa Fe sold 11,700,000
previously unissued shares of common stock in initial public offerings. On
December 4, 1990, SFP distributed all of the shares of Santa Fe's common stock
it held to its shareholders.

In May 1992 Adobe Resources Corporation ("Adobe") was merged with and into
the Company (the "Adobe Merger"). The location of the properties acquired in
the Adobe Merger (the "Adobe Properties") enhanced the Company's existing
domestic operations and added significant international operations to the
Company's international program. See Note 4 to the Consolidated Financial
Statements for a further discussion of the Adobe Merger.

For the five years ended December 31, 1994, the Company has replaced
approximately 150% of its production at an average finding cost of $5.32 per
BOE. Over the last five years, the Company has increased its overall
production by increasing production from its existing properties and through
acquisitions and has reduced its overall cost structure in order to enhance
operating results and to mitigate the Company's financial exposure in a low
oil and natural gas price environment. For

example, over the five-year period ended December 31, 1994, Santa Fe has
increased its average daily production from 69.1 MBOE to 88.5 MBOE and has
reduced its average production costs (including related production, severance
and ad valorem taxes) from $6.22 per BOE in 1990 to $5.30 per BOE in 1994.

Most of the Company's domestic crude oil production is located in
California and Texas, while its domestic natural gas production comes
primarily from the Gulf of Mexico, New Mexico and Texas. During 1994, the
Company's domestic daily production averaged approximately 57.6 MBbls of crude
oil and 136.3 MMcf of natural gas. Substantially all of the Company's oil and
gas production is sold at market responsive prices. Pursuant to the corporate
restructuring program, during 1993 the Company sold properties having 1993
combined production of 4.1 MBbls per day and 21.7 MMcf per day and estimated
proved reserves of approximately 16.7 MMBOE. The domestic crude oil marketing
activities of the Company are conducted through its Santa Fe Energy Products
Division ("Energy Products"), which is also engaged in crude oil trading.
Substantially all of the Company's domestic natural gas production is
currently marketed under the terms of a sales contract with Hadson Corporation
("Hadson"). See "-- Current Markets for Oil and Gas."

A substantial portion of the Company's domestic oil production is in
long-lived fields with well-established production histories and where EOR
methods are employed. As of December 31, 1994, approximately 69% of the
Company's domestic proved crude oil and liquids reserves and 54% of its 1994
average daily domestic production of crude oil and liquids were attributable
to the Midway-Sunset field in the San Joaquin Valley of California, where the
Company first began production in 1905. Nearly all of the reserves in this
field are heavy oil, the production of which depends primarily on steam
injection. As of December 31, 1994, an additional 22% of the Company's
domestic proved crude oil and liquids reserves and approximately 26% of its
1994 average daily domestic production of crude oil and liquids were
attributable to five other oil producing properties: the Wasson and Reeves
fields in the Permian Basin of west Texas and the South Belridge, Kern River
and Coalinga fields in the San Joaquin Valley.

The Company's foreign production is located in the El Tordillo field in
Argentina and in the Salawati Basin and Salawati Island area of Indonesia.
Production from the El Tordillo field averaged 2,400 barrels of oil per day in
1994 and production from the Indonesian operations averaged 5,700 barrels of
oil per day in 1994.

The Company maintains an active exploration and development program, a
significant portion of which consists of EOR projects on the producing fields
discussed above. During 1994, Santa Fe spent approximately $130 million on
capital programs and has budgeted approximately $190 million of expenditures
for 1995. The actual amount expended by the Company in 1995 will be based upon
numerous factors, the majority of which are outside its control, including,
without limitation, prevailing oil and natural gas prices and the outlook
therefor and the availability of funds.

In the United States, at December 31, 1994, the Company held oil and gas
rights to approximately 421,000 net undeveloped leasehold and fee acres in 16
states and offshore areas. Outside the United States, at December 31, 1994,
the Company held exploration rights with respect to an aggregate of
approximately 3,244,000 net undeveloped acres in Argentina, Bolivia, Canada,
Gabon, Indonesia and Morocco.

CORPORATE RESTRUCTURING PROGRAM

The Company's capital program is concentrated in three domestic core
areas -- the Permian Basin in Texas and New Mexico, the offshore Gulf of
Mexico and the San Joaquin Valley of California -- as well as its productive
areas in Argentina and Indonesia. The domestic program includes exploration
and development activities in the Delaware and Cisco-Canyon formations in

west Texas and southeast New Mexico, a drilling program for the offshore Gulf
of Mexico natural gas properties and a drilling and workover program in the
San Joaquin Valley of California. Internationally, the program includes
exploration and development activities in Argentina and Indonesia, including
development of the Company's Sierra Chata discovery in Argentina, with gas
sales expected to commence in mid-1995.

As a result of the dispositions described below, the Company sold
properties having combined production during 1993 of 4.1 MBbls per day and
21.7 MMcf per day and estimated proved reserves of approximately 16.7 MMBOE
for total proceeds of approximately $91.4 million, sold its natural gas
gathering and processing assets for Hadson securities and realized
approximately $11.3 million from the sale of its remaining Depositary Units in
Santa Fe Energy Trust (the "Trust") and $8.3 million from the sale of its
interest in certain other oil and gas properties. As a result of these
transactions, the Company has disposed of substantially all of its inventory
of non-core properties.

SALE TO HADSON. In December 1993 the Company completed a transaction with
Hadson under the terms of which the Company sold the common stock of Adobe Gas
Pipeline Company ("AGPC"), a wholly owned subsidiary, to Hadson in exchange
for Hadson 11.25% preferred stock with a face value of $52.0 million and 40%
of Hadson's common stock. AGPC's assets included approximately 630 miles of
gathering and transportation lines in Oklahoma, Texas and New Mexico with
three processing plants in west Texas and New Mexico and an intrastate
pipeline system supplying gas to commercial customers in Lubbock. In addition,
the Company signed a seven-year gas sales contract under the terms of which
Hadson markets substantially all of the Company's domestic natural gas
production from specified existing wells and certain domestic development and
exploration wells. Pursuant to such contract, Hadson is required to pay the
Company for all production delivered at a price for such gas equal to
stipulated published monthly index prices. See "-- Current Markets for Oil and
Gas". The Company also designates one-half of the members of the Hadson Board
of Directors.

In February 1995 the Company agreed to sell its holdings in Hadson for
$55.3 million in cash and agreed to negotiate with the purchaser concerning
amendments to the gas sales contract. The Company's total investment in Hadson
at December 31, 1994 of $57.0 million represents management's best estimate of
the realizable value of the investment at that date. The sale is expected to
close in June 1995.

SALE TO VINTAGE PETROLEUM, INC. ("VINTAGE"). In November 1993, the
Company completed the sale of certain southern California and Gulf Coast
producing properties for net proceeds totaling $42.0 million in cash. The
transaction included most of the Company's California interests outside its
core area in the San Joaquin Valley as well as certain onshore Gulf Coast
properties in Texas, Louisiana and Mississippi. Production from the properties
sold to Vintage averaged approximately 2,800 barrels of oil per day and 6.5
MMcf of natural gas per day during 1993. During 1993 such properties
contributed $2.7 million to the Company's income from operations.

SALE TO BRIDGE OIL (U.S.A.) INC. ("BRIDGE"). In April 1994, the Company
completed the sale to Bridge of certain Mid-Continent and Rocky Mountain
producing and nonproducing oil and gas properties for net proceeds totalling
$46.7 million in cash. The transaction includes substantially all of the
Company's assets in the Anadarko Basin of Oklahoma and Texas as well as its
interests in the Rocky Mountain states, excluding its interests in the Canyon
Creek natural gas field in Wyoming. The undeveloped acreage includes
approximately 1.7 million mineral and leasehold acres and exploratory options
on an additional 8.1 million acres. Production from the properties to be sold
to Bridge averaged approximately 1,300 barrels of oil per day and 15.2 MMcf of
natural gas per day during 1993. The Company's income from operations for 1994
and 1993 includes $2.2 million and $5.8 million, respectively, attributable to
the assets sold to Bridge.

As a result of the review of its cost structure the Company implemented a
cost reduction program that included the reduction of its salaried work force
by approximately 20%, an improvement in the efficiency of its information
systems and reductions in other general and administrative costs.
Substantially all of this cost reduction program was implemented by year end
1994.
3

As a result of the review of its capital structure, in May 1994, in
concurrent public offerings, the Company issued $100.0 million of 11% Senior
Subordinated Debentures due 2004 (the "Debentures") and 10,700,000 shares of
$.732 Series A Convertible Preferred Stock (the "Series A Preferred"). The net
proceeds from the offerings, $187.5 million after deducting related costs and
expenses, were used to retire $132.3 million of existing long-term debt and to
pay $6.5 million in accrued interest and prepayment penalties due upon the
retirement of such debt and the remaining $48.7 million was used for working
capital purposes. The refinancing reduced required debt amortization in the
near-term and provided additional financial flexibility.

RESERVES

The following tables set forth information regarding changes in the
Company's estimates of proved net reserves from January 1, 1992 to December
31, 1994 and the balance of the Company's estimated proved developed reserves
at December 31 of each of the years 1991 through 1994.

INCREASES (DECREASES)
-------------------------------------------------------------
BALANCE NET
AT REVISION EXTENSIONS, PURCHASES BALANCE
BEGINNING OF DISCOVERIES (SALES) OF AT END
OF PREVIOUS IMPROVED AND MINERALS OF
PERIOD ESTIMATES RECOVERY ADDITIONS IN PLACE PRODUCTION PERIOD
-------- --------- -------- --------- -------- ---------- ------

PROVED RESERVES AT DECEMBER 31, 1992:
Oil and Condensate (MMBbls)...... 229.2 14.1 17.0 2.6 15.2 (23.0) 255.1
Gas (Bcf)........................ 170.8 7.3 1.3 5.6 138.7 (46.2) 277.5
Oil Equivalent (MMBOE)........... 257.7 15.3 17.2 3.6 38.3 (30.6) 301.5

PROVED RESERVES AT DECEMBER 31, 1993:
Oil and Condensate (MMBbls)...... 255.1 (10.8) 26.7 6.2 (4.7) (24.3) 248.2
Gas (Bcf)........................ 277.5 26.7 -- 55.9 (36.7) (60.4) 263.0
Oil Equivalent (MMBOE)........... 301.5 (6.3) 26.7 15.4 (10.9) (34.4) 292.0

PROVED RESERVES AT DECEMBER 31, 1994:
Oil and Condensate ((MMBbls)..... 248.2 15.2 13.9 5.5 (0.5) (24.0) 258.3
Gas (Bcf)........................ 263.0 (2.7) 0.9 36.2 (5.1) (49.9) 242.4
Oil Equivalent (MMBOE)........... 292.0 14.7 14.1 11.5 (1.3) (32.3) 298.7(a)

DECEMBER 31,
---------------------------------------
1994 1993 1992 1991
----- ----- ----- -----
PROVED DEVELOPED RESERVES (MMBOE).... 224.5 225.5 248.4 210.3

(a) At December 31, 1994, 4.6 MMBOE were subject to a 90% net profits
interest held by Santa Fe Energy Trust. See "-- Santa Fe Energy Trust."

Historically, the Company has utilized active development and exploration
programs as well as selected acquisitions to replace its reserves depleted by
production. The Company has increased its proved reserves (net of production
and sales) by approximately 19% over the five years ended December 31, 1994.
Most of such increases are attributable to proved reserve additions from the
Company's producing oil properties in the San Joaquin Valley of California and
the Permian Basin in west Texas, proved reserves acquired in the Adobe Merger
and other purchases of oil and gas reserves. As previously discussed, in 1993
the Company sold properties with reserves totalling 16.7 MMBOE.

Ryder Scott Company ("Ryder Scott"), a firm of independent petroleum
engineers, prepared the above estimates of the Company's total proved reserves
as of December 31, 1991 through 1994.

During 1994 the Company filed Energy Information Administration Form 23
which reported natural gas and oil reserves for the year 1993. On an
equivalent barrel basis, the reserve estimates for the year 1993 contained in
such report and those reported herein for the year 1993 do not differ by more
than five percent.

DOMESTIC DEVELOPMENT ACTIVITIES

The Company is engaged in development activities primarily through the
application of thermally enhanced oil recovery "EOR" techniques to its heavy
oil properties in the San Joaquin Valley, the use of secondary waterfloods and
tertiary CO2 floods on its properties in other mature fields and the
development of producing properties acquired by the Company through its
exploration successes and its acquisition program. Thermal EOR operations
involve the injection of steam into a reservoir to raise the temperature and
reduce the viscosity of the heavy oil, facilitating the flow of the oil into
producing wellbores. The Company has operated thermal EOR projects in the San
Joaquin Valley since the mid-1960s. Similarly, the Company has extensive
experience in the use of waterfloods, which involve the injection of water
into a reservoir to drive hydrocarbons into producing wellbores. The Company
has an interest in more than 50 waterflood projects, and additional projects
are planned for the future. Following the waterflood phase, certain fields may
continue to produce in response to tertiary EOR projects, such as the
injection of CO2 which mixes miscibly with the oil and improves the
displacement efficiency of the water injection. The Company's principal CO2
floods are in the Wasson field and are operated by affiliates of Shell Oil
Company, ARCO and Amoco.

Set forth below is a discussion of some of the Company's principal
development projects. The Company has operated in the Midway-Sunset and Wasson
fields since 1905 and 1939, respectively. The Company acquired interests in
the South Belridge field from Petro-Lewis in 1987 and in January 1991 expanded
its holdings in the field with the purchase of certain properties from Mission
Operating Partnership, L.P. The Company's interests in the Kern River and
Coalinga fields were acquired in 1905 and 1977, respectively. The Gulf of
Mexico fields were discovered on leases held by the Company or acquired in the
Adobe Merger, while the Delaware and Cisco Canyon properties were acquired as
undeveloped properties.

SAN JOAQUIN VALLEY

MIDWAY-SUNSET. The Company owns a 100% working interest (92% average net
revenue interest) in over 10,000 gross acres and 2,200 active wells in the
Midway-Sunset field. Substantially all the oil produced from the Midway-Sunset
field is heavy crude oil produced principally by cyclic steam and steamflood
operations from Pleistocene and Miocene reservoirs at depths less than 2,000
feet. These steam stimulation operations were initiated in the field in the
mid-1960s. During 1994 the Midway-Sunset field accounted for approximately 54%
of the Company's domestic crude oil and liquids production.

At December 31, 1994 the Midway-Sunset field accounted for approximately
69% of the Company's domestic proved crude oil and liquid reserves. Reservoir
engineering studies prepared on behalf of the Company indicate significant
additions to its proved reserves in this field can continue

to be made through additional EOR and development projects. The Company has
identified a substantial number of locations that could be drilled in the
field, depending in part on future prices and economic conditions. The Company
is pursuing electrical cogeneration opportunities which could lower
Midway-Sunset operating costs.

SOUTH BELRIDGE. The South Belridge field is located approximately 15
miles north of the Midway-Sunset field. The Company operates three leases in
the field which produce heavy oil from the shallow Tulare sands and lighter
low viscosity oil from the deeper Diatomite reservoirs. Steamflood operations
in the lower Tulare sands are in progress on one of these leases and plans
call for flooding the remaining Tulare sands on this lease and all Tulare
sands on another lease in the coming years. Waterflood operations in the
Diatomite reservoir have been initiated on two leases and the Company expects
to expand these operations to include the rest of the developed area.

COALINGA. The Coalinga field is located 55 miles southwest of Fresno,
California. Successful steamfloods and a pilot steamflood project have been
conducted in the Lower Temblor Sands on three of the six leases in which the
Company owns interests in the field. During the next several years, the
Company plans to expand the pilot steamflood project in the lower sands to
cover the remaining producing area and expand steam floods on the Upper
Temblor Sands on all leases after depletion of the lower zones. Most of the
facilities required for these projects are already in place as a result of the
prior steamfloods.

KERN RIVER. The Kern River field is located near Bakersfield, California.
The Lower Kern River Series sands have been successfully steamflooded on three
of the leases in which the Company owns an interest. Over the next several
years steamflood operations will be sequentially redeployed in the upper sands
of the Kern River Series. Eventually the Company plans to flood all sands on
its remaining lease in several stages. The Company has installed and operates
a large steam generation plant on these properties.

PERMIAN BASIN

WASSON. The Company's interests in the field principally consist of
royalty and working interests in three units which are presently under CO2
flood. Most of the expenditures for plant, facilities, wells and equipment
necessary for such tertiary recovery projects have been made. In addition,
while expenditures relating to the purchase of CO2 for the Wasson field are
expected to continue, CO2 can be recycled and, therefore, such expenditures
should decline in the future.

During 1994 the Wasson field accounted for approximately 9% of the
Company's domestic crude oil and liquids production and at December 31, 1994
the field accounted for approximately 8% of the Company's domestic proved
crude oil and liquids reserves. Since initiation of CO2 flooding operations in
1984, the field's previous production decline has been reversed. Reservoir
engineering studies prepared on behalf of the Company indicate significant
additions to proved reserves can be made through additional EOR and
development projects.

REEVES. The Company owns a 72% average net revenue interest in the Reeves
field, seven miles east of the large Wasson field in west Texas. The field has
been under waterflood since 1965. During 1994, 23 wells were drilled and 24
wells were worked over as part of a program to infill drill the unit to
20-acre spacing and enhance current waterflood operations. Based on the
successes of the prior year's program, the Company plans to continue the
infill drilling and workover program in this field in 1995.

NEW MEXICO. During 1994 the Company increased its activity in the
light-oil Delaware play in Lea and Eddy Counties of southeast New Mexico. A
total of 28 gross (11.5 net) development wells were completed in 1994 and net
production from this area in December 1994 totaled approximately 1,350 barrels
of oil and 1.8 MMcf of natural gas per day. The Company plans to drill
additional development wells in 1995.

Also in southeastern New Mexico, the Company participated in 5 gross (3.2
net) wells in 1994 in the light oil and gas Cisco-Canyon project. Three of the
wells were completed as producers from the Cisco-Canyon zone by year end and
six others continued production testing. The Company plans to continue
delineation of this play which contains some 55 identified potential
development locations.

OFFSHORE GULF OF MEXICO

At December 31, 1994, offshore Gulf of Mexico properties accounted for 41%
of the Company's domestic proved natural gas reserves and during 1994 these
properties accounted for approximately 54% of the Company's domestic natural
gas production.

Year end net offshore Gulf of Mexico deliverability was over 3,200 barrels
of oil per day and 80 million cubic feet of gas per day from 54 blocks. The
Company operates seven producing fields on ten blocks with one
Company-operated block scheduled to begin production in January. The Company's
activities in the offshore Gulf of Mexico are concentrated in the shallow
water area (less than 400 feet of water) where the costs of drilling,
completion and operation are predictable and the well developed pipeline
infrastructure allows for relatively quick hookup of new wells.

During 1994, the Company participated in the drilling of 9 gross (2.1 net)
development wells which resulted in 7 gross (1.8 net) completions. Four of these
wells commenced production in 1994 with another expected to come on production
in March 1995. The remaining two successful wells are part of the High Island
A-442 development project in which the Company has a 30% working interest. These
two wells, the second and third in the field, had a combined test flow of over
2,250 barrels of oil per day and 3.0 million cubic feet of gas per day. A fourth
development well was drilling in this field at year end. Facilities are being
constructed and production at High Island A-442 is expected to begin in the
third quarter of 1995. During 1994 the Company also completed the facilities and
pipeline connections for its 100% owned Viosca Knoll 76 well which commenced
production in December at 4.0 (3.3 net) million cubic feet per day.

DOMESTIC EXPLORATION ACTIVITIES

The Company focused its domestic exploration activities in two core areas,
the Permian Basin of west Texas and southeastern New Mexico and the offshore
Gulf of Mexico. Overall the Company participated in 35 gross (13.6 net)
domestic exploratory wells in 1994. A total of 12 gross (5.0 net) were
completed as producers for a 37% net well success. At year end there were 5
gross (1.3 net) wells in various stages of drilling or completion.

As of December 31, 1994, the Company held approximately 294,000 net
undeveloped leasehold acres in 14 states and offshore areas. The primary lease
terms expire with respect to 30% of such acreage in 1995, 18% in 1996, 12% in
1997, 6% in 1998 and the remainder thereafter. In addition, the Company owns
approximately 127,000 net acres of undeveloped fee minerals located primarily
in New Mexico, Texas and California.

The Company also holds the oil and gas rights on approximately 8.1 million
net undeveloped acres in the western United States through direct ownership
and pursuant to lease option agreements from Santa Fe Pacific Railroad Company
and other former affiliates. These lands are located in high risk exploration
areas. Due to this risk, the Company has historically negotiated with third
parties to explore this acreage with the Company to receive a royalty or
carried interest in the exploration phase. An agreement relating to
substantially all of these oil and gas rights has been entered into with
Bridge. This agreement is intended to provide incentive to Bridge to
accelerate exploration activities on lands subject to these rights. The
Company will receive a small revenue interest in the event such activities are
successful.
7

Set forth below is a brief discussion of some of the Company's principal
exploration programs.

PERMIAN BASIN. The Permian Basin continues as the Company's most active
domestic exploration area. During 1994 the Company participated in 26 gross
(10.2 net) exploratory wells with 9 gross (3.5 net) of these wells being
completed for a 35% success rate. There were 5 gross (1.3 net) additional
wells drilling or completing at the end of the year.

In southeastern New Mexico, the Company's exploratory program focuses on
multiple Permian and Pennsylvanian aged oil and gas reservoirs ranging in
depth from 1,500 to 16,000 feet. While deeper objectives, which are typically
gas bearing, remain an important component of the program, an increasing
portion of the program has focused on shallower Delaware and Cisco-Canyon oil
reserves. Altogether the Company has identified more than 30 exploratory
prospects and 150 development locations in southeastern New Mexico.

The Company is also active in the application of 3-D seismic technology in
its exploration program. To date, these activities have been restricted to the
west Texas portion of the Permian Basin near Midland, Texas. During 1993, the
Company participated in a 250 square mile 3-D seismic program. This program
focuses on pre-Mississippian aged reservoirs at approximately 10-12,000' in
depth. In 1994, the Company participated in a total of 15 gross (3.6 net)
wells in this area with 4 gross (1.0 net) wells resulting in discoveries. All
of the Company's costs in the eleven dry holes were paid by partners. In 1994,
the Company initiated a second 3-D project on a block of approximately 230
square miles adjoining the initial block. Data acquisition began in September
and is scheduled to be completed during the first quarter of 1995. All of the
Company's seismic costs will be paid by a joint venture partner. Drilling
plans in 1995 include multiple prospects at depths of 10,000 to 14,000 feet.

OFFSHORE GULF OF MEXICO. The Company participated in 9 gross (3.4 net)
exploratory wells in 1994, including 3 gross (1.5 net) discovery wells. The
Company's offshore program is focused on prospects in shallow and moderate
water depths which display "hydrocarbon indicators" on seismic data. The
Company has an inventory of 26 drillable prospects and expects to participate
in approximately 14 exploratory wells in 1995.

