As filed with the Securities and Exchange Commission on June 29, 2000
                                                     Registration No. 333-______
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM S-1

             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

                                 FX ENERGY, INC.
                        --------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

           NEVADA                         1311               87-0504461
           ------                         ----               ----------
      (State or other             (Primary Standard      (I.R.S. Employer
      jurisdiction of                Industrial           Identification
     incorporation or              Classification             Number)
       organization)                                        Code Number)

                               3006 Highland Drive
                                    Suite 206
                           Salt Lake City, Utah 84106
                                 (801) 486-5555

       (Address, including zip code, and telephone number, including area
               code, of Registrant's principal executive offices)

                                 David N. Pierce
                               3006 Highland Drive
                                    Suite 206
                           Salt Lake City, Utah 84106
                                 (801) 486-5555

            (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)

                                    Copy to:

                              James R. Kruse, Esq.
                           Kruse, Landa & Maycock, LLC
                                50 West Broadway
                                    8th Floor
                            Salt Lake City, UT 84101
                                 (801) 531-7090
                               fax: (801) 531-7091

     Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.

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

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

     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]

     If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]

     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
<TABLE>
<CAPTION>
                                         Calculation of Registration Fee
--------------------------- ------------------------ ------------------------- ------------------------ -------------------------
  Title of Each Class of                                                          Proposed Maximum
     Securities to be                                    Proposed Maximum        Aggregate Offering            Amount of
        Registered          Amount to be Registered  Offering Price Per Unit(1)         Price               Registration Fee
--------------------------- ------------------------ ------------------------- ------------------------ -------------------------
<S>                                <C>                        <C>                    <C>                         <C>
Common Stock, par
value $0.001 per
share                              2,969,000                  $5.375                 $15,958,375                 $4,213
--------------------------- ------------------------ ------------------------- ------------------------ -------------------------
</TABLE>

(1)  Estimated solely for the purpose of computing the amount of the
     registration fee pursuant to Rule 457(c), based on a price of $5.375, the
     average of the high and low prices for the issuer's common stock on June
     27, 2000 as reported on the Nasdaq National Market.

     The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant files
a further amendment which specifically states that this registration statement
will thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the registration statement becomes effective on
such date as the Securities and Exchange Commission, acting pursuant to Section
8(a) may determine.

<PAGE>

                   Subject To Completion, Dated June 28, 2000

The information contained in this preliminary prospectus is not complete and may
be changed. The selling stockholders may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.


                                 [COMPANY LOGO]



                   Resale of 2,969,000 shares of common stock

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

This prospectus relates to the resale of our shares of common stock by the
stockholders named under the caption "Selling Stockholders" on page 60. The
selling stockholders may offer and sell from time to time common stock using
this prospectus in transactions:

     o    on the Nasdaq National Market or otherwise;

     o    at market  prices,  which may vary during the offering  period,  or at
          negotiated prices; and

     o    in  ordinary  brokerage  transactions,   in  block  transactions,   in
          privately negotiated transactions, or otherwise.

The selling stockholders will receive all of the proceeds from the sale of the
shares and will pay all underwriting discounts and selling commissions relating
to the sale of the shares. FX Energy has agreed to pay the legal, accounting,
printing and other expenses related to the registration of the sale of the
shares.

Our common stock is listed on the Nasdaq National Market under the symbol
"FXEN." On June 27, 2000, the last reported sale price of our common stock was
$5.375.

An investment in our shares involves certain risks. We urge you to read the
"Risk Factors" section beginning on page 6 and the rest of this prospectus
before making an investment decision.

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

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

              The date of this prospectus is _______________, 2000.

<PAGE>

                                Table of Contents

                                                                            Page

About This Prospectus..........................................................i
Prospectus Summary.............................................................1
Risk Factors...................................................................6
Forward-Looking Statements....................................................12
Price Range of Common Stock and Dividend Policy...............................13
No Net Proceeds to Us.........................................................13
Capitalization................................................................14
Dilution......................................................................15
Selected Consolidated Financial Data..........................................16
Management's Discussion and Analysis of Financial
  Condition and Results of Operations.........................................18
Business......................................................................29
The Republic of Poland........................................................45
Management ...................................................................47
Principal Stockholders........................................................55
Description of Capital Stock..................................................57
Selling Stockholders..........................................................60
Plan of Distribution..........................................................61
Where You Can Find Additional Information.....................................63
Legal Matters.................................................................63
Experts.......................................................................63
Glossary of Oil and Gas Terms.................................................64
Index to Financial Statements................................................F-1

                              About This Prospectus

As used in this prospectus, the terms "we," "us" and "our" refer to FX Energy,
Inc., a corporation organized under the laws of the state of Nevada, our
subsidiaries and the entities or enterprises organized under Polish law in which
we have an interest and through which we conduct our activities in that country,
unless the context indicates a different meaning.

As used in this prospectus, "Bcf" means 1,000,000,000 cubic feet of natural gas,
"Bcfe" means 1,000,000,000 cubic feet of natural gas equivalent, "MBbls" means
1,000 barrels of crude oil, including condensate or natural gas liquids, "Mcf"
means 1,000 cubic feet of natural gas, "Mcfe" means 1,000 cubic feet of natural
gas equivalent using a ratio of 1 barrel of oil equals 6,000 cubic feet of
natural gas, "MMcf" means 1,000,000 cubic feet and "MMcfe" means 1,000,000 cubic
feet of natural gas equivalent. "Gross" acres and "gross" wells mean the total
number of acres or wells, as the case may be, in which an interest is owned,
either directly or through a subsidiary or other Polish enterprise in which we
have an interest. "Net" means, when referring to wells or acres, the fractional
ownership working interests we hold, either directly or through a subsidiary or
other Polish enterprise in which we have an interest, multiplied by the gross
wells or gross acres.

All historical production and test data about Poland, excluding wells in which
we have participated, have been derived from information furnished by either the
Polish Oil and Gas Company or the Polish Ministry of Environmental Protection,
Natural Resources and Forestry.

All production numbers set forth in this prospectus, whether amounts, costs,
revenues or otherwise, are reported net of royalties, unless otherwise
indicated.

                                      -i-
<PAGE>

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

                               Prospectus Summary

This prospectus summary contains an overview of the information from this
prospectus, but may not contain all of the information that is important to you.
This prospectus includes specific terms of the offering of our common stock,
information about our business and financial data. We encourage you to read this
prospectus, including the "Risk Factors" section beginning on page 6, in its
entirety before making an investing decision. We have provided definitions for
some of the oil and gas industry terms used in this prospectus in the "Glossary
of Oil and Gas Terms" on page 64 of this prospectus.

                                    FX Energy

We are an independent oil and gas company focused on exploration, development
and production opportunities in the Republic of Poland. We are the largest
foreign oil and gas exploration acreage holder in Poland with exploration rights
covering approximately 16.1 million gross acres. Our activities are conducted
under strategic alliances with Apache Corporation and the Polish Oil and Gas
Company, or POGC, which allow us to utilize the operating and technical
personnel of those companies, gain access to geological and geophysical data and
obtain other necessary support activities in Poland.

We are currently conducting oil and gas exploration activities with Apache in
Poland in areas where we and Apache jointly hold exploration rights, a program
to which we refer as the Apache Exploration Program. One of the wells drilled
under the Apache Exploration Program resulted in our first exploration success
in the Wilga project, which is located in the northwest portion of the Lublin
Basin project area. The Wilga 2 well tested at an initial flow rate of 16.9 MMcf
of gas per day and 570 Bbls of condensate from the Carboniferous at a depth of
approximately 2,800 meters. The Wilga 2 well was the first successful
exploration well drilled by a foreign operator in Poland. We own a 45% interest
in the 250,000 acre block in which the Wilga project is located, POGC owns 10%
and Apache owns 45% and is the operator.

The Wilga 2 was followed by the Wilga 3 well, which encountered good reservoir
rock in Carboniferous sands and a Lower Devonian sand package in a separate
fault block, but was determined to be a dry hole after test results did not
yield commercial quantities of oil or gas. We believe the absence of oil and gas
in the Wilga 3 is related to faulting and therefore does not alter the
expectation that the Wilga 2 discovery is indicative of a larger oil and gas
accumulation. The next well, the Wilga 4, commenced drilling on June 17, 2000,
at a location east of the Wilga 2 discovery, on the opposite side of the fault
from the Wilga 3. Subject to satisfactory results from the Wilga 4 and the 2-D
seismic data currently being shot, we intend to drill three additional wells
through early 2001 to begin to determine the extent of the Wilga accumulation or
the existence of other accumulations in the Wilga area. In anticipation of
further development in the Wilga project, we expect to begin design and
installation of production facilities and construction of an approximately 18
kilometer pipeline that will be designed with the capacity to support several
additional productive wells.

On April 11, 2000, we signed an agreement with POGC under which we will earn a
49% working interest in approximately 300,000 gross acres in the Fences project
area by spending $16.0 million on exploration and development activities. We
have identified several separate exploration prospects in the Fences project
area based on POGC's existing seismic data and adjacent productive areas. Our
first well in this project area, the Kleka 11, was announced as an exploratory
success on June 28, 2000, after the well tested a calculated open flow rate of
34.3 MMcf of gas per day from the Rotliegendes at a depth of approximately 3,000
meters. As part of our commitment, we plan to shoot 200 or more kilometers of
3-D seismic data and drill approximately four additional wells. After we
complete our work commitment, POGC will begin bearing its 51% of further costs.
POGC is the operator of the Fences project area, which we have referred to
previously as the Radlin project area.

                             Strategic Relationships

Apache. Apache Corporation is a leading independent exploration and production
company based in the U.S. with an equity market capitalization of over $5.5
billion as of June 2000. Apache has successful exploration programs in the
United States, Canada, Australia, Egypt, Poland and China. We and Apache have
established an area of mutual interest for oil and gas exploration and
development covering current and future holdings in most of Poland. Apache
--------------------------------------------------------------------------------

<PAGE>

--------------------------------------------------------------------------------
does not participate in our new 300,000 gross acre Fences project area or our
900,000 gross acre Baltic project area. In addition to our share of the costs in
the five exploratory wells and over 2,000 kilometers of seismic data gathered to
date in the Apache Exploration Program, Apache will cover our share of costs to
drill an equivalent of four additional exploratory wells, shoot and analyze
approximately 350 kilometers of 2-D seismic data and cover all general and
administrative costs under the Apache Exploration Program through June 30, 2000.
In addition, we and Apache may seek to acquire from POGC appraisal, development
or exploration projects on existing POGC discoveries, shut-in fields and
underdeveloped properties in Poland.

POGC. The Polish Oil and Gas Company, or POGC, is the largest holder of oil and
gas rights in Poland. POGC is a state-owned, integrated oil and gas company with
approximately 30,000 employees and over 6.0 Tcfe of reserves, according to
industry sources. Our strategic alliance with POGC provides us with access to
important exploration data as well as technical and operational support. We and
Apache have granted POGC an option to earn up to a one-third interest in our
Lublin, Pomeranian and Carpathian project areas, which cover approximately 8.6
million gross acres. In turn, POGC has granted us and Apache each the right to
earn up to a one-third interest in approximately 3.4 million POGC controlled
gross acres. As indicated above, we signed an agreement in April 2000 to
participate with POGC in the Fences project area. In addition, we are currently
pursuing proposals to acquire additional appraisal, development or exploration
projects on existing POGC discoveries. We believe that our relationship with
POGC may provide additional opportunities in Poland.

                                Business Strategy

Our strategy is to increase our reserves, production and cash flow through
exploration and development drilling. The principal components of our business
strategy are:

  o  Focus on Poland. We believe Poland is an attractive area in which to
     conduct exploration activities because of its known productive basins,
     limited oil and gas exploration and development in those basins and heavy
     dependence on oil and gas imports. In addition, Poland's industrial
     infrastructure combined with its fiscal regime favorable to foreign
     investment reinforce the attractiveness of Poland.

  o  Leverage Our Exploration Success. Although we currently have no debt, when
     we convert an exploration prospect into a development project, we intend to
     fund the majority of exploitation costs with debt financing, if available.

  o  Balance Our Growth Profile. We intend to diversify our portfolio of
     properties and our risk profile by adding additional development
     opportunities to our inventory of high potential exploration projects. We
     intend to seek the acquisition of proved reserves with additional
     exploitation potential or proved reserves with infrastructure constraints.
     We believe that our relationship with POGC may provide us access to such
     opportunities in Poland.

  o  Expand Existing and Develop New Strategic Relationships. We intend to
     expand our strategic relationships with Apache and POGC to obtain
     operational assistance and to enhance our ability to pursue additional
     opportunities in Poland. We may seek new strategic alliances with other
     operating or financial partners to exploit fully our recent exploratory
     success as well as any possible new ventures in Poland.

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

                                       2
<PAGE>
--------------------------------------------------------------------------------
                        Exploration and Development Plan

Our current exploration and development plan consists of three primary
components:

  o  drilling and, if warranted, completing appraisal and development wells,
     constructing production facilities and further exploring our Wilga project
     area with Apache and POGC;

  o  fulfilling our $16.0 million commitment to earn our interest in the Fences
     project area with POGC; and

  o  drilling (excluding completion costs, if any) the remaining exploration
     wells to be funded by Apache under the Apache Exploration Program.

The following table sets forth our current exploration and development plan. The
capital expenditures included within the table are estimates based on
information currently available to us and are subject to being revised as
warranted. Actual capital expenditures may vary significantly from the estimated
amounts.

<TABLE>
<CAPTION>
                                                        Interest
                                                 --------------------                   Capital Expenditures
                                                              Net     Estimated  ------------------------------
                                                  Working  Revenue(1)   Date         Total         FX Share
                                                 -------------------- ---------- -------------- ---------------
                                                                                         (In millions)
<S>                                                 <C>       <C>     <C>          <C>              <C>
    Wilga Project(2)..........................      45%       42%
       Wilga 3 well (drilled)(3)..............                          1H 2000    $  4.00          $  0.90
       Wilga 4 well (commenced)(3)............                          2H 2000       3.00             0.68
       Seismic data...........................                          2H 2000       0.53             0.24
       Wilga 5 well...........................                          2H 2000       3.00             1.35
       Wilga 6 well...........................                             2001       3.00             1.35
       Wilga 7 well...........................                             2001       3.00             1.35
       Facilities/pipeline....................                             2001      11.11             5.00
                                                                                 -------------- ---------------
                                                                                    $27.64          $ 10.87
                                                                                 -------------- ---------------

    Fences Project Area(2)....................      49%       46%
       Kleka 11 well (drilled)................                          1H 2000    $  2.50          $  2.50
       Mieszkow well..........................                          2H 2000       2.50             2.50
       Boguszyn well..........................                          2H 2000       2.50             2.50
       Donatowo well..........................                             2001       2.50             2.50
       Zaniemysl well.........................                             2001       2.50             2.50
       Lugi well..............................                             2001       2.50             1.23
       Seismic data...........................                          Various       3.50             3.50
                                                                                 -------------- ---------------
                                                                                    $18.50           $17.23
                                                                                 -------------- ---------------

    Apache Exploration Program(2).............      50%       47%
       Pomeranian well(4).....................                          2H 2000    $  3.50         $  --
       Warsaw West well.......................                          2H 2000       3.50            --
       Carpathian well(4).....................                             2001       3.80            --
       Seismic data...........................                          Various       6.30             0.15
                                                                                 -------------- ---------------
                                                                                    $17.10          $  0.15
                                                                                 -------------- ---------------

         Total................................                                      $63.24           $28.25
                                                                                 ============== ===============
</TABLE>

(1)  Assuming the current base rate royalty of 6%.

(2)  Capital expenditures in the Wilga project area include completion costs,
     which are included within facilities/pipeline costs. Capital expenditures
     in the Fences project area and the Apache Exploration Program do not
     include completion costs.

(3)  Effective June 22, 2000, Apache agreed to cover one-half of our share of
     costs to drill the Wilga 3 and Wilga 4 wells in exchange for a release of
     Apache's commitment to cover our share of costs for one exploratory well in
     Poland.

(4)  Our interests could be reduced to as low as a 331/3% working interest and a
     311/3% net revenue interest if POGC exercises its option to participate in
     these exploratory wells.

                                   Our Address

Our principal executive offices are located at 3006 Highland Drive, Suite 206,
Salt Lake City, Utah 84106, and our telephone number is (801) 486-5555.

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

                                       3
<PAGE>
--------------------------------------------------------------------------------

                                  The Offering

Common stock outstanding .....................................17,818,003 shares

Common stock to be offered by selling stockholders............2,969,000 shares

Nasdaq National Market symbol.................................FXEN

The number of outstanding shares shown above excludes an aggregate of 4,146,167
shares that may be issued on the exercise of options and warrants outstanding as
of June 27, 2000.









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

                                       4
<PAGE>
--------------------------------------------------------------------------------

                       Summary Consolidated Financial Data

The summary historical consolidated financial data for each of the three fiscal
years in the period ended December 31, 1999 are derived from our audited
consolidated financial statements, which are included in this prospectus. The
historical financial information for the three months ended March 31, 2000 and
1999 and as of March 31, 2000 was derived from our unaudited consolidated
financial statements, which also are included in this prospectus. The unaudited
adjusted balance sheet data have been adjusted only to reflect our sale in June
2000, of 2,969,000 shares of common stock to the selling stockholders at a price
of $3.50 per share from which we received net proceeds of $9.3 million ($10.4
million gross), but does not reflect any other changes to our financial
condition subsequent to March 31, 2000. All amounts are in thousands, except per
share amounts.
<TABLE>
<CAPTION>
                                                     Three Months Ended
                                                         March 31,                Years Ended December 31,
                                                  ------------------------- -------------------------------------
                                                     2000         1999         1999         1998         1997
                                                  ------------ ------------ ------------ ------------ -----------
Statement of Operations Data
Revenues:
<S>                                                  <C>         <C>           <C>        <C>            <C>
  Oil sales.......................................   $  597      $  234        $1,554     $  1,124       $2,040
  Drilling revenue................................       73          88           865          323          496
  Gain on sale of property interests..............       --          --            --          467          272
                                                  ------------ ------------ ------------ ------------ -----------
    Total revenues................................      670         322         2,419        1,914        2,808
                                                  ------------ ------------ ------------ ------------ -----------
Operating Costs and Expenses:
  Lease operating costs (1).......................      292         252           962        1,046        1,239
  Exploration costs (2)...........................      484         180         3,053        2,127        5,314
  Producing property impairment...................       --          --            --        5,885           --
  Drilling costs..................................       75          53           642          240          329
  Depreciation, depletion and amortization........       87         126           494          672          635
  General and administrative......................      597         536         2,962        2,572        2,566
                                                  ------------ ------------ ------------ ------------ -----------
    Total operating costs and expenses............    1,535       1,147         8,113       12,542       10,083
                                                  ------------ ------------ ------------ ------------ -----------

Operating loss....................................     (865)       (825)       (5,694)     (10,628)      (7,275)
                                                  ------------ ------------ ------------ ------------ -----------

Other income (expense):
  Interest and other income.......................      134         102           511          506          662
  Interest expense................................       --          --            (7)          --          (83)
  Impairment of notes receivable from officers....       (5)         --          (666)          --           --
                                                  ------------ ------------ ------------ ------------ -----------
    Total other income (expense)..................      129         102          (162)         506          579
                                                  ------------ ------------ ------------ ------------ -----------
Net loss before extraordinary gain................     (736)       (723)       (5,856)     (10,122)      (6,696)
  Extraordinary gain..............................       --          --            --           --        3,076
                                                  ------------ ------------ ------------ ------------ -----------
Net loss..........................................   $ (736)     $ (723)      $(5,856)    $(10,122)     $(3,620)
                                                  ============ ============ ============ ============ ===========

Basic and diluted net loss per share:
  Net loss before extraordinary gain..............    $(0.05)     $(0.06)     $  (0.41)  $    (0.78)    $ (0.53)
  Extraordinary gain..............................       --          --            --           --         0.24
                                                  ------------ ------------ ------------ ------------ -----------
    Net loss......................................    $(0.05)     $(0.06)     $  (0.41)  $    (0.78)    $ (0.29)
                                                  ============ ============ ============ ============ ===========
Basic and diluted weighted average shares
   outstanding....................................    14,849      13,055        14,199       12,979       12,597
                                                  ============ ============ ============ ============ ===========
<CAPTION>
                                                                                             March 31, 2000
                                                                                         -----------------------
                                                                                           Actual    As Adjusted
                                                                                         ----------- -----------
Balance Sheet Data:
<S>                                                                                        <C>        <C>
  Working capital......................................................................    $4,092     $13,392
  Total assets.........................................................................     9,433      18,733
  Long-term debt.......................................................................        --          --
  Stockholders' equity.................................................................    $7,601     $16,901
</TABLE>

(1)  Includes lease operating expenses and production taxes.

(2)  Includes geophysical and geological costs, exploratory dry hole costs and
     nonproducing leasehold impairments.
--------------------------------------------------------------------------------

                                       5
<PAGE>

                                  Risk Factors

An investment in our common stock involves significant risks. You should
carefully consider the following risk factors before you decide to buy our
common stock. You should also carefully read and consider all the information we
have included in this prospectus before you decide to buy our common stock.

Risks Relating to our Business

     Our success depends on our discovery of economic quantities of oil or gas
in Poland.