INTERNATIONAL DEVELOPMENT ACTIVITIES

INDONESIA. The Company, through a wholly owned subsidiary, is engaged in
the production of crude oil in Indonesia through a joint venture (the
"Salawati Basin Joint Venture") formed in 1970 to explore for and develop
hydrocarbon reserves in the Salawati Basin area of Irian Jaya. At December 31,
1994, the Company held a 33 1/3% participation interest in, and acts as
operator for, the Salawati Basin Joint Venture. The Salawati Basin Joint
Venture operates under a production sharing contract (the "PSC") with the
Indonesia state oil agency ("Pertamina"), which had an initial term of 30
years and expires in the year 2000. The Company is currently negotiating with
such state oil agency to extend the contract for an additional 20 years. As of
December 31, 1994, the contract covered an area of approximately 235,000
acres. Production occurs from seven oil and three gas condensate fields.

The PSC entitles the Salawati Basin Joint Venture to recover all of its
expenditures related to the operation (the "cost recovery amount") before any
additional production is shared with the Indonesian state oil agency, which
recovery is effected by allocating to the Salawati Basin Joint Venture a
portion of the crude oil production sufficient, at the Indonesia government
official crude oil price ("ICP"), to offset the cost recovery amount. The
balance of production after the cost recovery amount is divided between the
parties, with approximately 66% allocated to Pertamina and 34% allocated to
the Salawati Basin Joint Venture. However, 25% of the 34% allocated to the
Salawati Basin Joint Venture (8.5% of total production) must be sold into the
Indonesian domestic market for $0.20 per barrel. The entire entitlement of the
Salawati Basin Joint Venture under the PSC, including the domestic market
obligation, averaged approximately 9.3 MBbls per day (approximately 3.1 MBbls
per day net to the Company) for the year ended December 31, 1994. The Salawati
Basin Joint Venture is required to pay Indonesian income taxes at the rate of
56%.
8

The Company, through another subsidiary, has also entered into a joint
venture with Pertamina to explore the Salawati Island Block of Irian Jaya. The
effective date of this joint venture is April 23, 1990 with a term of 30
years. At December 31, 1994, the Company held a 16 2/3% participation interest
in the block which covers 1.09 million acres. The Company and Pertamina (with
its 50% interest) jointly operate the contract area. In 1991, a successful
exploratory well tested at a combined rate of 3,568 barrels of oil per day and
was followed by two successful delineation wells. Pertamina declared the field
commercial in January 1993 and designated it as the Matoa Field. Sales of
production began in January of 1993. Development activities through 1994 have
the Matoa field producing approximately 8,200 barrels of oil per day from 16
wells as of December 31, 1994.

Under the terms of the Salawati Island agreement, the joint venture
participants are allowed to recover the cost recovery amount, after an initial
20% portion (2.9% to the joint venture participants and 17.1% to Pertamina)
has been deducted, by allocating to the joint venture participants a portion
of the crude oil production ("cost oil") sufficient to offset the cost
recovery amount. All unrecovered costs in any calendar year can be carried
forward to future years. The balance of production after allocation of cost
oil is allocated approximately 85.5% to Pertamina and 14.5% to the other
Salawati Island Joint Venture participants. However, 7.25% of the gross
production allocated to the joint venture participants must be sold into the
Indonesian domestic market for 10% of ICP.

ARGENTINA. In 1991, the Company, through a wholly owned subsidiary,
acquired an 18% non-operated working interest (15.84% net revenue interest) in
the El Tordillo field in Chubut Province, Argentina. At that time, the field
was producing approximately 10,500 barrels of oil per day. As of December 31,
1994 the El Tordillo owners have completed 203 workovers and drilled six new
wells. During that time production increased to approximately 15,500 barrels
of oil per day. The Company expects this program to continue through 1995 and
anticipates an expansion of the existing waterflood facilities.

The joint venture group is allowed to sell crude oil produced from this
field into the open market. There is a 12% royalty on gross production and the
joint venture is taxed at a 30% rate after deductions for capitalized costs
and expenses.

In April 1993, the Company's subsidiary completed the Sierra Chata X-1 as
a successful exploratory test in Chihuidos Block, Neuquen Province, Argentina.
The well produced at a combined rate of 22.2 million cubic feet per day and
109 barrels of condensate per day. Carbon dioxide content of the natural gas
was 6%. Nine successful wells have been subsequently drilled. Producing rates
on these wells varied from 3.2 to 28.6 million cubic feet per day. The Company
has a 19.9% working interest in the Block after selling a 2.7% working
interest to Gassur S.A. in June 1994. The Company and its partners are
building a gas processing facility and a 40-mile gathering pipeline that will
transport production from the field and interconnect with a main transmission
line owned by a third party that transports gas to Buenos Aires and other
major markets. Construction of the gas processing facility and the pipeline is
estimated to cost an aggregate of $83.5 million ($16.6 million net to the
Company's interest). The Company expects that sales of production from the
Sierra Chata field will commence in May 1995. A gas contract for 106 million
cubic feet of gas per day with "take-or-pay" and "delivery-or-pay" obligations
has been executed with MetroGas S.A., a Buenos Aires gas distribution company.

INTERNATIONAL EXPLORATION ACTIVITIES

In 1994 the Company participated in 8 gross (2.9 net) international
exploratory wells. Two of the wells (0.8 net) were completed as discoveries.

In March 1994, the Mudi No. 1 was completed as an oil discovery on the
Company's Tuban Block which is located on the island of Java in Indonesia and
in June the Mudi No. 1 Sidetrack penetrated the reservoir approximately
one-half mile to the northeast of the discovery well. In December the Mudi No.
2, a delineation well, was completed and tested at the rate of 5,024 barrels
per day of 35 degree API gravity crude oil through a 1 1/4-inch choke with
flowing tubing pressure of
9

330 pounds per square inch. The Mudi No. 1 and Mudi No. 1 Sidetrack tested at
flow rates of 1,350 and 2,020 barrels per day, respectively. Two additional
delineation wells will be drilled in early 1995 and further development is
expected to begin in the third quarter of 1995.

The Tuban Block is operated through a joint operating body comprised of
Pertamina, the state oil company of Indonesia and Santa Fe. Partners and
ownership positions in the block include Pertamina 50%, Santa Fe 12.5%, Total
Tuban 12.5%, R.S.R. Petroleum Ltd. 12.5% and Enserch Far East Ltd. 12.5%.

In Alberta, Canada in 1994 the Company participated in the drilling of a
natural gas discovery which has been shut in until further drilling confirms
the commercial viability of the prospect. The Company holds a 50% nonoperated
working interest in the block on which the prospect is located. Also in 1994,
the Company participated in nonproductive exploratory wells drilled in
Argentina (1 gross, 0.2 net), Bolivia (1 gross, 0.6 net), Canada (2 gross,
0.75 net) and Indonesia
(2 gross, 0.7 net).

At December 31, 1994 the Company held exploration contracts in six
countries covering approximately 10.1 million gross (3.2 million net) acres,
the majority of which are located in Indonesia and South America. In January
1995 the Company signed a contract covering exploration rights on Ecuador's
Oriente Block 11 which is located in the north central portion of the Oriente
Basin which encompasses the northeast section of the country. The contract
includes an initial exploration period of four years with optional extensions.
The Company is the operator and holds a 35% working interest in the block.

The Company plans to participate in the drilling of up to eleven
exploratory wells in 1995, including five wells in Indonesia, three wells in
Argentina, two wells in Canada and one well in Gabon.

10
DRILLING ACTIVITIES

The table below sets forth, for the periods indicated, the number of wells
drilled in which Santa Fe had an economic interest. As of December 31, 1994,
Santa Fe was in the process of drilling or completing 5 gross (1.3 net)
domestic exploratory wells, 22 gross (11.2 net) development wells, 1 gross
(0.5 net) foreign exploratory well and 6 gross (1.4 net) foreign development
wells.

YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1994 1993 1992
------------------ ------------------ ------------------
GROSS NET GROSS NET GROSS NET
------ --------- ------ --------- ----- ----

Development Wells
Domestic
Completed as natural gas wells... 17 4.4 21 6.0 6 1.5
Completed as oil wells........... 136 101.4 237 180.0 62 39.0
Dry holes........................ 4 2.5 10 3.6 5 0.4
Foreign:
Completed as natural gas wells... 2 0.4 4 1.0 -- --
Completed as oil wells........... 14 4.3 3 0.9 -- --
Dry holes........................ 2 0.6 -- -- -- --
------ --------- ------ --------- ----- ----
175 113.6 275 191.5 73 40.9
------ --------- ------ --------- ----- ----
Exploratory Wells
Domestic
Completed as natural gas wells... 3 1.5 3 0.9 1 0.3
Completed as oil wells........... 9 3.5 7 2.7 4 1.2
Dry holes........................ 23 8.6 12 5.4 2 0.6
Foreign
Completed as natural gas wells... 1 0.5 2 0.4 -- --
Completed as oil wells........... 1 0.3 -- -- 1 0.3
Dry holes........................ 6 2.1 4 1.3 4 1.3
------ --------- ------ --------- ----- ----
43 16.5 28 10.7 12 3.7
------ --------- ------ --------- ----- ----
218 130.1 303 202.2 85 44.6
====== ========= ====== ========= ===== ====

PRODUCING WELLS

The following table sets forth Santa Fe's ownership in producing wells at
December 31, 1994:

U.S. ARGENTINA<F1> INDONESIA<F2> TOTAL
--------------------- -------------- ----------------- -----------------
GROSS<F3> NET GROSS NET GROSS<F4> NET GROSS NET
--------- --------- ------ ---- ------ ---- ------- ------

Oil.................................. 9,879 4,835 357 64 397 128 10,633 5,027
Gas.................................. 505 144 8 2 6 2 519 148
--------- --------- ------ ---- --- ---- ------- ------
10,384 4,979 365 66 403 130 11,152 5,175
========= ========= ====== ==== === ==== ======= ======
<FN>
<F1> At December 31, 1994 8 gross (2 net) gas wells were shut-in.

<F2> Includes 100 gross (33 net) wells which were shut-in at December 31,
1994.

<F3> Includes 54 wells with multiple completions.

<F4> Includes 3 wells with multiple completions.

11
DOMESTIC ACREAGE

The following table summarizes Santa Fe's developed and undeveloped fee
and leasehold acreage in the United States at December 31, 1994. Excluded from
such information is acreage in which Santa Fe's interest is limited to
royalty, overriding royalty and other similar interests.

UNDEVELOPED DEVELOPED
---------------------- ----------------------
STATE GROSS NET GROSS NET
---------- ---------- ---------- ----------

Alabama -- Offshore.................. -- -- 23,040 12,480
Alabama -- Onshore................... -- -- 849 154
Arkansas............................. 362 68 861 186
California -- Offshore............... -- -- 17,280 2,074
California -- Onshore................ 8,263 8,263 19,344 18,696
Colorado............................. 2,710 2,567 6,252 5,720
Illinois............................. 202 50 40 10
Kansas............................... 34 34 3,933 917
Louisiana -- Offshore................ 217,828 112,568 195,180 63,242
Louisiana -- Onshore................. 1,689 569 7,550 2,048
Mississippi.......................... 38 38 3,269 611
Montana.............................. 3,129 396 990 76
New Mexico........................... 181,592 145,603 47,624 23,574
New York............................. -- -- 189 47
North Dakota......................... 2,799 949 4,733 1,062
Oklahoma............................. 6,553 5,356 22,533 8,294
Texas -- Offshore.................... 38,497 16,668 48,614 17,529
Texas -- Onshore..................... 125,910 118,084 133,476 71,813
Utah................................. 886 460 3,325 1,527
Wyoming.............................. 16,590 9,365 23,448 10,958
---------- ---------- ---------- ----------
607,082 421,038 562,530 241,018
========== ========== ========== ==========

FOREIGN ACREAGE

The following table summarizes Santa Fe's foreign acreage at December 31,
1994:

UNDEVELOPED DEVELOPED
------------------------ ---------------------
GROSS NET GROSS NET
---------- --------- ------- ------

Argentina............................ 2,063,760 513,885 93,238 18,004
Bolivia.............................. 1,442,446 829,406 -- --
Canada (Alberta)..................... 147,183 70,418 -- --
Gabon................................ 701,000 175,250 -- --
Indonesia............................ 4,437,469 1,021,090 11,460 1,822
Morocco.............................. 1,300,000 633,750 -- --
---------- --------- ------- ------
10,091,858 3,243,799 104,698 19,826
========== ========= ======= ======

CURRENT MARKETS FOR OIL AND GAS

The revenues generated by the Company's operations are highly dependent
upon the prices of, and demand for, oil and gas. For the last several years,
prices of these products have reflected a worldwide surplus of supply over
demand. The price received by the Company for its crude oil and natural gas
depends upon numerous factors, the majority of which are beyond the Company's
control, including economic conditions in the United States and elsewhere and
the world political situation as it affects OPEC, the Middle East (including
the current embargo of Iraqi crude oil from worldwide markets) and other
producing countries, the actions of OPEC and governmental regulation. The
fluctuation in world oil prices continues to reflect market uncertainty
regarding OPEC's ability to
12

control member country production and underlying concern about the balance of
world demand for and supply of oil and gas. Decreases in the prices of oil and
gas have had, and could have in the future, an adverse effect on the Company's
development and exploration programs, proved reserves, revenues, profitability
and cash flow. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General."

The Company believes the market for heavy crude oil produced in California
differs substantially from the remainder of the domestic crude oil market. It
is necessary to heat or dilute heavy oil to make it flow, which increases
transportation and handling costs, and it is also more costly to refine. As a
result, the price paid for heavy crude oil is generally lower than the price
paid for light crudes. In addition, historically there has been an oversupply
of crude oil in the California market resulting in an adverse effect on the
prices for crude oil in that market. Although no assurance can be given, the
Company believes that such oversupply will not continue for the long term due
to stabilized west coast refining requirements and the decline of crude oil
produced in both Alaska and California.

From time to time the Company has hedged a portion of its oil and natural
gas production to manage its exposure to volatility in prices of oil and
natural gas. The Company used several instruments whereby monthly settlements
were based on the difference between the price, or a range of prices,
specified in the instruments and the monthly average of the daily settlement
prices of certain West Texas Intermediate ("WTI") crude oil futures contracts
or of certain natural gas futures contracts quoted on the New York Mercantile
Exchange. In instances where the actual average of the daily settlement price
was less than the price specified in the contract, the Company received a
settlement based on the difference; in instances where the actual average of
the daily settlement price was higher than the specified price, the Company
paid an amount based on the difference. The instruments utilized by the
Company differed from futures contracts in that there was no contractual
obligation which required or allowed for the future delivery of the product.
Settlements were included in revenues in the period in which the oil and
natural gas were sold. The Company currently has no outstanding crude oil or
natural gas hedging instruments.

During 1994, affiliates of Shell Oil Company and Celeron Corporation
accounted for approximately 38% and 24%, respectively, of Energy Products'
crude oil sales (which with respect to certain properties includes royalty and
working interest owners' share of production). No other individual customer
accounted for more than 10% of the Company's crude oil and liquids revenues
during 1994. Substantially all of the Company's oil production is currently
sold at market-responsive prices that approximate spot prices. Availability of
a ready market for the Company's oil production depends on numerous factors,
including the level of consumer demand, the extent of worldwide oil
production, the cost and availability of alternative fuels, the cost of and
proximity of pipelines and other transportation facilities, regulation by
state and federal authorities and the cost of complying with applicable
environmental regulations.

In December 1993, the Company signed a seven-year gas sales contract with
Hadson pursuant to the terms of which Hadson markets substantially all of the
Company's domestic natural gas production. Pursuant to such gas contract,
Santa Fe dedicated to Hadson all of its domestic natural gas production from
specified existing wells, which consist of essentially all of the Company's
domestic natural gas production, except to the extent such production was
dedicated under pre-existing contracts. Upon the expiration of any such
pre-existing contracts, that production shall also be dedicated to Hadson.

In addition to production from existing wells, such gas contract provides
for the dedication by the Company of gas production from certain domestic
development wells and exploration wells to the extent that the Company accepts
proposals from Hadson to gather and market production from such exploration
wells. Production from gas wells acquired by the Company pursuant to an
acquisition of producing oil and gas properties will not be dedicated under
the gas contract but may be dedicated by the mutual agreement of the Company
and Hadson.
13

Pursuant to the gas contract, Hadson is required to pay the Company for
all production delivered at a price for such gas equal to stipulated published
monthly index prices. Hadson is obligated to use its best efforts to receive
gas from the Company at delivery points so as to maximize the net price
received by the Company for such production. Payment for purchases by Hadson
are made in immediately available funds no later than the last working day of
the month following the month of production. With respect to payments due on
the last day of each month through April 1995 Hadson may, at its discretion,
defer payment on up to $5.0 million of the amount otherwise due for a period
of thirty days without penalty. No deferral is permitted unless any previous
deferral has been paid in full. Deferred amounts bear interest at the prime
rate plus one percent.

In February 1995 the Company agreed to sell its holdings in Hadson and
agreed to negotiate with the purchaser concerning amendments to the gas sales
contract. The sale is expected to close in June 1995.

SANTA FE ENERGY TRUST

In November 1992, 5,725,000 Depositary Units ("Depositary Units"), each
consisting of beneficial ownership of one unit of undivided interest in the
Trust and a $20 face amount beneficial ownership interest in a $1,000 face
amount zero coupon United States Treasury obligation maturing on February 15,
2008, were sold in a public offering. The assets of the Trust consist of
certain oil and gas properties conveyed by the Company. A total of $114.5
million was received from public investors, of which $38.7 million was used to
purchase the Treasury obligations and $5.7 million was used to pay
underwriting commissions and discounts. The Company received the remaining
$70.1 million and retained 575,000 Depositary Units. A portion of the proceeds
received by the Company was used to retire $30.0 million of debt and the
remainder was used for general corporate purposes. In the first quarter of
1994, the Company sold the remaining 575,000 Depositary Units it held for
$11.3 million.

The properties conveyed to the Trust consisted of two term royalty
interests in two production units in the Wasson field in west Texas and a net
profits royalty interest in certain royalty and working interests in a
diversified portfolio of properties located in twelve states. At December 31,
1994, 4.6 MMBOE of the Company's estimated proved reserves were subject to
such net profits interest. The reserve estimates included herein reflect the
conveyance of the Wasson term royalties to the Trust.

For any calendar quarter ending on or prior to December 31, 2002, the
Trust will receive additional royalty payments to the extent that such
payments are required to provide distributions of $0.40 per Depositary Unit
per quarter. Such additional royalty payments, if needed, will come from the
Company's remaining royalty interest in one of the production units in the
Wasson field described above, and are non-recourse to the Company. If such
additional payments are made, certain proceeds otherwise payable to the Trust
in subsequent quarters may be reduced to recoup the amount of such additional
payments. The aggregate amount of the additional royalty payments (net of any
amounts recouped) will be limited to $20.0 million on a revolving basis. The
Company was required to make additional royalty payments totalling $0.4
million and $1.1 million with respect to the distributions made by the Trust
for operations in 1993 and 1994, respectively. Dependent on various factors,
such as sales volumes and prices and the level of operating costs and capital
expenditures incurred, proceeds payable to the Trust with respect to
operations in subsequent quarters may not be sufficient to make distributions
of $0.40 per quarter. In such instances the Company would be required to make
additional royalty payments.

OTHER BUSINESS MATTERS

COMPETITION

The Company faces competition in all aspects of its business, including,
but not limited to, acquiring reserves, leases, licenses and concessions;
obtaining goods, services and labor needed to

conduct its operations and manage the Company; and marketing its oil and gas.
The Company's competitors include multinational energy companies,
government-owned oil and gas companies, other independent producers and
individual producers and operators. The Company believes that its competitive
position is affected by price, its geological and geophysical capabilities and
ready access to markets for production. Many competitors have greater
financial and other resources than the Company, more favorable exploration
prospects and ready access to move favorable markets for their production. The
Company believes that the well-defined nature of the reservoirs in its
long-lived oil fields, its expertise in EOR methods in these fields, its
active development and exploration position and its experienced management may
give it a competitive advantage over some other producers.

REGULATION OF CRUDE OIL AND NATURAL GAS

The petroleum industry is subject to various types of regulation
throughout the world, including regulation in the United States by state and
federal agencies. Domestic legislation affecting the oil and gas industry is
under constant review for amendment or expansion, frequently increasing the
regulatory burden. Also, numerous departments and agencies, both federal and
state, are authorized by statute to issue and have issued rules and
regulations binding on the oil and gas industry and its individual members,
compliance with which is often difficult and costly and which may carry
substantial penalties for non-compliance. Although the regulatory burden on
the oil and gas industry increases the cost of doing business and,
consequently, affects profitability, generally these burdens do not appear to
affect the Company any differently or to any greater or lesser extent than
other companies in the industry with similar types and quantities of
production. While the Company is a party to several regulatory proceedings
before governmental agencies arising in the ordinary course of business,
management does not believe that the outcome of such proceedings will have a
material adverse affect on the operations or financial condition of the
Company. Set forth below is a general description of certain state and federal
regulations which have an effect on the Company's operations.

STATE REGULATION. State statutes and regulations require permits for
drilling operations, drilling bonds and reports concerning operations. Most
states in which the Company operates also have statutes and regulations
governing the conservation of oil and gas and the prevention of waste,
including the unitization or pooling of oil and gas properties and rates of
production from oil and gas wells. Rates of production may be regulated
through the establishment of maximum daily production allowables on a market
demand or conservation basis or both.

FEDERAL REGULATION. A portion of the Company's oil and gas leases are
granted by the federal government and administered by the Bureau of Land
Management ("BLM") and the Minerals Management Service ("MMS"), both of which
are federal agencies. Such leases are issued through competitive bidding,
contain relatively standardized terms and require compliance with detailed BLM
and MMS regulations and orders (which are subject to change by the BLM and the
MMS). For offshore operations, lessees must obtain MMS approval for
exploration plans and development and production plans prior to the
commencement of such operations. In addition to permits required from other
agencies (such as the Coast Guard, Army Corps of Engineers and Environmental
Protection Agency), lessees must obtain a permit from the BLM or the MMS prior
to the commencement of drilling.

The interstate transportation of natural gas is regulated by the Federal
Energy Regulatory Commission ("FERC") under the Natural Gas Act of 1938 and,
to a lesser extent, the Natural Gas Policy Act of 1978 (collectively, the
"Acts"). Since 1991, FERC's regulatory efforts have centered largely around
its generic rulemaking proceedings, Order No. 636. Through Order No. 636 and
successor orders, FERC has undertaken to restructure the interstate pipeline
industry with the goal of providing enhanced access to, and competition among,
alternative gas suppliers. By requiring interstate pipelines to "unbundle"
their sales services and to provide their customers with direct access to any
upstream pipeline capacity held by pipelines, Order No. 636 has enabled
pipeline customers to choose the levels of transportation and storage service
they require, as well as to purchase gas directly from third-party merchants
other than the pipelines.
15

Even though the implementation of Order No. 636 on individual interstate
pipelines is largely complete, nearly all of these individual restructuring
proceedings, as well as Order No. 636 itself and the regulations promulgated
thereunder, are subject to pending appellate review and could possibly be
substantially modified by the courts. Thus, while Order No. 636 has generally
facilitated the transportation of gas and the direct access to end-user
markets, the precise impact of these regulations on marketing production
cannot be predicted at this time.

With the completion of the Order No. 636 implementation process on the
FERC level, FERC's natural gas regulatory efforts have turned towards a number
of other important policies, all of which could significantly affect the
marketing of gas. Some of the more notable of these regulatory initiatives
include (i) a series of orders in individual pipeline proceedings articulating
a policy of generally approving the divestiture of pipeline-owned gathering
facilities to pipeline affiliates, (ii) the completion of a rulemaking
involving the regulation of pipeline marketing affiliates under Order No. 497,
(iii) FERC's on-going efforts to promulgate standards for pipeline electronic
bulletin boards and electronic data exchange, (iv) a generic inquiry into the
pricing of interstate pipeline capacity, (v) efforts to refine FERC's
regulations controlling the operation of the secondary market for released
pipeline capacity, and (vi) a policy statement regarding market and other
non-cost-based rates for interstate pipeline transmission and storage
capacity. The on-going and evolving nature of these regulatory initiatives
makes it impossible at this time to predict their ultimate impact upon
marketing natural gas.

ENVIRONMENTAL REGULATION

Various federal, state and local laws and regulations covering the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, may affect the Company's operations and costs.
In particular, the Company's oil and gas exploration, development, production
and EOR operations, its activities in connection with storage and
transportation of liquid hydrocarbons and its use of facilities for treating,
processing, recovering or otherwise handling hydrocarbons and wastes therefrom
are subject to stringent environmental regulation by governmental authorities.
Such regulation has increased the cost of planning, designing, drilling,
installing, operating and abandoning the Company's oil and gas wells and other
facilities. The Company has expended significant resources, both financial and
managerial, to comply with environmental regulations and permitting
requirements and anticipates that it will continue to do so in the future in
order to comply with stricter industry and regulatory safety standards such as
those described below. Although the Company believes that its operations and
facilities are in general compliance with applicable environmental
regulations, risks of substantial costs and liabilities are inherent in oil
and gas operations and there can be no assurance that significant costs and
liabilities will not be incurred in the future. Moreover, it is possible that
other developments, such as increasingly strict environmental laws,
regulations and enforcement policies thereunder, and claims for damages to
property, employees, other persons and the environment resulting from the
Company's operations, could result in substantial costs and liabilities in the
future. Although the resulting costs cannot be accurately estimated at this
time, these requirements and risks typically apply to companies with types and
quantities of production similar to those of the Company and to the oil and
gas industry in general.

OFFSHORE PRODUCTION. Offshore oil and gas operations are subject to
regulations of the United States Department of the Interior, the Department of
Transportation, the United States Environmental Protection Agency ("EPA") and
certain state agencies. In particular, the Federal Water Pollution Act of
1972, as amended ("FWPCA"), imposes strict controls on the discharge of oil
and its derivatives into navigable waters. The FWPCA provides for civil and
criminal penalties for any discharges of petroleum in reportable quantities
and, along with the Oil Pollution Act of 1990 and similar state laws, imposes
substantial liability for the costs of oil removal, remediation and damages.

SOLID AND HAZARDOUS WASTE. The Company currently owns or leases, and has
in the past owned or leased, numerous properties that have been used for
production of oil and gas for many years.

Although the Company has utilized operating and 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
the Company. State and federal laws applicable to oil and gas wastes and
properties have gradually become more strict. Under these new laws, the
Company has been, and in the future could be, required to remove or remediate
previously disposed wastes or property contamination (including groundwater
contamination) or to perform remedial plugging operations to prevent future
contamination.

The Company generates hazardous and nonhazardous wastes that are subject
to the federal Resource Conservation and Recovery Act and comparable state
statutes. The EPA has limited the disposal options for certain hazardous
wastes and is considering the adoption of stricter disposal standards for
nonhazardous wastes. Furthermore, it is anticipated that additional wastes
(which could include certain wastes generated by the Company's oil and gas
operations) will in the future be designated as "hazardous wastes," which are
subject to more rigorous and costly disposal requirements. In response to the
changing regulatory environment, the Company has made certain changes in its
operations and disposal practices. For example, the Company has commenced
remediation of sites or replacement of facilities where its wastes have
previously been disposed.

SUPERFUND. The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), also known as the "superfund" law, imposes
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons that contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator
of a site and companies that disposed or arranged for the disposal of the
hazardous substance found at a site. CERCLA also authorizes the EPA and, in
some cases, third parties to take actions in responses to threats to the
public health or the environment and to seek to recover from the responsible
classes of persons the costs they incur. In the course of its operations, the
Company has generated and will generate wastes that may fall within CERCLA's
definition of "hazardous substances." The Company may be responsible under
CERCLA for all or part of the costs to clean up sites at which such wastes
have been disposed.

The Company has been identified as one of over 250 potentially responsible
parties ("PRPs") at a superfund site in Los Angeles County, California. The
site was operated by a third party as a waste disposal facility from 1948
until 1983. The Environmental Protection Agency ("EPA") is requiring the PRPs
to undertake remediation of the site in several phases, which include site
monitoring and leachate control, gas control and final remediation.

In 1989 the EPA and a group of PRPs that includes the Company entered into
a consent decree covering the site monitoring and leachate control phases of
remediation. The Company is a member of the group Coalition Undertaking
Remediation Efforts ("CURE") which is responsible for constructing and
operating the leachate treatment plant. Treatment tests will begin shortly.
Site monitoring and maintenance will continue throughout the life of the
facility. The Company's share of costs with respect to this phase are expected
to total approximately $2.4 million ($1.3 million after recoveries from
working interest participants in the unit in which the wastes were generated).

Another consent decree provides for the predesign, design and construction
of a gas plant to harness and market methane gas emissions. The Company is a
member of the New CURE group which is responsible for the gas plant
construction and operation and landfill cover. Currently, New CURE is in the
design stage of the gas plant. The liability with respect to this phase has
not been capped but is estimated to be approximately $130.0 million. The
Company's share of costs of this phase is expected to be of approximately the
same magnitude as that of the first phase and such costs have been provided
for in the financial statements.

As previously discussed, the Company has provided for its share of costs
with respect to the site monitoring, leachate control and gas control phases;
however, it cannot currently estimate the cost of any subsequent phases of
work or final remediation which may be required by the EPA.

Another consent decree is currently being executed by the PRPs and will be
logged with the court for approval. This consent decree allows for the
settlement of the pending lawsuits against the municipalities and transporters
not named by the EPA. The settlement totals approximately $70.0 million of
which approximately $55.0 million will be credited against future expenses.

The Company has entered into a Joint Defense Agreement with the other PRPs
to defend against a lawsuit filed September 7, 1994 by ninety-five homeowners
alleging, among other things, nuisance, trespass, strict liability and
infliction of emotional distress. At this stage of the lawsuit the Company is
not able to estimate costs or potential liability but the defendants intend to
aggressively pursue the defense and discovery once all defendants have been
served and answers have been filed.

In 1989, Adobe received requests from the EPA for information pursuant to
Section 104(e) of CERCLA with respect to the D. L. Mud and Gulf Coast Vacuum
Services superfund sites located in Abbeville, Louisiana. With respect to the
Gulf Coast Site the Company has entered into a sharing agreement with other
PRP'S to participate in the final remediation of the Gulf Coast site and a
design plan has been submitted and is awaiting approval by the EPA. The
Company's share of the remediation, which has been provided for in the
financial statements, is approximately $600,000 and includes its proportionate
share of those PRPs who do not have the financial resources to provide their
share of the work at the site. A former site owner has already conducted
remedial activities at the D. L. Mud Site under a state agency agreement.

On April 4, 1994, the Company received a request from the EPA for
information pursuant to Section 104(e) of CERCLA and a letter ordering the
Company and seven other PRPs to negotiate with the EPA regarding
implementation of a remedial plan for a site located in Santa Fe Springs,
California. The Company owned the property on which the site is located from
1921 to 1932. During that time the property was leased to another company and
in 1932 the property was sold to that company. During the time the other
company leased or owned the property, hazardous wastes were allegedly disposed
at the site. The EPA estimates that the total past and future costs for
remediation will approximate $9.4 million. The Company filed its response to
the Section 104(e) order setting forth its position and defenses based on the
fact that the other company was the lessee and operator of the site during the
time the Company was the owner of the property. However, the Company has also
given its Notice of Intent to comply with the EPA's order to prepare a
remediation design plan. Six of the other PRPs have also notified the EPA of
their intent to comply. The cost of such a remediation design plan is
estimated to be approximately $1.0 million. To date there has been no
agreement on how to allocate costs among the PRPs.

On January 23, 1995 the Company received a request from the EPA for
information pursuant to Section 401(e) of CERCLA, seeking information relating
to the number and contents of drums, barrels and other materials that were
sent to the Hansen Container Site, located in Grand Junction, Colorado, for
reconditioning, disposal or storage. The EPA provided documentation evidencing
two transactions in which the Company sold drums, which the Company believes
to have been empty, which may have been reconditioned or stored at the site.
The Company has responded to the inquiry, indicating that it has no
documentation or knowledge with respect to any other transactions related to
the site, and is awaiting further correspondence from the EPA. The Company is
not able to estimate its exposure with respect to this site at this time.

AIR EMISSIONS. The operations of the Company, including most of its
operations in the San Joaquin Valley, are subject to local, state and federal
regulations for the control of emissions from sources of air pollution. Legal
and regulatory requirements in this area are increasing, and there can be no
assurance that significant costs and liabilities will not be incurred in the
future as a result of new regulatory developments. In particular, the 1990
Clean Air Act amendments will impose additional requirements that may affect
the Company's operations, including permitting of existing sources and control
of hazardous air pollutants. However, it is impossible to predict accurately
the effects, if any, of the Clean Air Act Amendments on the Company at this
time. The Company has been and may in the future be subject to administrative
enforcement actions for failure to comply

strictly with air regulations or permits. These administrative actions are
generally resolved by payment of a monetary penalty and correction of any
identified deficiencies. Alternatively, regulatory agencies may require the
Company to forego construction or operation of certain air emission sources.

OTHER. The Company is 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 Title III of the federal Superfund Amendment and
Reauthorization Act and similar state statutes (such as California Proposition
65) require the Company to organize information about hazardous materials used
or produced in its operations. Certain of this information must be provided to
employees, state and local governmental authorities and local citizens. The
Company's facilities in California are also subject to California Proposition
65, which was adopted in 1986 to address discharges and releases of, or
exposures to, toxic chemicals in the environment. Proposition 65 makes it
illegal to knowingly discharge a listed chemical if the chemical will pass (or
probably will pass) into any source of drinking water. It also prohibits
companies from knowingly and intentionally exposing any individual to such
chemicals through ingestion, inhalation or other exposure pathways without
first giving a clear and reasonable warning.

Although generally less stringent, the Company's foreign operations are
subject to similar foreign laws respecting environmental and worker safety
matters.

INSURANCE COVERAGE MAINTAINED WITH RESPECT TO OPERATIONS

The Company maintains insurance policies covering its operations in
amounts and areas of coverage normal for a company of its size in the oil and
gas exploration and production industry. These coverages include, but are not
limited to, workers' compensation, employers' liability, automotive liability
and general liability. In addition, an umbrella liability and operator's extra
expense policies are maintained. All such insurance is subject to normal
deductible levels. The Company does not insure against all risks associated
with its business either because insurance is not available or because it has
elected not to insure due to prohibitive premium costs.

EMPLOYEES

As of December 31, 1994, the Company had approximately 647 employees, 202
of whom were covered by a collective bargaining agreement which expires on
January 31, 1996. The Company believes that its relations with its employees
are satisfactory.

ITEM 3. LEGAL PROCEEDINGS

The Company, its subsidiaries and other related companies are named
defendants in several lawsuits and named parties in certain governmental
proceedings arising in the ordinary course of business. For a description of
certain proceedings in which the Company is involved, see Items 1 and 2
"Business and Properties -- Other Business Matters -- Environmental Regulation"
and Note 12 to the Consolidated Financial Statements. While the outcome of
lawsuits or other proceedings against the Company cannot be predicted with
certainty, management does not expect these matters to have a material adverse
effect on the financial position or results of operations of the Company.

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

None.

EXECUTIVE OFFICERS OF SANTA FE

Listed below are the names, ages (as of January 1, 1995) and positions of
all executive officers of Santa Fe (excluding executive officers who are also
directors of Santa Fe) and their business experience during the past five
years. Unless otherwise stated, all offices were held with Santa Fe

Energy Company prior to its merger with Santa Fe. Each executive officer holds
office until his successor is elected or appointed or until his earlier death,
resignation or removal.

HUGH L BOYT, 49 Senior Vice President -- Production since March 1, 1990.
From 1989 until March 1990, Mr. Boyt served as Corporate Production Manager.
From 1983, when Mr. Boyt joined Santa Fe, until 1989 he served as District
Production Manager -- Permian Basin.

JERRY L BRIDWELL, 51 Senior Vice President -- Exploration and Land since
1986. Mr. Bridwell served in various other capacities, including Vice
President -- Exploration, Central Division, since joining Santa Fe in 1974.

KEITH P. HENSLER, 63 Senior Vice President -- Marketing since January,
1990. From 1980 when Mr. Hensler joined Santa Fe, until January 1990, he
served as Vice President -- Marketing.

MICHAEL J. ROSINSKI, 49 Senior Vice President -- Administration since
January 1995. From September 1992 until January 1995 Mr. Rosinski served as
Vice President and Chief Financial Officer. Prior to joining Santa Fe, Mr.
Rosinski was with Tenneco Inc. and its subsidiaries for 24 years. From 1988
until 1990 he served as Deputy Project Executive for the Colombian Crude Oil
Pipeline Project and from 1990 until August 1992 he was Executive Director of
Investor Relations. Mr. Rosinski is also a director of Hadson Corporation.

R. GRAHAM WHALING, 40 Senior Vice President and Chief Financial Officer
since January 1995. Mr. Whaling was with First Boston Corporation from 1989
until he joined Santa Fe. While with First Boston Corporation Mr. Whaling
served in various capacities including Vice President, Corporate Finance from
1991 to 1994 and Director, Corporate Finance from 1994 to 1995.

E. EVERETT DESCHNER, 54 Vice President -- Engineering and Evaluation since
April 1990. From 1982, when Mr. Deschner joined Santa Fe, until 1990, he served
as Manager -- Engineering and Evaluation.

C. ED HALL, 52 Vice President -- Public Affairs since March 1991. Prior
to such time Mr. Hall served as Director -- Public Affairs since joining Santa
Fe in 1984.

CHARLES G. HAIN, JR., 48 Vice President -- Human and Data Resources since
1994. Vice President -- Employee Relations from 1988 until 1994. From 1981, when
Mr. Hain joined Santa Fe, until 1988, Mr. Hain served as Director -- Employee
Relations.

DAVID L HICKS, 45 Vice President -- Law and General Counsel since March
1991. From 1988 until March 1991 Mr. Hicks was General Counsel and prior to
that time was General Attorney for SFP.

JOHN R. WOMACK, 56 Vice President -- Business Development since 1987.
From 1982, when Mr. Womack joined Santa Fe, until 1987, Mr. Womack served as
Vice President -- Land.
20

PART II

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

Santa Fe's common stock is listed on the New York Stock Exchange and
trades under the symbol SFR. The following table sets forth information as to
the last sales price per share of Santa Fe's common stock as quoted on the
Consolidated Tape System and cash dividends paid per share for each calendar
quarter in 1994 and 1993.
CASH
LOW HIGH DIVIDENDS
----- ----- ---------
1994
1st Quarter...................... 8 1/2 9 7/8 --
2nd Quarter...................... 7 5/8 9 3/4 --
3rd Quarter...................... 8 3/4 9 7/8 --
4th Quarter...................... 7 7/8 9 1/4 --
1993
1st Quarter...................... 7 7/8 10 7/8 0.04
2nd Quarter...................... 9 7/8 11 3/4 0.04
3rd Quarter...................... 9 1/4 10 5/8 0.04
4th Quarter...................... 8 1/2 10 3/4 --

As discussed in Items 1 and 2, Business and Properties -- Corporate
Restructuring Program, the Company has eliminated the payment of its $0.04 per
share quarterly dividend on its common stock. The determination of the amount
of future cash dividends, if any, to be declared and paid is in the sole
discretion of Santa Fe's board of directors and will depend on dividend
requirements with respect to the Company's convertible preferred stock, the
Company's financial condition, earnings and funds from operations, the level
of its capital and exploration expenditures, dividend restrictions in its
financing agreements, its future business prospects and other matters as the
Company's board of directors deems relevant. For a discussion of certain
restrictions on Santa Fe's ability to pay dividends, see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Financing Activities.

At December 31, 1994 the Company had approximately 50,200 shareholders of
record.
21

ITEM 6. SELECTED FINANCIAL DATA

YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1994 1993 1992<F2> 1991 1990
--------- ---------- -------- --------- ---------
(IN MILLIONS OF DOLLARS, EXCEPT AS NOTED)

SELECTED FINANCIAL DATA
INCOME STATEMENT DATA:
Revenues......................... 391.4 436.9 427.5 379.8 382.9
--------- ---------- -------- --------- ---------
Operating expenses
Production and operating..... 150.0 163.8 153.4 134.6 135.5
Oil and gas systems and
pipelines.................. -- 4.2 3.2 -- --
Exploration, including dry
hole costs................. 20.4 31.0 25.5 18.7 21.0
Depletion, depreciation and
amortization............... 121.3 152.7 146.3 106.6 105.2
Impairment of oil and gas
properties................. -- 99.3 -- -- 1.4
General and administrative... 27.3 32.3 30.9 27.8 25.6
Taxes (other than income).... 25.8 27.3 24.3 27.2 22.0
Restructuring charges<F1>.... 7.0 38.6 -- -- --
Loss (gain) on disposition of
oil and gas properties..... (8.6) 0.7 (13.6) 0.5 2.8
--------- ---------- -------- --------- ---------
Total operating
expenses............... 343.2 549.9 370.0 315.4 313.5
--------- ---------- -------- --------- ---------
Income (Loss) from Operations.... 48.2 (113.0) 57.5 64.4 69.4
Other income (expense)....... (4.0) (4.8) (10.0) 5.6 (0.3)
Interest income.............. 2.8 9.1 2.3 2.3 5.2
Interest expense............. (27.5) (45.8) (55.6) (47.3) (57.1)
Interest capitalized......... 3.6 4.3 4.9 7.7 10.6
--------- ---------- -------- --------- ---------
Income (Loss) Before Income
Taxes.......................... 23.1 (150.2) (0.9) 32.7 27.8
Income taxes benefit
(expense).................. (6.0) 73.1 (0.5) (14.2) (10.8)
--------- ---------- -------- --------- ---------
Net Income (Loss)................ 17.1 (77.1) (1.4) 18.5 17.0
Preferred Dividend Requirement... (11.7) (7.0) (4.3) -- --
--------- ---------- -------- --------- ---------
Earnings (Loss) Attributable to
Common Stock................... 5.4 (84.1) (5.7) 18.5 17.0
========= ========== ======== ========= =========
Per share data (in dollars):
Earnings (loss) to common
stock...................... 0.06 (0.94) (0.07) 0.29 0.28
Weighted average number of
shares outstanding (in
millions).................. 89.9 89.7 79.0 63.8 61.7
STATEMENT OF CASH FLOWS DATA:
Net cash provided by operating
activities..................... 124.5 160.2 141.5 128.4 144.1
Net cash used in investing
activities..................... 57.7 121.4 15.9 117.2 108.2
BALANCE SHEET DATA (AT PERIOD END):
Properties and equipment, net.... 843.0 832.7 1,101.8 797.4 745.0
Total assets..................... 1,071.4 1,076.9 1,337.2 911.9 911.1
Long-term debt................... 350.4 405.4 492.8 440.8 417.2
Convertible preferred stock...... 80.0 80.0 80.0 -- --
Shareholders' equity............. 423.3 323.6 416.6 225.1 215.8

SELECTED OPERATING DATA:
DAILY AVERAGE PRODUCTION<F3>:
Crude oil and liquids (MBbls/day)
Domestic..................... 57.6 60.2 58.3 54.9 52.0
Argentina.................... 2.4 2.4 2.4 0.6 --
Indonesia.................... 5.7 4.1 1.8 -- --
--------- ---------- ---------- --------- ---------
65.7 66.7 62.5 55.5 52.0
========= ========== ========== ========= =========
Natural gas (MMcf/day)........... 136.6 165.4 126.3 95.2 102.5
Total production (MMBOE/day)..... 88.5 94.3 83.6 71.4 69.1
AVERAGE SALES PRICES:
Crude oil and liquids ($/Bbl)
Unhedged
Domestic................. 12.11 12.70 14.38 14.07 17.90
Argentina................ 13.23 14.07 15.99 16.24 --
Indonesia................ 15.09 15.50 17.51 -- --
Total.................... 12.41 12.93 14.54 14.09 17.90
Hedged....................... 12.41 12.93 14.96 16.16 17.34
Natural Gas ($/Mcf)
Unhedged..................... 1.75 2.03 1.71 1.49 1.57
Hedged....................... 1.73 1.89 1.70 1.49 1.57
PROVED RESERVES AT YEAR END<F4>:
Crude oil, condensate and natural
gas liquids (MMBbls)........... 258.3 248.2 255.1 229.2 222.3
Natural gas (Bcf)................ 242.4 263.0 277.5 170.8 185.9
Proved reserves (MMBOE).......... 298.7 292.0 301.5 257.7 253.3
Proved developed reserves
(MMBOE)........................ 224.5 225.5 248.4 210.3 205.0
Present value of proved reserves at
year-end
Before income taxes.............. 970.8 567.8 915.2 602.6 1,231.4
After income taxes............... 739.9 502.4 733.5 463.6 839.4
Production costs (including related
production, severance and ad
valorem taxes) per BOE (in
dollars)........................... 5.30 5.39 5.66 6.06 6.22
<FN>
<F1> 1993 amount includes losses on property dispositions of $27.8 million,
long-term debt repayment penalties of $8.6 million and accruals of certain
personnel benefits and related costs of $2.2 million.

<F2> On May 19, 1992 Adobe Resources Corporation was merged with and into the
Company.

<F3> Includes production attributable to the properties sold to Vintage (closed
in November 1993) and Bridge (closed in April 1994). Production
attributable to such properties during 1993 totaled approximately 4.1 MBbls
of oil and 21.7 MMcf of natural gas per day (7.7 MBOE per day).