We do not currently have any oil or gas production in Poland and do not generate
sufficient revenues to cover our costs of operation. Our exploration program is
based on interpretations of geological and geophysical data. The factors listed
below, most of which are outside our control, may prevent us from establishing
commercial production or substantial reserves as a result of our exploration,
appraisal and development activities in Poland:

o    we cannot assure that any well will encounter oil or gas;

o    there is no way to know in advance of drilling and testing whether any
     prospect encountering oil or gas will yield oil or gas in sufficient
     quantities to cover drilling or completion costs or to be economically
     viable;

o    one or more appraisal wells are typically required to confirm the
     commercial potential of any oil or gas discovery;

o    we may continue to incur exploration costs in specific areas even if
     initial appraisal wells are plugged and abandoned or, if completed for
     production, do not result in production of commercial quantities; and

o    drilling operations may be curtailed, delayed or canceled as a result of
     numerous factors, including operating problems encountered during drilling,
     weather conditions, compliance with governmental requirements and shortages
     or delays in the delivery of equipment or availability of services.

We have committed to spend $16.0 million to earn an interest in the Fences
project area, which may require us to fulfill our commitment although initial
exploration may indicate that further exploration is not warranted.

     We have limited control over our exploration and development activities in
     Poland.

We rely to a significant extent on the expertise and financial capabilities of
our strategic partners, Apache and POGC. The failure of Apache or POGC to
perform its obligations under contracts with us would most likely have a
material adverse effect on us. In particular, we have prepared our exploration
budget through 2000 and into 2001, based on the funding to be provided by Apache
and, to a limited extent, POGC. In the future, we may become even more reliant
upon the expertise and financial capabilities of our strategic partners. Apache
has worldwide oil and gas interests outside of Poland in which we do not
participate. If Apache's separately-held interests should become more promising
to Apache than interests held with us in Poland, Apache may focus its efforts,
funds, expertise and other resources elsewhere. In addition, should our
relationship with Apache deteriorate or terminate, our oil and gas exploratory
programs in Poland may be delayed significantly. Although we have rights to
participate in exploration and development activities on some POGC controlled
acreage, we have no right to initiate such activities. Further, we have no
interest in the underlying agreements, licenses and grants from the Polish
agencies governing the exploration, exploitation, development or production of
acreage controlled by POGC. Thus, our program in Poland involving POGC
controlled acreage would be adversely affected if POGC should elect not to
pursue activities on such acreage, if the relationship between us, Apache or
POGC should deteriorate or terminate or if POGC or the government agencies
should fail to fulfill the requirements of or elect to terminate such
agreements, licenses or grants.

     We may not achieve the results anticipated in placing our current or future
     discoveries into production.

We may encounter delays in placing the Wilga project into production due to the
requirements to obtain rights-of-way for an approximately 18 kilometer pipeline
to connect to the POGC pipeline system, permits for construction of surface
facilities, equipment, installation and construction services and materials and
related

                                       6
<PAGE>

infrastructure components. We may also encounter similar delays regarding our
Kleka discovery in the Fences project area, which is approximately one kilometer
from a pipeline. In addition, our efforts to complete a gas purchase contract
with the transportation and storage division of POGC may also be delayed. Such
delays would correspondingly delay the commencement of cash flow from sales of
gas and may require us to obtain additional short-term financing pending
commencement of production. Further, we have designed the proposed surface
facilities and pipeline based on possible estimated results of additional
drilling. We cannot assure that additional drilling will establish additional
reserves or production that will provide an economic return for currently
planned expenditures for facilities. We may have to change our anticipated
expenditures if costs of placing a particular discovery into production are
higher, if the project is smaller or if the commencement of production takes
longer than expected.

     We cannot assure the exploration models we have developed in Poland will
     improve our chances of finding oil or gas in Poland.

We cannot assure the exploration models we, Apache and POGC have developed will
provide a useful or effective guide for selecting exploration prospects and
drilling targets. We will have to revise or replace these exploration models as
a guide to further exploration if ongoing drilling results do not confirm their
validity. These exploration models may be based on incomplete or unconfirmed
data and theories that have not been fully tested. The seismic data, other
technologies and the study of producing fields in the area do not enable us to
know conclusively prior to drilling that oil or gas will be present in
commercial quantities. We cannot assure that the analogies that we draw from
available data from other wells, more fully explored prospects or producing
fields will be applicable to our drilling prospects.

     We cannot accurately predict the size of exploration targets or foresee all
     related risks.

Notwithstanding the accumulation and study of 2-D and 3-D seismic data, drilling
logs, production information from established fields and other data, we cannot
predict accurately the oil or gas potential of individual prospects and drilling
targets or the related risks. Our predictions are only rough, preliminary
geological estimates of the forecasted volume and characteristics of possible
reservoirs and are not an estimate of reserves. In some cases, our estimates may
be based on a review of data from other exploration or producing fields in the
area that may not be similar to our exploration prospects. The oil or gas
potential of individual prospects can only be determined by several test wells
and long-term analysis of test data and history of any production.

     We have had limited exploratory success in Poland.

We have participated in drilling eleven exploratory wells in Poland, including
the Wilga 4, which is currently underway. To date, we have had two exploratory
successes; the Wilga 2 and the Kleka 11. We have completed drilling six
exploratory wells with Apache and POGC as partners under terms of the Apache
Exploration Program, five of which were exploratory dry holes and one of which,
the Wilga 2, was an exploratory success. We have drilled one exploratory well
with POGC as our partner in the Fences project area, the Kleka 11, which was an
exploratory success. We have also drilled two exploratory dry holes on the
Baltic project area and participated in an exploratory dry hole in the
Carpathian project area. In addition, we participated in testing and appraising
two shut-in gas wells in the Lachowice area in Poland that did not result in
commercial production.

     Privatization of POGC could affect our relationship and future
     opportunities in Poland.

Our activities in Poland have benefited from our relationship with POGC, which
has provided us with exploration acreage and data under our agreements. We and
Apache continue to seek new exploration, exploitation and acquisition
opportunities with POGC. The Polish government has commenced the privatization
of POGC by selling POGC's refining and storage assets and has stated its intent
to privatize POGC's exploration and production operations. Such privatization
may result in new policies, strategies or ownership that could adversely affect
our existing relationship and agreements as well as any availability of
opportunities with POGC in the future.

                                       7
<PAGE>

     Before we can commence production, we must construct infrastructure and
     enter into marketing arrangements.

We and our partners will need to complete production and transportation
facilities as well as marketing arrangements relating to oil or gas that may be
produced from our acreage in Poland. We currently do not have any agreements to
transport or market our production in Poland. Therefore, our wells may be
shut-in until we are able to complete production facilities and marketing
arrangements.

     We have a history of operating losses and may require additional capital in
     the future to fund our operations.

From our inception in January 1989 through March 31, 2000, we have incurred
cumulative net losses of $29.5 million. We expect that our exploration
activities will continue to result in losses and that our accumulated deficit
will increase. We anticipate that we will incur losses through 2000 and possibly
beyond, depending on whether our exploration, appraisal, development and
property acquisition activities in Poland result in sufficient production to
cover related operating expenses.

Until sufficient cash flow from operations can be obtained, we expect we will
need additional capital to fully fund our ongoing planned exploration,
appraisal, development and property acquisition programs in Poland. We have no
current arrangement for any such additional financing, but may seek required
funds from the issuance of debt and equity securities, project financing,
strategic alliances or other arrangements. Obtaining additional financing may
dilute the interest of our existing stockholders or our interest in the specific
project being financed. We cannot assure that additional funds could be obtained
or, if obtained, would be on terms favorable to us. In addition to planned
activities in Poland, we may require funds for general corporate purposes after
the end of 2000 if we do not have positive cash flow from operations.

     The loss of key personnel could have an adverse impact on our operations.

We rely on our officers and key employees and their expertise, particularly
David N. Pierce, President and Chief Executive Officer, Andrew W. Pierce,
Vice-President and Chief Operating Officer, and Jerzy B. Maciolek,
Vice-President of International Exploration, a Polish national who is
instrumental in assisting us in our operations in Poland. The loss of the
services of any of these individuals may materially and adversely affect us. We
have entered into employment agreements with Mr. David Pierce, Mr. Andrew
Pierce, Mr. Maciolek and other key executives. We do not maintain key man
insurance on any of our employees.

     Oil and gas price decreases and volatility could adversely affect our
     operations and our ability to obtain financing.

Oil and gas prices have been and are likely to continue to be volatile and
subject to wide fluctuations in response to the following factors:

   o changes in the supply of and demand for oil and gas;

   o market uncertainty;

   o political conditions in international oil and gas producing regions;

   o the extent of production and importation of oil and gas into existing or
     potential markets;

   o the level of consumer demand;

   o weather conditions affecting production, transportation and consumption;

   o the competitive position of oil or gas as a source of energy, as compared
     with coal, nuclear energy, hydroelectric power and other energy sources;

   o the availability, proximity and capacity of gathering systems, pipelines
     and processing facilities;

   o the refining capacity of prospective oil purchasers;

                                       8
<PAGE>

   o the effect of government regulation on the production, transportation and
     sale of oil and gas; and

   o other factors beyond our control.

We have not entered into any agreements to protect us from price fluctuations
and may not do so in the future.

     Our industry is subject to numerous operating risks. Insurance may not be
     adequate to protect us against all these risks.

Our oil and gas drilling and production operations are subject to hazards
incidental to the industry. These hazards include blowouts, cratering,
explosions, uncontrollable flows of oil, natural gas or well fluids, fires,
pollution, releases of toxic gas and other environmental hazards and risks.
These hazards can cause personal injury and loss of life, severe damage to and
destruction of property and equipment, pollution or environmental damage and
suspension of operations. To lessen the effects of these hazards, we maintain
insurance of various types to cover our domestic operations. We cannot assure
that the general liability insurance of $9.0 million carried by us or the $25.0
million carried by Apache, as the operator of the Apache Exploration Program,
can continue to be obtained on reasonable terms. POGC, as operator of the Fences
project area, is self-insured. The current level of insurance does not cover all
of the risks involved in oil and gas exploration, drilling and production. Where
additional insurance coverage does exist, the amount of coverage may not be
sufficient to pay the full amount of such liabilities. We may not be insured
against all losses or liabilities that may arise from all hazards because such
insurance is unavailable at economic rates, because of limitations on existing
insurance coverage or other factors. For example, we do not maintain insurance
against risks related to violations of environmental laws. We would be adversely
affected by a significant adverse event that is not fully covered by insurance.
Further, we cannot assure that we will be able to maintain adequate insurance in
the future at rates we consider reasonable.

Risks Relating to Conducting Business in Poland

     Polish laws, regulations and policies may be changed in ways that could
adversely impact our business.

Our oil and gas exploration, development and production activities in Poland are
and will be subject to ongoing uncertainties and risks, including:

   o possible changes in government personnel, the development of new
     administrative policies and practices and political conditions in Poland
     that may affect the administration of agreements with governmental agencies
     or enterprises;

   o possible changes to the laws, regulations and policies applicable to us and
     our partners or the oil and gas industry in Poland in general;

   o uncertainties as to whether the laws and regulations will be applicable in
     any particular circumstance;

  o  uncertainties as to whether we will be able to enforce our rights in
     Poland;

  o  uncertainty as to whether we will be able to demonstrate, to the
     satisfaction of the Polish authorities, our, Apache's and POGC's compliance
     with governmental requirements respecting exploration expenditures, results
     of exploration, environmental protection matters and other factors;

  o  the inability to recover previous payments to the Polish government made
     under the exploration rights or any other costs incurred respecting those
     rights if we were to lose or cancel our exploration and exploitation rights
     at any time;

  o  political instability and possible changes in government;

  o  export and transportation tariffs;

  o  local and national tax requirements; and

  o  expropriation or nationalization of private enterprises and other risks
     arising out of foreign government sovereignty over our acreage in Poland.

                                       9
<PAGE>

Poland has a developing regulatory regime governing exploration and development,
production, marketing, transportation and storage of oil and gas. These
provisions were recently promulgated and are relatively untested. Therefore,
there is little or no administrative or enforcement history or established
practice that can aid us in evaluating how the regulatory regime will affect our
operations. It is possible that such governmental policies will change or that
new laws and regulations, administrative practices or policies or
interpretations of existing laws and regulations will materially and adversely
affect our activities in Poland. For example, Poland's laws, policies and
procedures may be changed to conform to the minimum requirements that must be
met before Poland is admitted as a full member of the European Union.

     Our oil and gas operations are subject to rapidly changing environmental
     laws and regulations that could negatively impact our operations.

Operations on our project areas are subject to environmental laws and
regulations in Poland that provide for restrictions and prohibitions on spills,
releases or emissions of various substances produced in association with oil and
gas exploration and development. Additionally, if significant quantities of gas
are produced with oil, regulations prohibiting the flaring of gas may inhibit
oil production. In such circumstances, the absence of a gas gathering and
delivering system may restrict production or may require significant
expenditures to develop such a system prior to producing oil and gas. We may be
required to prepare and obtain approval of environmental impact assessments by
governmental authorities in Poland prior to commencing oil or gas production,
transportation and processing functions.

We and our partners cannot assure that we have complied with all applicable laws
and regulations in drilling wells, acquiring seismic data or completing other
activities in Poland to date. More restrictive regulations or administrative
policies or practices may be adopted by the Polish government. The cost of
compliance with current regulations or any changes in environmental regulations
could require significant expenditures. Further, breaches of such regulations
may result in the imposition of fines and penalties, any of which may be
material. These environmental costs could have a material adverse effect on our
financial condition or results of operations in the future.

     Certain risks of loss arise from our need to conduct transactions in
     foreign currency.

The amounts in our agreements relating to our activities in Poland are normally
expressed and payable in United States dollars or equivalent Polish zlotys.
Conversions between United States dollars and Polish zlotys are made on the date
amounts are paid or received. In the future, our financial results and cash
flows in Poland may be affected by fluctuations in exchange rates between the
Polish zloty and the United States dollar. We have not hedged our foreign
currency activities in the past and have no future plans to do so. Currencies
used by us may not be convertible at satisfactory rates. In addition, the
official conversion rates between United States and Polish currencies may not
accurately reflect the relative value of goods and services available or
required in Poland. Further, inflation may lead to the devaluation of the Polish
zloty.

Under the Foreign Exchange Law, prior to making transfers of nonresident income
(such as dividends, interest, rent) abroad, a bank generally must be furnished
with documents evidencing title for the payment, as well as with a certificate
issued by the Polish tax authorities confirming the expiration of tax liability
in Poland or a foreign exchange permit releasing the transferor from this
obligation. If the income to be transferred is not subject to taxation in
Poland, a written declaration to this effect may be sufficient.

Given that the Foreign Exchange Law has come into effect recently and no
detailed rules and regulations under it have been issued to date by the Polish
authorities, the interpretation of the law's provisions will remain in the near
term subject to considerable uncertainty.

                                       10
<PAGE>

Risks Related to an Investment in our Common Stock

     Our stockholder rights plan and bylaws discourage unsolicited takeover
     proposals and could prevent you from realizing a premium for your common
     stock.

We have a stockholder rights plan that may have the effect of discouraging
unsolicited takeover proposals. The rights issued under the stockholder rights
plan would cause substantial dilution to a person or group that attempts to
acquire us on terms not approved in advance by our board of directors. In
addition, our articles of incorporation and bylaws contain provisions that may
discourage unsolicited takeover proposals that stockholders may consider to be
in their best interests that include:

   o provisions that members of the board of directors are elected and retire in
     rotation; and

   o the ability of the board of directors to designate the terms of, and to
     issue new series of, preferred shares.

Together, these provisions and our stockholder rights plan may discourage
transactions that otherwise could involve payment to you of a premium over
prevailing market prices for your common shares.

     Our common stock price has been extremely volatile and may continue to be.

Our common stock has traded as low as $3.87 and as high as $13.37 between
January 1, 1998 and June 27, 2000. Some of the factors leading to this
volatility include:

   o the outcome of individual wells or the timing of exploration efforts in
     Poland, as evidenced by significant price declines following the
     announcement of exploratory dry holes in Poland and the significant price
     and volume volatility following the announcement of our first successful
     exploratory well in Poland;

   o the results of other operations in which we have an interest in Poland;

   o the potential sale by us of newly issued common stock to raise capital or
     by existing stockholders of restricted securities;

   o price and volume fluctuations in the general securities markets that are
     unrelated to our results of operations;

   o the investment community's view of companies with assets and operations
     outside the United States in general and in Poland in particular;

   o actions or announcements by Apache and POGC that may affect us;

   o prevailing world prices for oil and gas;

   o the potential of our current and planned activities in Poland; and

   o changes in stock market analysts' recommendations respecting us, other oil
     and gas companies or the oil and gas industry in general.

We may encounter additional exploration failures in Poland that will adversely
affect the trading prices for our common stock.

                                       11
<PAGE>

                           Forward-Looking Statements

This prospectus contains statements about the future, sometimes referred to as
"forward-looking" statements. Forward-looking statements are typically
identified by the use of the words "believe," "may," "will," "should," "expect,"
"anticipate," "estimate," "project," "propose," "plan," "intend" and similar
words and expressions. Statements that describe our future strategic plans,
goals or objectives are also forward-looking statements. Any forward-looking
statements, including those regarding our or our management's current beliefs,
expectations, anticipations, estimations, projections, proposals, plans or
intentions, are not guarantees of future performance or results or events and
involve risks and uncertainties, such as those discussed in this prospectus.

The forward-looking statements are based on present circumstances and on our
predictions respecting events that have not occurred, that may not occur or that
may occur with different consequences and timing than those now assumed or
anticipated. Actual events or results may differ materially from those discussed
in the forward-looking statements as a result of various factors, including the
risk factors discussed in this prospectus. These cautionary statements are
intended to be applicable to all related forward-looking statements wherever
they appear in this prospectus. Any forward-looking statements are made only as
of the date of this prospectus, and we assume no obligation to update
forward-looking statements to reflect subsequent events or circumstances. We
intend any forward-looking statements to be covered by the safe harbor
provisions contained in Section 27A of the Securities Act and Section 21E of the
Exchange Act.

                                       12
<PAGE>

                 Price Range of Common Stock and Dividend Policy

The following table sets forth for the periods indicated the high and low
closing prices for our common stock as quoted under the symbol "FXEN" on the
Nasdaq National Market:

                                                      High          Low
                                                   -----------    ---------
1998:
  First Quarter....................................   $10.50         $6.25
  Second Quarter...................................    12.81          8.25
  Third Quarter....................................     9.50          5.63
  Fourth Quarter...................................    10.13          6.50

1999:
  First Quarter....................................   $ 9.75         $4.00
  Second Quarter...................................     7.00          4.13
  Third Quarter....................................     9.43          6.31
  Fourth Quarter...................................     7.00          4.00

2000:
  First Quarter....................................   $ 9.13         $4.66
  Second Quarter (through June 27).................     8.31          4.44

On June 27, 2000, the closing price per share of our common stock on the Nasdaq
National Market was $5.375. As of June 27, 2000, there were approximately 4,200
beneficial owners of our common stock.

We have never paid cash dividends on our common stock and do not anticipate that
we will pay dividends in the foreseeable future. We intend to reinvest any
future earnings to further expand our business.

                              No Net Proceeds to Us

We will receive no proceeds from the sale of stock by the selling stockholders.

                                       13
<PAGE>

                                 Capitalization

The following table sets forth as of March 31, 2000, our historical
capitalization, as adjusted to reflect the subsequent sale of 2,969,000 shares
to the selling stockholders in June 2000 for net proceeds of approximately $9.3
million ($10.4 million gross), but not adjusted to reflect any other changes to
our financial condition since that date.

This information should be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
                                                                                       March 31, 2000
                                                                                 ---------------------------
                                                                                    Actual       As adjusted
                                                                                 --------------  -----------
                                                                                 (Unaudited, in thousands)

<S>                                                                             <C>              <C>
Long-term debt..................................................................         --            --

Stockholders' equity
   Common stock, $.001 par value, 30,000,000 shares authorized.  Issued and
   outstanding: 14,849,003 shares as of March 31, 2000 and 17,818,003 as
   adjusted..................................................................... $        15     $      18
   Notes receivable from officers...............................................     (1,400)        (1,400)
   Additional paid-in capital...................................................     38,481         47,778
   Accumulated deficit..........................................................    (29,495)       (29,495)
                                                                                 --------------  -----------
      Total stockholders' equity................................................      7,601         16,901
                                                                                 --------------  -----------
      Total capitalization......................................................  $   7,601        $16,901
                                                                                 ==============  ===========
</TABLE>

The number of outstanding shares shown above excludes an aggregate of 4,146,167
shares that may be issued on the exercise of options and warrants outstanding as
of March 31, 2000.

                                       14
<PAGE>

                                    Dilution

Our net tangible book value on March 31, 2000, as adjusted to reflect the
subsequent sale of 2,969,000 shares for net proceeds of approximately $9.3
million, but not adjusted to reflect any other changes in our financial
condition since that date, was approximately $16.9 million or $0.95 per share.
"Net tangible book value" is total assets minus the sum of liabilities and
intangible assets. "Net tangible book value per share" is net tangible book
value divided by the total number of shares outstanding before the offering.