<F4> The amounts set forth in this table for 1993 give effect to the sale by the
Company of approximately 8.0 MMBOE of proved reserves to Bridge, which sale
closed in April 1994.

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

For the year 1994 the Company reported income to common shares of $5.4
million, or $0.06 per share. The reported income is after recognition of a
$7.0 million restructuring charge related to a cost reduction program
implemented by the Company. At December 31, 1994 the Company's long-term debt
totalled $354.3 million, $95.4 million lower than at December 31, 1993, after
the refinancing in the second quarter of 1994 which reduced required debt
amortization in the near-term and provided additional financial flexibility.
See -- Liquidity and Capital Resources.

GENERAL

As an independent oil and gas producer, the Company's results of
operations are dependent upon the difference between the prices received for
oil and gas and the costs of finding and producing such resources. A
substantial portion of the Company's crude oil production is from long-lived
fields where EOR methods are being utilized. The market price of the heavy
(i.e., low gravity, high viscosity) and sour (i.e., high sulfur content) crude
oils produced in these fields is lower than sweeter, light (i.e., low sulfur
and low viscosity) crude oils, reflecting higher transportation and refining
costs. In addition, the lifting costs of heavy crude oils are generally higher
than the lifting costs of light crude oils. As a result of these narrower
margins, even relatively modest changes in crude oil prices may significantly
affect the Company's revenues, results of operations, cash flows and proved
reserves. In addition, prolonged periods of high or low oil prices may have a
material effect on the Company's financial position.

The lower price received for the Company's domestic heavy and sour crude
oil is reflected in the average sales price of the Company's domestic crude
oil and liquids (excluding the effect of hedging transactions) for 1994 of
$12.11 per barrel, compared to $15.63 per barrel for West Texas Intermediate
("WTI") crude oil (an industry posted price generally indicative of spot
prices for sweeter light crude oil). In 1994 the Company's average sales price
for California heavy crude oil was $11.31 per barrel, approximately 72% of the
average annual posted price for WTI. This ratio is considered positive since
historically heavy crude oil has sold for an average of approximately 66% of
WTI.

Crude oil prices are subject to significant changes in response to
fluctuations in the domestic and world supply and demand and other market
conditions as well as the world political situation as it affects OPEC, the
Middle East and other producing countries. During 1994 the actual average
sales price (unhedged) received by the Company ranged from a high of $13.75
per barrel in the third quarter to a low of $10.00 per barrel for the first
quarter. Based on operating results for the year 1994, the Company estimates
that a $1.00 per barrel increase or decrease in its average domestic crude oil
sales prices would result in a corresponding $20.6 million change in income
from operations and a $15.5 million change in cash flow from operating
activities. The foregoing estimates do not give effect to changes in any other
factors, such as the effect of the Company's hedging program or depreciation
and depletion, that would result from a change in oil prices.

The price of natural gas fluctuates due to weather conditions, the level
of natural gas in storage, the relative balance between supply and demand and
other economic factors. The actual average sales price (unhedged) received by
the Company in 1994 for its natural gas ranged from a high of $2.07 per Mcf in
the second quarter to a low of $1.43 per Mcf in the fourth quarter. In
response to low prices, the Company curtailed its natural gas production by
approximately 1.9 Bcf in September through October 1994. Based on operating
results for the year 1994, the Company estimates that a $0.10 per Mcf increase
or decrease in its average domestic natural gas sales price would result in a
corresponding $4.8 million change in income from operations and a $3.6 million
change in cash flow from operating activities. The foregoing estimates do not
give effect to changes in any other factors, such as the effect of the
Company's hedging program or depletion and depreciation, that would result
from a change in natural gas prices.
24
RESULTS OF OPERATIONS

The Adobe Merger was accounted for as a purchase and the results of
operations of the Adobe Properties are included in the Company's results of
operations with effect from June 1, 1992.

REVENUES

The following table reflects the components of the Company's crude oil and
liquids and natural gas revenues:
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
Crude Oil and Liquids
Revenues ($/Millions)
Sales
Domestic
California Heavy............. 158.2 151.7 165.7
Other........................ 96.4 127.4 141.0
--------- --------- ---------
254.6 279.1 306.7
Argentina...................... 11.6 12.5 13.9
Indonesia...................... 31.3 23.1 11.8
Hedging.......................... -- -- 9.7
Net Profits Payments............. (3.8) (7.4) (8.5)
--------- --------- ---------
293.7 307.3 333.6
========= ========= =========
Volumes (MBbls/day)
Domestic
California Heavy............... 38.3 37.0 35.6
Other.......................... 19.3 23.2 22.7
--------- --------- ---------
57.6 60.2 58.3
Argentina........................ 2.4 2.4 2.4
Indonesia........................ 5.7 4.1 1.8
--------- --------- ---------
65.7 66.7 62.5
========= ========= =========
Sales Prices ($/Bbl)
Domestic
California Heavy............... 11.31 11.24 12.74
Other.......................... 13.72 15.03 16.96
Total.......................... 12.11 12.70 14.38
Argentina........................ 13.23 14.07 15.99
Indonesia........................ 15.09 15.50 17.51
Total............................ 12.41 12.93 14.54
Total Hedged..................... 12.41 12.93 14.96

Natural Gas
Revenues ($/Millions)
Sales............................ 87.3 122.3 79.1
Hedging.......................... (1.0) (8.2) (0.5)
Net Profits Payments............. (2.9) (6.3) (3.8)
--------- --------- ---------
83.4 107.8 74.8
========= ========= =========
Volumes (MMcf/day)................. 136.6 165.4 126.3
Sales Prices ($/Mcf)
Unhedged......................... 1.75 2.03 1.71
Hedged........................... 1.73 1.89 1.70

Total revenues declined 12% from $436.9 million in 1993 to $391.4 million
in 1994. Crude oil and liquids revenues declined $13.6 million. The sale of
certain domestic properties to Vintage in the fourth quarter of 1993 and to
Bridge in the second quarter of 1994 resulted in a decrease in oil

revenues of approximately $20.4 million. The effect of increased volumes of
California heavy and Indonesian crude, approximately $14.4 million, and lower
net profits payments were partially offset by the effect of lower sales
prices. The reduction in net profits payments results from the payout in 1993
of a net profits agreement with respect to certain of the Company's domestic
properties. Daily average oil production in 1994 decreased approximately 1,000
barrels per day from 1993. The 3,800 barrel per day decrease in oil production
resulting from the sale of properties to Vintage and Bridge was partially
offset by a 1,300 barrel per day increase in California heavy crude and a
1,600 barrel per day increase in Indonesian production.

Natural gas revenues declined from $107.8 million in 1993 to $83.4 million
in 1994. The sales of properties to Vintage and Bridge resulted in a decrease
in natural gas revenues of approximately $13.1 million and lower sales prices
resulted in a reduction in revenues of approximately $7.6 million. In
addition, revenues for 1993 included a positive adjustment of $3.2 million
related to production in prior periods from certain nonoperated properties.
Net profits payments in 1994 were $3.3 million lower than in 1993, reflecting
the previously discussed payout in 1993 of a net profits agreement. Natural
gas sales volumes decreased from 165.4 MMcf per day in 1993 to 136.6 MMcf per
day in 1994 with the property sales to Vintage and Bridge accounting for
approximately 18.6 MMcf per day of the decrease. The Company's curtailment
program (see -- General) resulted in a reduction of approximately 5.1 MMcf per
day and the prior period adjustment included in 1993 represented volumes of
approximately 4.0 MMcf per day.

Total revenues increased approximately 2% from $427.5 million in 1992 to
$436.9 million in 1993. Crude oil and liquids revenues decreased from $333.6
million in 1992 to $307.3 million in 1993 as the effect of lower sales prices
more than offset the effect of increased sales volumes. In addition, revenues
for 1992 included gains on hedging transactions of $9.7 million. Crude oil and
liquids sales volumes increased from 62.5 MBbls per day in 1992 to 66.7 MBbls
per day in 1993, reflecting increased sales of California heavy crude as well
as a full year of volumes from the Adobe Properties. Natural gas revenues
increased from $74.8 million in 1992 to $107.8 million in 1993. Sales volumes
increased from 126.3 MMcf per day in 1992 to 165.4 MMcf per day in 1993,
primarily reflecting a full year of volumes from Adobe Properties. In
addition, natural gas revenues for 1993 were reduced by losses on hedging
transactions of $8.2 million compared to losses of $0.5 million in 1992.

COSTS AND EXPENSES

Costs and expenses for 1994 totalled $343.2 million compared to $549.9
million for 1993. Costs and expenses for 1993 included impairments of oil and
gas properties of $99.3 million and restructuring charges of $38.6 million and
costs and expenses for 1994 included restructuring charges of $7.0 million
(see -- Liquidity and Capital Resources). The property sales to Vintage and
Bridge resulted in reductions in production and operating costs and depletion,
depreciation and amortization ("DD&A") of $12.4 million and $11.5 million,
respectively. The remainder of the decrease in DD&A is primarily attributable
to the effect of the property impairments taken in the fourth quarter of 1993.
Exploration expenses were down $10.6 million primarily reflecting lower
geological and geophysical costs with respect to foreign operations and lower
overhead.
26

On a per barrel of oil equivalent ("BOE") produced basis, the Company's
costs and expenses were generally lower in 1994. Asset sales and increased
operating efficiencies resulted in a $0.11 per BOE reduction in production and
operating costs and the asset impairments taken in the fourth quarter of 1993
were the primary factor contributing to the $0.68 per BOE reduction in DD&A.
General and administrative expenses were down 10% and exploration costs were
down 30% per BOE. The following table sets forth, on a BOE basis, certain of
the Company's costs and expenses (in dollars):

1994 1993 1992
---- ---- ----
Production and operating costs per
BOE (a).............................. 4.65 4.76 5.02
Exploration, including dry hole costs
per BOE............................ 0.63 0.90 0.84
Depletion, depreciation and
amortization per BOE............... 3.76 4.44 4.79
General and administrative costs per
BOE................................ 0.85 0.94 1.01
Taxes other than income per BOE (b).. 0.80 0.79 0.80
Interest, net, per BOE (c)(d)........ 1.08 1.30 1.58

(a) Excluding related production, severance and ad valorem taxes.

(b) Includes production, severance and ad valorem taxes.

(d) Excludes effects of (i) benefit of adjustments to provisions for
potential state income tax obligations of $0.36 per BOE in 1994; (ii)
benefit of adjustment to provisions made in prior periods with respect
to interest on certain federal income tax audit adjustments of $0.07 per
BOE in 1994; and (iii) benefit of Federal income tax audit refund and
revised tax sharing agreement with the Company's former parent of $0.36
per BOE in 1993.

Costs and expenses increased from $370.0 million in 1992 to $549.9 million
in 1993. Costs and expenses for 1993 included impairments of oil and gas
properties of $99.3 million and restructuring charges of $38.6 million
(see -- Liquidity and Capital Resources). The increase in 1993 in production
and operating costs and taxes (other than income) primarily reflects a full
year's costs for the Adobe Properties. Exploration costs were $5.5 million
higher, primarily reflecting higher geological and geophysical and dry hole
costs. DD&A increased $6.4 million reflecting a full year's costs for the
Adobe Properties, partially offset by reduced amortization rates with respect
to certain unproved properties. General and administrative costs for 1993
include a $1.8 million charge related to the adoption of Statement of
Financial Accounting Standards No. 112 -- "Employer's Accounting for
Postemployment Benefits".

Interest income for 1993 includes $6.8 million related to a $10.0 million
refund received as a result of the completion of the audit of the Company's
federal income tax returns for 1971 through 1980.

Interest expense for 1994 includes a credit of $2.4 million reflecting
adjustments to provisions made in prior periods with respect to interest on
certain potential federal income tax audit adjustments and a credit of $11.5
million reflecting adjustments to provisions made in prior periods for
potential state income tax obligations. Interest expense for 1993 includes a
third quarter credit of $5.7 million related to a revision to a tax sharing
agreement with the Company's former parent.

Other income (expense) for 1994 includes: (i) a $2.4 million gain on the
sale of the Company's interest in a company which was acquired in the Adobe
merger in 1992; (ii) a net $1.6 million charge with respect to the Company's
investment in Hadson; and (iii) a $5.0 million charge with respect to certain
litigation. Other income (expense) for 1993 includes a $4.0 million charge
related to the accrual of a contingent loss with respect to a former affiliate
of Adobe.

Income taxes for 1994 includes a $3.0 million credit reflecting the
benefit of adjustments to provisions made in prior periods with respect to
certain potential federal income tax audit adjustments and a $2.6 million
credit reflecting the benefit of adjustments to provisions made in prior
periods for potential state income tax obligations. Income taxes for 1993
includes: (i) a $3.0 million
27

charge to reflect the increase in the Company's deferred income tax liability
as a result of the increase in the federal income tax rate; (ii) a $3.2
million benefit related to the previously discussed federal tax audit refund;
(iii) a $1.8 million benefit related to the previously discussed revision to a
tax sharing agreement with the Company's former parent; and (iv) a $1.0
million benefit relating to prior periods resulting from the restructuring of
certain of the Company's foreign operations which were conducted through
foreign incorporated subsidiaries.

The increase in the Company's preferred dividend requirement reflects the
issuance of 10.7 million shares of $0.732 Series A Convertible Preferred Stock
in the second quarter of 1994.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash flow from operating activities is a function of the
volumes of oil and gas produced from the Company's properties and the sales
prices received therefor. Since crude oil and natural gas are depleting
assets, unless the Company replaces the oil and gas produced from its
properties, the Company's assets will be depleted over time and its ability to
incur debt at constant or declining prices will be reduced. The Company
increased its proved reserves (net of production and sales) by approximately
19% over the five years ended December 31, 1994; however, no assurances can be
given that such increase will occur in the future. Historically, the Company
has generally funded capital and exploration expenditures and working capital
requirements from cash provided by operating activities. Depending upon the
future levels of operating cash flows, which are significantly affected by oil
and gas prices, the restrictions on additional borrowings included in certain
of the Company's debt agreements, together with debt service requirements and
dividends, may limit the cash available for future exploration, development
and acquisition activities. Net cash provided by operating activities totalled
$124.5 million in 1994; net cash used in investing activities (excluding
proceeds from the sales of properties) in such period totalled $138.8 million.

The decrease in accounts receivable from $87.4 million at December 31,
1993 to $76.2 million at December 31, 1994 primarily reflects lower
receivables with respect to natural gas sales due to lower prices and an
acceleration of the collection of such receivables resulting from the
marketing arrangement with Hadson and the collection of certain amounts with
respect to the property sale to Vintage which had been held in escrow,
partially offset by an increase in receivables for oil sales, primarily due to
higher sales prices. The decrease in accounts payable from $93.5 million at
December 31, 1993 to $84.1 million at December 31, 1994 primarily reflects the
payment in 1994 of certain restructuring charges which were accrued in 1993.
The decrease in other long-term obligations from $48.8 million at December 31,
1993 to $28.0 million at December 31, 1994 primarily relates to the
adjustments made to provisions for potential federal income tax audit
adjustments and potential state income tax obligations discussed in Results of
Operations.

In the fourth quarter of 1993 the Company adopted a corporate
restructuring program which included (i) the concentration of capital spending
in the Company's core operating areas, (ii) the disposition of non-core
assets, (iii) the elimination of the $0.04 per share quarterly Common Stock
dividend and (iv) an evaluation of the Company's capital and cost structures
to examine ways to increase flexibility and strengthen the Company's financial
performance. The restructuring program has resulted in improved liquidity,
reduced required debt amortization in the near-term and additional financial
flexibility. See Items 1 and 2. Business and Properties -- Corporate
Restructuring Program.

The Company's 1994 capital program totalled approximately $130 million, a
level which allowed the Company to more than replace its 1994 production. The
Company expects to expend approximately $190 million on its 1995 program.
However, the actual amount expended by the Company in 1995 will be based upon
numerous factors, the majority of which are outside its control, including,
without limitation, prevailing oil and natural gas prices and the outlook
therefor and the availability of funds.

Effective March 16, 1994 the Company entered into an Amended and Restated
Revolving Credit Agreement (the "Bank Facility") which consists of a five year
secured revolving credit agreement maturing December 31, 1998 ("Facility A")
and a three year unsecured revolving credit facility maturing December 31,
1996 ("Facility B"). The aggregate borrowing limits under the terms of the
Bank Facility are $125.0 million (up to $90.0 million under Facility A and up
to $35.0 million under Facility B). Interest rates under the Bank Facility are
tied to LIBOR or the bank's prime rate with the actual interest rate
reflecting certain ratios based upon the Company's ability to repay its
outstanding debt and the value and projected timing of production of the
Company's oil and gas reserves. These and other similar ratios will also
affect the Company's ability to borrow under the Bank Facility and the timing
and amount of any required repayments and corresponding commitment reductions.
At December 31, 1994, no amounts were outstanding under the terms of Facility
A and $6.3 million in letters of credit were outstanding under the terms of
Facility B.

The Company has three short-term uncommitted lines of credit totalling
$50.0 million which are used to meet short-term cash needs. Interest rates on
borrowings under these lines of credit are typically lower than rates paid
under the Bank Facility. At December 31, 1994 no amounts were outstanding
under these lines of credit.

Certain of the Company's credit agreements and the indenture for the
Debentures restrict the Company's ability to take certain actions, including
covenants that restrict the Company's ability to incur additional indebtedness
and to pay dividends on its capital stock. Under the most restrictive of these
covenants, at December 31, 1994 the Company could incur up to $188.1 million
of additional indebtedness and pay dividends of up to $114.5 million on its
aggregate capital stock (including its common stock, 7% Convertible Preferred
Stock and Series A Preferred) with the amount payable on its common stock
limited to $52.7 million.

ENVIRONMENTAL MATTERS

Almost all phases of the Company's oil and gas operations are subject to
stringent environmental regulation by governmental authorities. Such
regulation has increased the costs of planning, designing, drilling,
installing, operating and abandoning oil and gas wells and other facilities.
The Company has expended significant financial and managerial resources to
comply with such regulations. Although the Company believes its operations and
facilities are in general compliance with applicable environmental
regulations, risks of substantial costs and liabilities are inherent in oil
and gas operations. It is possible that other developments, such as
increasingly strict environmental laws, regulations and enforcement policies
or claims for damages to property, employees, other persons and the
environment resulting from the Company's operations, could result in
significant costs and liabilities in the future. As it has done in the past,
the Company intends to fund its cost of environmental compliance from
operating cash flows. See Note 12 to the Consolidated Financial Statements.

DIVIDENDS

Dividends on the Company's 7% Convertible Preferred Stock and Series A
Preferred are cumulative at an annual rate of $1.40 per share and $0.732 per
share, respectively. No dividends may be declared or paid with respect to the
Company's common stock if any dividends with respect to the convertible
preferred stock or Series A Preferred are in arrears. As part of the 1993
restructuring program, the Company eliminated the payment of its $0.04 per
share quarterly dividend on its common stock. The determination of the amount
of future cash dividends, if any, to be declared and paid on the Company's
common stock is in the sole discretion of the Company's Board of Directors and
will depend on dividend requirements with respect to the preferred stock, the
Company's financial condition, earnings and funds from operations, the level
of capital and exploration expenditures, dividend restrictions in financing
agreements, future business prospects and other matters the Board of Directors
deems relevant.
29

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Audited Financial Statements
Report of Independent Accountants ................................. 32
Consolidated Statement of Operations for the years ended
December 31, 1994, 1993 and 1992 ................................ 33
Consolidated Balance Sheet -- December 31, 1994 and 1993 .......... 34
Consolidated Statement of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 ................................ 35
Consolidated Statement of Shareholders' Equity for the
years ended December 31, 1994, 1993 and 1992 ...................... 36
Notes to Consolidated Financial Statements ........................ 37
Unaudited Financial Information
Supplemental Information to Consolidated Financial
Statements ...................................................... 58

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.
30

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Except for the portion of Item 10 relating to Executive Officers of the
Registrant which is included in Part I of this Report, the information called
for by Items 10 through 13 is incorporated by reference from the Company's
Notice of Annual Meeting and Proxy Statement dated March 21, 1995, which
meeting involves the election of directors, in accordance with General
Instruction G to the Annual Report on Form 10-K.

PART IV

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

(a) The following documents are filed as a part of this report:
PAGE
----
1. Financial Statements:
Report of Independent Accountants ................................. 32
Consolidated Statement of Operations for the years ended
December 31, 1994, 1993 and 1992 .................................. 33
Consolidated Balance Sheet -- December 31, 1994 and 1993 .......... 34
Consolidated Statement of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 .................................. 35
Consolidated Statement of Shareholders' Equity for the
years ended December 31, 1994, 1993 and 1992 ...................... 36
Notes to Consolidated Financial Statements ........................ 37

2. Financial Statement Schedules:
Schedule VIII -- Valuation and Qualifying Accounts ................ 68
All other schedules have been omitted because they are not
applicable or the required information is presented in the
financial statements or the notes to financial statements.

3. Exhibits:
See Index to Exhibits on page 69 for a description of the
exhibits filed as a part of this report.

(b) Reports on Form 8-K

None
31

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Santa Fe Energy Resources, Inc.