The following table illustrates the dilution, or the difference between the
offering price per share, assuming an offering price equivalent to the trading
price on June 27, 2000, and the adjusted net tangible book value per share on
March 31, 2000.
<TABLE>
<CAPTION>
    <S>                                                                                                       <C>
     Trading price on June 27, 2000................................................................            $5.38
     Net tangible book value per share as of March 31, 2000, as adjusted to reflect subsequent
         sale of 2,969,000 shares..................................................................             0.95
                                                                                                            ----------
     Dilution per share to purchasers in this offering.............................................            $4.43
                                                                                                            ==========
</TABLE>

                                       15
<PAGE>

                      Selected Consolidated Financial Data

The following consolidated financial data for each of the five fiscal years in
the period ended December 31, 1999, are derived from our audited consolidated
financial statements and related notes thereto, certain of which are included in
this prospectus. The historical financial information for the three months ended
March 31, 2000 and 1999, and as of March 31, 2000, was derived from our
unaudited consolidated financial statements, which also are included in this
prospectus. All amounts are in thousands, except per share amounts.
<TABLE>
<CAPTION>

                                         Three Months Ended
                                              March 31,                  Years Ended December 31,
                                        --------------------- ------------------------------------------------------
                                          2000       1999        1999       1998       1997       1996      1995
------------------------------------------------------------- ------------------------------------------------------
Statement of Operations Data

Revenues:
<S>                                     <C>        <C>        <C>        <C>        <C>        <C>        <C>
  Oil sales...........................  $    597   $    234   $  1,554   $  1,124   $   2,040  $   2,346  $   1,981
  Drilling revenue....................        73         88        865        323        496         75        111
  Gain on sale of property interests..        --         --         --        467        272         --         75
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------
    Total revenues....................       670        322      2,419      1,914      2,808      2,421      2,167
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Costs and Expenses:
  Lease operating costs (1)...........       292        252        962      1,046      1,239      1,225      1,272
  Exploration costs (2)...............       484        180      3,053      2,127      5,314      3,716        862
  Producing property impairment.......        --         --         --      5,885         --         --         --
  Drilling costs......................        75         53        642        240        329        154        141
  Depreciation, depletion and
    amortization......................        87        126        494        672        635        558        503
  General and administrative..........       597        536      2,962      2,572      2,566      1,715      1,466
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------
    Total operating costs and expenses     1,535      1,147      8,113     12,542     10,083      7,368      4,244
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------

Operating loss........................      (865)      (825)    (5,694)   (10,628)    (7,275)    (4,947)    (2,077)
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------

Other income (expense):
  Interest and other income...........       134        102        511        506        662        370         98
  Interest expense....................        --         --         (7)        --        (83)      (333)      (448)
  Impairment of notes receivable from
    officers..........................        (5)        --       (666)        --         --         --         --
  Minority interest: noncash
    dividends (3).....................        --         --         --         --         --         --        (93)
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------
    Total other income (expense)......       129        102       (162)       506        579         37       (443)
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss before extraordinary gain....      (736)      (723)    (5,856)   (10,122)    (6,696)    (4,910)    (2,520)
  Extraordinary gain..................        --         --         --         --      3,076         --         --
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------

Net loss..............................  $   (736)  $   (723)  $ (5,856)  $(10,122)  $ (3,620)  $ (4,910)  $ (2,520)
                                        ========== ========== ========== ========== ========== ========== ==========


Basic and diluted net loss per share:
  Net loss before extraordinary gain..   $  (0.05) $   (0.06) $   (0.41) $   (0.78) $  (0.53)  $  (0.49)  $  (0.47)
  Extraordinary gain..................        --         --         --         --       0.24         --         --
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------
    Net loss:.........................   $  (0.05) $   (0.06) $   (0.41) $   (0.78) $  (0.29)  $  (0.49)  $  (0.47)
                                        ========== ========== ========== ========== ========== ========== ==========

Basic and diluted weighted average
 shares outstanding:..................    14,849     13,055     14,199     12,979     12,597     10,018      5,389
                                        ========== ========== ========== ========== ========== ========== ==========

                                       16
<PAGE>
<CAPTION>
                                           Three Months Ended
                                               March 31,                      Years Ended December 31,
                                          --------------------- ------------------------------------------------------
                                            2000       1999       1999       1998       1997       1996       1995
                                          ---------- ---------- ---------- ---------- ---------- ---------- ----------
Cash Flow Statement Data
<S>                                     <C>        <C>        <C>        <C>        <C>        <C>        <C>
Net cash used in operating activities...   $(1,008)     $(720)   $(3,745)   $(3,109)    $(5,881)  $(3,651)  $ (1,030)
Net cash provided by (used in) investing
    activities..........................     2,643        (54)    (2,916)     1,083         368    (7,005)    (1,489)
Net cash provided by (used in) financing
    activities..........................        --         --      6,469       (674)      1,679    18,259      2,974

<CAPTION>
                                                                                 As of December 31,
                                                                ------------------------------------------------------
                                          As of March 31, 2000    1999       1998       1997       1996       1995
                                          --------------------- ---------- ---------- ---------- ---------- ----------
Balance Sheet Data (Actual)
<S>                                             <C>            <C>        <C>        <C>        <C>        <C>
    Working capital (deficit)...........         $4,092         $  5,459    $ 3,965    $  8,494  $ 13,843   $   (278)
    Total assets........................          9,433           10,470      8,253      18,555     2,294     10,039
    Long-term debt......................             --               --         --          --     1,500      3,359
    Stockholders' equity................          7,601            8,367      6,920      17,612    20,908      5,224
</TABLE>


(1)  Includes lease operating expenses and production taxes.
(2)  Includes geophysical and geological costs, exploratory dry hole costs and
     nonproducing leasehold impairments.
(3)  Noncash dividend on FX Producing convertible preferred stock.

                                       17
<PAGE>

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

You should read the following discussion and analysis in conjunction with our
consolidated financial statements included in this prospectus. The following
information contains forward-looking statements. See "Forward-Looking
Statements." Our activities are subject to significant risks. See "Risk
Factors."

Overview

We are an independent energy company engaged in the exploration, development and
production of oil and gas from properties located primarily in the Republic of
Poland. However, to date, all of our revenue from oil and gas production has
been from our United States producing properties. In the western United States,
we produce oil from fields in Montana and Nevada and have a drilling and well
servicing company in northern Montana and oil and gas exploration prospects in
several western states.

We conduct substantially all of our exploration and development activities in
Poland jointly with others and, accordingly, recorded amounts for our activities
in Poland reflect only our proportionate interest in these activities.

Our results of operations may vary significantly from year to year based on the
factors discussed in "Risk Factors" above and on other factors such as our
exploratory and development drilling success. Therefore, the results of any one
year may not be indicative of future results.

We follow the successful efforts method of accounting for our oil and gas
properties. Under this method of accounting, all property acquisition costs and
costs of exploratory and development wells are capitalized when incurred,
pending determination of whether the well has found proved reserves. If an
exploratory well has not found proved reserves, these costs plus the costs of
drilling the well are expensed. The costs of development wells are capitalized,
whether productive or nonproductive. Geological and geophysical costs on
exploratory prospects and the costs of carrying and retaining unproved
properties are expensed as incurred. An impairment allowance is provided to the
extent that capitalized costs of unproved properties, on a property-by-property
basis, are considered not to be realizable. An impairment loss is recorded if
the net capitalized costs of proved oil and gas properties exceed the aggregate
undiscounted future net revenues determined on a property-by-property basis. The
impairment loss recognized equals the excess of net capitalized costs over the
related fair value, determined on a property-by-property basis. As a result of
the foregoing, our results of operations for any particular period may not be
indicative of the results that could be expected over longer periods.

We have reviewed all recently issued, but not yet adopted, accounting standards
in order to determine their effects, if any, on our results of operations or
financial position. Based on that review, we believe that none of these
pronouncements will have a significant effect on current or future earnings or
operations.

Results of Operations by Business Segment

We operate within two segments of the oil and gas industry: exploration and
production and contract servicing. Depreciation, depletion and amortization
costs directly associated with the exploration and production and contract
servicing segments are detailed within the following discussion. General and
administrative costs, interest income, other income, interest expense and
officer loan impairment are not allocated to individual operating segments for
management or segment reporting purposes and are discussed in their entirety
following the segment discussion.

                                       18
<PAGE>

     Three months ended March 31, 2000 compared to the three months ended March
     31, 1999

         Exploration and Production Segment

Oil Revenues. Oil revenues were $597,000 during the first quarter of 2000, an
increase of $363,000, as compared to $234,000 during the same period of 1999.
During the first quarter of 2000, our oil revenues were positively affected by
higher oil prices and negatively affected by lower production rates attributable
to the natural production declines of our producing properties. During the first
quarter of 1999, our oil revenues were adversely affected by depressed oil
prices and lower production rates attributable to the natural production
declines of our producing properties. A summary of the percentage change in oil
revenues, average oil price and oil production for first quarter of 2000 and
1999, as compared to their respective prior year's period, is set forth on the
following table:
<TABLE>
<CAPTION>
                                                                                     Quarter ended March 31,
                                                                              --------------------------------------
                                                                                    2000                1999
                                                                              ------------------  ------------------
<S>                                                                                <C>                 <C>
Oil revenues...............................................................        $597,000            $234,000
  Percent change versus prior year's quarter...............................           +155%                -30%

Average oil price..........................................................         $ 24.94              $ 8.80
  Percent change versus prior year's quarter...............................           +184%                -22%

Production volumes (Bbls)..................................................          23,924              26,572
  Percent change versus prior year's quarter...............................            -10%                -10%
</TABLE>

Lease Operating Costs. Our lease operating costs are composed of normal
recurring lease operating expenses and production taxes. Lease operating costs
were $292,000 during the first quarter of 2000, an increase of $42,000, as
compared to $250,000 during the same period of 1999.

Lease operating expense was $285,000 during the first quarter of 2000, an
increase of $49,000, as compared to $236,000 during the same period of 1999.
During the first quarter of 2000, we increased our lease operating expense to
cover various repair and maintenance items that were previously deferred due to
low oil prices. As a result, lifting costs were $11.91 per barrel during the
first quarter of 2000, an increase of $3.03, as compared to $8.88 during the
first quarter of 1999. During the first quarter of 1999, we reduced our lease
operating expense by redesigning the pattern of injecting fluids into the Cut
Bank Sand Unit, our principal producing property, and deferred major repairs and
maintenance items due to depressed oil prices.

Production taxes were $7,000 during the first quarter of 2000, a decrease of
$7,000, as compared to $14,000 during the same period of 1999. Production taxes
averaged approximately 1.2% and 6.1% of oil revenues during the first quarters
of 2000 and 1999, respectively. During late 1999, the state of Montana
substantially reduced the production tax rate for stripper wells, which in turn
resulted in substantially less production taxes for the first quarter of 2000,
as compared to the same period of 1999.

Depreciation, Depletion and Amortization Expense - Exploration and Production.
Depreciation, depletion and amortization expense for producing properties was
$16,000 for the first quarter of 2000, an increase of $2,000, as compared to
$14,000 during the same period of 1999. The depreciation, depletion and
amortization expense rate per barrel for the first quarter of 2000 was $0.67, an
increase of $0.14, as compared to $0.53 during the same period of 1999. We
utilize the units-of-production method to calculate our depreciation, depletion
and amortization expense for producing properties. As such, the depreciation,
depletion and amortization expense rate may vary year to year based on net
capitalized costs and the volumes of reserves reported in the current year's
reserve report, as compared to the prior year. The reserve report as of December
31, 1999 reflected proved reserves of 1.1 million barrels of oil, 0.4 million
barrels less than the 1.5 million barrels of oil reported as of December 31,
1998.

Exploration Costs. Our exploration costs consist of geological and geophysical
costs, exploratory dry holes and nonproducing leasehold impairments. Exploration
costs were $484,000 during the first quarter of 2000, an increase of $304,000,
as compared to $180,000 during the same period of 1999.

                                       19
<PAGE>

Geological and geophysical costs were $484,000 during the first quarter of 2000,
an increase of $304,000, as compared to $180,000 during the same period of 1999.
During the first quarter of 2000, we spent $162,000 reprocessing seismic data on
the Pomeranian project area, $108,000 reprocessing seismic data on the Warsaw
West project area, $74,000 for travel and related expenses and $140,000 on other
geological and geophysical activities. During the first quarter of 1999,
geological and geophysical costs were comprised primarily of $75,000 for the
Polish Lowlands Study, $65,000 for travel and related expenses and $40,000 for
other geological and geophysical activities. Geological and geophysical costs
will continue to fluctuate from period to period, based on our level of
exploratory activity in Poland and the respective cost participation percentage
of our industry partners.

We had no exploratory dry hole costs during the first quarters of 2000 and 1999.
During late 1998, we participated in drilling two exploratory dry holes, the
Czernic 277-2 and the Poniatowa 317-1, on the Lublin Basin project area in
Poland, both of which were subsequently determined to be exploratory dry holes
during February 1999. The Czernic 277-2 and the Poniatowa 317-1 were each
counted as exploratory wells under the Apache Exploration Program. As such,
Apache covered all of our pro rata share of costs for each well.

There were no nonproducing leasehold impairments during the first quarters of
2000 and 1999. As of March 31, 2000, we had capitalized unproved property costs
of $1.399 million, including $692,000 domestically and $707,000 in Poland. In
accordance with generally accepted accounting principles, an impairment charge
will be recognized, determined on a property-by-property basis, in the event we
determine any capitalized unproved property costs are not recoverable following
unsuccessful exploratory drilling or other factors. Nonproducing leasehold
impairments will continue to vary from period to period based on our
determination that capitalized costs of unproved properties, on a
property-by-property basis, are not realizable.

     Contract Servicing Segment

Contract Servicing Revenues. We had contract servicing revenues of $74,000
during the first quarter of 2000, a decrease of $14,000, as compared to $88,000
for the first quarter of 1999. During the first quarters of 2000 and 1999, our
drilling rig was idle, and all revenues were generated by our well servicing
equipment. Contract servicing revenue will continue to fluctuate from period to
period based on whether our drilling rig is active, the degree of emphasis on
utilizing equipment on our own properties, the number of wells drilled, the
amount of retained working interest, if any, and other factors.

Contract Servicing Costs. Contract servicing costs were $75,000 during the first
quarter of 2000, an increase of $22,000, as compared to $53,000 for the same
period of 1999. During the first quarter of 2000, our well and servicing
equipment generated a gross profit of 25% on direct costs of $55,000 and
incurred downtime maintenance costs of $20,000 associated with our drilling rig.
During the first quarter of 1999, our well and servicing equipment generated a
gross profit of 39% on direct costs of $53,000, and the drilling rig was idle.
Contract servicing costs will continue to fluctuate from period to period based
on whether our drilling rig is active, the degree of emphasis on utilizing
equipment on our own properties, the number of wells drilled, the amount of
retained working interest, if any, and other factors.

Depreciation, Depletion and Amortization Expense - Contract Servicing.
Depreciation, depletion and amortization expense for contract servicing was
$51,000 during the first quarter of 2000, a decrease of $30,000, as compared to
$81,000 during the same period of 1999. Depreciation, depletion and amortization
expense for contract servicing was lower during the first quarter of 2000, as
compared to the same quarter of 1999, due to capital items being depreciated in
the first quarter of 1999 subsequently becoming fully depreciated prior to the
first quarter of 2000.

     Nonsegmented Information

Depreciation, Depletion and Amortization Expense - Corporate. Depreciation,
depletion and amortization expense for corporate activities was $20,000 during
the first quarter of 2000, a decrease of $11,000, as compared to $31,000 during
the same period of 1999. Depreciation, depletion and amortization expense for
corporate activities was lower during the first quarter of 2000, as compared to
the same quarter of 1999, due to capital items being depreciated in the first
quarter of 1999 subsequently becoming fully depreciated prior to the first
quarter of 2000.

                                       20
<PAGE>

General and Administrative Costs. General and administrative costs were $597,000
during the first quarter of 2000, an increase of $61,000, as compared to
$536,000 for the same period of 1999. During the first quarter of 2000, we
incurred substantially more travel and other associated costs, as compared to
the same period of 1999. General and administrative costs are expected to be
higher in future periods as we begin to pay for part of our pro rata share of
Apache's general and administrative costs in Poland beginning in July 2000.

Interest and Other Income. Interest and other income was $134,000 during the
first quarter of 2000, an increase of $32,000, as compared to $102,000 during
the same period of 1999. Our cash and marketable debt securities balance was
$5.346 million as of March 31, 2000, $1.499 million more than the balance of
$3.847 million as of March 31, 1999. As a result of higher average cash and
marketable debt securities balances during the first quarter of 2000, as
compared to the same period of 1999, we earned $126,000 of interest income
during the first quarter of 2000, an increase of $34,000, as compared to $92,000
for the same period of 1999.

Officer Loan Impairment. Officer loan impairment was $5,000 for the quarter
ended March 31, 2000, as compared to no officer loan impairment for the same
period of 1999. In accordance with Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan," we recorded an
additional impairment allowance of $5,000 for the quarter ended March 31, 2000.
The notes receivable from officers totaled $1.4 million as of March 31, 2000,
including principal and interest of $2.07 million, reduced by an impairment
allowance of $670,000. The notes receivable from officers are collateralized by
233,340 shares of our common stock. The impairment allowance will continue to be
adjusted quarterly based on the market value of the collateral shares.

     Comparison of years ended December 31, 1999, 1998 and 1997

         Exploration and Production Segment

Oil Revenues. Oil revenues were $1.554 million, $1.124 million and $2.04 million
for the years ended December 31, 1999, 1998 and 1997, respectively. During these
three years, our oil revenues fluctuated primarily due to volatile oil prices.
Our oil revenues during three years were also negatively affected by lower
production rates attributable to the natural production declines of our
producing properties and the increased utilization of our well servicing
equipment on third-party properties rather than our own properties during 1998
and 1999. A summary of the percentage change in oil revenues, average oil price
and oil production for 1999, 1998 and 1997, as compared to their respective
prior year, is set forth on the following table:
<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                             ------------------------------------------------------
                                                                   1999              1998               1997
                                                             ----------------- -----------------  -----------------
<S>                                                             <C>               <C>                <C>
Oil revenues.................................................   $1,554,000        $1,124,000         $2,040,000
  Percent change versus prior year...........................      +38.26%           -44.90%            -13.04%

Average oil price............................................     $  15.35           $  9.78           $  16.16
  Percent change versus prior year...........................      +56.95%           -39.48%            -10.42%

Production volumes (Bbls)....................................      101,275           114,909            126,271
  Percent change versus prior year...........................      -11.87%            -9.00%             -2.88%
</TABLE>

Gain on Sale of Property Interests. There was no gain on sale of property
interests for the year ended December 31, 1999. We recognized a gain on sale of
property interests of $467,000 and $272,000 for the years ended December 31,
1998 and 1997, respectively. During 1998, Apache paid us $500,000 in initial
cash consideration relating to our participation in the Carpathian project area,
which was offset by $33,000 of associated costs. During 1997, we received
$450,000 from Apache in initial cash consideration relating to our participation
in the Lublin Basin project area, which was offset by $344,000 of associated
costs and $95,000 from the purchase of Lubex Petroleum Company, a wholly-owned
Polish exploration subsidiary. The 1997 gain on sale of property interests also
includes $71,000 relating to our mining operations, which are excluded from the
discussion of the results of operations by business segment. The amount of gain
on sale of property interests will continue to vary from year to year, depending
on the timing of completed deals and the amount of up-front cash consideration,
if any.

                                       21
<PAGE>

Lease Operating Costs. Lease operating costs were $962,000, $1.046 million and
$1.239 million for the years ended December 31, 1999, 1998 and 1997,
respectively, or $9.50, $9.11 and $9.82, respectively, per barrel.

Lease operating expenses were $899,000, $966,000 and $1.094 million for the
years ended December 31, 1999, 1998 and 1997, respectively. During these years,
we performed only routine maintenance on our producing properties and deferred
workovers in an effort to control operating costs. Lifting costs per barrel
(exclusive of production taxes) were relatively flat during 1999, 1998 and 1997,
amounting to $8.88, $8.41 and $8.66 per barrel, respectively.

Production taxes were $63,000, $80,000 and $145,000 for the years ended December
31, 1999, 1998 and 1997, respectively. During 1999, production taxes decreased
to an average of approximately 4.1% of annual oil revenues, as compared to 7.0%
during 1998 and 1997, primarily due to a reduction in the production tax rate on
stripper wells by the state of Montana. The decrease in the amount of production
taxes from year to year is also directly associated with the fluctuation of oil
prices and decreased oil production from year to year. Refer to the table in
"Exploration and Production Segment- Oil Revenues" for the percentage
fluctuations in the average oil price and oil production for 1999, 1998 and
1997.

Depreciation, Depletion and Amortization Expense - Producing Operations.
Depreciation, depletion and amortization expenses for producing properties were
$51,000, $231,000 and $261,000 for the years ended December 31, 1999, 1998 and
1997, respectively. The depreciation, depletion and amortization expense rate
per barrel was $0.50 during 1999, a decrease of $1.51, as compared to 1998. The
decrease is directly attributable to the $5,885,000 write down of our domestic
proved developed oil and gas properties during 1998, which resulted in a
substantially lower depreciable property basis during 1999. The depreciation,
depletion and amortization expense rate per barrel was relatively constant at
$2.01 and $2.07 for 1998 and 1997, respectively.