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 31 present fairly, in all
material respects, the financial position of Santa Fe Energy Resources, Inc.
and its subsidiaries at December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

PRICE WATERHOUSE LLP

Houston, Texas
March 10, 1995
32

SANTA FE ENERGY RESOURCES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
Revenues
Crude oil and liquids............ $ 293.7 $ 307.3 $ 333.6
Natural gas...................... 83.4 107.8 74.8
Natural gas systems.............. -- 8.2 7.3
Crude oil marketing and
trading........................ 11.3 9.9 5.9
Other............................ 3.0 3.7 5.9
--------- --------- ---------
391.4 436.9 427.5
--------- --------- ---------
Costs and Expenses
Production and operating......... 150.0 163.8 153.4
Oil and gas systems and
pipelines...................... -- 4.2 3.2
Exploration, including dry hole
costs.......................... 20.4 31.0 25.5
Depletion, depreciation and
amortization................... 121.3 152.7 146.3
Impairment of oil and gas
properties..................... -- 99.3 --
General and administrative....... 27.3 32.3 30.9
Taxes (other than income)........ 25.8 27.3 24.3
Restructuring charges............ 7.0 38.6 --
Loss (gain) on disposition of
assets......................... (8.6) 0.7 (13.6)
--------- --------- ---------
343.2 549.9 370.0
--------- --------- ---------
Income (Loss) from Operations........ 48.2 (113.0) 57.5
Interest income.................. 2.8 9.1 2.3
Interest expense................. (27.5) (45.8) (55.6)
Interest capitalized............. 3.6 4.3 4.9
Other income (expense)........... (4.0) (4.8) (10.0)
--------- --------- ---------
Income (Loss) Before Income Taxes.... 23.1 (150.2) (0.9)
Income taxes..................... (6.0) 73.1 (0.5)
--------- --------- ---------
Net Income (Loss).................... 17.1 (77.1) (1.4)
Preferred dividend requirement....... (11.7) (7.0) (4.3)
--------- --------- ---------
Earnings (Loss) Attributable to
Common Shares...................... $ 5.4 $ (84.1) $ (5.7)
========= ========= =========
Earnings (Loss) Attributable to
Common Shares Per Share............ $ 0.06 $ (0.94) $ (0.07)
========= ========= =========
Weighted Average Number of Shares
Outstanding (in millions).......... 89.9 89.7 79.0
========= ========= =========

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

SANTA FE ENERGY RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(IN MILLIONS OF DOLLARS)

DECEMBER 31,
--------------------------
1994 1993
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents........ $ 53.7 $ 4.8
Accounts receivable.............. 76.2 87.4
Inventories...................... 9.2 8.7
Assets held for sale............. -- 59.5
Other current assets............. 18.1 12.2
------------ ------------
157.2 172.6
------------ ------------
Investment in Hadson Corporation..... 57.0 56.2
------------ ------------
Properties and Equipment, at cost
Oil and gas (on the basis of
successful efforts
accounting).................... 2,145.9 2,064.3
Other............................ 32.7 27.3
------------ ------------
2,178.6 2,091.6
Accumulated depletion,
depreciation, amortization and
impairment..................... (1,335.6) (1,258.9)
------------ ------------
843.0 832.7
------------ ------------
Other Assets
Receivable under gas balancing
arrangements................... 4.6 3.9
Other............................ 9.6 11.5
------------ ------------
14.2 15.4
------------ ------------
$ 1,071.4 $ 1,076.9
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable................. $ 84.1 $ 93.5
Interest payable................. 8.5 10.2
Current portion of long-term
debt........................... 3.9 44.3
Other current liabilities........ 29.5 18.1
------------ ------------
126.0 166.1
------------ ------------
Long-Term Debt....................... 350.4 405.4
------------ ------------
Deferred Revenues.................... 7.4 8.6
------------ ------------
Other Long-Term Obligations.......... 28.0 48.8
------------ ------------
Deferred Income Taxes................ 56.3 44.4
------------ ------------
Commitments and Contingencies (Note
12)................................ -- --
------------ ------------
Convertible Preferred Stock, $0.01
par value, 5.0 million shares
authorized, issued and
outstanding........................ 80.0 80.0
------------ ------------
Shareholders' Equity
Preferred stock, $0.01 par value,
34.3 million shares authorized,
none issued.................... -- --
$.732 Series A preferred stock,
$0.01 par value, 10.7 million
shares authorized, issued and
outstanding.................... 91.4 --
Common stock, $0.01 par value,
200.0 million shares
authorized..................... 0.9 0.9
Paid-in capital.................. 498.9 496.9
Unamortized restricted stock
awards......................... -- (0.1)
Accumulated deficit.............. (167.5) (173.8)
Foreign currency translation
adjustment..................... (0.4) (0.3)
------------ ------------
423.3 323.6
------------ ------------
$ 1,071.4 $ 1,076.9
============ ============

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

SANTA FE ENERGY RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS OF DOLLARS)

YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
---------- ---------- ----------
Operating Activities:
Net income (loss)................ $ 17.1 $ (77.1) $ (1.4)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depletion, depreciation and
amortization............... 121.3 152.7 146.3
Impairment of oil and gas
properties................. -- 99.3 --
Restructuring charges........ 1.0 27.8 --
Deferred income taxes........ 11.3 (71.9) (6.3)
Net loss (gain) on
disposition of assets...... (8.6) 0.7 (13.6)
Exploratory dry hole costs... 6.5 8.9 4.7
Equity in losses and
adjustment to valuation of
investment in Hadson
Corporation................ 6.1 -- --
Hadson Corporation preferred
dividends received
in-kind.................... (4.5) -- --
Expenses related to
acquisition of Adobe
Resources Corporation...... -- -- 10.9
Other........................ 3.0 4.2 2.0
Changes in operating assets and
liabilities:
Decrease (increase) in
accounts receivable........ 1.3 12.4 (8.3)
Decrease (increase) in
inventories................ (0.5) (3.8) 0.3
Increase (decrease) in
accounts payable........... (8.6) (2.6) 5.9
Increase (decrease) in
interest payable........... (1.7) (0.8) 0.4
Increase (decrease) in income
taxes payable.............. 0.2 (0.6) (0.4)
Net change in other assets
and liabilities............ (19.4) 11.0 1.0
---------- ---------- ----------
Net Cash Provided by Operating
Activities......................... 124.5 160.2 141.5
---------- ---------- ----------
Investing Activities:
Capital expenditures, including
exploratory dry hole costs..... (136.6) (127.0) (76.8)
Acquisitions of producing
properties, net of related
debt........................... (2.2) (4.4) (14.2)
Acquisition of Adobe Resources
Corporation.................... -- -- (11.9)
Acquisition of Santa Fe Energy
Partners, L.P.................. -- (28.3) --
Net proceeds from sales of
properties..................... 81.1 39.9 89.1
Increase in partnership interest
due to reinvestment............ -- (1.6) (2.1)
---------- ---------- ----------
Net Cash Used in Investing
Activities......................... (57.7) (121.4) (15.9)
---------- ---------- ----------
Financing Activities:
Net change in short-term debt.... -- -- (4.6)
Net proceeds from issuance of 11%
senior subordinated debentures
due 2004....................... 96.1 -- --
Net proceeds from issuance of
$.732 Series A convertible
preferred stock................ 91.4 -- --
Proceeds from long-term
borrowings..................... -- -- 5.0
Principal payments on long-term
borrowings..................... (144.7) (41.5) (55.5)
Net change in revolving credit
agreement...................... (50.0) (55.0) --
Cash dividends paid to others.... (10.7) (21.3) (14.9)
---------- ---------- ----------
Net Cash Used in Financing
Activities......................... (17.9) (117.8) (70.0)
---------- ---------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents................... 48.9 (79.0) 55.6
Cash and Cash Equivalents at
Beginning of Year.................. 4.8 83.8 28.2
---------- ---------- ----------
Cash and Cash Equivalents at End of
Year............................... $ 53.7 $ 4.8 $ 83.8
========== ========== ==========

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

SANTA FE ENERGY RESOURCES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(SHARES AND DOLLARS IN MILLIONS)

$.732 SERIES A FOREIGN
CONVERTIBLE UNAMORTIZED CURRENCY
PREFERRED STOCK COMMON STOCK RESTRICTED TRANSLA-
--------------- --------------- PAID-IN STOCK ACCUMULATED TION
SHARES AMOUNT SHARES AMOUNT CAPITAL AWARDS DEFICIT ADJUSTMENT
------ ------ ------ ------ ------- ----------- ----------- ----------

Balance at December 31, 1991......... -- $-- 64.1 $0.6 $ 284.9 $ (1.4) $ (59.0) $--
Issuance of common stock
Acquisition of Adobe
Resources Corporation........... -- -- 24.9 0.3 205.3 -- -- --
Employee stock compensation and
savings plans................... -- -- 0.5 -- 4.1 (0.5) -- --
Amortization of restricted stock
awards............................ -- -- -- -- -- 1.5 -- --
Foreign currency translation
adjustments....................... -- -- -- -- -- -- -- (0.2)
Net loss........................... -- -- -- -- -- -- (1.4) --
Dividends declared................. -- -- -- -- -- -- (17.6) --
------ ------ ------ ------ ------- ----------- ----------- ----------
Balance at December 31, 1992......... -- -- 89.5 0.9 494.3 (0.4) (78.0) (0.2)
Issuance of common stock
Employee stock compensation and
savings plans................... -- -- 0.3 -- 2.6 (0.1)] -- --
Amortization of restricted
stock awards...................... -- -- -- -- -- 0.4 -- --
Pension liability adjustment....... -- -- -- -- -- -- (0.9) --
Foreign currency transaction
adjustments....................... -- -- -- -- -- -- -- (0.1)
Net loss........................... -- -- -- -- -- -- (77.1) --
Dividends declared................. -- -- -- -- -- -- (17.8) --
------ ------ ------ ------ ------- ----------- ----------- ----------
Balance December 31, 1993............ -- -- 89.8 0.9 496.9 (0.1) (173.8) (0.3)
Issuance of common stock
Employee stock compensation and
savings plans................... -- -- 0.2 -- 2.0 -- -- --
Issuance of preferred stock........ 10.7 91.4 -- -- -- -- -- --
Amortization of restricted stock
awards............................ -- -- -- -- -- 0.1 -- --
Pension liability adjustment....... -- -- -- -- -- -- 0.9 --
Foreign currency transaction
adjustments....................... -- -- -- -- -- -- -- (0.1)
Net income......................... -- -- -- -- -- -- 17.1 --
Dividends declared................. -- -- -- -- -- -- (11.7) --
------ ------ ------ ------ ------- ----------- ----------- ----------
Balance December 31, 1994............ 10.7 $91.4 90.0 $0.9 $ 498.9 $-- $ (167.5) $ (0.4)
====== ====== ====== ====== ======= =========== =========== ==========

TOTAL
SHAREHOLDERS'
EQUITY
-------------
Balance at December 31, 1991......... $ 225.1
Issuance of common stock
Acquisition of Adobe
Resources Corporation........... 205.6
Employee stock compensation and
savings plans................... 3.6
Amortization of restricted stock
awards............................ 1.5
Foreign currency translation
adjustments....................... (0.2)
Net loss........................... (1.4)
Dividends declared................. (17.6)
-------------
Balance at December 31, 1992......... 416.6
Issuance of common stock
Employee stock compensation and
savings plans................... 2.5
Amortization of restricted
stock awards...................... 0.4
Pension liability adjustment....... (0.9)
Foreign currency transaction
adjustments....................... (0.1)
Net loss........................... (77.1)
Dividends declared................. (17.8)
-------------
Balance December 31, 1993............ 323.6
Issuance of common stock
Employee stock compensation and
savings plans................... 2.0
Issuance of preferred stock........ 91.4
Amortization of restricted stock
awards............................ 0.1
Pension liability adjustment....... 0.9
Foreign currency transaction
adjustments....................... (0.1)
Net income......................... 17.1
Dividends declared................. (11.7)
-------------
Balance December 31, 1994............ $ 423.3
=============

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

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of Santa Fe Energy Resources, Inc.
("Santa Fe" or the "Company") and its subsidiaries include the accounts of all
wholly owned subsidiaries. The accounts of Santa Fe Energy Partners, L.P.,
(the "Partnership") are included on a proportional basis until September 1993
when Santa Fe purchased all the Partnership's outstanding Depositary Units and
undeposited LP Units other than those units held by Santa Fe and its
affiliates.

On September 27, 1993 the Company exercised its right under the Agreement
of Limited Partnership to purchase all of the Partnership's outstanding
Depositary Units and undeposited LP Units, other than those units held by the
Company and its affiliates, at a redemption price of $4.9225 per unit.
Consideration for the 5,749,500 outstanding units totalled $28.3 million. The
acquisition of the units has been accounted for as a purchase and the results
of operations of the Partnership attributable to the units acquired is
included in the Company's results of operations with effect from October 1,
1993. The purchase price has been allocated primarily to oil and gas
properties.

References herein to the "Company" or "Santa Fe" relate to Santa Fe Energy
Resources, Inc., individually or together with its consolidated subsidiaries;
references to the "Partnership" relate to Santa Fe Energy Partners, L.P.

All significant intercompany accounts and transactions have been
eliminated.

OIL AND GAS OPERATIONS

The Company follows the successful efforts method of accounting for its
oil and gas exploration and production activities. Costs (both tangible and
intangible) of productive wells and development dry holes, as well as the cost
of prospective acreage, are capitalized. The costs of drilling and equipping
exploratory wells which do not find proved reserves are expensed upon
determination that the well does not justify commercial development. Other
exploratory costs, including geological and geophysical costs and delay
rentals, are charged to expense as incurred.

Depletion and depreciation of proved properties are computed on an
individual field basis using the unit-of-production method based upon proved
oil and gas reserves attributable to the field. Certain other oil and gas
properties are depreciated on a straight-line basis. Individual proved
properties are reviewed periodically to determine if the carrying value of the
field exceeds the estimated undiscounted future net revenues from proved oil
and gas reserves attributable to the field. Based on this review and the
continuing evaluation of development plans, economics and other factors, if
appropriate, the Company records impairments (additional depletion and
depreciation) to the extent that the carrying value exceeds the estimated
undiscounted future net revenues. Such impairments totaled $99.3 million in
1993 and there were none in 1994 or 1992.

The Company provides for future abandonment and site restoration costs
with respect to certain of its oil and gas properties. The Company estimates
that with respect to these properties such future costs total approximately
$15.2 million and such amount is being accrued over the expected life of the
properties. At December 31, 1994 Accumulated Depletion, Depreciation,
Amortization and Impairment includes $15.0 million with respect to such costs.

The value of undeveloped acreage is aggregated and the portion of such
costs estimated to be nonproductive, based on historical experience, is
amortized to expense over the average holding period. Additional amortization
may be recognized based upon periodic assessment of prospect evaluation
results. The cost of properties determined to be productive is transferred to
proved properties; the cost of properties determined to be nonproductive is
charged to accumulated amortization.
37

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Maintenance and repairs are expensed as incurred; major renewals and
improvements are capitalized. Gains and losses arising from sales of
properties are included in income currently.

REVENUE RECOGNITION

Revenues from the sale of petroleum produced are generally recognized upon
the passage of title, net of royalties and net profits interests. Crude oil
revenues include the value of crude oil consumed in operations with an equal
amount charged to operating expenses. Such amounts totalled $4.8 million in
1992, $1.2 million in 1993 and $1.9 million in 1994.

In 1990 the Company initiated a hedging program designed to provide a
certain minimum level of cash flow from its sales of crude oil. Settlements
were included in oil revenues in the period the oil is sold. In the year ended
December 31, 1992 hedges resulted in an increase in oil revenues of $9.7
million. The Company had no open crude oil hedging contracts during 1993 or
1994.

Revenues from natural gas production are generally recorded using the
entitlement method, net of royalties and net profits interests. Sales proceeds
in excess of the Company's entitlement are included in Deferred Revenues and
the Company's share of sales taken by others is included in Other Assets. At
December 31, 1994 the Company's deferred revenues for sales proceeds received
in excess of the Company's entitlement was $5.1 million with respect to 4.1
MMcf and the asset related to the Company's share of sales taken by others was
$4.6 million with respect to 3.3 MMcf.

In the third quarter of 1992 the Company initiated a hedging program with
respect to its sales of natural gas. The Company has used various instruments
whereby monthly settlements are based on the differences between the price or
range of prices specified in the instruments and the settlement price of
certain natural gas futures contracts quoted on the New York Mercantile
Exchange. In instances where the applicable settlement price is less than the
price specified in the contract, the Company receives a settlement based on
the difference; in instances where the applicable settlement price is higher
than the specified prices the Company pays an amount based on the difference.
The instruments utilized by the Company differ from futures contracts in that
there is no contractual obligation which requires or allows for the future
delivery of the product. In 1992, 1993 and 1994 hedges resulted in a reduction
in natural gas revenues of $0.5 million, $8.2 million and $1.0 million,
respectively. The Company had no open natural gas hedging contracts at
December 31, 1994.

Revenues from crude oil marketing and trading represent the gross margin
resulting from such activities. Revenues from such activities are net of costs
of sales of $247.3 million in 1992, $225.9 million in 1993 and $204.7 million
in 1994.

Revenues from natural gas systems are net of the cost of natural gas
purchased and resold. Such costs totalled $43.8 million in 1992, and $49.9
million in 1993.

EARNINGS PER SHARE

Earnings per share are based on the weighted average number of common
shares outstanding during the year.

ACCOUNTS RECEIVABLE

Accounts Receivable relates primarily to sales of oil and gas and amounts
due from joint interest partners for expenditures made by the Company on
behalf of such partners. The Company reviews the financial condition of
potential purchasers and partners prior to signing sales or joint interest
agreements. At December 31, 1994 and 1993 the Company's allowance for doubtful
accounts receivable, which is reflected in the consolidated balance sheet as a
reduction in accounts receivable, totaled $3.1 million and $6.3 million,
respectively. Accounts receivable totalling $3.8 million, $0.1 million and
$1.1 million were written off as uncollectible in 1994, 1993 and 1992,
respectively.
38

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INVENTORIES

Inventories are valued at the lower of cost (average price or first-in,
first-out) or market. Crude oil inventories at December 31, 1994 and 1993 were
$1.6 million and $1.1 million, respectively, and materials and supplies
inventories at such dates were $7.6 million and $7.6 million, respectively.

ENVIRONMENTAL EXPENDITURES

Environmental expenditures relating to current operations are expensed or
capitalized, as appropriate, depending on whether such expenditures provide
future economic benefits. Liabilities are recognized when the expenditures are
considered probable and can be reasonably estimated. Measurement of
liabilities is based on currently enacted laws and regulations, existing
technology and undiscounted site-specific costs. Generally, such recognition
coincides with the Company's commitment to a formal plan of action.

INCOME TAXES

The Company follows the asset and liability approach to accounting for
income taxes. Deferred tax assets and liabilities are determined using the tax
rate for the period in which those amounts are expected to be received or
paid, based on a scheduling of temporary differences between the tax bases of
assets and liabilities and their reported amounts. Under this method of
accounting for income taxes, any future changes in income tax rates will
affect deferred income tax balances and financial results.

(2) CORPORATE RESTRUCTURING PROGRAM

The Company's non-core asset disposition program included the sale of its
natural gas gathering and processing assets to Hadson Corporation ("Hadson")
(see Note 3), the sale to Vintage Petroleum, Inc. ("Vintage") of certain
southern California and Gulf Coast oil and gas producing properties and the
sale to Bridge Oil (U.S.A.) Inc. ("Bridge") of certain mid-Continent and Rocky
Mountain oil and gas producing properties and undeveloped acreage. Based on
the evaluation of its capital and cost structures, the Company (i) implemented
a cost reduction program which included the reduction of its salaried work
force by approximately 20%, an improvement in the efficiency of its
information systems and reductions in other general and administrative and
production and operating costs and (ii) issued $100 million of 11% Senior
Subordinated Debentures and 10,700,000 shares of $.732 Series A Convertible
Preferred Stock (the "Series A Preferred") and used a portion of the proceeds
to retire certain of its long-term debt (see Note 7).

In implementing the corporate restructuring program, in 1993 the Company
recorded restructuring charges of $38.6 million comprised of (i) losses on
property dispositions of $27.8 million; (ii) long-term debt repayment
penalties and interest of $8.6 million; and (iii) accruals for certain
personnel benefits and related costs of $2.2 million. In the first quarter of
1994 the Company recorded additional restructuring charges of $7.0 million
comprised of severance, benefits and relocation expenses associated with the
cost reduction program.

SALE TO VINTAGE. In November 1993 the Company completed the sale of
certain southern California and Gulf Coast producing properties for net
proceeds totalling $42.0 million in cash, $31.5 million of which was collected
in 1993. The Company's income from operations for 1993 includes $2.7 million
attributable to the assets sold to Vintage.

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SALE TO BRIDGE. In April 1994 the Company completed the sale to Bridge of
certain Mid-Continent and Rocky Mountain producing and nonproducing oil and
gas properties for net proceeds totalling $46.7 million in cash. The net book
value of these assets was included in Assets Held for Sale at December 31,
1993. The Company's income from operations for 1994 and 1993 includes $2.2
million and $5.8 million, respectively, attributable to the assets sold to
Bridge.

OTHER DISPOSITIONS. The estimated realizable value of certain oil and gas
properties which the Company disposed of in 1994, $1.0 million, is included in
Assets Held for Sale at December 31, 1993. In the first quarter of 1994 the
Company sold its interest in certain other oil and gas properties, in which it
had no remaining basis, for $8.3 million.

(3) INVESTMENT IN HADSON

In December 1993 the Company completed a transaction with Hadson under the
terms of which the Company sold the common stock of Adobe Gas Pipeline Company
("AGPC"), a wholly-owned subsidiary which held the Company's natural gas
gathering and processing assets, to Hadson in exchange for Hadson 11.25%
preferred stock with a face value of $52.0 million and 40% of Hadson's common
stock. The Company accounted for the sale as a non-monetary transaction and
the investment in Hadson was valued at $56.2 million, the carrying value of
the Company's investment in AGPC. The Company's investment in Hadson is being
accounted for on the equity basis. The Company's income from operations for
1993 includes $1.6 million attributable to the assets sold to Hadson.

Also in December 1993 the Company signed a seven-year gas sales contract
with Hadson under the terms of which Hadson markets substantially all of the
Company's domestic natural gas production at market prices as defined by
published monthly indices for relevant production locations. In the fourth
quarter of 1994 the Company and Hadson amended the gas sales agreement whereby
the Company advanced Hadson $5.0 million, which advance may be renewed monthly
through April 1995, and bears interest at one percent above the prime rate and
is payable monthly.

In November 1994 the Company and Hadson settled a lawsuit related to
certain of the assets sold to Hadson by the Company in December 1993. The
settlement totalled $5.7 million and the Company's share, approximately $3.3
million, is included in Other Income (Expense) in the income statement. The
Company paid the full amount of the settlement and Hadson gave the Company a
$2.4 million ten-year note for its share. The note bears interest at 9%,
payable annually, and the principal amount is due at maturity.

The following table summarizes the Company's investment in Hadson and the
changes in such investment during the year ended December 31, 1994 (in
millions of dollars):

Investment at December 31, 1993...... 56.2
Preferred dividends, paid in-kind.... 4.5
Equity in losses and valuation
adjustments........................ (6.1)
Note receivable...................... 2.4
-----
Investment at December 31, 1994...... 57.0
=====

The Company's investment in Hadson represents management's best estimate
of the realizable value of the investment at December 31, 1994, based on a
proposed sale of Hadson.
40

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following tables summarize pertinent financial information with
respect to Hadson (in millions of dollars):

DECEMBER 31,
--------------------
1994 1993
--------- ---------
Current assets....................... 94.1 101.3
Property, plant and equipment, net... 101.2 99.4
Other assets......................... 10.1 9.6
--------- ---------
205.4 210.3
========= =========
Current liabilities.................. 107.2 97.2
Long-term debt....................... 57.4 55.8
Other long-term obligations.......... 2.4 17.8
Shareholders' equity................. 38.4 39.5
--------- ---------
205.4 210.3
========= =========

YEAR ENDED
DECEMBER 31, 1994
-----------------
Revenues............................. 754.0
Expenses............................. (757.0)
-------
Loss before income taxes............. (3.0)
Income tax benefit................... 2.0
-------
Net loss............................. (1.0)
Preferred dividend requirement....... (5.8)
-------
Loss attributable to common shares... (6.8)
=======

During 1994 and 1993, sales of natural gas to Hadson (which with respect
to certain properties included royalty and working interest owners' share of
production) totalled $99.2 million and $29.6 million, respectively. In
addition, in 1994 and 1993 the Company made purchases of natural gas from
Hadson totalling $18.6 million and $0.5 million, respectively. At December 31,
1994 and 1993, the Company's accounts receivable included $14.6 million and
$18.8 million, respectively, due from Hadson and accounts payable included
$1.6 million and $0.3 million, respectively, due to Hadson.