Domestic Proved Property Impairment. There were no proved domestic proved
property impairments for the years ended December 31, 1999 or 1997. For the year
ended December 31, 1998, we incurred a domestic proved developed property
impairment of $5.885 million due to low oil prices and our decision to focus our
resources on Poland. As of December 31, 1998, our PV-10 value for our domestic
proved properties was approximately $472,000, consisting solely of proved
developed reserves. In accordance with generally accepted accounting principles,
we recorded total impairment expense of $5.885 million for the year ended
December 31, 1998, which represented the difference between the net book value
of our domestic proved developed properties and the related fair value,
determined on a property-by property basis, as of December 31, 1998.

Exploration Costs. Exploration costs were $3.053 million, $2.127 million and
$5.314 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Geological and geophysical costs of $31,000 and $29,000 incurred
during the years ended December 31, 1999 and 1998, respectively, relate to gold
exploration in Poland, which management does not consider to be a material
business segment. Accordingly, gold exploration is excluded from the following
discussion.

Geological and geophysical costs were $1.928 million, $2.08 million and $1.684
million during the years ended December 31, 1999, 1998 and 1997, respectively.
During 1999, we spent approximately $310,000 reprocessing seismic data on the
Pomeranian and Warsaw West project areas, granted stock options valued at
approximately $119,000 to a Polish consultant and spent approximately $374,000
evaluating potential property acquisitions from POGC. During 1998, we incurred
approximately $400,000 of cost relating to our share of the Lublin Basin project
area seismic acquisition program with Apache and $75,000 relating to a
geological and geophysical study. During 1997, we completed a seismic survey on
Wola, a POGC Concession in the Carpathian project area, costing $210,000. From
January 1, 1997 through December 31, 1999, we spent an average amount of
approximately $1.402 million annually relating to reprocessing 2-D seismic data
and the wages and associated expenses for employees and consultants directly
engaged in geological and geophysical activities. Geological and geophysical
costs are expected to continue at current or higher levels as we increase our
exploratory efforts in Poland and continue to spend a limited amount on our
exploratory acreage in the western United States.

                                       22
<PAGE>

Exploratory dry hole costs were $1.001 million, $17,000 and $3.478 million for
the years ended December 31, 1999, 1998 and 1997, respectively. During 1999, we
participated in drilling three exploratory dry holes in Poland. Two of these
wells were exploratory wells under the Apache Exploration Program. As such,
Apache covered all of our pro rata share of costs for these wells. We retained
and paid for a 5% interest in the Andrychow 6 well, an exploratory dry hole on
the Carpathian project area of southern Poland, which cost $99,000. On the
Lachowice Farm-in, we spent $869,000 to recomplete one well and test another.
Also, during 1999, we spent $33,000 associated with an exploratory dry hole
drilled during 1997. During 1998, we participated in drilling two exploratory
dry holes in Poland on the Lublin Basin project area. Both wells were plugged
and abandoned during the first quarter of 1999 and counted as exploratory wells
under the Apache Exploration Program. As such, Apache covered all of our pro
rata share of costs for each well. All of the exploratory dry hole costs
recorded during 1998 were associated with wells drilled prior to 1998. During
1997, we drilled four exploratory dry holes; two in Poland and two in the
western United States. In Poland, we drilled two wells in the Baltic project
area, both of which were exploratory dry holes, at a cost of $3.096 million. In
the western United States, we drilled one well in central Montana at a cost of
$222,000 and one in Nevada at a cost of $160,000.

Nonproducing leasehold impairments were $93,000 and $152,000 for the years ended
December 31, 1999 and 1997. There were no nonproducing leasehold impairments
during the year ended December 31, 1998. During 1999, we wrote off $72,000
relating to the Lachowice Farm-in and $21,000 pertaining to a prospect in
Nevada. During 1997, we wrote off $45,000 relating to a prospect in central
Montana, $78,000 relating to a prospect in Nevada and $29,000 relating to a
prospect in Wyoming. Nonproducing leasehold impairments will vary from period to
period based on our determination that capitalized costs of unproved properties,
on a property-by property basis, are not realizable.

Extraordinary Gain - Baltic Project Area. There were no extraordinary gains
during the years ended December 31, 1999 and 1998, respectively, as compared to
$3.076 million for the year ended December 31, 1997. As of December 31, 1996, we
had $1.5 million of long-term debt associated with advances received from
RWE-DEA relating to RWE-DEA's commitment to earn a 50% interest in our Baltic
project area. During 1997, RWE-DEA advanced us an additional $1.576 million,
bringing the total amount of such advances to $3.076 million, all of which we
recorded as notes payable prior to the Polish government approving RWE-DEA's
participation in our Baltic project area. On June 30, 1997, after the Polish
government had approved RWE-DEA's participation in the Baltic project area,
RWE-DEA elected not to earn an interest in our Baltic project area. We were not
contractually obligated to repay any funds previously advanced by RWE-DEA.
Accordingly, we eliminated the long-term debt associated with the RWE-DEA
advances and recognized an extraordinary gain of $3.076 million for the year
ended December 31, 1997.

     Contract Servicing Operations

Contract Servicing Revenues. Contract servicing revenues were $865,000, $323,000
and $496,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
During 1999, we focused our drilling and well servicing equipment on third-party
contract servicing in an effort to increase our domestic revenues rather than
utilizing our drilling and well servicing equipment on company-owned properties.
During 1998, our contract servicing revenues consisted of $262,000 from
third-party contract drilling and well servicing work conducted in the third and
fourth quarters as we began to shift the primary focus of utilizing our drilling
and well servicing equipment from our own properties to third-party contract
servicing. During 1997, we drilled two wells on a day work contract basis
resulting in contract servicing revenues of $496,000 and a gross profit before
depreciation, depletion and amortization costs of $167,000. We retained a
working interest in each of the two wells drilled. The $167,000 gross operating
profit before depreciation, depletion and amortization costs helped offset the
combined working interest cost of $242,000 that we incurred on the two wells.
Contract servicing revenues will continue to fluctuate year to year based on the
number, timing, retained working interest of wells drilled and the degree of
emphasis on utilizing drilling and well servicing equipment on our company-owned
properties.

Contract Servicing Costs. Contract servicing costs were $642,000, $240,000 and
$329,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
During these years, contract servicing costs were 74.2%, 74.4% and 66.3% of
contract servicing revenues, respectively. Contract servicing costs are directly
associated with

                                       23
<PAGE>

contract servicing revenues. As such, contract servicing costs will continue to
fluctuate year to year based on revenues generated, the number of wells drilled,
timing and the degree of emphasis on utilizing drilling and well servicing
equipment on our own properties.

Depreciation, Depletion and Amortization Expense - Contract Servicing.
Depreciation, depletion and amortization expenses for contract servicing were
$334,000, $322,000 and $289,000 for the years ended December 31, 1999, 1998 and
1997, respectively. We spent $138,000, $156,000 and $210,000 on upgrading our
drilling and well servicing equipment during 1999, 1998 and 1997, respectively.
Depreciation, depletion and amortization expenses were progressively higher year
to year due to prior year capital additions being depreciated in succeeding
years.

     Nonsegmented Information

Depreciation, Depletion and Amortization Expense - Corporate. Depreciation,
depletion and amortization expenses for corporate activities were $110,000,
$118,000 and $85,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. Depreciation, depletion and amortization expenses during 1999 were
$8,000 less, as compared to the same period of 1998, primarily due to less
capital additions during 1999, coupled with equipment purchased during 1996 and
1997 becoming fully depreciated during 1999. We spent $20,000, $85,000 and
$205,000 during 1999, 1998 and 1997, respectively, on software, hardware and
office equipment utilized primarily for corporate purposes.

General and Administrative Costs. General and administrative costs were $2.962
million, $2.572 million and $2.566 million for the years ended December 31,
1999, 1998 and 1997, respectively. During 1999, general and administrative costs
were $390,000 higher, as compared to the same period of 1998, due to higher
payroll and other related costs associated with our increasing emphasis on
expanding our activities in Poland. General and administrative costs incurred
during 1998 were substantially unchanged as compared to 1997. General and
administrative costs are expected to be higher in future periods as we begin to
pay for part of our pro rata share of Apache's general and administrative costs
in Poland beginning in July 2000.

Interest and Other Income. Interest and other income were $512,000, $506,000 and
$662,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Our
cash, cash equivalent and marketable debt securities balances were $6.868
million, $4.742 million and $8.453 million as of December 31, 1999, 1998 and
1997, respectively. The average cash and marketable securities balances during
1999 were relatively unchanged, as compared to the same period of 1998. Interest
and other income were lower in 1998, as compared to 1997, due to lower average
cash and marketable debt security balances during 1998, as compared to the same
period of 1997. We earned interest income of $499,000, $492,000 and $616,000
during 1999, 1998 and 1997, respectively. Interest income associated with
officers' notes receivable was $134,000 and $64,000 during 1999 and 1998,
respectively.

Interest Expense. Interest expense was $8,000 and $83,000 for the years ended
December 31, 1999 and 1997, respectively. We had no interest expense for the
year ended December 31, 1998. During 1999, we incurred $8,000 of interest
expense primarily relating to the settlement of an audit by the Blackfeet Tribe
pertaining to the Cut Bank Field. During 1997, we incurred interest expense of
$83,000. We had long-term debt associated with RWE-DEA of $1.5 million as of
December 31, 1996 and received $1.576 million in additional funding from RWE-DEA
during the first six months of 1997, all of which was recorded as long-term
debt. However, upon RWE-DEA's election not to earn an interest in the Baltic
project area on June 30, 1997, we eliminated our long-term debt associated with
RWE-DEA and recognized an extraordinary gain of $3.076 million. As of December
31, 1999 and 1998, we had no long-term debt.

Officer Loan Impairment. As of December 31, 1999, notes receivable and accrued
interest from officers, before impairment, totaled $2.036 million, with a due
date of on or before December 31, 2000 (as extended). The notes receivable and
accrued interest are collateralized by 233,340 shares of our common stock. In
accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," we recorded an impairment allowance of $666,000 as of December 31, 1999,
based on the value of the underlying collateral. The impairment allowance will
be adjusted quarterly based on the market value of the collateral shares.

                                       24
<PAGE>

Income Taxes. We incurred net losses after extraordinary gains of $5.856
million, $10.122 million and $3.62 million for the years ended December 31,
1999, 1998 and 1997, respectively, which can be carried forward to offset future
taxable income. SFAS No. 109 requires that a valuation allowance be provided if
it is more likely than not that some portion or all of a deferred tax asset will
not be realized. Our ability to realize the benefit of our deferred tax asset
will depend on the generation of future taxable income through profitable
operations and the expansion of our exploration and development activities. The
market and capital risks associated with achieving the above requirement are
considerable, resulting in our conclusion that a full valuation allowance be
provided. Accordingly, we did not recognize any tax benefit in our consolidated
statement of operations for these years.

Net Loss. We incurred net losses of $5.856 million, $10.122 million and $3.62
million for the years ended December 31, 1999, 1998 and 1997, respectively. The
net loss in 1999 was due principally to $3.054 million of exploration costs, an
officer loan impairment of $666,000 and $2.962 million of general and
administrative costs. The net loss in 1998 was due principally to a domestic
proved property impairment of $5.885 million, geological and geophysical costs
of $2.109 million and a 44.9% decline in oil prices coupled with a 9.0% decline
in oil production. The net loss in 1997 was due principally to geological and
geophysical costs of $1,684,000, an exploratory dry hole costing $1,262,000
drilled without an outside partner and leasehold impairments of $152,000.

Liquidity and Capital Resources

Historically, we have relied primarily on proceeds from the sale of equity
securities to fund our operating and investing activities. During 1999, 1998 and
1997, we received net proceeds of $7.067 million, $166,000 and $253,000,
respectively, from the sale of our common stock. In June 2000, we received net
proceeds of approximately $9.3 million ($10.4 million gross) from the sale of
2,969,000 shares of our common stock in private transactions. We also benefit
from funds provided by industry partners.

     Working Capital

We had working capital of $5.459 million, $3.965 million and $8.494 million as
of December 31, 1999, 1998 and 1997, respectively. Working capital as of
December 31, 1999 was $1.494 million higher, as compared to the end of 1998,
primarily due to net proceeds of $7.067 million from the private placement of
1,792,500 shares and the exercise of options to purchase 2,000 shares of common
stock, which was offset by a $5.856 million net loss during 1999. Working
capital as of December 31, 1998 was $4.529 million lower, as compared to the end
of 1997, primarily due to cash used in operating and financing activities of
$3.783 million and additions to properties of $441,000 during 1998.

Our working capital was $4.092 million as of March 31, 2000, a decrease of
$1.367 million, as compared to $5.459 million at December 31, 1999. The decrease
was due principally to a net loss before depreciation, depletion and
amortization costs of $649,000 and net additions to property and equipment of
$645,000 during the first quarter of 2000. Our working capital has increased
significantly since March 31, 2000, as a result of the sale of 2,969,000 shares
of our common stock for net proceeds of $9.3 million ($10.4 million gross)
during June 2000.

     Operating Activities

We used net cash of $3.745 million, $3.109 million, and $5.881 million in our
operating activities during 1999, 1998 and 1997, respectively, primarily as a
result of the net losses incurred in those years. During 1999, 1998 and 1997, we
spent $4.195 million, $3.978 million, and $6.024 million, respectively, on
operating activities exclusive of working capital adjustments. Working capital
adjustments reduced cash used in operating activities by $450,000, $869,000 and
$143,000 during 1999, 1998 and 1997, respectively.

Net cash used in operating activities was $1.008 million during the first
quarter of 2000, an increase of $288,000, as compared to $720,000 for the same
period of 1999. We used net cash in operating activities before changes in
working capital items of $678,000 and $624,000 during the first quarters of 2000
and 1999, respectively. Cash used to fund changes in working capital items was
$330,000 and $96,000 during the first quarters of 2000 and 1999, respectively.

                                       25
<PAGE>

     Investing Activities

We used net cash of $2.916 million in investing activities during 1999, and
received net cash from investing activities of $1.083 million and $368,000
during 1998 and 1997, respectively. During 1999, we spent $603,000 on additions
to properties, equipment and other assets, received $6,000 from the sale of
property interests and spent a net amount of $2.319 million relating to
investing in marketable debt securities. During 1998, we spent $441,000 on
additions to properties and equipment, received $513,000 of proceeds from the
sale of property interests and equipment and received a net amount of $1.011
million relating to investing in marketable debt securities. During 1997, we
spent a net amount of $1.506 million on additions to properties and other
assets, received $353,000 from the sale of property interests and equipment,
advanced an employee $15,000 in relocation costs and received a net amount of
$1.536 million relating to investing in marketable debt securities.

Our investing activities provided net cash of $2.643 million during the first
quarter of 2000, as compared to using net cash of $54,000 during the same period
of 1999. During the first quarter of 2000, we spent $322,000 on drilling the
Wilga 3 well in Poland, $44,000 to upgrade our domestic properties, $16,000 on
annual concession fees for the Baltic project area in Poland, $16,000 on office
equipment and a net amount of $116,000 to upgrade our drilling and well
servicing equipment and realized a net amount of $3.157 million from investing
in marketable debt securities. During the first quarter of 1999, we spent
$31,000 on upgrading our producing properties, spent $33,000 on annual
concession fees relating to the Baltic project area, received $3,000 from the
sale of a partial property interest in the Williston Basin of North Dakota,
spent $8,000 to upgrade our drilling well servicing equipment, spent $5,000 to
upgrade our corporate office equipment, spent $3,000 on other assets and
realized a net amount of $23,000 from investing in marketable debt securities.

     Financing Activities

We received net cash of $6.469 million from our financing activities during
1999, used net cash of $674,000 in our financing activities during 1998, and
received net cash of $1.679 million from our financing activities during 1997.
During 1999, we advanced $598,000 to two officers, received net proceeds of
$7.054 million from a private placement of 1,792,500 shares of common stock and
$13,000 from the exercise of options on 2,000 shares of common stock. During
1998, we advanced $840,000 to officers and received $166,000 in cash and a full
recourse note receivable of $250,000 from the exercise of warrants and options
on 382,622 shares of common stock. During 1997, we advanced $150,000 to an
officer, realized $1.576 million in advances from RWE-DEA relating to
exploration of its Baltic project area and $253,000 from the exercise of
warrants and options on 159,334 shares of common stock.

No cash was used in financing activities during the first quarter of 2000, as
compared to $98,000 used in the same period of 1999. During the first quarter of
1999, we advanced two of our officers a total of $98,000. As of April 8, 1999,
we had no further commitment to advance additional funds to the officers.
Subsequent to March 31, 2000, financing activities provided net proceeds of
approximately $9.3 million ($10.4 million gross) from the sale of 2,969,000
shares of our common stock.

In the past, our strategic partners have provided a substantial amount of the
capital required under our exploration agreements with them, and we expect they
may continue to do so in the future. For instance, in 1997, Apache committed to
cover our 50% share of an exploration program in Poland estimated to cost $60.0
million gross ($30.0 million net). Apache had covered approximately $40.0
million of those gross costs through December 31, 1999, and is committed to
covering our share of costs to drill the equivalent of four additional wells,
shoot 350 kilometers of 2-D seismic data and a portion of our share of Apache's
overhead in Poland during 2000. Other industry partners have previously covered
approximately $2.9 million of our share of costs in other projects during the
last five years.

     Capital Requirements

We had $5.3 million of cash, cash equivalents and marketable debt securities
with no long-term debt as of March 31, 2000. During June 2000, we sold 2,969,000
shares of our common stock for net proceeds of approximately $9.3

                                       26
<PAGE>

million ($10.4 million gross). However, to fully fund our planned activities, we
will need additional capital during late 2000 or early 2001.

Fences Project Area. We have agreed to spend $16.0 million of exploration and
development costs on the Fences project area to earn a 49% interest. We expect
the $16.0 million will cover the costs to drill the Kleka 11 ($2.5 million net
and gross) and approximately four additional wells ($10.0 million net and gross)
and to acquire approximately 200 square kilometers of 3-D seismic data ($3.5
million net and gross) to supplement the 3-D seismic data already acquired by
POGC. After the first $16.0 million, all costs and net revenues will be shared
49% by us and 51% by POGC. We and POGC are currently discussing the schedule for
operations to be conducted during the balance of 2000 and 2001.

Based on initial test results from the Kleka 11 well, we expect revenues from
this field by late 2000.

Wilga Project Area. On June 5, 2000, the Wilga 3 was determined to be an
exploratory dry hole with an estimated net cost of approximately $0.9 million
($4.0 million gross). The Wilga 3 was drilled to define the perimeter of the
northwest section of the Wilga field, an area where proved reserves were not
assigned prior to drilling. In accordance with Generally Accepted Accounting
Principles, or "GAAP," the Wilga 3 will be classified as an exploratory dry hole
for accounting purposes, although in our industry parlance we have previously
referred to the Wilga 3, the first well drilled near the Wilga 2 discovery well,
as either an appraisal or a developmental well. The next well, the Wilga 4,
commenced drilling on June 17, 2000. Effective June 22, 2000, Apache agreed to
cover one-half of our share of costs to drill the Wilga 3 and Wilga 4 wells in
exchange for a release of Apache's commitment to cover our share of costs for
one exploratory well in Poland. Additional wells may be drilled thereafter. We
estimate each additional well in the Wilga project area will cost an average of
approximately $3.0 million gross ($1.4 million net). Assuming successful
drilling results and available funding, we anticipate completing production
facilities and pipelines during 2001, at a cost of approximately $11.0 million
gross ($5.0 million net).

Based on our exploration success in the Wilga project and our planned completion
of production facilities, we anticipate receiving production revenue from the
Wilga field in 2001. We expect these revenues will supplement our capital from
other sources to be used for further development of the Wilga field.

Apache Exploration Program. During the remainder of 2000 and 2001, we expect to
have substantially all of our share of exploration activities relating to the
Apache Exploration Program paid for by Apache. During the second half of 2000,
we and Apache have scheduled to commence drilling one exploratory well in each
of the Warsaw West and Pomeranian project areas. During 2001, we and Apache
expect to commence drilling one exploratory well in the Carpathian project area.
Apache will cover our share of costs to drill all three wells. In addition,
Apache has committed to covering our share of costs to shoot 350 kilometers of
2-D seismic data in the Carpathian project area.

Property Acquisition. We will need additional capital if we are able to reach an
agreement with POGC to purchase appraisal, development or exploration projects
on existing POGC discoveries, shut-in fields and underdeveloped properties in
Poland. Capital may be required to pay costs of acquisition, the installation of
production infrastructure and the implementation of a long-term exploitation
program. We may undertake such projects alone or under our arrangement with
Apache. We may seek additional capital that may be required for such purposes
through a variety of means, including the issuance of debt and equity
securities, project financing, bank financing or other financing alternatives.
We cannot assure that we will be able to obtain funds that will enable us to
participate in any such further acquisitions or joint activities.

Other. We expect to incur minimal exploration expenditures on our Baltic project
area in Poland during the remainder of 2000 and 2001. Similarly, we expect to
incur minimal exploration, appraisal and development expenditures on our
domestic operations during the remainder of 2000 and 2001.

We may change the allocation of capital among the categories of anticipated
expenditures depending upon future events that we cannot predict. For example,
we may change the allocation of our expenditures based on the actual results and
costs of future exploration, appraisal, development, production, property
acquisition and other activities.

                                       27
<PAGE>

In addition, we may have to change our anticipated expenditures if costs of
placing any particular discovery into production are higher, if the field is
smaller or if the commencement of production takes longer than expected.