(4) MERGER WITH ADOBE RESOURCES CORPORATION

On May 19, 1992 Adobe Resources Corporation ("Adobe"), an oil and gas
exploration and production company, was merged with and into Santa Fe (the
"Merger"). The acquisition has been accounted for as a purchase and the
results of operations of the properties acquired (the "Adobe Properties") are
included in Santa Fe's results of operations effective June 1, 1992.

To consummate the Merger, the Company issued 24.9 million shares of common
stock valued at $205.5 million, 5.0 million shares of convertible preferred
stock valued at $80.0 million, assumed long-term bank debt and other
liabilities of $140.0 million and $35.0 million, respectively, and incurred
$13.8 million in related costs. The Company also recorded a $19.7 million
deferred tax liability with respect to the difference between the book and tax
basis in the assets acquired. Certain merger-related costs incurred by Adobe
and paid by Santa Fe totaling $10.9 million were charged to income in the
second quarter of 1992.

The Merger constituted a "change of control" as defined in certain of the
Company's employee benefit plans and employment agreements (see Notes 10 and
12).
41

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In a separate transaction in January 1992, the Company purchased three
producing properties from Adobe for $14.2 million.

(5) SANTA FE ENERGY TRUST

In November 1992 5,725,000 Depository Units ("Trust Units"), each
consisting of beneficial ownership of one unit of undivided beneficial
interest in the Santa Fe Energy Trust (the "Trust") and a $20 face amount
beneficial ownership interest in a $1,000 face amount zero coupon United
States Treasury obligation maturing on or about February 15, 2008, were sold
in a public offering. The Trust consists of certain oil and gas properties
conveyed by Santa Fe. A total of $114.5 million was received from public
investors, of which $38.7 million was used to purchase the Treasury
obligations and $5.7 million was used to pay underwriting commissions and
discounts. Santa Fe received the remaining $70.1 million and 575,000 Trust
Units. A portion of the proceeds received by the Company was used to retire
$30.0 million of the debt incurred in connection with the Merger and the
remainder was used for general corporate purposes including possible
acquisitions.

For any calendar quarter ending on or prior to December 31, 2002, the
Trust will receive additional royalty payments to the extent that it needs
such payments to distribute $0.40 per Depository Unit per quarter. The source
of such additional royalty payments, if needed, will be limited to the
Company's remaining royalty interest in certain of the properties conveyed to
the Trust. If such additional payments are made, certain proceeds otherwise
payable to the Trust in subsequent quarters may be reduced to recoup the
amount of such additional payments. The aggregate amount of the additional
royalty payments (net of any amounts recouped) will be limited to $20.0
million on a revolving basis. For operations from the inception of the Trust
through December 31, 1994 the Company has been required to make additional
royalty payments totalling $0.4 million in 1993 and $1.1 million in 1994.

At December 31, 1993 the Company held 575,000 Trust Units. In the first
quarter of 1994 the Company sold the Trust Units for $11.3 million. The
Company's investment in the Trust Units at December 31, 1993, $10.4 million,
is included in Assets Held for Sale in the Balance Sheet. At December 31, 1994
Accounts Payable included $2.7 million due to the Trust and at December 31,
1993 Accounts Receivable included $0.2 million due from the Trust and Accounts
Payable included $1.9 million due to the Trust.

(6) CASH FLOWS

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

The Merger included certain non-cash investing and financing activities
not reflected in the Statement of Cash Flows as follows (in millions of
dollars):

Common stock issued.................. 205.5
Convertible preferred stock issued... 80.0
Deferred tax liability............... 19.7
Long-term debt....................... 140.0
Assets acquired, other than cash, net
of liabilities assumed............. (457.1)
---------
Cash paid............................ (11.9)
=========

The Company made interest payments of $49.0 million, $48.0 million and
$47.9 million in 1992, 1993 and 1994, respectively. In 1992, 1993 and 1994,
the Company made tax payments of $4.4 million, $5.0 million and $1.8 million,
respectively, and in 1993 received tax refunds of $4.1 million, primarily
related to the audit of prior years' returns.

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) FINANCING AND DEBT

Long-term debt at December 31, 1994 and 1993 consisted of (in millions of
dollars):

DECEMBER 31,
--------------------------------------------
1994 1993
-------------------- --------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------

SFER
Senior Notes..................... -- 245.0 30.0 310.0
11% Senior Subordinated
Debentures..................... -- 99.3 -- --
Revolving and Term Credit
Agreement...................... -- -- 1.3 48.7
Notes Payable to Bank............ 3.9 6.1 3.8 11.3
Term-Loan........................ -- -- 1.2 11.4
Partnership
Credit Agreement................. -- -- 8.0 24.0
------- --------- ------- ---------
3.9 350.4 44.3 405.4
======= ========= ======= =========

Aggregate total maturities of long-term debt during the next five years
are as follows: 1995 -- $3.9 million; 1996 -- $6.1 million; 1997 -- $35.0
million; 1998 -- $35.0 million; and 1999 -- $25.0 million.

Effective March 16, 1994 the Company entered into an Amended and Restated
Revolving Credit Agreement (the "Bank Facility") which replaced the Revolving
and Term Credit Agreement the Company had executed in 1992. The Bank Facility,
consists of a five year secured revolving credit agreement maturing December
31, 1998 ("Facility A") and a three year unsecured revolving credit facility
maturing December 31, 1996 ("Facility B"). The aggregate borrowing limits
under the terms of the Bank Facility are $125.0 million (up to $90.0 million
under Facility A and up to $35.0 million under Facility B). Interest rates
under the Bank Facility are tied to LIBOR or the bank's prime rate with the
actual interest rate reflecting certain ratios based upon the Company's
ability to repay its outstanding debt and the value and projected timing of
production of the Company's oil and gas reserves. These and other similar
ratios will also affect the Company's ability to borrow under the Bank
Facility and the timing and amount of any required repayments and
corresponding commitment reductions. At December 31, 1994, no amounts were
outstanding under the terms of Facility A and $6.3 million in letters of
credit were outstanding under the terms of Facility B.

In a public offering in May 1994 the Company issued $100.0 million of 11%
Senior Subordinated Debentures due 2004 (the "Debentures"). The Debentures
were issued for 99.266% of face value and the Company received proceeds of
$96.1 million, after deducting related costs and expenses of $3.2 million. The
Debentures, which mature May 15, 2004, are not redeemable prior to May 15,
1999 and may be redeemed after such date at the option of the Company at
prices set forth in the indenture for the Debentures. Under certain
circumstances, the Company may be required to redeem the Debentures for 101%
of the principal amount. The Debentures are general unsecured subordinated
obligations of the Company.

The Company used the proceeds from the issuance of the Debentures,
together with a portion of the proceeds from the issuance of the Series A
Preferred (see Note 10), to retire certain of its then outstanding long-term
debt. The Company retired $65.0 million of Senior Notes, the $12.3 million
outstanding balance of a term loan agreement which the Company had executed in
1991 in connection with the purchase of certain producing properties, the
$30.0 million outstanding balance of the Partnership's credit agreement and
the $25.0 million outstanding balance of the Bank Facility.

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On April 11, 1990 SFER issued $365.0 million of serial unsecured Senior
Notes with interest rates averaging 10.35%. At December 31, 1994, $245.0
million in Senior Notes were outstanding and are to be repaid, $35.0 million
in 1997 and 1998 and $25.0 million per year in 1999 through 2005.

In 1991 the Company borrowed a total of $18.2 million from an Argentine
bank in connection with the purchase of an interest in a producing oil field
in Argentina. The loan bears interest at the higher of 13.06% or LIBOR plus
2%.

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) SEGMENT INFORMATION

The principal business of the Company is oil and gas, which consists of
the acquisition, exploration and development of oil and gas properties and the
production and sale of crude oil and liquids and natural gas. Pertinent
information with respect to the Company's oil and gas business is presented in
the following table (in millions of dollars):

OIL AND GAS
-------------------------------------------
OTHER GENERAL
U.S. ARGENTINA INDONESIA FOREIGN CORPORATE TOTAL
----- --------- --------- ------- --------- -----

1994
Revenues........................... 346.7 12.9 31.8 -- -- 391.4
Income (Loss) from Operations...... 90.3 3.2 6.1 (11.6) (39.8) 48.2
Depletion. Depreciation and
Amortization..................... 101.3 3.7 9.7 6.6 -- 121.3
Additions to Property and
Equipment........................ 98.2 13.6 16.3 4.4 5.4 137.9
Identifiable Assets at December
31............................... 817.6 57.8 103.1 6.5 84.9 1,069.9
1993
Revenues........................... 401.2 12.5 23.2 -- -- 436.9
Income (Loss) from Operations...... (33.6) 3.0 (13.4) (18.4) (50.6) (113.0)
Depletion, Depreciation, Amortiza-
tion and Impairment.............. 218.8 3.6 21.2 6.7 1.7 252.0
Additions to Property and
Equipment........................ 116.1 7.3 16.8 6.1 4.4 150.7
Identifiable Assets at December
31............................... 862.0 48.2 65.3 2.8 98.6 1,076.9
1992
Revenues........................... 400.0 13.9 13.6 -- -- 427.5
Income (Loss) from Operations...... 100.6 2.5 2.3 (10.7) (37.2) 57.5
Depletion, Depreciation and
Amortization..................... 136.7 3.7 2.7 1.6 1.6 146.3
Additions to Property and
Equipment........................ 452.6 4.0 71.6 5.7 2.4 536.3
Identifiable Assets at December
31............................... 1,076.5 39.2 73.9 5.8 141.8 1,337.2

Crude oil and liquids and natural gas accounted for more than 95% of
revenues in 1992, 1993 and 1994. The following table (which with respect to
certain properties includes royalty and working interest owners' share of
production) reflects sales to crude oil purchasers who accounted for more than
10% of the Company's crude oil and liquids revenues (in millions of dollars):

YEAR ENDED DECEMBER 31,
--------------------------
1994 1993 1992
---- ---- ----
Texaco Trading and Transportation,
Inc................................ -- -- 46.8
Celeron Corporation.................. 58.7 56.8 56.3
Shell Oil Company.................... 94.5 86.3 --

None of the Company's purchasers of natural gas accounted for more than
10% of revenues in 1992 or 1993. In 1994 substantially all of the Company's
domestic natural gas production was sold to Hadson under the terms of an
agreement signed in December 1993 (see Note 3).

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) CONVERTIBLE PREFERRED STOCK

The convertible preferred stock issued in connection with the Merger is
non-voting and entitled to receive cumulative cash dividends at an annual rate
equivalent to $1.40 per share. The holders of the convertible preferred shares
may, at their option, convert any or all such shares into 1.3913 shares of the
Company's common stock. The Company may, at any time after the fifth
anniversary of the effective date of the Merger and upon the occurrence of a
"Special Conversion Event", convert all outstanding shares of convertible
preferred stock into common stock at the initial conversion rate of 1.3913
shares of common stock, subject to certain adjustments, plus additional shares
in respect to accrued and unpaid dividends. A Special Conversion Event is
deemed to have occurred when the average daily closing price for a share of
the Company's common stock for 20 of 30 consecutive trading days equals or
exceeds 125% of the quotient of $20.00 divided by the then applicable
conversion rate (approximately $18.00 per share at a conversion rate of
1.3913).

Upon the occurrence of the "First Ownership Change" of Santa Fe, each
holder of shares of convertible preferred stock shall have the right, at the
holder's option, to elect to have all of such holder's shares redeemed for
$20.00 per share plus accrued and unpaid interest and dividends. The First
Ownership Change shall be deemed to have occurred when any person or group,
together with any affiliates or associates, becomes the beneficial owner of
50% or more of the outstanding common stock of Santa Fe.

(10) SHAREHOLDERS' EQUITY

COMMON STOCK

In 1992, 1993 and 1994 the Company issued a total of 1.0 million
previously unissued shares of common stock in connection with certain employee
benefit and compensation plans. Also in 1992, the Company issued 24.9 million
previously unissued shares of common stock in connection with the Merger.

The Company declared dividends to common shares of $0.16 per share in 1992
and $0.12 per share in 1993. No dividends were declared in 1994 (see Note 2).

$.732 SERIES A CONVERTIBLE PREFERRED STOCK

In a public offering in May 1994 the Company issued 10,700,000 shares of
$.732 Series A Convertible Preferred Stock. The Series A Preferred was issued
at $8.875 per share and the Company received total proceeds of $91.4 million
after deducting related costs and expenses of $3.6 million. Each share of
Series A Preferred mandatorily converts into one share of common stock on May
15, 1998 and the Company has the option to redeem the shares, in whole or in
part, on or after May 15, 1997 and prior to May 15, 1998 at prices set forth
in the certificate of designation for the Series A Preferred, payable in
common stock. Each share of Series A Preferred is convertible at the option of
the holder into 0.8474 shares of common stock at any time prior to May 15,
1998.

The Series A Preferred ranks prior to common stock both as to payment of
dividends and distribution of assets upon liquidation. The holders of Series A
Preferred are entitled to receive cumulative preferential dividends, accruing
at the rate per share of $0.732 per annum ($0.183 per quarter) payable
quarterly in arrears.

PREFERRED STOCK

The Board of Directors of the Company is empowered, without approval of
the shareholders, to cause shares of preferred stock to be issued in one or
more series, and to determine the number of shares in each series and the
rights, preferences and limitations of each series. Among the specific matters
which may be determined by the Board of Directors are: the annual rate of
dividends; the
46

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

redemption price, if any; the terms of a sinking or purchase fund, if any; the
amount payable in the event of any voluntary liquidation, dissolution or
winding up of the affairs of the Company; conversion rights, if any; and
voting powers, if any.

ACCUMULATED DEFICIT

At December 31, 1994 and 1993 Accumulated Deficit included dividends in
excess of retained earnings of $89.8 million.

1990 INCENTIVE STOCK COMPENSATION PLAN

The Company has adopted the Santa Fe Energy Resources 1990 Incentive Stock
Compensation Plan (the "Plan") under the terms of which the Company may grant
options and awards with respect to no more than 5,000,000 shares of common
stock to officers and key employees.

Options granted in 1991 and prior are fully vested and expire in 2000.
Options granted in 1992 have a ten year term and vest as to 33.33 percent one
year after grant, as to a cumulative 66.67 percent two years after grant and
as to the entire amount three years after grant. The options granted in 1993
have a ten year term and vest as to 50 percent 5 years after grant, as to a
cumulative 75 percent 6 years after grant and as to the entire amount 7 years
after grant. The options are exercisable on an accelerated basis beginning one
year and ending three years after grant in certain circumstances. If the
market value per share of the Company's common stock (sustained in all events
for at least 60 days) exceeds $15, 25 percent of the options shall become
exercisable; in the event the market value per share exceeds $20, 50 percent
of the options shall become exercisable; and in the event the market value
exceeds $25, 100 percent shall become exercisable. Unexercised options would
be forfeited in the event of voluntary or involuntary termination. Vested
options are exercisable for a period of one year following termination due to
death, disability or retirement. In the event of termination by the Company
for any reason there is no prorata vesting of unvested options.

The following table reflects activity with respect to Non-Qualified Stock
Options during 1992 through 1994:
OPTION
OPTIONS PRICE
OUTSTANDING PER SHARE
----------- ------------------
Outstanding at December 31, 1991..... 1,763,091 $14.4375 to $24.24
Grants............................... 1,099,000 $ 9.5625
Cancellations........................ (50,163) $14.4375 to $24.24
------------
Outstanding at December 31, 1992..... 2,811,928 $ 9.5625 to $24.24
Grants............................... 800,000 $ 9.5625
Cancellations........................ (95,398) $ 9.5625 to $24.24
Exercises............................ (6,945) $ 9.5625
------------
Outstanding at December 31, 1993..... 3,509,585 $ 9.5625 to $24.24
Cancellations........................ (206,063) $ 9.5625 to $24.24
------------
Outstanding at December 31, 1994..... 3,303,522 $ 9.5625 to $24.24
============

At December 31, 1994 options on 885,430 shares were available for future
grants.

The consummation of the Merger resulted in a "change of control" as
defined in the Plan and resulted in the vesting of 313,262 shares of
restricted stock which had been awarded in prior periods. The Company
recognized compensation expense totaling $1.4 million as a result of the
vesting.

In 1994 the Company issued 8,168 shares of restricted stock to certain
employees and 93,255 common shares in accordance with the terms of certain
other employee compensation plans.
47

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) PENSION AND OTHER EMPLOYEE BENEFIT PLANS

PENSION PLANS

The Company has a defined benefit retirement plan (the "SFER Plan")
covering substantially all salaried employees not covered by collective
bargaining agreements and a nonqualified supplemental retirement plan (the
"Supplemental Plan"). The Supplemental Plan will pay benefits to participants
in the SFER Plan in those instances where the SFER Plan formula produces a
benefit in excess of limits established by ERISA and the Tax Reform Act of
1986. Benefits payable under the SFER Plan are based on years of service and
compensation during the five highest paid years of service during the ten
years immediately preceding retirement. Benefits accruing to the Company's
employees under the SFP Plan have been assumed by the SFER Plan. The Company's
funding policy is to contribute annually not less than the minimum required by
ERISA and not more than the maximum amount deductible for income tax purposes.
In the fourth quarter of 1993 the Company established a new pension plan with
respect to certain persons employed in foreign locations.

The following table sets forth the funded status of the SFER Plan and the
Supplemental Plan at December 31, 1994 and 1993 (in millions of dollars):

SUPPLEMENTAL
SFER PLAN PLAN
---------------------- ----------------
1994 1993 1994 1993
--------- --------- ----- -----

Plan assets at fair value, primarily
invested in common stocks and U.S.
and corporate bonds................ 29.1 30.2 -- --
Actuarial present value of projected
benefit obligations:
Accumulated benefit obligations
Vested....................... (26.4) (30.9) (0.8) (0.6)
Nonvested.................... (1.3) (1.5) -- --
Effect of projected future salary
increases...................... (5.3) (8.3) (4.0) (0.3)
------ ------ ---- ----
Excess of projected benefit
obligations over plan assets....... (3.9) (10.5) (4.8) (0.9)
Unrecognized net loss from past
experience different from that
assumed and effects of changes in
assumptions........................ 1.7 6.4 1.6 0.3
Unrecognized prior service cost...... (2.1) -- 2.1 --
Unrecognized net (asset) obligation
being recognized over plan's
average remaining service life..... (1.0) (1.0) 0.2 0.2
Additional minimum liability......... -- -- -- (0.3)
------ ------ ---- ----
Accrued pension liability............ (5.3) (5.1) (0.9) (0.7)
====== ====== ==== ====
Major assumptions at year-end
Discount rate.................... 8.25% 7.0% 8.25% 7.0%
Long-term asset yield............ 9.5% 9.5% 9.5% 9.5%
Rate of increase in future
compensation................... 5.25% 5.25% 5.25% 5.25%

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the components of pension expense for the
SFER Plan and Supplemental Plan for 1994, 1993 and 1992 (in millions of
dollars):

SFER PLAN SUPPLEMENTAL PLAN
---------------------- ----------------------
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----

Service cost......................... 1.7 1.4 1.2 -- -- --
Interest cost........................ 2.8 2.6 2.4 0.1 0.1 0.1
Return on plan assets................ 0.5 (1.4) (3.1) -- -- --
Net amortization and deferral........ (3.3) (1.3) 0.6 -- -- --
---- ---- ---- ---- ---- ----
1.7 1.3 1.1 0.1 0.1 0.1
==== ==== ==== ==== ==== ====

The Company also sponsors a pension plan covering certain hourly-rated
employees in California (the "Hourly Plan"). The Hourly Plan provides benefits
that are based on a stated amount for each year of service. The Company
annually contributes amounts which are actuarially determined to provide the
Hourly Plan with sufficient assets to meet future benefit payment
requirements.

The following table sets forth the funded status of the Hourly Plan at
December 31, 1994 and 1993 (in millions of dollars):

1994 1993
--------- ---------
Plan assets at fair value, primarily
invested in fixed-rate securities.... 7.5 7.7
Actuarial present value of projected
benefit obligations
Accumulated benefit obligations
Vested....................... (9.3) (11.2)
Nonvested.................... (0.3) (0.4)
--------- ---------
Excess of projected benefit
obligation over plan assets........ (2.1) (3.9)
Unrecognized net (gain) loss from
past experience different from that
assumed and effects of changes in
assumptions........................ (0.4) 1.5
Unrecognized prior service cost...... 0.5 0.5
Unrecognized net obligation.......... 1.3 1.5
Additional minimum liability......... (1.3) (3.5)
--------- ---------
Accrued pension liability........ (2.0) (3.9)
========= =========
Major assumptions at year-end
Discount rate.................... 8.25% 7.0%
Expected long-term rate of return
on plan assets................. 8.5% 8.5%

At December 31, 1993 the Company's additional minimum liability exceeded
the total of its unrecognized prior service cost and unrecognized net
obligation by $1.5 million. Accordingly, at December 31, 1993 the Company's
retained earnings have been reduced by such amount, net of related taxes of
$0.6 million. At December 31, 1994 the total of unrecognized prior service
cost and unrecognized net obligation exceeded the Company's additional minimum
liability. Accordingly, the retained earnings reduction recognized in 1993,
net of related taxes, was reversed.
49

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the components of pension expense for the
Hourly Plan for the years 1994, 1993 and 1992 (in millions of dollars):

YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
---- ---- ----
Service cost..................... 0.2 0.2 0.2
Interest cost.................... 0.8 0.7 0.7
Return on plan assets............ (0.4) (0.8) (0.1)
Net amortization and deferral.... -- 0.4 (0.4)
--- --- ---
0.6 0.5 0.4
=== === ===

In the fourth quarter of 1993 the Company established a pension plan for
certain persons employed in foreign locations (the "Foreign Plan"). The
following table sets forth the funded status of the Foreign Plan at December
31, 1994 (in millions of dollars):

Plan assets.......................... --
Actuarial present value of projected
benefit obligations:
Accumulated benefit
obligations -- nonvested....... (0.1)
Effect of projected future salary
increases...................... --
---
Excess of projected benefit
obligations over plan assets....... (0.1)
Unrecognized prior service costs..... 0.1
---
Accrued pension liability............ --
---
---
Major assumptions at year-end:
Discount rate.................... 8.25%
Rate of increase in future
compensation..................... 5.25%

The following table sets forth the components of pension expense for the
Foreign Plan for 1994:

Service cost......................... --
Interest cost........................ --
Net amortization and deferral........ --
---
--
===
50

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company provides health care and life insurance benefits for
substantially all employees who retire under the provisions of a
Company-sponsored retirement plan and their dependents. Participation in the
plans is voluntary and requires a monthly contribution by the employee.
Effective January 1, 1993 the Company adopted the provisions of SFAS No.
106 -- "Employers' Accounting for Postretirement Benefits Other Than
Pensions". The Statement requires the accrual, during the years the employee
renders service, of the expected cost of providing postretirement benefits to
the employee and the employee's beneficiaries and covered dependents. The
following table sets forth the plan's funded status at December 31, 1994 and
1993 (in millions of dollars):
DECEMBER 31,
-----------------
1994 1993
---- ----
Plan assets, at fair value........... -- --
Accumulated postretirement benefit
obligation
Retirees........................... (4.2) (3.6)
Eligible active participants....... (0.9) (1.2)
Other active participants.......... (0.9) (1.4)
---- ----
Accumulated postretirement benefit
obligation in excess of plan
assets............................. (6.0) (6.2)
Unrecognized transition obligation... 4.1 5.0
Unrecognized net loss (gain) from
past experience different from that
assumed and from changes in
assumptions........................ (0.4) 0.5
---- ----
Accrued postretirement benefit
cost............................... (2.3) (0.7)
==== ====
Assumed discount rate................ 8.5% 7.5%
Assumed rate of compensation
increase........................... 5.25% 5.25%

The Company's net periodic postretirement benefit cost for 1994 and 1993
includes the following components (in millions of dollars):

YEAR ENDED
DECEMBER 31,
-----------------
1994 1993
---- ----
Service costs........................ 0.4 0.3
Interest costs....................... 0.5 0.4
Amortization of unrecognized
transition obligation.............. 0.3 0.3
---- ----
1.2 1.0
==== ====

In periods prior to 1993 the cost to the Company of providing health care
and life insurance benefits for qualified retired employees was recognized as
expenses when claims were paid. Such amounts totalled $0.3 million in 1992.

Estimated costs and liabilities have been developed assuming trend rates
for growth in future health care costs beginning with 8.0% for 1994 graded to
6.0% (5.5% for post age 65) by the year 2000 and remaining constant
thereafter. Increasing the assumed health care cost trend rate by one percent
each year would increase the accumulated postretirement benefit obligation as
of December 31, 1994 by $0.8 million and the aggregate of the service cost and
interest cost components of the net periodic postretirement benefit cost for
1995 by $0.2 million.

SAVINGS PLAN

The Company has a savings plan, which became effective November 1, 1990,
available to substantially all salaried employees and intended to qualify as a
deferred compensation plan under Section 401(k) of the Internal Revenue Code
(the "401(k) Plan"). The Company will match employee

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

contributions for an amount up to 4% of each employee's base salary. In
addition, if at the end of each fiscal year the Company's performance for such
year has exceeded certain predetermined criteria, each participant will
receive an additional matching contribution equal to 50% of the regular
matching contribution. The Company's contributions to the 401(k) Plan, which
are charged to expense, totaled $1.3 million in 1992, $1.5 million in 1993 and
$1.2 million in 1994.

In the fourth quarter of 1993 the Company established a new savings plan
with respect to certain personnel employed in foreign locations. The plan is
an unsecured creditor of the Company and at December 31, 1994 the Company's
liability with respect to the plan totalled $0.1 million.

OTHER POSTEMPLOYMENT BENEFITS

In the fourth quarter of 1993 the Company adopted SFAS No.
112 -- "Employers' Accounting for Postemployment Benefits". The Statement
requires the accrual of the estimated costs of benefits provided by an
employer to former or inactive employees after employment but before
retirement. Such benefits include salary continuation, supplemental
unemployment benefits, severance benefits, disability-related benefits, job
training and counseling and continuation of benefits such as health care and
life insurance coverage. The adoption of SFAS No. 112 resulted in a charge to
earnings of $1.8 million in 1993.

(12) COMMITMENTS AND CONTINGENCIES

INDEMNITY AGREEMENT WITH SFP

At the time of the Spin-Off, the Company and SFP entered into an agreement
to protect SFP from federal and state income taxes, penalties and interest
that would be incurred by SFP if the Spin-off were determined to be a taxable
event resulting primarily from actions taken by the Company during a one-year
period that ended December 4, 1991. If the Company were required to make
payments pursuant to the agreement, such payments could have a material
adverse effect on its financial condition; however, the Company does not
believe that it took any actions during such one-year period that would have
such an effect on the Spin-Off.

ENVIRONMENTAL REGULATION

Federal, state and local laws and regulations relating to environmental
quality control affect the Company in all of its oil and gas operations. The
Company has been identified as one of over 250 potentially responsible parties
("PRPs") at a superfund site in Los Angeles County, California. The site was
operated by a third party as a waste disposal facility from 1948 until 1983.
The Environmental Protection Agency ("EPA") is requiring the PRPs to undertake
remediation of the site in several phases, which include site monitoring and
leachate control, gas control and final remediation.

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

phase is expected to be of approximately the same magnitude as that of the
first phase and such costs have been provided for in the financial statements.

In 1989, Adobe received requests from the EPA for information pursuant to
Section 104(e) of the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") with respect to the D. L. Mud and Gulf Coast Vacuum
Services superfund sites located in Abbeville, Louisiana. With respect to the
Gulf Coast Site the Company has entered into a sharing agreement with other
PRP'S to participate in the final remediation and a design plan has been
submitted and is awaiting approval by the EPA. The Company's share of the
remediation, which has been provided for in the financial statements, is
approximately $600,000 and includes its proportionate share of those PRPs who do
not have the financial resources to provide their share of the work at the site.
A former site owner has already conducted remedial activities at the D. L. Mud
Site under a state agency agreement.

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with certain key
employees. The initial term of each agreement expired on December 31, 1990
and, on January 1, 1991 and beginning on each January 1 thereafter, is
automatically extended for one-year periods, unless by September 30 of any
year the Company gives notice that the agreement will not be extended. The
term of the agreements is automatically extended for a minimum of 24 months
following a change of control. The consummation of the Merger constituted a
change of control as defined in the agreements.

In the event that following a change of control employment is terminated
for reasons specified in the agreements, the employee would receive: (i) a
lump sum payment equal to two years' base salary; (ii) the maximum possible
bonus under the terms of the Company's incentive compensation plan; (iii) a
lapse of restrictions on any outstanding restricted stock grants and full
payout of any outstanding Phantom Units; (iv) cash payment for each
outstanding stock option equal to the amount by which the fair market value of
the common stock exceeds the exercise price of the option; and, (v) life,
disability and health benefits for a period of up to two years. In addition,
payments and benefits under certain employment agreements are subject to
further limitations based on certain provisions of the Internal Revenue Code.

INTEREST RATE SWAPS

Prior to the Merger, Adobe had entered into two interest rate swaps with a
bank with notional principal amounts of $15.0 million and $20.0 million. The
$15.0 million swap expired in December 1992 and the $20.0 million swap expired
in April 1994. For the period from the effective date of the Merger to
December 31, 1992 the amount due the bank in accordance with the terms of the
$20.0 million swap totalled $0.6 million and the amount due the bank in 1993
and 1994 totalled $0.9 million and $0.2 million, respectively. For the period
subsequent to the Merger, the amount due the bank in accordance with the terms
of the $15.0 million swap totaled $0.5 million.

OPERATING LEASES

The Company has noncancellable agreements with terms ranging from one to
ten years to lease office space and equipment. Minimum rental payments due
under the terms of these agreements are: 1995 -- $6.2 million, 1996 -- $5.8
million, 1997 -- $5.4 million, 1998 -- $4.6 million, 1999 -- $2.8 million and
$2.0 million thereafter. Rental payments made under the terms of
noncancellable agreements totaled $4.5 million in 1992, $5.5 million in 1993
and $6.2 million in 1994.

OTHER MATTERS

The Company has certain long-term contracts, which are being administered
by Hadson, ranging up to twelve years for the supply and transportation of
approximately 20 million cubic feet per day of natural gas to the Company's
operations in Kern County, California. In the aggregate, these contracts
involve a minimum commitment on the part of the Company of approximately $11.2
million per year (based on prices and transportation charges in effect for
December 1994). In connection with the development of a gas field in Argentina
in which the Company has a 19.9% working interest, a gas contract for 106
million cubic feet of gas per day with "take-or-pay" and "delivery-or-pay"
obligations was executed in 1994 with a gas distribution company.

There are other claims and actions, including certain other environmental
matters, pending against the Company. In the opinion of management, the
amounts, if any, which may be awarded in connection with any of these claims
and actions could be significant to the results of operations of any period
but would not be material to the Company's consolidated financial position.

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(13) INCOME TAXES

Effective January 1, 1993 the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109 -- "Accounting for Income Taxes".
The adoption of SFAS No. 109 had no significant impact on the Company's
provision for income taxes.

Through the date of the Spin-Off the taxable income or loss of the Company
was included in the consolidated federal income tax return filed by SFP. The
consolidated federal income tax returns of SFP have been examined through 1990
and all years prior to 1981 are closed. Issues relating to the open years are
being contested through various stages of administrative appeal. The Company
has filed separate consolidated federal income tax returns for periods
subsequent to the Spin-Off. The consolidated returns of the Company through
1990 have been audited and the year 1991 is currently under audit.

During 1989, the Company received a notice of deficiency for certain state
franchise tax returns filed for the years 1978 through 1983 as part of the
consolidated tax returns of SFP. The matter was contested by the Company and
resolved in 1994. The years 1984 through 1990 are currently being audited. The
Company believes adequate provision has been made for any adjustments which
might be assessed with respect to all open years.

With the Merger of Adobe the Company succeeded to a net operating loss
carryforward that is subject to Internal Revenue Code Section 382 limitations
which annually limit taxable income that can be offset by such losses. Certain
changes in the Company's shareholders may impose additional limitations as
well. Losses carrying forward of $134.5 million which expire beginning in 1998
are subject to the Section 382 limitations. The Company has total loss
carryforwards of $163.9 million.

Pretax income from continuing operations for the years ended December 31,
1994, 1993 and 1992 was taxed under the following jurisdictions (in millions
of dollars):
1994 1993 1992
---- ------ ----
Domestic............................. 22.0 (120.9) 2.7
Foreign.............................. 1.1 (29.3) (3.6)
---- ------ ----
23.1 (150.2) (0.9)
==== ====== ====

The Company's income tax expense (benefit) for the years ended December
31, 1994, 1993 and 1992 consisted of (in millions of dollars):

1994 1993 1992
---- ------ ----
Current
U.S. federal..................... (3.5) (1.3) 3.5
State............................ (3.2) (1.2) 1.4
Foreign.......................... 1.4 1.3 1.9
---- ------ ----
(5.3) (1.2) 6.8
---- ------ ----
Deferred
U.S. federal..................... 8.6 (65.6) (3.5)
U.S. federal tax rate change..... -- 2.6 --
State............................ 2.4 (8.0) (2.5)
Foreign.......................... 0.3 (0.9) (0.3)
---- ------ ----
11.3 (71.9) (6.3)
---- ------ ----
6.0 (73.1) 0.5
==== ====== ====

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's deferred income tax liabilities (assets) at December 31,
1994 and 1993 are composed of the following differences between financial and
tax reporting (in millions of dollars):
1994 1993
------ ------
Capitalized costs and write-offs..... 113.8 83.0
Differences in Partnership basis..... 3.9 15.1
State deferred liability............. 8.2 5.8
Foreign deferred liability........... 14.1 13.7
------ ------
Gross deferred liabilities........... 140.0 117.6
------ ------
Accruals not currently deductible for
tax purposes....................... (14.1) (17.7)
Alternative minimum tax
carryforwards...................... (11.7) (8.3)
Net operating loss carryforwards..... (57.4) (46.7)
Other................................ (0.5) (0.5)
------ ------
Gross deferred assets................ (83.7) (73.2)
------ ------
Deferred tax liability............... 56.3 44.4
====== ======

The Company had no deferred tax asset valuation allowance at December 31,
1994 or 1993.

A reconciliation of the Company's U.S. income tax expense (benefit)
computed by applying the statutory U.S. federal income tax rate to the
Company's income (loss) before income taxes for the years ended December 31,
1994, 1993 and 1992 is presented in the following table (in millions of
dollars):
1994 1993 1992
------ ------ ----
U.S. federal income taxes (benefit)
at statutory rate.................. 8.1 (52.6) (0.3)
Increase (reduction) resulting from:
State income taxes, net of federal
effect........................... 0.9 (1.0) 1.4
Foreign income taxes in excess of
U.S. rate........................ 1.4 (0.8) 0.3
U.S. tax on foreign reinvested
earnings......................... 1.2 -- --
Effect of increase in statutory
rate on deferred taxes........... -- 2.6 --
Benefit of tax losses.............. (4.3) (11.2) --
Prior period adjustments........... (1.6) (9.9) --
Other.............................. 0.3 (0.2) (0.9)
------ ------ ----
6.0 (73.1) 0.5
====== ====== ====

The Company increased its deferred tax liability in 1993 as a result of
legislation enacted during 1993 increasing the corporate tax rate from 34% to
35% commencing in 1993.
56

SANTA FE ENERGY RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(14) FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107 "Disclosure About Fair Value of Financial Instruments"
requires the disclosure, to the extent practicable, of the fair value of
financial instruments which are recognized or unrecognized in the balance
sheet. The fair value of the financial instruments disclosed herein is not
representative of the amount that could be realized or settled, nor does the
fair value amount consider the tax consequences, if any, of realization or
settlement. The following table reflects the financial instruments for which
the fair value differs from the carrying amount of such financial instrument
in the Company's December 31, 1994 and 1993 balance sheets (in millions of
dollars):

1994 1993
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----

Assets
Trust Units...................... -- -- 10.4 11.3
Note receivable from Hadson...... 2.4 2.4 -- --
Liabilities
Long-Term Debt (including current
portion)....................... 354.3 355.6 449.7 482.2
Convertible Preferred Stock...... 80.0 80.6 80.0 103.8
Interest rate swap............... -- -- -- 0.4
Shareholders' Equity
$.732 Series A Convertible
Preferred Stock................ 91.4 92.3 -- --

The fair value of the Trust Units and convertible preferred stock is based
on market prices. The fair value of the Company's fixed-rate long-term debt is
based on current borrowing rates available for financings with similar terms
and maturities. With respect to the Company's floating-rate debt and the note
receivable from Hadson, the carrying amount approximates fair value. The fair
value of the interest rate swap represents the estimated cost to the Company
over the remaining life of the contract.

(15) SUBSEQUENT EVENT

In February 1995 the Company sold its interest in Cherokee Resources
Incorporated ("Cherokee"), a privately-held oil and gas company, for
approximately $4.3 million (subject to certain adjustments). The Company's
basis in its investment in Cherokee at December 31, 1994 was approximately
$1.8 million.
57

SANTA FE ENERGY RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

OIL AND GAS RESERVES AND RELATED FINANCIAL DATA

Information with respect to the Company's oil and gas producing activities
is presented in the following tables. Reserve quantities as well as certain
information regarding future production and discounted cash flows were
determined by independent petroleum consultants, Ryder Scott Company.

OIL AND GAS RESERVES

The following table sets forth the Company's net proved oil and gas
reserves at December 31, 1991, 1992, 1993 and 1994 and the changes in net
proved oil and gas reserves for the years ended December 31, 1992, 1993 and
1994.

CRUDE OIL AND LIQUIDS (MMBBLS) NATURAL GAS (BCF)
----------------------------------------- ---------------------------------------------
U.S. ARGENTINA INDONESIA TOTAL U.S. ARGENTINA INDONESIA TOTAL
--------- --------- --------- ------ --------- --------- --------- ---------

Proved reserves at
December 31, 1991................... 220.7 8.5 -- 229.2 170.8 -- -- 170.8
Revisions of previous estimates.... 14.4 (0.3) -- 14.1 7.3 -- -- 7.3
Improved recovery techniques....... 17.0 -- -- 17.0 1.3 -- -- 1.3
Extensions, discoveries and other
additions......................... 1.3 1.3 -- 2.6 5.6 -- -- 5.6
Purchases of minerals-in-place..... 13.7 -- 7.2 20.9 143.1 -- 0.6 143.7
Sales of minerals-in-place......... (5.7) -- -- (5.7) (5.0) -- -- (5.0)
Production......................... (21.4) (0.8) (0.8) (23.0) (46.2) -- -- (46.2)
--------- --- --- ------ --------- --- --- ---------
Proved reserves at
December 31, 1992................... 240.0 8.7 6.4 255.1 276.9 -- 0.6 277.5
Revisions to previous estimates.... (11.9) 0.5 0.6 (10.8) 26.6 -- 0.1 26.7
Improved recovery techniques....... 26.7 -- -- 26.7 -- -- -- --
Extensions, discoveries and other
additions......................... 3.4 0.5 2.3 6.2 29.5 26.4 -- 55.9
Purchases of minerals-in-place..... 3.3 -- 0.7 4.0 10.6 -- 0.1 10.7
Sales of minerals in place......... (8.7) -- -- (8.7) (47.4) -- -- (47.4)
Production......................... (21.9) (0.9) (1.5) (24.3) (60.3) -- (0.1) (60.4)
--------- --- --- ------ --------- --- --- ---------
Proved reserves at
December 31, 1993................... 230.9 8.8 8.5 248.2 235.9 26.4 0.7 263.0
Revisions of previous estimates.... 13.3 0.6 1.3 15.2 (2.7) -- -- (2.7)
Improved recovery techniques....... 13.9 -- -- 13.9 0.9 -- -- 0.9
Extensions, discoveries and other
additions......................... 3.6 0.8 1.1 5.5 22.5 13.7 -- 36.2
Purchases of minerals-in-place..... 0.2 -- -- 0.2 0.5 -- -- 0.5
Sales of minerals-in-place......... (0.7) -- -- (0.7) (2.5) (3.1) -- (5.6)
Production......................... (21.0) (0.9) (2.1) (24.0) (49.8) -- (0.1) (49.9)
--------- --- --- ------ --------- --- --- ---------
Proved reserves at
December 31, 1994.................. 240.2 9.3 8.8 258.3 204.8 37.0 0.6 242.4
========= === === ====== ========= === === =========

SANTA FE ENERGY RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

CRUDE OIL AND LIQUIDS (MMBBLS) NATURAL GAS (BCF)
----------------------------------------- -----------------------------------------
U.S. ARGENTINA INDONESIA TOTAL U.S. ARGENTINA INDONESIA TOTAL
------ --------- --------- ----- ---- --------- --------- -----

Proved developed reserves at
December 31
1991............................. 179.2 5.4 -- 184.6 154.2 -- -- 154.2
1992............................. 194.6 5.6 6.4 206.6 250.2 -- 0.6 250.8
1993............................. 178.8 5.5 6.7 191.0 206.0 -- 0.7 206.7
1994............................. 181.3 6.1 7.1 194.5 178.2 1.3 0.6 180.1

Proved reserves are estimated quantities of crude oil and natural gas
which geological and engineering data indicate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved reserves which can
be expected to be recovered through existing wells with existing equipment and
operating methods.

Indonesian reserves represent an entitlement to gross reserves in
accordance with a production sharing contract. These reserves include
estimated quantities allocable to the Company for recovery of operating costs
as well as quantities related to the Company's net equity share after recovery
of costs. Accordingly, these quantities are subject to fluctuations with an
inverse relationship to the price of oil. If oil prices increase, the reserve
quantities attributable to the recovery of operating costs decline. Although
this reduction would be offset partially by an increase in the net equity
share, the overall effect would be a reduction of reserves attributable to the
Company. At December 31, 1994, the quantities include 0.5 million barrels
which the Company is contractually obligated to sell for $.20 per barrel.

At December 31, 1993 the Company's reserves were 6.9 million barrels of
crude oil and liquids and 14.5 Bcf of natural gas lower than at December 31,
1992, reflecting the sale in 1993 of properties with reserves totalling 8.7
million barrels of crude oil and liquids and 47.4 Bcf of natural gas.

The Company has certain commitments with respect to the delivery of
natural gas (see Note 12) which the Company believes it can fulfill from its
proved reserves and supply contracts with other companies.

At December 31, 1994, 1.8 million barrels of crude oil reserves and 17.1
billion cubic feet of natural gas reserves were subject to a 90% net profits
interest held by Santa Fe Energy Trust.