We may obtain funds for future capital investments from the sale of additional
securities, project financing, sale of partial property interests, strategic
alliances with other energy or financial partners or other arrangements, all of
which may dilute the interest of our existing stockholders or our interest in
the specific project financed.

We previously initiated discussions with a commercial lender for a possible
project loan secured by proved reserves that may be developed as a result of our
Wilga discovery. We now intend to expand those discussions to include possible
project loan financing for the Kleka discovery as well as possible other
discoveries. We cannot assure we can establish such a credit facility. In any
event, borrowed funds are not likely to be available until significant reserves
are established through additional drilling. If we are able to obtain such a
loan, amounts initially allocated to develop those discoveries may be allocated
to other operations in Poland.

                                       28
<PAGE>

                                    Business

We are an independent oil and gas company focused on exploration, development
and production opportunities in the Republic of Poland. We are the largest
foreign oil and gas exploration acreage holder in Poland with exploration rights
covering approximately 16.1 million gross acres. Our activities are conducted
under strategic alliances with Apache and POGC, which allow us to utilize the
operating and technical personnel of those companies, gain access to geological
and geophysical data and obtain other necessary support activities in Poland.

We are currently conducting oil and gas exploration activities with Apache in
Poland in areas where we and Apache jointly hold exploration rights, a program
to which we refer as the Apache Exploration Program. One of the wells drilled
under the Apache Exploration Program resulted in our first exploration success
in the Wilga project, which is located in the northwest portion of the Lublin
Basin project area. The Wilga 2 well tested at an initial flow rate of 16.9 MMcf
of gas per day and 570 Bbls of condensate from the Carboniferous at a depth of
approximately 2,800 meters. The Wilga 2 well was the first successful
exploration well drilled by a foreign operator in Poland. We own a 45% interest
in the 250,000 acre block in which the Wilga project area is located, POGC owns
10% and Apache owns 45% and is the operator.

The Wilga 2 was followed by the Wilga 3, which encountered good reservoir rock
in Carboniferous sands and a Lower Devonian sand package in a separate fault
block, but was determined to be a dry hole after test results did not yield
commercial quantities of oil or gas. We believe the absence of oil and gas in
the Wilga 3 is related to faulting and therefore does not alter the expectation
that the Wilga 2 discovery is indicative of a larger oil and gas accumulation.
The next well, the Wilga 4, commenced drilling on June 17, 2000, at a location
east of the Wilga 2 discovery, on the opposite side of the fault from the Wilga
3. Subject to satisfactory results from the Wilga 4 and the 2-D seismic data
currently being shot, we intend to drill three additional wells through early
2001 to begin to determine the extent of the Wilga accumulation or the existence
of other accumulations in the Wilga area. In anticipation of further development
in the Wilga project, we expect to begin design and installation of production
facilities and construction of an approximately 18 kilometer pipeline that will
be designed with the capacity to support several additional productive wells.

On April 11, 2000, we signed an agreement with POGC under which we will earn a
49% working interest in approximately 300,000 gross acres in the Fences project
area by spending $16.0 million on exploration and development activities. We
have identified several separate exploration prospects in the Fences project
area based on POGC's existing seismic data and adjacent productive areas. Our
first well in this project area, the Kleka 11, was announced as an exploratory
success on June 28, 2000, after the well tested a calculated open flow rate of
34.3 MMcf of gas per day from the Rotliegendes at a depth of approximately 3,000
meters. As part of our commitment, we plan to shoot 200 or more kilometers of
3-D seismic data and drill approximately four additional wells. After we
complete our work commitment, POGC will begin bearing its 51% of further costs.
POGC is the operator of the Fences project area.

                                       29
<PAGE>

Areas of Exploration

The following table shows the acreage in which we have or have the option to
acquire an interest.
<TABLE>
<CAPTION>
                                                                              Acreage
                                                     -------------------------------------------------------------
                                                           FX Energy /
                        Project Area                       Apache AMI         POGC        FX Energy          Total
----------------------------------------------------      --------------    ----------    -----------     -------------
                                                                                  (in millions)
<S>                                                      <C>            <C>         <C>                 <C>
Lublin(1)........................................          5.0(2)         0.6(3)         --                5.6
Pomeranian.......................................          2.2(2)         1.3(3)         --                3.5
Carpathian.......................................          1.4(2)         1.5(3)         --                2.9
Warsaw West......................................          2.9           --              --                2.9
Baltic...........................................          --            --               0.9              0.9
Fences...........................................          --             0.3(4)         --                0.3
                                                     --------------- -------------- -------------- ---------------
   Total.........................................         11.5            3.7             0.9             16.1
                                                     =============== ============== ============== ===============
</TABLE>

(1)  The Wilga project is located on a 250,000 acre block included within our
     Lublin Basin project area.
(2)  Apache operates the FX Energy/Apache AMI acreage. We and Apache each have a
     50% interest in this exploration area, subject to pro rata reduction upon
     exercise by POGC of its option to participate in this area for up to a
     331/3% interest on a 250,000 acre block-by-block basis.
(3)  POGC operates this acreage. We and Apache each have an option to
     participate in this POGC exploration area for up to a 331/3% interest.
(4)  On April 11, 2000, we signed an agreement with POGC to earn a 49% interest
     in this area by spending $16.0 million on exploration activities.

                                       30
<PAGE>

Exploration and Development Plan

Our current exploration and development plan consists of three primary
components:

   o drilling and, if warranted, completing appraisal and development wells and
     constructing production facilities in our Wilga project area with Apache
     and POGC;

   o fulfilling our $16.0 million commitment to earn our interest in the Fences
     project area with POGC; and

   o drilling (excluding completion costs, if any) the remaining exploration
     wells to be funded by Apache under the Apache Exploration Program.

The following table sets forth our current exploration and development plan. The
capital expenditures included within the table are estimates based on
information currently available to us and are subject to being revised as
warranted. Actual capital expenditures may vary significantly from the estimated
amounts.
<TABLE>
<CAPTION>
                                                      Interest
                                                 --------------------
                                                              Net     Estimated       Capital Expenditures
                                                                                  ------------------------------
                                                  Working  Revenue(1)   Date          Total         FX Share
                                                 -------------------- ----------  --------------  --------------
                                                                                          (In millions)
   <S>                                            <C>      <C>       <C>           <C>              <C>
    Wilga Project(2)...........................     45%       42%
       Wilga 3 well (drilled)(3)...............                         1H 2000     $  4.00           $  0.90
       Wilga 4 well (commenced) (3)............                         2H 2000        3.00              0.68
       Seismic data............................                         2H 2000        0.53              0.24
       Wilga 5 well............................                         2H 2000        3.00              1.35
       Wilga 6 well............................                            2001        3.00              1.35
       Wilga 7 well............................                            2001        3.00              1.35
       Facilities/pipeline.....................                            2001       11.11              5.00
                                                                                  --------------  --------------
                                                                                     $27.64            $10.87
                                                                                  --------------  --------------
<CAPTION>
   <S>                                            <C>      <C>       <C>           <C>              <C>
    Fences Project Area(2).....................     49%       46%
       Kleka 11 well (drilled).................                         1H 2000     $  2.50           $  2.50
       Mieszkow well...........................                         2H 2000        2.50              2.50
       Boguszyn well...........................                         2H 2000        2.50              2.50
       Donatowo well...........................                            2001        2.50              2.50
       Zaniemysl well..........................                            2001        2.50              2.50
       Lugi well...............................                            2001        2.50              1.23
       Seismic data............................                         Various        3.50              3.50
                                                                                  --------------  --------------
                                                                                     $18.50            $17.23
                                                                                  --------------  --------------
<CAPTION>
   <S>                                            <C>      <C>       <C>           <C>              <C>
    Apache Exploration Program(2)..............     50%       47%
       Pomeranian well(4)......................                         2H 2000     $  3.50          $  --
       Warsaw West well........................                         2H 2000        3.50             --
       Carpathian well(4)......................                            2001        3.80             --
       Seismic data............................                         Various        6.30              0.15
                                                                                  --------------  --------------
                                                                                     $17.10           $  0.15
                                                                                  --------------  --------------
         Total.................................                                      $63.24            $28.25
                                                                                  ==============  ==============
</TABLE>

(1)  Assuming the current base rate royalty of 6%.
(2)  Capital expenditures in the Wilga project area include completion costs,
     which are included within facilities/pipeline costs. Capital expenditures
     in the Fences project area and the Apache Exploration Program do not
     include completion costs.
(3)  Effective June 22, 2000, Apache agreed to cover one-half of our share of
     costs to drill the Wilga 3 and Wilga 4 wells in exchange for a release of
     Apache's commitment to cover our share of costs for one exploratory well in
     Poland.
(4)  Our interests could be reduced to as low as a 331/3% working interest and a
     311/3% net revenue interest if POGC exercises its option to participate in
     these exploratory wells.

                                       31
<PAGE>

Recent Developments

     Wilga Project/Lublin Basin Project Area

The Wilga project area is located in the northwest portion of the Lublin Basin
project area. In the 1960s, a Polish geological institute drilled the Wilga 1, a
stratigraphic test well, as part of a scientific survey and encountered several
gas and oil shows at the lower Carboniferous and upper Devonian. Based on
reprocessed and additional seismic data, we identified what we believe to be the
top of the Wilga structure approximately 5 kilometers northeast of the Wilga 1,
where in January 2000, we drilled the Wilga 2 well. This well tested at an
initial flow rate of 16.9 MMcf of gas per day and 570 Bbls of condensate from
the Carboniferous at a depth of approximately 2,800 meters. The Wilga 2 well was
the first successful exploration well drilled by a foreign operator in Poland.
The next well, the Wilga 3, was drilled from the same pad as the Wilga 2. The
Wilga 3 encountered good reservoir rock in Carboniferous sands and a Lower
Devonian sand package in a separate fault block, but was determined to be a dry
hole after test results did not yield commercial quantities of oil or gas. We
believe the absence of oil and gas in the Wilga 3 is related to faulting and
therefore does not alter the expectation that the Wilga 2 discovery is
indicative of a larger oil and gas accumulation. The next well, the Wilga 4,
commenced drilling on June 17, 2000, at a location east of the Wilga 2
discovery, on the opposite side of the fault from the Wilga 3. Effective June
22, 2000, Apache agreed to cover one-half of our share of costs to drill the
Wilga 3 and Wilga 4 wells in exchange for a release of Apache's commitment to
cover our share of costs for one exploratory well in Poland.

Subject to satisfactory results from the Wilga 4 well, we anticipate scheduling
three additional wells to be drilled through early 2001, subject to further
collection and analysis of 2-D seismic data and satisfactory results from
drilling. The drilling locations will be selected to begin to determine the
extent of the Wilga accumulation or the existence of other accumulations in the
Wilga area. We estimate each of these wells will cost approximately $3.0 million
gross, for an aggregate cost of approximately $12.0 million gross ($4.7 million
net, as adjusted for Apache covering one-half of our share of costs to drill the
Wilga 4). We own a 45% interest in the 250,000 acre block in which the Wilga
project is located, POGC owns 10% and Apache owns 45% and is the operator.

If further drilling and testing are consistent with results from the Wilga 2
well, we plan to work with Apache and POGC to design and install surface
production facilities and an approximately 18 kilometer pipeline to connect the
Wilga wells to POGC's pipeline system in early 2001. Initially, surface
facilities will be modular for ease of expansion, and pipeline capacity will be
capable of supporting the production from several additional wells. Before
beginning construction, which we expect will take approximately four months, we
must obtain permits and a pipeline right-of-way. We estimate these facilities
will cost approximately $11.0 million gross ($5.0 million net). A gas purchase
agreement with an adjustable price based on the price movements of European
heating oil is now being negotiated with the transportation and storage division
of POGC. We anticipate initial production from the Wilga field to commence
during 2001.

     The Fences Project Area

The Fences project area comprises approximately 300,000 acres in a region of
west central Poland where POGC has recently had several significant exploratory
successes utilizing 3-D seismic data and applying western technology. POGC has
discovered four fields that are adjacent to or surrounded by the Fences project
area that are excluded from the Fences project area acreage. POGC currently has
allocated a limited amount of funds for exploration in this area. Due to our
close strategic relationship with POGC and our performance record to date in
Poland, POGC invited us to fund and participate in further exploration of the
Fences project area.

On April 11, 2000, we signed an agreement with POGC under which we will earn a
49% working interest in approximately 300,000 gross acres in the Fences project
area by spending $16.0 million on exploration and development activities. We
have identified several separate exploration prospects in our project area based
on POGC's existing seismic data and adjacent productive areas. Our first well in
this project area, the Kleka 11, was announced as an exploratory success on June
28, 2000, after the well tested a calculated open flow rate of 34.3 MMcf of gas
per day from the Rotliegendes at a depth of approximately 3,000 meters. As part
of our commitment, we plan to shoot 200 or more kilometers of 3-D seismic data
and drill approximately four additional wells. After we

                                       32
<PAGE>

complete our work commitment, POGC will begin bearing its 51% of further costs.
POGC is the operator of the Fences project area, which we have previously
referred to as the Radlin project area.

Our Strategic Partners

We implement our strategy in Poland through agreements and relationships with
POGC and Apache. Historical data and technical and operational support from
POGC, combined with financial support and technical and operational expertise
from Apache, provide a solid base for major exploration efforts in several
different geographical and geologically diverse areas of Poland.

     The Apache Exploration Program

We conduct our Apache Exploration Program under our agreements with Apache that
establish an area of mutual interest covering our current and future holdings
throughout the entire country of Poland, except for the 300,000 gross acre
Fences project area and our 900,000 gross acre Baltic project area. The area of
mutual interest covers our oil and gas exploration, production, development and
acquisition activities through December 2000 or completion of Apache's
exploratory well commitment, whichever comes later.

Under terms of the Apache Exploration Program, Apache has either agreed to or
completed the following primary terms:

     o    Apache must pay our pro rata share of costs to drill the equivalent of
          nine exploratory wells in Poland. To date, Apache has covered our
          share of costs to drill five exploratory wells. Two exploratory wells
          are scheduled to be drilled during the second half of 2000 and one
          during 2001. In addition, effective June 22, 2000, Apache agreed to
          cover one-half of our share of costs to drill the Wilga 3 and Wilga 4
          wells in exchange for a release of Apache's commitment to cover our
          share of costs for one exploratory well;

     o    Apache must pay our pro rata share of costs to shoot 2,722 kilometers
          of 2-D seismic data, including 1,650 kilometers of 2-D seismic data in
          the Lublin Basin project area completed during 1998, 300 kilometers in
          the Pomeranian project area, and 422 kilometers in the Warsaw West
          project area completed during early 2000 and 350 kilometers of 2-D
          seismic data in the Carpathian project area that is scheduled to be
          completed during mid-2000;

     o    Apache has committed to pay all of our pro rata share of $855,000 in
          concession and usufruct fees during the first three years in the
          Lublin Basin project area and the Carpathian project area;

     o    Apache must pay all of our pro rata share of annual training costs
          during the first three years in the Lublin Basin project area ($80,000
          per year) and the Carpathian project area ($15,000 per year);

     o    Apache may not charge us for any of our pro rata share of Polish
          general and administrative costs through June 30, 2000. Thereafter,
          Apache may charge us for 30% of its Polish general and administrative
          costs, increased by 5% upon completing each of its four remaining
          drilling requirements, up to a maximum of 50%;

     o    Apache paid us $500,000 during 1998 and $450,000 during 1997;

     o    We and Apache must offer each other a 50% interest in any new
          exploration, appraisal, development, property acquisition or other
          agreement entered into by either party within the area of mutual
          interest during all of 1999 and 2000 or the completion of Apache's
          nine exploratory well commitment, whichever is later; and

     o    Apache is the operator of all areas controlled by us and Apache within
          the area of mutual interest.

     Our POGC Relationship

We and Apache have granted to POGC the right to participate with up to a
one-third interest, on a 250,000 acre block-by-block basis, in oil and gas
exploration on 8.6 million gross acres in Poland controlled by us and Apache,
which excludes our 300,000 acre Fences project area, our 900,000 acre Baltic
project area and our 2.9 million acre

                                       33
<PAGE>

Warsaw West project area. In turn, POGC has granted to us and Apache each the
right to participate, with up to a one-third interest each, in oil and gas
exploration of an aggregate of approximately 3.4 million POGC controlled gross
acres in the vicinity of our Lublin, Pomeranian and Carpathian project areas.

To date, seven exploratory wells (one exploratory success and six exploratory
dry holes) have been drilled on acreage subject to these terms, including five
exploratory wells in which Apache paid for our pro rata share of costs under
terms of the Apache Exploration Program. POGC participated in each of these
wells for various amounts ranging from 5% to 331/3%.

At POGC's invitation, we also agreed in April 2000, to spend $16.0 million to
earn a 49% interest in the 300,000 acre Fences project area in western Poland.
Apache declined to exercise its right to participate in the Fences project area.

During the latter part of 1999, we and Apache conducted discussions and
negotiations toward a proposed acquisition by us and Apache of certain producing
properties from POGC. Progress toward such an acquisition recently has slowed,
but we believe all the parties remain interested in completing an acquisition.

Exploration Acreage Overview - Apache Exploration Program

     Lublin Basin

The 5.6 million acre Lublin Basin project area in central southeast Poland
consists of exploration rights on approximately 5.0 million gross acres held by
us and Apache and options to participate in 600,000 acres controlled by POGC. We
and Apache have an option to participate, with up to a one-third interest each,
in the exploration of the POGC option acreage. In turn, POGC has the option to
participate in the exploration of the acreage that we and Apache hold, with up
to a one-third interest, by participating in the first exploratory well on each
250,000 acre block.

The Lublin Basin has been explored extensively by POGC in recent years,
resulting in the discovery of five fields. Additional wells drilled by POGC in
the Lublin Basin have also encountered oil or gas shows. Seismic data analyzed
to date and correlated with data from drilling logs and core samples from
previous wells show a number of exploration leads within the area covered by the
Lublin Basin project area. We and Apache have acquired over 2,000 kilometers of
new 2-D seismic data and reprocessed over 5,400 kilometers of existing 2-D
seismic data on the Lublin Basin project area to date. The seismic data, along
with well log and core analysis data, were used to pick the first five
exploratory well sites jointly drilled by us, Apache and POGC in the Lublin
Basin project area.

The first four exploratory wells under the Apache Exploration Program, all
drilled within the Lublin Basin project area during 1999, were nonproductive. In
accordance with terms of the Apache Exploration Program, Apache covered all of
our share of costs for all four wells. As discussed under "Recent Developments,"
on January 25, 2000, the Wilga 2, the fifth well in the Apache Exploration
Program, was announced as an exploratory success. Initial production tests
indicated a combined flow rate of 16.9 MMcf of gas and 570 Bbls of condensate
per day from the Carboniferous at a depth of approximately 2,800 meters. In
accordance with the Apache Exploration Program terms, Apache has paid all of our
45% share of costs to drill the Wilga 2. Apache has agreed to pay one-half of
our 45% share of costs to drill the Wilga 3 (dry hole) and the Wilga 4
(now drilling). We will pay 45% of all other costs incurred in the Wilga project
area.

     Pomeranian

The 3.5 million acre Pomeranian project area is located in northwestern Poland
and consists of exploration rights on 2.2 million gross acres held by us and
Apache and options on 1.3 million gross acres controlled by POGC. We and Apache
have an option to participate, with up to a one-third interest each, in the
exploration of the POGC option acreage. In turn, POGC has the option to
participate in the exploration of the acreage we and Apache hold, with up to a
one-third interest, by participating in the first exploratory well on each
250,000 acre block. The Pomeranian project area lies along the underexplored
northern edge of the Permian trend in northwestern Poland. Although

                                       34
<PAGE>

POGC has made a few, mostly small oil and gas discoveries in this region, there
still has been relatively little exploration and no significant oil and gas
production to date. Stratigraphic test wells drilled by the Polish government
have reported oil and gas shows. POGC has made available to us and Apache the
existing seismic data and well logs and cores from the Pomeranian project area
for reprocessing and analysis. We believe portions of the Pomeranian project
area may be geologically similar to the BMB field to the southwest on which POGC
has drilled approximately 22 commercial wells on a 3-D seismic-defined
structure.

Since 1997, we and Apache have reprocessed existing seismic data and reviewed
logs and cores made available by POGC. This study resulted in a number of
exploration leads on which we gathered approximately 300 kilometers of
additional 2-D seismic data in early 2000. After final processing and
interpretation, we and Apache plan to drill our first exploratory well on this
acreage during the second half of 2000. Our share of costs in this first well
will be covered by Apache.

     Warsaw West

The 2.9 million acre Warsaw West project area is located adjacent to the
northwest section of our Lublin Basin project area in central Poland and
consists of exploration rights on 2.9 million gross acres held by us and Apache.
POGC has no option to participate in the Warsaw West project area.

There has been no oil and gas production from the Warsaw West project area. We
and Apache have recently completed gathering approximately 422 kilometers of 2-D
seismic data and plan to drill one exploratory well during the second half of
2000 on the Warsaw West project area. Under terms of the Apache Exploration
Program, Apache covered our share of costs to shoot approximately 422 kilometers
of 2-D seismic data and will cover our share of costs in the first exploratory
well.

     Carpathian

The 2.9 million acre Carpathian project area is located in southern Poland and
comprises exploration rights on 1.4 million gross acres held by us and Apache
and options on 1.5 million gross acres controlled by POGC. We and Apache have an
option to participate, with up to a one-third interest each, in the exploration
of the POGC option acreage. In turn, POGC has the option to participate in the
exploration of the acreage that we and Apache own, with up to a one-third
interest, by participating in the first exploratory well on each 250,000 acre
block.

Oil and gas were first discovered in the Carpathian area in 1854. A limited
number of deep wells drilled in recent years by POGC evidence additional
possible reservoir potential within the area. Over the past few years, there
have been several new oil and gas discoveries in the Carpathian region.
Potential producing horizons within the Carpathian are Jurassic, Miocene,
Cretaceous and Devonian.

During 1999, we elected to participate with a 5% interest in drilling the
Andrychow 6, an exploratory well operated by POGC on its option acreage in
southern Poland. The well tested a Devonian formation and was determined to be
an exploratory dry hole during December 1999.

During the second quarter of 1999, we and Apache commenced testing and
recompletion operations on the Lachowice Farm-in, an undeveloped gas discovery
on a POGC concession located within the Carpathian project area. Under terms of
the agreement, we and Apache agreed to pay the costs of testing three shut-in
wells and, if warranted, additional wells and production infrastructure in order
to earn a one-third interest each in the project. The test results from this
project did not warrant constructing gathering and processing facilities. On May
4, 2000, we and Apache each turned the project back to POGC and terminated the
Lachowice Farm-in.

We and Apache have identified several leads in the Carpathian project area based
on reprocessed existing seismic data and are scheduled to acquire approximately
350 kilometers of 2-D seismic data and drill our first exploratory well in the
Carpathian project area during 2001. Under terms of the Apache Exploration
Program, Apache will pay our share of costs to shoot approximately 350
kilometers of 2-D seismic data and drill the first exploratory well.

                                       35
<PAGE>

POGC Exploration Acreage

     The Fences

The Fences project area comprises approximately 300,000 acres in a region of
west central Poland where POGC has recently had several significant exploratory
successes utilizing 3-D seismic data and applying western technology. POGC has
discovered four productive fields that are adjacent to or surrounded by the
Fences project area but are excluded from the Fences project area acreage. POGC
currently has allocated limited funds for exploration in this area. Due to our
close strategic relationship with POGC and our performance record to date in
Poland, POGC invited us to fund and participate in further exploration of the
Fences project area. We have previously referred to this project as the Radlin
project area, the name of one of the POGC productive fields in the area.

On April 11, 2000, we signed an agreement with POGC under which we will earn a
49% working interest in approximately 300,000 gross acres in the Fences project
area by spending $16.0 million on exploration and development activities. We
have identified several separate exploration prospects in our project area based
on POGC's existing seismic data and adjacent producing areas. Our first well in
this project area, the Kleka 11, was announced as an exploratory success on June
28, 2000, after the well tested a calculated open flow rate of 34.3 MMcf of gas
per day from the Rotliegendes at a depth of approximately 3,000 meters. As part
of our commitment, we plan to shoot 200 or more kilometers of 3-D seismic data
and drill approximately four additional wells. After we complete our work
commitment, POGC will begin bearing its 51% of further costs. POGC is the
operator of the Fences project area.

     Possible Additional Acquisition, Appraisal, Development and Exploration
     Projects

We and Apache have reviewed additional acquisition, appraisal, development and
exploration projects for possible joint development and production operations on
existing POGC discoveries, shut-in fields and underdeveloped properties in
Poland. During the latter part of 1999, we and Apache conducted discussions and
negotiations toward a proposed acquisition by us and Apache of certain
properties from POGC. Progress toward a possible acquisition recently has
slowed, but we believe all the parties remain interested in resuming discussions
and completing an acquisition.

Other Polish Project Areas

     Baltic Project Area

The Baltic project area, which was our first concession in Poland, is located
onshore near the Baltic Sea and consists of exploration rights covering
approximately 900,000 net acres in northern Poland. The Baltic project area is
part of the Baltic Platform geological region that covers the southeastern
portion of the Baltic Sea, portions of the bordering onshore areas of northern
Poland and areas to the northeast in the Kaliningrad district of Russia,
Lithuania and Latvia. Approximately 34 onshore and offshore fields have been
discovered in the Baltic Platform. Industry sources report that four of the
largest fields in this region have produced an aggregate of over 150 MMBbls of
high-grade oil through 1994.

During 1997, we drilled two wells in the Baltic project area. Neither of the
wells yielded commercial quantities of oil and gas. We hold a 100% interest and
have no further work commitment. There are no current plans to conduct
exploratory work in the Baltic project area during 2000. However, recent
reported Cambrian successes in southern Kaliningrad near the Polish border and
developments in our Fences and Wilga project areas may encourage industry
interest in participating with us in this concession.

     Sudety Project Area

On July 26, 1999, Homestake Mining Company completed its two-year, $1.1 million
minimum exploration commitment and terminated its agreement with us to jointly
explore for gold on our Sudety Project Area in southwestern Poland. We have
discontinued further gold exploration in the Sudety project area.

                                       36
<PAGE>

Legal Framework for our Polish Operations

In 1994, Poland adopted the Geological and Mining Law, which specifies the
process for obtaining domestic exploration and exploitation rights. All of our
rights in Poland have been awarded pursuant to this law. Under the Geological
and Mining Law, the concession authority enters into oil, gas and mining
usufruct agreements that grant the holder the exclusive right to explore for and
exploit the designated oil and gas or minerals for a specified period under
prescribed terms and conditions. The holder of the mining usufruct must also
acquire an exploration concession to obtain surface access to the exploration
area by applying to the concession authority and providing the opportunity for
comment by local governmental authorities. If a commercially viable discovery is
made in an exploration concession area, it is necessary for the holder of the
exploration concession license to obtain an exploitation concession license for
a specific term by then applying to the concession authority and negotiating
with local government authorities. The holder of a usufruct and exploration and
exploitation concession licenses must also acquire rights to use the land from
the surface owner.

The concession authority has granted us oil and gas exploration rights on the
Lublin Basin, Carpathian, Pomeranian and Baltic project areas, granted Apache
oil and gas exploration rights on the Warsaw West project area and granted POGC
oil and gas exploration rights on the Fences project area and POGC option
acreage. The agreements divide these areas into blocks, generally containing
approximately 250,000 acres each. Concession licenses have been acquired for
surface access to all areas that lie within existing usufructs. For concessions
owned by us and/or Apache, the first three-year exploration period begins after
the date of the last concession signed under each respective usufruct. We
believe all material concession terms have been satisfied.

For concessions owned by us and/or Apache, each of the oil and gas usufructs
divides exploration rights into successive exploration phases expiring in three
and six years, respectively, after the grant of the last concession agreements
covered by the applicable usufruct. A number of exploratory wells are required
to be drilled during the first three-year and second three-year exploration
phases, a minimum amount of 2-D seismic acquisition must be completed (except in
the Baltic project area), and other expenditures must be made, all as set forth
in the applicable usufructs, in order to retain an interest in each usufruct.

The dates of the last concession signed and work commitments for each of the
usufructs owned by us and/or Apache are set forth in the following table:
<TABLE>
<CAPTION>
                                                                           Work Commitment
                                                     -------------------------------------------------------------
                                                      First Three-          Second Three-               2-D
                        No. of       Date of Last      Year Phase             Year Phase              Seismic
    Project Area        Blocks(1)     Concession        Drilling             Drilling(2)            Acquisition
----------------------  ----------   --------------  ----------------  -------------------------  ----------------
Lublin Basin:
<S>                     <C>           <C>            <C>                 <C>                        <C>
  Vistula...........        8          08/08/97        One well           One well per block         500 km
  Lublin Middle.....        7          06/30/98        Two wells          One well per block         500 km
  Block 298.........        1          06/30/98        One well           Two wells in usufruct      150 km
  Komarow...........       11          03/04/98        Two wells          One well per block         500 km
Carpathian..........       12          12/31/98        One well           Two wells in usufruct      350 km
Pomeranian..........       10          12/31/98        One well           Two wells in usufruct      600 km
Warsaw West(3)......       13          11/13/98        One well           Two wells in usufruct      1,500 km
Baltic..............       11          03/07/96        One well           One well in usufruct       None
</TABLE>

(1)  The Baltic project area includes one block that is approximately half the
     size of the other blocks. The Komarow usufruct includes three extra partial
     blocks adjacent to the border of Poland and the Ukraine.
(2)  The drilling commitments in a block or area may be terminated by
     relinquishing such block or area at the end of the first three-year phase.
(3)  The 2-D seismic acquisition requirements for the Warsaw West project area
     include 1,000 kilometers during the first three-year exploration period and
     500 kilometers during the second three-year exploration period. 2-D seismic
     acquisition requirements for all other areas apply to the first three-year
     exploration period only.

                                       37
<PAGE>

We may relinquish our interest in any usufruct at any time without having to
fulfill any remaining work commitments if we determine the oil and gas potential
does not warrant further holding or exploration costs.

As of March 31, 2000, we had completed shooting all of the required 2-D seismic
data on the Lublin Basin project area, drilled one exploratory well on the
Vistula usufruct, one exploratory well on the Lublin Middle usufruct and two
exploratory wells on the Baltic usufructs. We have also participated in drilling
four other exploratory wells on the above project areas that were on concessions
controlled by POGC and did not count towards the above referenced work
commitments.

The annual training fees for Polish citizens and the estimated aggregate other
fixed concession and usufruct fees over the respective usufruct's six-year
exploration term, including the net amounts payable by us and Apache, are set
forth in the following table:
<TABLE>
<CAPTION>
                                                                             Concession and Usufruct Fees
                                                   Training Fees   -------------------------------------------------
                Project Area (1)                   Per Year (2)       Gross (3)          Net FX        Net Apache
  ----------------------------------------------  ---------------- -----------------  -------------- ---------------
  Lublin Basin:
<S>                                                  <C>              <C>                              <C>
    Vistula.....................................     $ 25,000         $  220,000               --      $ 220,000
    Lublin Middle...............................       25,000            224,000               --        224,000
    Block 298...................................        5,000             51,000               --         51,000
    Komarow.....................................       25,000            200,000               --        200,000
  Carpathian....................................       15,000            160,000               --        160,000
  Pomeranian....................................       25,000            250,000         $125,000        125,000
  Warsaw West...................................       25,000            390,000           97,500        292,500
  Baltic........................................       25,000            200,000          200,000             --
                                                  ---------------- -----------------  -------------- ---------------
      Total.....................................     $170,000         $1,695,000         $422,500     $1,272,500
                                                  ================ =================  ============== ===============
</TABLE>

(1)  There are no training, concession or usufruct fees applicable to the Fences
     project area.
(2)  On the Lublin Basin and the Carpathian usufructs, Apache has committed to
     cover all training fees during the first three-year exploration period. We
     must cover our pro rata share of training fee costs on the Lublin and
     Carpathian usufructs during the second three-year exploration period. On
     the Carpathian, Pomeranian and Warsaw West usufructs, we must cover our pro
     rata share of training fees for the entire exploration period. On the
     Baltic project area, we must cover all training fees for the entire
     exploration period.
(3)  As of June 27, 2000, all the required concession and usufruct costs in the
     Lublin Basin, Carpathian, Pomeranian and Warsaw West project areas had been
     fully paid. The Baltic usufruct includes payments of $33,333 per year over
     six years beginning March 7, 1996.

The Fences project area consists of portions of three exploratory oil and gas
concessions (Koscian-Serem, Solec-Jarocin and Jaraczewo-Pogorzela concessions)
controlled by POGC. Three producing areas are included within the three
exploratory oil and gas concession boundaries (Radlin, Kleka and Kaleje
exploitation concessions), but are excluded from the Fences project area. A
fourth producing area, the Jarocin area, is adjacent to the Fences project area
in a different POGC concession. The following table sets forth the exploration
terms of each exploratory oil and gas concession:
<TABLE>
<CAPTION>
                                                                     Six Year Exploration Period        Optional
                                                                  ----------------------------------
                          Concession                                 Beginning           End            Extension
----------------------------------------------------------------  ---------------- -----------------  --------------
<S>                                                                 <C>             <C>               <C>
Koscian-Serem...................................................      9/28/95          9/28/01          3 years
Solec-Jarocin...................................................      4/30/96          4/30/02          3 years
Jaraczewo-Pogorzela.............................................     11/19/96         11/19/02          3 years
</TABLE>

We believe POGC has paid all required usufruct and concession fees and completed
all material work commitments to date for the three exploratory oil and gas
concessions included within the Fences project area.

If commercially viable oil or gas is developed, the concession owner would be
required to apply for an exploitation concession, as provided by the usufructs,
with a term of 30 years and so long thereafter as commercial production
continues. Upon the grant of the exploitation concession, the concession owner
may become obligated to pay a fee, to be negotiated within the range of 0.01% to
0.50% of the market value of the estimated recoverable reserves in place,
payable in five equal annual installments. The concession owner would also be
required to pay a royalty on any production, the amount of which will be set by
the concession authority, within a range established on the base royalty rate
for the mineral being extracted. The base royalty rate for oil and gas is
currently 6%, but could be increased unilaterally to up to 10% (the current
statutory maximum base royalty rate) by the Council of Ministers. The concession
authority can set the royalty rate for any particular commercial production in a
range between 50% and 150% of the base royalty rate, depending on the economic
viability of such operation, but not to exceed the statutory maximum rate.
Therefore, with the current base rate of 6% for oil and gas, the concession
authority could

                                       38
<PAGE>

establish the royalty rate between 3% and 9%. If, however, the base rate is
increased to 10%, the current statutory maximum, the royalty rate would be
between 5% and 15%. The royalty rate may vary for different producing fields and
may be changed from time to time during the productive life of a field. Local
governments will receive 60% of any royalties paid on production. The concession
owner could be subject to significant delays in obtaining the consents of local
authorities or satisfying other governmental requirements prior to obtaining an
exploitation license.

Polish Joint Venture Structure. Within the framework of the Apache Exploration
Program, Apache is the operator on areas controlled jointly by us and Apache.
POGC is the operator on areas controlled by POGC. Even though we, Apache and
POGC will conduct our activities jointly, we have agreed to treat our respective
interests and obligations as separate, such that each company is responsible for
providing its own funding for joint activities and is entitled to take and sell
its share of oil and gas independently of the others. Customary western industry
standard joint operating agreement terms, modified somewhat to conform to Polish
technical requirements, govern the parties' respective actions, rights and
obligations.

We and Apache have each created Polish subsidiaries to carry out our joint
projects in Poland. We have created several wholly-owned spolka z o. s., a form
of limited liability company, to hold all of our interests in Poland. For
example, in the Vistula area in the western portion of the Lublin Basin project
area containing eight exploration blocks, we and Apache are each 50% beneficial
participants in a Polish limited liability company (the "Lublin LLC"), all of
the title ownership of which has been assigned by us to the Lublin LLC, subject
to the terms of the participation agreement. Prior to undertaking long-term
production, an exploitation license must be applied for. The exploitation
license will be owned by a newly created Polish entity that reflects the true
beneficial ownership interests of all parties.

In other instances, we and Apache have paired our interests in Poland into
several spolka jawnas, a form of registered joint operation, to hold record
title to the various usufructs and concessions. For example, we and Apache are
each 50% participants in a Polish spolka jawna that has been awarded usufructs
and exploration concessions covering 16 exploration blocks in the Lublin Basin,
the Carpathian and the Pomeranian project areas.

In the Fences project area, we and POGC will form a jointly owned Polish
operating company that will hold record of title and operate the concessions
included in the Fences project area in accordance with our respective beneficial
property interests.

The ownership structure in Poland may be altered by us, Apache and POGC from
time to time in response to developments in the Polish legal system to most
accurately reflect their various agreements regarding jointly owned projects in
Poland.

Domestic Properties and Activities

     Domestic Production

We currently produce oil domestically in Montana and Nevada. All of our
producing properties, except for an exploratory discovery during 1997, were
purchased during 1994. In Montana, we operate the Cut Bank and Bears Den fields
and have an interest in the Rattlers Butte field, which is operated by an
industry partner. In Nevada, we operate the Trap Spring and Munson Ranch fields
and have an interest in the Bacon Flat field, which is operated by an industry
partner. As of May 31, 2000, we had no producing activities outside the United
States.

During 1999, we had average daily production of 460 gross Bbls (279 net). Our
average sales price per Bbl was $15.35, with an average production cost per
barrel of $9.50. We sell oil at posted field prices to one of several purchasers
in each of our production areas. During the last three years, over 85% of our
total oil sales was to CENEX, a regional refiner and marketer. Posted prices are
published and are generally competitive among the various purchasers. The crude
oil sales contracts may be terminated by either party upon 30 days' notice.

                                       39
<PAGE>

     Domestic Oil Reserves

All of our oil properties containing proved oil reserves are located in Montana
and Nevada. All information set forth in this document regarding proved
reserves, related future net revenues and PV-10 Value is taken from the report
of Larry D. Krause, independent petroleum engineer, Billings, Montana. In
accordance with SEC guidelines, our estimates of future net revenues from our
proved reserves and the PV-10 Value were made using a sales price of $22.37, the
weighted average oil sales price as of December 31, 1999, the date of such
estimate, and held constant throughout the life of the properties. No estimates
of reserves have been filed with or included in any report to any other federal
agency during 1999.

Our estimated proved reserves by reserve category as of December 31, 1999 are
detailed in the following table:
<TABLE>
<CAPTION>
                                                                                              December 31, 1999
                                                                                          --------------------------
                                                                                           Oil (Bbl)    PV-10 Value
                                                                                          ------------  ------------
<S>                                                                                         <C>         <C>
Developed Producing.....................................................................    738,790     $3,386,483
Developed Nonproducing..................................................................    341,162      2,073,667
                                                                                          ------------  ------------
Total Developed.........................................................................  1,079,952     $5,460,150
                                                                                          ============  ============
</TABLE>

     Domestic Nonproducing Acreage

During 1996 and 1997, we acquired 16,875 acres of undeveloped oil and gas leases
in the Williston Basin area of North Dakota. The Williston Basin area has
established oil and gas production from numerous zones, including the
Mississippian, Devonian, Silurian and Ordovician. We have identified several
leads over our acreage and intend to pursue a strategic alliance with an
industry partner to jointly explore the acreage.

     Drilling Rig and Well Servicing Equipment

In Montana, we have a drilling rig capable of drilling to a vertical depth of up
to 6,000 feet, two well servicing rigs and other associated oilfield equipment.
Historically, prior to late 1998, we utilized our drilling rig and well
servicing equipment primarily on our producing oil properties in Montana. During
late 1998, we shifted our emphasis away from our properties to third-party
contract work in an effort to increase our domestic revenues.

Drilling Activities

The following table sets forth the wells drilled and completed by us during
1999, 1998 and 1997:
<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                 ----------------------------------------------------------------
                                                         1999                  1998                  1997
                                                 --------------------- ---------------------  -------------------
                                                   Gross       Net      Gross        Net       Gross       Net
                                                 ---------- ---------- ---------  ----------  ---------  --------
<S>                                              <C>         <C>        <C>        <C>        <C>         <C>
Development Wells:
  Producing....................................     --         --          --         --        --          --
  Nonproducing.................................     --         --          --         --        --          --
                                                 ---------- ---------- ---------  ----------  ---------  --------
        Total..................................     --         --          --         --        --          --
                                                 ========== ========== =========  ==========  =========  ========
<CAPTION>
Exploratory Wells:
<S>                                              <C>         <C>        <C>        <C>        <C>         <C>
  Discoveries:
     Poland....................................      1.0        0.5        --         --        --          --
     United States.............................     --         --          --         --         1.0         0.1
  Exploratory Dry Holes:
     Poland....................................      5.0        1.6        --         --         2.0         1.5
     United States.............................     --         --          --         --         2.0         1.3
                                                 ---------- ---------- ---------  ----------  ---------  --------
        Total..................................      6.0        2.1        --         --         5.0         2.9
                                                 ========== ========== =========  ==========  =========  ========
</TABLE>

                                       40
<PAGE>

The above table does not include the Kleka 11, Wilga 2, Wilga 3 and Wilga 4
wells. During the first half of 2000, the Kleka 11 and Wilga 2 were exploratory
successes (0.5 net each), the Wilga 3 was an exploratory dry hole (0.5 net) and
drilling commenced on the Wilga 4 (0.5 net) on June 17, 2000.

Wells and Acreage

As of December 31, 1999, we had 114 gross and 108 net producing oil wells, all
of which are located in Montana and Nevada.