SANTA FE ENERGY RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

ESTIMATED PRESENT VALUE OF FUTURE NET CASH FLOWS

Estimated future net cash flows from the Company's proved oil and gas
reserves at December 31, 1994, 1993 and 1992 are presented in the following
table (in millions of dollars, except as noted):

U.S. ARGENTINA INDONESIA TOTAL
---------- --------- --------- ----------

1994
Future cash inflows.............. 3,488.8 176.9 134.9 3,800.6
Future production costs.......... (1,614.6) (89.6) (69.4) (1,773.6)
Future development costs......... (263.7) (32.3) (6.2) (302.2)
Future income tax expenses....... (385.2) (3.7) (20.0) (408.9)
---------- --------- --------- ----------
Net future cash flows........ 1,225.3 51.3 39.3 1,315.9
Discount at 10% for timing of
cash flows..................... (544.9) (20.1) (11.0) (576.0)
---------- --------- --------- ----------
Present value of future net cash
flows from
proved reserves................ 680.4 31.2 28.3 739.9
========== ========= ========= ==========
Average sales prices
Oil ($/Barrel)............... 13.18 14.06 15.21
Natural gas ($/Mcf).......... 1.63 1.25 0.97
1993
Future cash inflows.............. 2,654.9 117.9 115.6 2,888.4
Future production costs.......... (1,547.2) (65.9) (78.7) (1,691.8)
Future development costs......... (216.7) (32.4) (8.9) (258.0)
Future income tax expenses....... (100.5) -- (6.9) (107.4)
---------- --------- --------- ----------
Net future cash flows........ 790.5 19.6 21.1 831.2
Discount at 10% for timing of
cash flows..................... (308.5) (12.1) (8.2) (328.8)
---------- --------- --------- ----------
Present value of future net cash
flows from
proved reserves................ 482.0 7.5 12.9 502.4
========== ========= ========= ==========
Average sales prices
Oil ($/Barrel)............... 9.10 9.74 13.50
Natural gas ($/Mcf).......... 2.28 1.23 0.97
1992
Future cash inflows.............. 3,709.8 132.9 105.8 3,948.5
Future production costs.......... (1,982.6) (82.1) (79.5) (2,144.2)
Future development costs......... (292.2) (13.5) -- (305.7)
Future income tax expenses....... (286.9) (1.0) (9.5) (297.4)
---------- --------- --------- ----------
Net future cash flows........ 1,148.1 36.3 16.8 1,201.2
Discount at 10% for timing of
cash flows..................... (450.5) (14.0) (3.2) (467.7)
---------- --------- --------- ----------
Present value of future net cash
flows from
proved reserves................ 697.6 22.3 13.6 733.5
========== ========= ========= ==========
Average sales prices
Oil ($/Barrel)............... 13.30 15.28 16.46
Natural gas ($/Mcf).......... 2.01 -- 0.97

SANTA FE ENERGY RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

The following tables sets forth the changes in the present value of
estimated future net cash flows from proved reserves during 1994, 1993 and
1992 (in millions of dollars):

U.S. ARGENTINA INDONESIA TOTAL
------- --------- --------- ---------

1994
Balance at beginning of year....... 482.0 7.5 12.9 502.4
------- --------- --------- ---------
Increase (decrease) due to:
Sales of oil and gas, net of
production costs of $170.9
million........................ (196.0) (7.3) (17.2) (220.5)
Net changes in prices and
production costs............... 389.0 21.1 19.6 429.7
Extensions, discoveries and
improved recovery.............. 78.8 7.4 10.4 96.6
Purchases of minerals-in-place... 1.2 -- -- 1.2
Sales of minerals-in-place....... (8.9) (0.4) -- (9.3)
Development costs incurred....... 81.7 13.0 9.3 104.0
Changes in estimated volumes..... 18.5 (2.6) 8.3 24.2
Changes in estimated development
costs.......................... (66.6) (7.3) (6.5) (80.4)
Interest factor -- accretion of
discount....................... 53.3 2.0 2.0 57.3
Income taxes..................... (152.6) (2.2) (10.5) (165.3)
------- --------- --------- ---------
198.4 23.7 15.4 237.5
------- --------- --------- ---------
680.4 31.2 28.3 739.9
======= ========= ========= =========

U.S. ARGENTINA INDONESIA TOTAL
------- --------- --------- ---------

1993
Balance at beginning of year....... 697.6 22.3 13.6 733.5
------- --------- --------- ---------
Increase (decrease) due to:
Sales of oil and gas, net of
production costs of $189.5
million........................ (230.1) (7.3) (10.0) (247.4)
Net changes in prices and
production costs............... (325.1) (7.7) 1.7 (331.1)
Extensions, discoveries and
improved recovery.............. 94.8 14.8 7.0 116.6
Purchases of minerals-in-place... 21.6 -- 2.1 23.7
Sales of minerals-in-place....... (84.7) -- -- (84.7)
Development costs incurred....... 50.0 5.1 -- 55.1
Changes in estimated volumes..... 28.3 1.5 1.8 31.6
Changes in estimated development
costs.......................... 25.6 (24.1) (8.9) (7.4)
Interest factor -- accretion of
discount....................... 87.1 2.3 2.1 91.5
Income taxes..................... 112.0 0.6 3.5 116.1
Other............................ 4.9 -- -- 4.9
------- --------- --------- ---------
(215.6) (14.8) (0.7) (231.1)
------- --------- --------- ---------
482.0 7.5 12.9 502.4
======= ========= ========= =========

SANTA FE ENERGY RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

U.S. ARGENTINA INDONESIA TOTAL
------- --------- --------- ---------

1992
Balance at beginning of year....... 445.8 17.8 -- 463.6
------- --------- --------- ---------
Increase (decrease) due to:
Sales of oil and gas, net of
production costs of $176.2
million........................ (236.6) (8.4) (6.3) (251.3)
Net changes in prices and
production costs............... 191.7 7.8 3.5 203.0
Extensions, discoveries and
improved recovery.............. 70.9 4.6 -- 75.5
Purchases of minerals-in-place... 232.5 -- 24.1 256.6
Sales of minerals-in-place....... (77.7) -- -- (77.7)
Development costs incurred....... 26.5 3.1 -- 29.6
Changes in estimated volumes..... 63.4 (1.0) -- 62.4
Changes in estimated development
costs.......................... (76.9) (2.8) -- (79.7)
Interest factor -- accretion of
discount....................... 58.7 1.8 -- 60.5
Income taxes..................... (14.8) (0.6) (7.7) (23.1)
Other............................ 14.1 -- -- 14.1
------- --------- --------- ---------
251.8 4.5 13.6 269.9
------- --------- --------- ---------
697.6 22.3 13.6 733.5
======= ========= ========= =========

Estimated future cash flows represent an estimate of future net cash flows
from the production of proved reserves using estimated sales prices and
estimates of the production costs, ad valorem and production taxes, and future
development costs necessary to produce such reserves. No deduction has been
made for depletion, depreciation or any indirect costs such as general
corporate overhead or interest expense.

The sales prices used in the calculation of estimated future net cash
flows are based on the prices in effect at year end. Such prices have been
held constant except for known and determinable escalations.

Operating costs and ad valorem and production taxes are estimated based on
current costs with respect to producing oil and gas properties. Future
development costs are based on the best estimate of such costs assuming
current economic and operating conditions.

Income tax expense is computed based on applying the appropriate statutory
tax rate to the excess of future cash inflows less future production and
development costs over the current tax basis of the properties involved. While
applicable investment tax credits and other permanent differences are
considered in computing taxes, no recognition is given to tax benefits
applicable to future exploration costs or the activities of the Company that
are unrelated to oil and gas producing activities.

The information presented with respect to estimated future net revenues
and cash flows and the present value thereof is not intended to represent the
fair value of oil and gas reserves. Actual future sales prices and production
and development costs may vary significantly from those in effect at year-end
and actual future production may not occur in the periods or amounts
projected. This information is presented to allow a reasonable comparison of
reserve values prepared using standardized measurement criteria and should be
used only for that purpose.
62

SANTA FE ENERGY RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES

The following table includes all costs incurred, whether capitalized or
charged to expense at the time incurred (in millions of dollars):

OTHER
U.S. ARGENTINA INDONESIA FOREIGN TOTAL
--------- --------- --------- ------- ------

1994
Property acquisition costs
Unproved......................... 4.5 0.1 0.6 0.2 5.4
Proved........................... 1.8 0.3 -- -- 2.1
Exploration costs.................. 19.3 1.2 7.5 6.8 34.8
Development costs.................. 81.7 13.0 9.3 0.1 104.1
--------- ---- --------- ---- ------
107.3 14.6 17.4 7.1 146.4
========= ==== ========= ==== ======
1993
Property acquisition costs
Unproved......................... 6.4 -- 1.8 3.8 12.0
Proved........................... 29.7 -- 2.9 -- 32.6
Other............................ 0.8 -- -- -- 0.8
Exploration costs.................. 20.9 0.7 5.2 11.7 38.5
Development costs.................. 85.3 7.3 7.6 -- 100.2
--------- ---- --------- ---- ------
143.1 8.0 17.5 15.5 184.1
========= ==== ========= ==== ======
1992
Property acquisition costs
Unproved......................... 29.3 0.2 8.8 3.5 41.8
Proved........................... 294.1 -- 59.4 -- 353.5
Other............................ 65.6 -- -- -- 65.6
Exploration costs.................. 18.4 2.1 2.9 8.9 32.3
Development costs.................. 56.8 3.0 1.8 -- 61.6
--------- --- --------- ---- ------
464.2 5.3 72.9 12.4 554.8
========= === ========= ==== ======

SANTA FE ENERGY RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES

The following table sets forth information concerning capitalized costs at
December 31, 1994 and 1993 related to the Company's oil and gas operations (in
millions of dollars):

1994 1993
---------------------------------------------------------- ---------------------
OTHER
U.S. ARGENTINA INDONESIA FOREIGN TOTAL U.S. ARGENTINA
--------- ---------- --------- ------- --------- -------- ---------

Oil and gas properties
Unproved......................... 41.0 0.3 11.3 9.7 62.3 40.3 1.3
Proved........................... 1,924.5 61.4 83.2 1.9 2,071.0 1,869.9 48.9
Other............................ 12.7 -- -- -- 12.7 13.2 --
Accumulated amortization of unproved
properties......................... (12.7) (0.3) (2.6) (9.7) (25.3) (14.6) (1.2)
Accumulated depletion, depreciation
and impairment of proved
properties......................... (1,247.4) (11.4) (30.9) (0.3) (1,290.0) (1,181.9) (7.9)
Accumulated depreciation of other oil
and gas properties (4.3) (0.4) -- (0.1) (4.8) (4.3) --
--------- ---------- --------- ------- --------- -------- ----
713.8 49.6 61.0 1.5 825.9 722.6 41.1
========= ========== ========= ======= ========= ======== ====

1993
-------------------------------
OTHER
INDONESIA FOREIGN TOTAL
--------- ------- ---------
Oil and gas properties
Unproved......................... 12.0 10.7 64.3
Proved........................... 68.0 -- 1,986.8
Other............................ -- -- 13.2
Accumulated amortization of unproved
properties......................... (2.8) (9.9) (28.5)
Accumulated depletion, depreciation
and impairment of proved
properties......................... (22.4) -- (1,212.2)
Accumulated depreciation of other oil
and gas properties -- -- (4.3)
--------- ------- ---------
54.8 0.8 819.3
========= ======= =========

SANTA FE ENERGY RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES

The following table sets forth the Company's results of operations from
oil and gas producing activities for the years ended December 31, 1994, 1993
and 1992 (in millions of dollars):

OTHER
U.S. ARGENTINA INDONESIA FOREIGN TOTAL
------- --------- --------- ------- ---------

1994
Revenues........................... 346.7 12.9 31.8 -- 391.4
Production costs (including related
taxes)........................... (150.7) (5.6) (14.6) (0.2 ) (171.1)
Exploration, including dry hole
costs............................ (14.0) (1.2) (1.4) (3.8 ) (20.4)
Depletion, depreciation,
amortization and impairments..... (99.9) (3.8) (9.7) (6.3 ) (119.7)
Gain (loss) on disposition of
properties....................... 6.8 0.8 -- -- 7.6
------- --- --------- ------- ---------
88.9 3.1 6.1 (10.3 ) 87.8
Income taxes....................... (31.0) (0.9) (2.6) -- (34.5)
------- --- --------- ------- ---------
57.9 2.2 3.5 (10.3 ) 53.3
======= === ========= ======= =========
1993
Revenues........................... 401.2 12.5 23.2 -- 436.9
Production costs (including related
taxes)........................... (166.9) (5.2) (13.2) -- (185.3)
Oil and gas systems and
pipelines........................ (4.2) -- -- -- (4.2)
Exploration, including dry hole
costs............................ (16.4) (0.7) (2.2) (11.7 ) (31.0)
Depletion, depreciation,
amortization and impairments..... (218.8) (3.6) (21.2) (6.7 ) (250.3)
Restructuring charges.............. (27.8) -- -- -- (27.8)
Gain (loss) on disposition of
properties....................... (0.7) -- -- -- (0.7)
------- --- --------- ------- ---------
(33.6) 3.0 (13.4) (18.4 ) (62.4)
Income taxes....................... 24.1 (0.9) 1.9 -- 25.1
------- --- --------- ------- ---------
(9.5) 2.1 (11.5) (18.4 ) (37.3)
======= === ========= ======= =========
1992
Revenues........................... 400.0 13.9 13.6 -- 427.5
Production costs (including related
taxes)........................... (160.2) (5.5) (7.3) -- (173.0)
Oil and gas systems and
pipelines........................ (3.2) -- -- -- (3.2)
Exploration, including dry hole
costs............................ (12.9) (2.2) (1.3) (9.1 ) (25.5)
Depletion, depreciation,
amortization and impairments..... (136.7) (3.7) (2.7) (1.6 ) (144.7)
Gain (loss) on disposition of
properties....................... 13.6 -- -- -- 13.6
------- --- --------- ------- ---------
100.6 2.5 2.3 (10.7 ) 94.7
Income taxes....................... (37.9) -- (1.6) -- (39.5)
------- --- --------- ------- ---------
62.7 2.5 0.7 (10.7 ) 55.2
======= === ========= ======= =========

Income taxes are computed by applying the appropriate statutory rate to
the results of operations before income taxes. Applicable tax credits and
allowances related to oil and gas producing activities have been taken into
account in computing income tax expenses. No deduction has been made for
indirect cost such as corporate overhead or interest expense.

SANTA FE ENERGY RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

SUMMARIZED QUARTERLY FINANCIAL DATA

1 QTR 2 QTR 3 QTR 4 QTR YEAR
----- ----- ----- ----- ----
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE DATA)

1994
Revenues......................... 90.3 99.7 103.6 97.8 391.4
Gross profit<F1>................. 7.6 19.7 25.6 22.6 75.5
Income (loss) from operations.... -- 12.8 19.1 16.3 48.2
Net income (loss)................ (2.5) 4.1 11.0 4.5 17.1
Earnings (loss) attributable to
common shares.................. (4.3) 1.6 7.3 0.8 5.4
Earnings (loss) attributable to
common shares per share........ (0.05) 0.02 0.08 0.01 0.06
Average shares outstanding
(millions)..................... 89.9 90.0 90.0 90.0 89.9

1993
Revenues......................... 115.3 116.3 102.7 102.6 436.9
Gross profit<F1>................. 19.0 22.5 8.5 (130.7) (80.7)
Income (loss) from operations.... 12.0 15.4 1.2 (141.6)<F2> (113.0)
Net income (loss)................ (0.4) 4.0 2.4 (83.1) (77.1)
Earnings (loss) attributable to
common shares.................. (2.2) 2.3 0.6 (84.8) (84.1)
Earnings (loss) attributable to
common shares per share........ (0.02) 0.02 0.01 (0.95) (0.94)
Average shares outstanding
(millions)..................... 89.6 89.7 89.8 89.8 89.7
<FN>
<F1> Revenues less operating expenses other than general and administrative.

<F2> Includes charges of $99.3 million for impairment of oil and gas
properties and $38.6 million for restructuring charges.

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

SANTA FE ENERGY RESOURCES, INC.

By /s/ R. GRAHAM WHALING
R. GRAHAM WHALING
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
Dated: March 13, 1995

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
AND IN THE CAPACITIES AND ON THE DATE INDICATED.

SIGNATURE AND TITLE

JAMES L. PAYNE, Chairman
of the Board, President and
Chief Executive Officer and Director
(PRINCIPAL EXECUTIVE OFFICER)

R. GRAHAM WHALING, Senior
Vice President
and Chief Financial Officer
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)

DIRECTORS
Rod F. Dammeyer
William E. Greehey
Melvyn N. Klein
Robert D. Krebs
Allan V. Martini
Michael A. Morphy
Reuben F. Richards By: /s/R. GRAHAM WHALING
David M. Schulte R. GRAHAM WHALING
Marc J. Shapiro SENIOR VICE PRESIDENT AND
Robert F. Vagt CHIEF FINANCIAL OFFICER
Kathryn D. Wriston ATTORNEY IN FACT

Dated: March 13, 1995
67

SANTA FE ENERGY RESOURCES, INC.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1994
(IN MILLIONS OF DOLLARS)

1994 1993 1992
---- ---- ----
Accounts receivable
Balance at the beginning of period ........... 6.3 5.0 2.6
Charge (credit) to income ................ 0.6 -- --
Net amounts written off .................. (3.8) (0.1) (1.1)
Other(a) ................................. -- 1.4 3.5
---- ---- ----
Balance at the end of period ................. 3.1 6.3 5.0
==== ==== ====

(a) Represents valuation accounts related to accounts receivable acquired in
merger with Adobe Resources Corporation.

INDEX OF EXHIBITS
A. EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------- -----------
3(a) -- Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 of the Form S-2 Registration Statement of
Santa Fe Energy Resources, Inc. ("SFER, Inc.") Commission File No.
33-32831).

3(b) -- Bylaws, as amended (incorporated by reference to Exhibit 3(b)
to SFER, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1992).

4(a) -- Form of Certificate of Designation, Rights and Preferences of
the 7% Convertible Preferred Stock of Santa Fe Energy Resources,
Inc. (incorporated by reference to Exhibit 3(b) of the Form S-4
Registration Statement of SFER, Inc., Commission File No.
33-45043).

4(b) -- Note Agreement dated as of March 31, 1990, by and among Santa
Fe Energy Resources, Inc. and various institutional investors
relating to the issuance of $365,000,000 of Senior Notes maturing
1993-2005, as amended (incorporated by reference to Exhibit 4(b)
to SFER, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1990).

4(c) -- Amendment dated as of November 1, 1992, to Note Agreement dated
as of March 30, 1990, by and among Santa Fe Energy Resources, Inc.
and various institutional investors, relating to the issuance of
$365,000,000 of Senior Notes maturing 1993 to 2005, as amended
(incorporated by reference to Exhibit 4(c) to SFER, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1992).

4(d) -- Amendment dated as of December 31, 1993, to Note Agreement
dated as of March 30, 1990, by and among Santa Fe Energy
Resources, Inc. and various institutional investors, relating to
the issuance of $365,000,000 of Senior Notes maturing 1993 to
2005, as amended (incorporated by reference to Exhibit 4(d) to
SFER Inc.'s Annual Report on Form 10-K for the year ended December
31, 1993).

4(e) -- Form of Certificate of Designation of the Dividend Enhanced
Convertible Stock, $.732 Series A Convertible Preferred Stock of
Santa Fe Energy Resources, Inc. (incorporated by reference to
Exhibit 4.3 of the Form S-3 Registration Statement of SFER, Inc.,
Commission File No. 33-52849).

4(f) -- Form of Indenture dated as of May 25, 1994 and Form of
Debenture relating to Santa Fe Energy Resources, Inc. 11% Senior
Subordinated Debentures Due 2004 (incorporated by reference to
Exhibit 4.1 of the Form S-3 Registration Statement of SFER, Inc.,
Commission File No. 33-52849).

10(a) -- Agreement for the Allocation of the Consolidated Federal Income
Tax Liability Among the Members of the Santa Fe Pacific
Corporation ("SFP") Affiliated Group, as amended, dated December
23, 1983 (incorporated by reference to Exhibit 10.8 of the Form
S-2 Registration Statement of SFER, Inc. Commission File No.
33-32831).

10(b) -- Santa Fe Energy Resources, Inc. Incentive Compensation Plan
(incorporated by reference to Exhibit 10(d) to SFER, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1990).

10(c) -- Santa Fe Energy Resources, Inc. 1990 Incentive Stock
Compensation Plan, as amended (incorporated by reference to
Exhibit 10(h) to SFER, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1992).

10(d) -- Example of employment agreements entered into with executive
officers of SFER, Inc (incorporated by reference to Exhibit 10(f)
to SFER, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1990).
69

10(e) -- Example of Indemnification Agreement with SFER, Inc. directors
and officers (incorporated by reference to Exhibit 10(g) to SFER,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1990).

10(f) -- Spin Off Tax Indemnification Agreement between SFER, Inc. and
SFP (incorporated by reference to Exhibit 10(h) to SFER, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1990).

10(g) -- Agreement Concerning Taxes among the Company, certain
subsidiaries of the Company and SFP (incorporated by reference to
Exhibit 10(i) to SFER, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1990).

10(h) -- Agreements for the Allocation of the Combined State Income Tax
Liability Among the Members of the Santa Fe Pacific Corporation
Affiliated Group for the States of Arizona, California, Illinois,
Kansas, New Mexico, Oregon and Utah (incorporated by reference to
Exhibit 10(j) to SFER, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1990).

10(i) -- Agreement of Limited Partnership, South Belridge Limited
Partnership, dated as of October 31, 1990, by and between Santa Fe
Energy Resources, Inc. and the Prudential Insurance Company of
America (incorporated by reference to Exhibit 10(k) to SFER,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1990).

10(j) -- Santa Fe Energy Resources Supplemental Retirement Plan,
effective as of December 4, 1990 (incorporated by reference to
Exhibit 10(l) to SFER, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1990).

10(k) -- Santa Fe Energy Resources, Inc. Deferred Compensation Plan,
effective as of January 1, 1991 as amended and restated, effective
February 1, 1994 (incorporated by reference to Exhibit 10(p) to
SFER Inc.'s Annual Report on Form 10-K for the year ended December
31, 1993).

10(l) -- Stock Ownership and Registration Rights Agreement dated
December 10, 1991, by, between and among SFER, Inc., Minorco, and
Minorco (U.S.A.) Inc. (incorporated by reference to Exhibit 10(r)
of the Form S-4 Registration Statement of SFER, Inc., Commission
File No. 33-45043).

10(m) -- Form of Net Profits Conveyance from Santa Fe Energy Resources,
Inc. to Texas Commerce Bank, Trustee of the Santa Fe Energy
Royalty Trust (incorporated by reference to Exhibit 10.1 of the
Form S-1/S-3 Registration of Santa Fe Energy Resources, Inc. and
Santa Fe Energy Trust, Commission File No. 33-51760).

10(n) -- Form of Wasson Conveyance from Santa Fe Energy Resources, Inc.
to Texas Commerce Bank, Trustee of the Santa Fe Energy Royalty
Trust (incorporated by reference to Exhibit 10.2 of the Form
S-1/S-3 Registration of Santa Fe Energy Resources, Inc. and Santa
Fe Energy Trust, Commission File No. 33-51760).

10(o) -- Gas Marketing Agreement, dated as of December 14, 1993, between
Santa Fe Energy Resources, Inc., Santa Fe Energy Operating
Partners, L.P. and Adobe Gas Pipeline Company (incorporated by
reference to Exhibit 10(t) to SFER Inc.'s Annual Report on Form
10-K for the year ended December 31, 1993).

10(p) -- Agreement of Sale and Purchase by and among Santa Fe Energy
Resources, Inc., Santa Fe Energy Operating Partners, L.P. and
Bridge Oil (U.S.A.) Inc. dated December 2, 1993 (incorporated by
reference to Exhibit 10(u) to SFER Inc.'s Annual Report on Form
10-K for the year ended December 31, 1993).

10(q) -- Amended and Restated Revolving Credit Agreement dated as of
March 16, 1994 among Santa Fe Energy Resources, Inc., the banks
signatory thereto, and Texas Commerce Bank National Association as
Co-Agent and Administrative Agent and NationsBank of Texas, N.A.
as Co-Agent (incorporated by reference to Exhibit 10(v) to SFER
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1993).
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10(r) -- Letter of Credit Agreement dated as of March 16, 1994 among
Santa Fe Energy Resources, Inc., the banks signatory thereto, and
Texas Commerce Bank National Association as Co-Agent and
Administrative Agent and NationsBank of Texas, N.A. as Co-Agent
(incorporated by reference to Exhibit 10(w) to SFER Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1993).

*10(s) -- Securities Purchase Agreement among Santa Fe Energy Resources,
Inc., as Seller, and LG&E Energy Corp. and Carousel Acquisition
Corporation, as Buyers, dated February 10, 1995.

*21 -- Subsidiaries of the registrant.

*23(a) -- Consent of Independent Accountants with respect to Registration
Statements on Form S-8 (Nos. 33-37175, 33-44541 and 33-44542).

*23(b) -- Consent of Ryder Scott Company with respect to Registration
Statements on Form S-8 (Nos. 33-37175, 33-44541 and 33-44542).

*24 -- Powers of Attorney

* Included in this report.

B. REPORTS ON FORM 8-K.

None
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