The following table sets forth our gross and net acres of developed and
undeveloped oil and gas leases as of December 31, 1999:
<TABLE>
<CAPTION>
                                                                Developed Acreage           Undeveloped Acreage
                                                             ------------------------   -----------------------------
                                                               Gross         Net           Gross            Net
                                                             ------------------------   -----------------------------
United States:
<S>                                                           <C>             <C>         <C>             <C>
  North Dakota............................................          --           --         16,875          16,875
  Montana.................................................      10,732       10,418          1,150           1,057
  Nevada..................................................         400          128             37              16
                                                             -----------  -----------   -------------   -------------
     Total................................................      11,132       10,546         18,062          17,948
                                                             -----------  -----------   -------------   -------------

Poland:(1)...............................................
  Apache Exploration Program(2)
    Lublin Basin.........................................           --           --      5,000,000       2,500,000
    Carpathian...........................................           --           --      1,400,000         700,000
    Pomeranian...........................................           --           --      2,200,000       1,100,000
    Warsaw West..........................................           --           --      2,900,000       1,450,000
                                                             -----------  -----------   -------------   -------------
     Total...............................................           --           --     11,500,000       5,750,000

  Baltic Project Area....................................           --           --        900,000         900,000
                                                             -----------  -----------   -------------   -------------
    Total Polish acreage.................................           --           --     12,400,000       6,650,000

    Total Acreage(3).....................................       11,132       10,546     12,418,062       6,667,948
                                                             ===========  ===========   =============   =============
</TABLE>

(1)  All Polish acreage is rounded to the nearest 100,000 acres.
(2)  Gives effect to 50% beneficial ownership of Apache in the Lublin Basin,
     Carpathian, Pomeranian and Warsaw West project areas under our joint
     exploration arrangements with Apache under the Apache Exploration Program.
     Does not give effect to options on POGC controlled areas containing
     approximately 600,000 acres in the Lublin Basin project area, 1.5 million
     acres in the Carpathian project area and 1.3 million acres in the
     Pomeranian project area under the POGC option agreements.
(3)  Excludes the 300,000 acre Fences project area where we signed an agreement
     with POGC on April 11, 2000, to earn a 49% interest by paying for the first
     $16.0 million of exploration costs.

Operational Hazards and Insurance

We are engaged in the drilling and production of oil and gas, and as such, our
operations are subject to the usual hazards incident to the industry. These
hazards include blowouts, cratering, explosions, uncontrollable flows of oil,
natural gas or well fluids, fires, pollution, releases of toxic gas and other
environmental hazards and risks. These hazards can cause personal injury and
loss of life, severe damage to and destruction of property and equipment,
pollution or environmental damage and suspension of operations.

To lessen the effects of these hazards, we maintain insurance of various types
to cover our domestic operations and maintain general liability coverage for our
activities in Poland. We have $9.0 million of general liability insurance.
Apache, as the operator of the Apache Exploration Program, is carrying $25.0
million of general liability insurance for joint operations on Polish areas in
which we and Apache have interests. We have elected to be included on Apache's
well control insurance policy for all jointly drilled wells to date in Poland.
POGC, as operator of the Fences project area, is self-insured. Our seismic and
drilling contractors are required to maintain insurance coverage for operations
by them in Poland. There can be no assurance that we, Apache or POGC will be
able to continue to obtain insurance coverage for current or future activities
in Poland, or that any insurance obtained will provide coverage customary in
either the industry or in the United States, or be comparable to the insurance
now maintained by us, Apache and POGC, or be on favorable terms or at premiums
that are reasonable. This insurance, moreover,

                                       41
<PAGE>

does not cover all of the risks involved in oil and gas exploration, drilling
and production and, if coverage does exist, may not be sufficient to pay the
full amount of such liabilities. We may not be insured against all losses or
liabilities that may arise from all hazards because such insurance may not be
available at economic rates, the respective insurance policies may have limited
coverage and other factors. For example, insurance against risks related to
violations of environmental laws is not maintained. The occurrence of a
significant adverse event that is not fully covered by insurance could have a
materially adverse effect on us. Further, we cannot assure that we will be able
to maintain adequate insurance in the future at rates we consider reasonable.

Government Regulation

     Poland

Our activities in Poland are subject to political, economic and other
uncertainties, including the adoption of new laws, regulations or administrative
policies that may adversely affect us or the terms of our exploration or
production rights; political instability and changes in government or public or
administrative policies, export and transportation tariffs and local and
national taxes; foreign exchange and currency restrictions and fluctuations;
repatriation limitations; inflation; environmental regulations and other
matters. These operations in Poland are subject to the Geological and Mining
Law, as well as the Act of January 31, 1994, concerning the Protection and
Management of the Environment, which are the primary statutes governing
environmental protection. Agreements with the government of Poland respecting
our project areas create certain standards to be met regarding environmental
protection. Participants in oil and gas exploration, development and production
activities generally are required to (1) adhere to good international petroleum
industry practices, including practices relating to the protection of the
environment; and (2) prepare and submit geological work plans, with specific
attention to environmental matters, to the appropriate agency of state
geological administration for its approval prior to engaging in field operations
such as seismic acquisition, exploratory drilling and field-wide development.
Poland's regulatory framework respecting environmental protection is not as
fully developed and detailed as that which exists in the United States. We
intend that our operations in Poland will be designed to meet good international
petroleum industry practices and, as they develop, Polish requirements.

     United States - State and Local Regulation of Drilling and Production

Our exploration and production operations are subject to various types of
regulation at the federal, state and local levels. Such regulation includes
requiring permits for the drilling of wells, maintaining bonding requirements in
order to drill or operate wells, regulating the location of wells, the method of
drilling and casing wells, the surface use and restoration of properties upon
which wells are drilled and the plugging and abandoning of wells. Our operations
are also subject to various conservation laws and regulations. These include the
regulation of the size of drilling and spacing units or proration units and the
density of wells that may be drilled and the unitization or pooling of oil and
gas properties. In this regard, some states allow the forced pooling or
integration of tracts to facilitate exploration while other states rely on
voluntary pooling of lands and leases. In addition, state conservation laws
establish maximum rates of production from oil and natural gas wells, generally
prohibit the venting or flaring of natural gas and impose certain requirements
regarding the ratability of production. The effect of these regulations is to
limit the amounts of oil and natural gas we can produce from our wells and to
limit the number of wells or the locations that we can drill.

Production of any oil and gas by us is affected to some degree by state
regulations, some of which regulate the production and sale of oil and gas,
including provisions regarding deliverability. Such statutes and related
regulations are generally intended to prevent waste of oil and gas and to
protect correlative rights to produce oil and gas between owners of a common
reservoir. Certain state authorities also regulate the amount of oil and gas
produced by assigning allowable rates of production to each well or proration
unit.

     Environmental Regulations

The federal government and various state and local governments have adopted laws
and regulations regarding the control of contamination of the environment. These
laws and regulations may require the acquisition of a permit by

                                       42
<PAGE>

operators before drilling commences, restrict the types, quantities and
concentration of various substances that can be released into the environment in
connection with drilling and production activities, limit or prohibit drilling
activities on certain lands lying within wilderness, wetlands and other
protected areas and impose substantial liabilities for pollution resulting from
our operations. These laws and regulations may also increase the costs of
drilling and operation of wells. We may also be held liable for the costs of
removal and damages arising out of a pollution incident to the extent set forth
in the Federal Water Pollution Control Act, as amended by the Oil Pollution Act
of 1990. In addition, we may be subject to other civil claims arising out of any
such incident. As with any owner of property, we are also subject to clean-up
costs and liability for toxic or hazardous substance that may exist on or under
any of our properties. We believe that we are in compliance in all material
respects with such laws, rules and regulations and that continued compliance
will not have a material adverse effect on our operations or financial
condition. Furthermore, we do not believe that we are affected in a
significantly different manner by these laws and regulations than are our
competitors in the oil and gas industry.

The Comprehensive Environmental Response, Compensation and Liability Act, also
known as the "Superfund" law, imposes liability, without regard to fault or the
legality of the original conduct, on certain classes of persons who are
considered to be responsible for the release of a "hazardous substance" into the
environment. These persons include the owner or operator of the disposal site or
sites where the release occurred and companies that disposed or arranged for the
disposal of the hazardous substances. Such persons may be subject to joint and
several liability for the costs of cleaning up the hazardous substances that
have been released into the environment, for damages to natural resources and
for the costs of certain health damages or studies. Furthermore, it is not
uncommon for neighboring landowners and other third parties to file claims for
personal injury and property damage allegedly caused by hazardous substances or
other pollutants released into the environment.

The Resource Conservation and Recovery Act and regulations promulgated
thereunder govern the generation, storage, transfer and disposal of hazardous
wastes. This law, however, excludes from the definition of hazardous wastes
"drilling fluids, produced waters and other wastes associated with the
exploration, development, or production of crude oil, natural gas or geothermal
energy." Because of this exclusion, many of our operations are exempt from these
regulations. Nevertheless, we must comply with these regulations for any of our
operations that do not fall within the exclusion.

The Oil Pollution Act of 1990 and regulations promulgated pursuant thereto
impose a variety of regulations on responsible parties related to the prevention
of oil spills and liability for damages resulting from such spills. The Oil
Pollution Act of 1990 establishes strict liability for owners of facilities that
are the site of a release of oil into "waters of the United States." While
liability more typically applies to facilities near substantial bodies of water,
at least one district court has held that liability can attach if the
contamination could enter waters that may flow into navigable waters.

Stricter standards in environmental legislation may be imposed on the oil and
gas industry in the future, such as proposals made in Congress, and at the state
level from time to time that would reclassify certain oil and natural gas
exploration and production wastes as "hazardous wastes" and make the
reclassified wastes subject to more stringent and costly handling, disposal and
clean-up requirements. The impact of any such changes, however, would not likely
be any more burdensome to us than to any other similarly situated company
involved in oil and gas exploration and production.

     Federal and Indian Leases

A substantial part of our Montana producing properties is operated under oil and
gas leases issued by the Bureau of Land Management or by certain Indian nations
under the supervision of the Bureau of Indian Affairs. These activities must
comply with rules and orders that regulate aspects of the oil and gas industry,
including drilling and operating on leased land and the calculation and payment
of royalties to the federal government or the governing Indian nation.
Operations on Indian lands must also comply with applicable requirements of the
governing body of the tribe involved including, in some instances, the
employment of tribal members. We believe we currently comply with all material
provisions of such regulations.

                                       43
<PAGE>

     Safety and Health Regulations

We must also conduct our operations in accordance with various laws and
regulations concerning occupational safety and health. Currently, we do not
foresee expending material amounts to comply with these occupational safety and
health laws and regulations. However, since such laws and regulations are
frequently changed, we are unable to predict the future effect of these laws and
regulations.

Title to Properties

We rely on sovereign ownership of exploration rights and mineral interests by
the Polish government in connection with our activities in Poland and have not
conducted and do not plan to conduct any independent title examination. We
consult with Polish legal counsel when doing business in Poland.

Nearly all of our United States working interests are held under leases from
third parties. We typically obtain a title opinion concerning such properties
prior to the commencement of drilling operations. We have obtained such title
opinions or other third-party review on nearly all of our producing properties
and believe that we have satisfactory title to all such properties sufficient to
meet standards generally accepted in the oil and gas industry. Our United States
properties are subject to typical burdens, including customary royalty interests
and liens for current taxes, but we have concluded that such burdens do not
materially interfere with our use of such properties. Further, we believe the
economic effects of such burdens have been appropriately reflected in our
acquisition cost of such properties and reserve estimates. Title investigation
before the acquisition of undeveloped properties is less thorough than that
conducted prior to drilling, as is standard practice in the industry.

Employees and Consultants

As of June 27, 2000, we had 36 employees, consisting of eight in Salt Lake City,
Utah; 25 in Oilmont, Montana; one in Greenwich, Connecticut; and two in Houston,
Texas. None of our employees is represented by a collective bargaining
organization, and we consider our relationship with our employees to be
satisfactory. In addition to our employees, we regularly engage technical
consultants to provide specific geological, geophysical and other professional
services.

Offices and Facilities

Our approximately 3,010 square feet of executive office space located at 3006
Highland Drive, Suite 206, Salt Lake City, Utah, are rented at $2,960 per month
under a month-to-month agreement. We own a 16,160 square foot office building
located at the corner of Central and Main in Oilmont, Montana. We use 4,800
square feet for our field office and rent the remaining space to unrelated third
parties for $875 per month. We rent a small office suite for $1,400 per month in
Warsaw, Poland, at Al. Jana Pawla II 29, as an office of record in Poland.

Legal Proceedings

We are not a party to any material legal proceedings, and to our knowledge, no
such legal proceedings have been threatened against us.

                                       44
<PAGE>

                             The Republic of Poland

The Republic of Poland, with a population of about 40 million people, peacefully
asserted its independence in 1989 and adopted a new constitution that
established a parliamentary democracy. Poland's comprehensive economic reform
programs and stabilization measures implemented since 1989 have enabled it to
move toward a free market economy that is currently one of the fastest growing
in eastern Europe, with annual growth rates of 5% to 7%, even though recent
growth has slowed somewhat. Poland experienced relatively high levels of
inflation in the early 1990s, but inflation has fallen to less than 12% and 10%
per annum during 1998 and 1999, respectively. Demand growth appears strong with
a growing economy and a commitment to convert power plants from lignite to gas
in order to meet the clean air standards required for European Union membership.

Poland recently joined NATO and is poised to join the European Union within the
next few years. Poland's international trade has also undergone significant
progress. Its economic ties have turned from the east to the west, with most of
its current international trade with the countries of the European Union. The
Polish government credits foreign investment as a forceful growth factor,
generating over one third of the country's total investment and acting as a
powerful restraint on unemployment. Cumulating foreign direct investment flows
to Poland aggregated $38.9 billion through the end of 1999. The Polish Foreign
Investment Agency, or PAIZ, expects Poland to receive $10.0 to $12.0 billion of
foreign direct investment during 2000, compared to $8.3 billion for 1999 and
$10.0 billion in 1998. German companies were the largest foreign investors in
Poland with a cumulative $6.1 billion, followed by U.S. companies with $5.2
billion and France with $2.4 billion. PAIZ reports that, as of the end of 1999,
the largest foreign investors are South Korea's Daewoo Group ($1.6 billion),
Italy's Fiat ($1.5 billion) and France's Vivendi ($1.2 billion). Almost half of
cumulative foreign direct investment was in production ($17.3 billion), of which
$4.6 billion was for food production and $4.4 billion was for vehicle
production. Other significant categories include financial services ($7.7
billion), trade and repair services ($3.4 billion) and construction ($1.9
billion).

Since the 1850s when oil was first commercially produced in Poland, in excess of
122 MMBbls of oil and 2.6 Tcf of gas in the southeastern Carpathian region and
24 MMBbls of oil and 2.3 Tcf of gas in the southwestern Polish Lowlands have
been produced to date. Over the last several decades, the exploration and
development of Poland's oil and gas resources have been hindered by a
combination of foreign influence, a centrally controlled economy, limited
financial resources and a lack of modern exploration technology. Poland
currently imports approximately 98% of its oil, primarily from countries of the
former Soviet Union and the Middle East, and approximately 60% of its natural
gas, primarily from countries of the former Soviet Union. Poland is about the
size of New Mexico and contains approximately 77.3 million acres. As of June 27,
2000, we have exploration rights to approximately 16.1 million of those acres.

Poland has crude oil pipelines traversing the country and a network of gas
pipelines serving major cities, commercial and industrial areas and many gas
production areas, including significant portions of our exploratory acreage.
Poland has a well-developed infrastructure of hard-surfaced roads and railways
over which we believe oil produced could be transported for sale. There are
refineries in Gdansk and Plock in Poland and one in Germany near the western
Polish border that we believe could process crude oil produced in Poland. We
will most likely incur substantial expenditures for constructing and operating
facilities to gather and transport any oil and gas produced from our properties,
including the recently discovered Wilga field.

Since its relatively recent transition to a market economy and pluralistic
political system, Poland is continuing to experience significant political
changes and economic growth. Poland has developed and is refining legal and
regulatory systems characteristic of parliamentary democracies with
interpretation and procedural safeguards to ensure the rule of law.

Poland's legal framework and fiscal regime for oil and gas production are
attractive, as Poland has intentionally sought to entice foreign companies to
offset its own lack of sufficient capital to develop the country's oil and gas
resources.

                                       45

<PAGE>

The Polish government is currently negotiating with the European Union regarding
Poland's application to become a member state of the European Union. The Polish
government has generally taken steps to harmonize Polish legislation with that
of the European Union in anticipation of Poland's entry into the European Union
and to facilitate interaction with European Union members.

In July 1995, Poland's Council of Ministers approved a program to restructure
and privatize the Polish petroleum sector. Although no single program or
specific timeline has been established for privatizing the exploration and
production divisions of POGC, the increased participation by Western companies
using Western capital to undertake oil and gas exploration and to develop and
produce existing reserves is consistent with the approved privatization policy.

The Polish corporate income tax rate is 30% for 2000 and 28% for 2001. Further
reductions in the income tax rate of 2% per year may be enacted down to a rate
of 22%. In some circumstances, tax relief may be available for certain
qualifying capital investments which provide deductions during the initial years
of operation.

                                       46
<PAGE>

                                   Management

General

Our articles of incorporation provide that the board of directors shall be
divided into three classes, with each class as equal in number as practicable.
One class is to be elected each year for a three-year term. Officers serve at
the pleasure of the board of directors.

Executive Officers and Directors

The following table sets forth our directors, executive officers and other
significant employees, their ages, all offices and positions with our company
and each respective term of directorship as of June 27, 2000.

                                      Term
           Name               Age    Expires              Title
           ----               ---    -------              -----

David N. Pierce............   53       2002    Chairman of the Board, President
                                               and Chief Executive Officer(1)
Andrew W. Pierce...........   52       2000    Vice-President, Chief Operations
                                               Officer and Director(1)
Scott J. Duncan............   51       2001    Vice-President, Secretary and
                                               Director
Thomas B. Lovejoy..........   64       2001    Vice-Chairman, Chief Financial
                                               Officer and Director(2)
Jerzy B. Maciolek..........   49       2000    Vice-President, International
                                               Exploration and Director
Dennis L. Tatum............   39       2002    Vice-President, Treasurer and
                                               Director
Peter L. Raven.............   61       2002    Director(1)(2)
Jay W. Decker..............   48       2000    Director(1)(2)
Dennis B. Goldstein........   54       2001    Director(1)(2)
-----------------------
(1)  Member of the Rights Redemption Committee. See "Description of Capital
     Stock-Preferred Stock."
(2)  Member of the Compensation and Audit Committees.

David N. Pierce has been our president, director and chairman since 1992.
Previously, he was president and director of our predecessor, Frontier
Exploration Company, co-founded with his brother, Andrew W. Pierce, in January
1989, which was acquired by us in 1992. Mr. Pierce is a graduate of Princeton
University and Stanford Law School.

Andrew W. Pierce has been our vice-president and director since 1992.
Previously, he was vice-president and director of our predecessor, Frontier
Exploration Company, co-founded with his brother, David N. Pierce, in January
1989, which was acquired by us in 1992.

Scott J. Duncan has been our vice-president and director since May 1993, and
served as treasurer between 1993 and 1998 and secretary since 1998. Mr. Duncan
was a financial consultant to us from our inception in 1992 through April 1993,
when he became a full-time employee. Scott Duncan is a graduate of the
University of Utah School of Business.

Thomas B. Lovejoy has been our vice-chairman of the board of directors and a
consultant to us since 1995. Mr. Lovejoy has been the principal of Lovejoy
Associates, Inc., Greenwich, Connecticut, which provides financial strategic
advice respecting private placements, mergers and acquisitions since 1992. Mr.
Lovejoy has been a director of Scaltech, Inc., Houston, Texas, a processor of
petroleum refinery oil waste since 1993. From 1989 to 1992, Mr. Lovejoy was the
managing director and head of the Natural Resource, Mining and Utility Groups of
Prudential Securities, Inc., and from 1980 to 1988, he was managing director and
head of the Energy and Natural Resources Group of Paine Webber, Inc., New York
City. Mr. Lovejoy received a B.S. from the Massachusetts Institute of Technology
and an M.B.A. from Harvard Business School.

                                       47
<PAGE>

Jerzy B. Maciolek has been employed by us since September 1995, and since that
time has been instrumental in our exploration efforts in Poland. Jerzy Maciolek
is a member of the advisory board of POGC. Prior to his employment with us, Mr.
Maciolek was a private consultant for over five years, including consulting on
the oil and gas potential of Poland and Kazakhstan, translating and interpreting
geological and geophysical information for several integrated oil and gas
potential reports on Poland and Kazakhstan and developing applied integrated
geophysical interpretations over gold mines in Nevada, California and Mexico. He
has provided consulting services to us regarding exploration projects in the
western United States and Poland since 1992. Mr. Maciolek obtained a M.S. degree
in exploration geophysics from the Mining and Metallurgy Academy in Krakow,
Poland.

Dennis L. Tatum is our vice-president and treasurer. Mr. Tatum joined us in
March 1997 as controller prior to becoming treasurer in December 1998. From 1989
to 1997, he was employed by Zilkha Energy, Houston, Texas, a private oil and gas
firm with interests in the Gulf of Mexico, where he was instrumental in
overseeing joint ventures. Mr. Tatum received a B.B.A. in accounting from the
University of Texas at Tyler in 1983 and a CPA certificate from the state of
Texas in 1984.

Peter L. Raven is a retired former president of American Ultramar. From 1957
through 1985, he held various positions with Ultramar, PLC, London, England, a
fully integrated oil and gas company, and its U.K. and U.S. subsidiaries,
including chief financial officer of Ultramar, PLC. From 1985 through 1988, he
was executive vice-president, and from 1988 through 1992, president of American
Ultramar. Mr. Raven is a graduate of the Downside School in England, the
Institute of Chartered Accountants in 1962, and the Harvard Business School
Advanced Management Program in 1987.

Jay W. Decker has been president of Patina Oil & Gas Corporation, an independent
oil company, Denver, Colorado, since March 1998, and director of our company
since May 1996. From September 1995 through March 1998, he was executive
vice-president and a director of Hugoton Energy Corporation, Denver, Colorado,
an independent oil company. From 1989 until its merger into Hugoton, Mr. Decker
was president and chief executive officer of Consolidated Oil & Gas, Inc.,
Denver, Colorado. Mr. Decker received a B.S. degree from the University of
Wyoming.

Dennis B. Goldstein is corporate counsel, assistant secretary and manager of
land services for Homestake Mining Company, San Francisco, California, a large
international gold mining company, where he has been employed since 1976. Mr.
Goldstein is a graduate of Brown University and Stanford University Law School,
was a Graduate Fellow in comparative law at the University of Florence, Italy,
and attended the Stanford Executive Program at Stanford University's Graduate
School of Business.

     Committees of the Board

There are three committees of the Board of Directors: the Audit Committee, the
Compensation Committee and the Rights Redemption Committee. The members of the
each of these committees are indicated in the previous table.

Certain Relationships and Related Transactions

Unless otherwise indicated, the terms of the following transactions between
related parties were not determined as a result of arm's length negotiations.

     Consulting Agreements

From 1997 through April 1999, we engaged Lovejoy and Associates, a consulting
company owned by Thomas B. Lovejoy, one of our directors, to advise us
respecting future financing alternatives and possible sources of debt and equity
financing, with particular emphasis on funding for our Poland activities and our
relationship with the investment community. Under this arrangement, we paid
Lovejoy and Associates $120,000, $200,000 and $60,000 during 1997, 1998 and
1999, respectively. During 1999, the consulting agreement was terminated when
Mr. Lovejoy became our chief financial officer. We engage Dennis B. Goldstein to
provide special legal services from time to time at an hourly rate, not to
exceed an aggregate of $60,000 per year.

                                       48
<PAGE>

     Officer Loans

On February 17, 1998, two of our executive officers and directors, David N.
Pierce and Andrew W. Pierce, exercised options expiring May 1998 to purchase
300,000 shares of common stock at $1.50 per share. Each of those officers paid
the cost of exercising the options by using a bonus credit of $100,000 awarded
to him during 1997 and signing a full recourse note payable to us for $125,000,
bearing interest at 7.7%. On April 10, 1998, in consideration of the agreement
of the two officers to refrain from selling common stock in market transactions,
we agreed to advance the officers, on a nonrecourse basis, additional funds to
cover their tax liabilities and other amounts. As of December 31, 1999, the
notes receivable and accrued interest totaled $2,036,385. We have no commitment
to advance additional funds to the officers.

In consideration of extending the term of the loans from December 31, 1999
through December 31, 2000, the officers agreed that if the average closing price
of the common stock for five consecutive trading days results in a value of the
collateral equal to or above the total principal and accrued interest balances,
the officers will repay the loans within 45 days either in cash or by tendering
to us that number of shares which, at the average closing price for the previous
five consecutive trading days, equals the principal and interest then accrued.

The notes receivable and accrued interest are collateralized by 233,340 shares
of common stock. In accordance with SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," we recorded an impairment allowance of $670,371 as of
March 31, 2000, based on the value of the underlying collateral. We will adjust
the impairment allowance quarterly based on the market value of the collateral
shares.

                                       49
<PAGE>

Executive Compensation

     Summary compensation

The following table sets forth for our last three fiscal years the annual and
long-term compensation earned by, awarded to or paid to the person who was our
chief executive officer and each of our four other highest compensated executive
officers as of the end of the last fiscal year (the "Named Executive Officers").
<TABLE>
<CAPTION>
                                                                             Long Term Compensation
                                                                        ----------------------------------
                                         Annual Compensation                    Awards           Payouts
                                 -------------------------------------  -----------------------  ---------
                                                             Other      Restricted  Securities             All Other
                        Year                                Annual        Stock     Underlying     LTIP     Compen-
      Name and          Ended                  Bonus        Compen-     Award(s)     Options/    Payouts     sation
 Principal Position    Dec 31    Salary ($)   ($) (1)     sation ($)       ($)      SARs(#)(5)     ($)       ($)(6)
---------------------  --------  ----------- -----------  ------------  ----------  -----------  --------- -----------
<S>                     <C>      <C>          <C>         <C>            <C>         <C>          <C>     <C>
David N. Pierce.....    1999     $197,466     $242,983    $      --        --          60,000       --        7,409
  President (CEO)       1998      185,600      185,760      100,000(2)     --          60,000       --           --
                        1997      153,256      185,760           --        --          55,000       --           --

Andrew W. Pierce....    1999     $146,951     $151,307    $      --        --          50,000       --        9,228
  Vice-President        1998      134,400      115,200      100,000(2)     --          50,000       --           --
  (COO)                 1997      114,267      115,200           --        --          45,000       --           --

Thomas B. Lovejoy...    1999     $146,951     $151,307    $    --(4)       --          50,000       --        5,878
  Vice-Chairman         1998           --           --         --(4)       --              --       --           --
  (CFO)                 1997           --           --         --(4)       --              --       --           --

Scott J. Duncan.....    1999     $114,806     $118,209    $    --          --          50,000       --        7,325
  Vice President        1998      105,000       90,000         --          --          50,000       --           --
  Secretary             1997       88,750       90,000         --          --          45,000       --           --

Jerzy B. Maciolek...    1999     $146,951     $151,307     $100,000(3)     --          50,000       --        7,149
  Vice-President        1998      134,400      115,200      100,000(3)     --          50,000       --           --
  Exploration           1997      113,600      115,200           --        --          45,000       --           --
</TABLE>
--------------------------
(1)  All 1999 bonuses were approved by our board of directors on November 1,
     1999 and accrued as of December 31, 1999. 25% of the accrued bonus was paid
     on February 15, 2000.
(2)  During 1998, David N. Pierce and Andrew W. Pierce applied a $100,000 bonus,
     which was awarded to them during 1997, against their exercise of stock
     options to purchase 150,000 shares each. See "Certain Relationships and
     Related Transactions."
(3)  During 1998 and 1999, Jerzy B. Maciolek was awarded a $100,000 bonus each
     year to be used against future stock option exercises or payable in cash in
     the event his employment with us is terminated. At the end of 1999, Mr.
     Maciolek had not used the $200,000 bonus.
(4)  Excludes $60,000, $200,000 and $120,000 paid during 1999, 1998 and 1997,
     respectively, to Lovejoy and Associates, a consulting firm owned by Mr.
     Lovejoy, prior to Mr. Lovejoy becoming our chief financial officer during
     1999.
(5)  Includes stock options only.
(6)  Consists of our contributions under our 401(k) plan. No material benefits
     are payable on retirement under this plan, which was initiated in 1999.

                                       50
<PAGE>

     Option/SAR Grants in Last Fiscal Year

The following table sets forth information respecting all individual grants of
options and stock appreciation rights ("SARs") made during the last completed
fiscal year to our Named Executive Officers.
<TABLE>
<CAPTION>
                            Number
                              of           % of Total
                          Securities      Options/SARs                                Potential Realizable Value at
                          Underlying       Granted to                                  Assumed Rates of Share Price
                         Options/SARs      Employees     Exercise or                 Appreciation for Option Term ($)
                           Granted       During Fiscal    Base Price    Expiration  ---------------------------------
         Name              (no.)(1)         Year(1)       ($/share)        Date            5%              10%
----------------------- ---------------  --------------- ------------- ------------- ---------------  ---------------
<S>                          <C>              <C>           <C>          <C>   <C>      <C>               <C>
David N. Pierce              60,000           14.0%         $5.750       11/01/06       $140,520          $327,360
Andrew W. Pierce             50,000           11.6           5.750       11/01/06        117,100           272,800
Thomas B. Lovejoy            50,000           11.6           5.750       11/01/06        117,100           272,800
Scott J. Duncan              50,000           11.6           5.750       11/01/06        117,100           272,800
Jerzy B. Maciolek            50,000           11.6           5.750       11/01/06        117,100           272,800
</TABLE>
---------------------------
(1)  Includes stock options only.


                                       51
<PAGE>

     Aggregate Option/SAR Exercises in Last Fiscal Year and Year-End Option/SAR
     Values

The following table sets forth information respecting the exercise of options
and SARs during the last completed fiscal year by our Named Executive Officers
and the fiscal year-end values of unexercised options and SARs.
<TABLE>
<CAPTION>
                                                             Number of Securities         Value of Unexercised
                                                            Underlying Unexercised    In-the-Money Options/SARs at
                                                            Options/SARs at FY End               FY End
                              Shares                                 (no.)                         ($)
                            Acquired on         Value            Exercisable/                 Exercisable/
          Name            Exercise (no.)    Realized ($)         Unexercisable              Unexercisable(1)
------------------------- ----------------  --------------  ------------------------  ------------------------------
<S>                          <C>              <C>            <C>                             <C>
David N. Pierce                 --               --          706,667 / 118,333(2)            $ 1,425,000 / $ --
Andrew W. Pierce                --               --           661,667 / 98,333(3)              1,306,250 /   --
Thomas B. Lovejoy               --               --           461,667 / 98,333(4)               831,250 /    --
Scott J. Duncan                 --               --           151,667 / 98,333(5)               118,750 /    --
Jerzy B. Maciolek               --               --          361,668 / 148,332(6)               581,250 /    --
-------------------------
</TABLE>

(1)  Based on the closing sales price for the common stock of $5.375 on December
     31, 1999.
(2)  Consists of options to purchase 500,000 shares of common stock becoming
     exercisable in installments of 100,000 shares per year commencing June 1,
     1995, at an exercise price of $3.00 per share, expiring June 9, 2004;
     100,000 shares of common stock at an exercise price of $3.00 per share,
     expiring October 5, 2000; 50,000 shares of common stock at an exercise
     price of $8.875 per share expiring November 4, 2001; 55,000 shares of
     common stock becoming exercisable in installments of 18,333 shares per year
     commencing December 1, 1998, at an exercise price of $6.625 per share,
     expiring November 30, 2004; 60,000 shares of common stock becoming
     exercisable in installments of 20,000 shares per year commencing November
     10, 1999, at an exercise price of $8.625 per share, expiring November 10,
     2005; and 60,000 shares of common stock becoming exercisable in
     installments of 20,000 shares per year commencing November 1, 2000, at an
     exercise price of $5.75 per share, expiring November 1, 2006.
(3)  Consists of options to purchase 500,000 shares of common stock becoming
     exercisable in installments of 100,000 shares per year commencing June 1,
     1995, at an exercise price of $3.00 per share, expiring June 9, 2004;
     50,000 shares of common stock at an exercise price of $3.00 per share,
     expiring October 5, 2000; 65,000 shares of common stock at an exercise
     price of $8.875 per share, expiring November 4, 2001; 45,000 shares of
     common stock becoming exercisable in installments of 15,000 shares per year
     commencing on December 1, 1998, at an exercise price of $6.625 per share,
     expiring November 30, 2004; 50,000 shares of common stock becoming
     exercisable in installments of 16,667 shares per year commencing on
     November 10, 1999, at an exercise price of $8.625 per share, expiring
     November 10, 2005; and 50,000 shares of common stock becoming exercisable
     in installments of 16,667 shares per year commencing November 1, 2000, at
     an exercise price of $5.75 per share, expiring November 1, 2006.
(4)  Consists of options to purchase 150,000 shares of common stock becoming
     exercisable on August 3, 1995, at an exercise price of $3.00 per share,
     expiring August 3, 2000; 100,000 shares of common stock becoming
     exercisable on August 3, 1995, at an exercise price of $3.00 per share,
     expiring August 3, 2001; 100,000 shares of common stock becoming
     exercisable on August 3, 1995, at an exercise price of $3.00 per share,
     expiring August 3, 2002; 65,000 shares of common stock at an exercise price
     of $8.875 per share, expiring November 4, 2001; 45,000 shares of common
     stock becoming exercisable in installments of 15,000 shares per year
     commencing on December 1, 1998, at an exercise price of $6.625 per share,
     expiring November 30, 2004; 50,000 shares of common stock becoming
     exercisable in installments of 16,667 shares per year commencing on
     November 10, 1999, at an exercise price of $8.625 per share, expiring
     November 10, 2005; and 50,000 shares of common stock becoming exercisable
     in installments of 16,667 shares per year commencing November 1, 2000, at
     an exercise price of $5.75 per share, expiring November 1, 2006.
(5)  Includes options to purchase 50,000 shares of common stock at an exercise
     price of $3.00 expiring October 5, 2000; 55,000 shares of common stock at
     an exercise price of $8.875 per share, expiring November 4, 2001; 45,000
     shares of common stock becoming exercisable in installments of 15,000
     shares per year commencing December 1, 1998, at an exercise price of $6.625
     per share, expiring November 30, 2004; 50,000 shares of common stock
     becoming exercisable in installments of 16,667 shares per year commencing
     on November 10, 1999, at an exercise price of $8.625 per share, expiring
     November 10, 2005; and 50,000 shares of common stock becoming exercisable
     in installments of 16,667 shares per year commencing November 1, 2000, at
     an exercise price of $5.75 per share, expiring November 1, 2006.
(6)  Includes options to purchase 150,000 shares of common stock at any time
     through August 30, 2000, at an exercise price of $1.50; 65,000 shares of
     common stock at an exercise price of $8.875 per share through November 4,
     2001; 50,000 shares of common stock becoming exercisable in installments of
     16,667 shares per year commencing on May 12, 1998, at an exercise price of
     $8.25 per share, expiring May 11, 2004; 100,000 shares of common stock
     becoming exercisable in installments of 33,333 shares per year commencing
     on July 18, 1998, at an exercise price of $7.25 per share, expiring July
     17, 2004; 45,000 shares of common stock becoming exercisable in
     installments of 15,000 shares per year commencing December 1, 1998, at an
     exercise price of $6.625 per share, expiring November 30, 2004; 50,000
     shares of common stock becoming exercisable in installments of 16,667 per
     year commencing on November 10, 1999, at an exercise price of $8.625 per
     share, expiring November 10, 2005; and 50,000 shares of common stock
     becoming exercisable in installments of 16,667 shares per year commencing
     November 1, 2000, at an exercise price of $5.75 per share, expiring
     November 1, 2006.

                                       52
<PAGE>

     Directors' Compensation

We pay our nonemployee directors $18,000 per year and have historically granted
them stock options to purchase our common stock. We also reimburse our directors
for costs they incur in attending meetings of the board of directors and our
committees. We do not pay any separate compensation to employees who serve on
the board of directors.

During 1999, we paid Lovejoy and Associates, a consulting firm owned by Thomas
B. Lovejoy, $60,000 prior to Mr. Lovejoy becoming our chief financial officer;
we paid Peter L. Raven a cash fee of $18,000 and granted him seven-year options
to purchase 10,000 shares of common stock at $5.75 per share; we paid Jay W.
Decker a cash fee of $18,000 and granted him seven-year options to purchase
10,000 shares of common stock at $5.75 per share; and we paid Dennis B.
Goldstein a cash fee of $16,500 and granted him seven-year options to purchase
16,000 shares of common stock at a weighted average exercise price of $6.13 per
share. The exercise prices of the foregoing options are equal to the market
price of the common stock as of the date of each grant.

     Employment Agreements, Termination of Employment and Change in Control

We have entered into executive employment agreements with each of the executive
officers named in the Summary Compensation Table, except for Thomas B. Lovejoy.
Each employment agreement is for a three-year term and is automatically extended
for an additional year on the anniversary date of such agreement. Annual
salaries during 2000 are David N. Pierce, $218,568; Andrew W. Pierce, Thomas B.
Lovejoy and Jerzy B. Maciolek, $162,655 each, and Scott J. Duncan, $127,075. In
addition, the executive officers may receive such bonuses or incentive
compensation as the board of directors or compensation committee may deem
appropriate. Each agreement provides that the board of directors or compensation
committee may increase the base salary under the agreements at the beginning of
each year, with such increases to be at least 7.5% for David N. Pierce, Andrew
W. Pierce and Scott J. Duncan. Each executive officer is entitled under his
employment agreement to certain continuation of compensation in the event the
agreement is terminated upon death or disability or if we terminate the
agreement other than for cause.

In addition to the foregoing terms, Mr. Maciolek's employment agreement provides
for annual bonuses of $100,000, payable in cash, stock or options, as may be
determined by the board of directors or the compensation committee, based on the
progress of projects on which Mr. Maciolek is primarily engaged. On each of May
12, 1998, 1999 and 2000, Mr. Maciolek received a bonus in the form of a $100,000
credit that may be applied against the exercise of his options to purchase
common stock or be paid in cash if his employment with us is terminated.

Each executive employment agreement provides that, on the occurrence of a change
of control event, the employee may terminate the agreement. In the event of such
termination, the employee is entitled to a termination payment equal to 150% of
his annual salary (100% in the case Jerzy B. Maciolek) and the value of
previously granted employee benefits. Additionally, we are required to maintain
certain benefits and, in the case of David N. Pierce, Andrew W. Pierce and Scott
J. Duncan, repurchase outstanding options. Options held by Jerzy B. Maciolek
will immediately vest on such termination. For purposes of the foregoing, a
change of control shall exist on any of the following events: (i) our sale of
all or substantially all of our assets; (ii) a transaction or series of
transactions resulting in a single person or group of persons under common
control owning 25% of the outstanding common stock; (iii) a change in the
composition of the board of directors so that more than 50% of the directors are
persons neither nominated nor elected by the board of directors or any
authorized committee; (iv) our decision to terminate our business and liquidate
our assets; or (v) a merger or consolidation in which our existing stockholders
own less than 50% of the outstanding voting shares of the surviving entity.

     Options Granted to Officers, Directors, Employees and Consultants

We currently have outstanding options to purchase an aggregate of 3,896,501
shares that have been granted to our officers, directors, employees and
consultants. Of such options, 587,334 contain vesting limitations contingent on
continuing association with us. These options are exercisable at prices ranging
between $1.50 and $10.25 per share. Options issued to executive officers and
directors contain terms providing that in the event of a change in control as

                                       53
<PAGE>

described above and at the election of the option holder, the unexercised
options will be canceled, and we will pay to the option holder an amount equal
to the number of unexercised options multiplied by the amount by which the fair
market value of the common stock as of the date preceding the change of control
event exceeds the option exercise price. The grants of options to officers and
directors were not the result of arm's length negotiations.

                                       54
<PAGE>

                             Principal Stockholders

The following table sets forth, as of June 27, 2000, the name, address and
shareholdings of each person who owns of record, or was known by us to own
beneficially, 5% or more of the common stock currently issued and outstanding;
the name and shareholdings of each director; and the shareholdings of all
executive officers and directors as a group. Unless otherwise indicated, all
shares consist of common stock, and the named person or group owns all such
shares beneficially and of record. Options include only vested amounts; unvested
options are excluded.
<TABLE>
<CAPTION>
                      Directors and Principal Stockholders

                                                                                                    Percentage of
                   Beneficial Owner                      Nature of Ownership       Amount(1)         Ownership(2)

<S>                                                     <C>                    <C>                        <C>
   David N. Pierce...................................    Common Stock                200,493(3)             1.1%
                                                         Options                     706,667(6)             3.8
                                                                                 -------------
                                                           Total                     907,160                4.9

   Andrew W. Pierce..................................    Common Stock                200,500                1.1
                                                         Options                     661,667(6)             3.6
                                                                                 -------------
                                                           Total                     862,167                4.7

   Scott J. Duncan...................................    Common Stock                175,500(5)             1.0
                                                         Options                     151,667(6)             0.8
                                                                                 -------------
                                                           Total                     327,167                1.8

   Thomas B. Lovejoy.................................    Common Stock                527,367(4)             3.0
                                                         Options                     461,667(6)             2.5
                                                                                 -------------
                                                           Total                     989,034                5.4

   Jerzy B. Maciolek.................................    Options                     378,334(6)             2.1

   Dennis L. Tatum...................................    Common Stock                  2,500               --
                                                         Options                      46,801(6)             0.3
                                                                                 -------------
                                                           Total                      49,301                0.3

   Peter L. Raven....................................    Common Stock                 40,000                0.2
                                                         Options                      12,000(6)             0.1
                                                                                 -------------
                                                           Total                      52,000                0.3

   Jay W. Decker.....................................    Options                      12,000(6)             0.1

   Dennis B. Goldstein...............................    Common Stock                  5,400(7)            --
                                                         Options                       2,000               --
                                                                                 -------------
                                                           Total                       7,400               --

   All Executive Officers............................    Common Stock              1,151,760                6.5
      and Directors as a                                 Options                   2,432,803               12.0
                                                                                 -------------     -----------------
      Group (9 persons)                                    Total                   3,584,563               17.8
                                                                                 =============
</TABLE>
-----------------------------
(1)  Except as otherwise noted, shares are owned beneficially and of record, and
     such record stockholder has sole voting, investment and dispositive power.
(2)  Calculations of total percentages of ownership outstanding for each
     individual assume the exercise of currently vested options held by that
     individual to which the percentage relates. Percentages calculated for
     totals of all executive officers and directors as a group assume the
     exercise of all vested options held by the indicated group.
(3)  Includes 48,000 shares held by David N. Pierce as custodian for minor
     children. Mr. Pierce is deemed to hold or share voting and dispositive
     power over all of such shares. Excludes 19,000 shares held by Mr. Pierce's
     wife, Mary Phillips, and 23,000 held by Mary Phillips as custodian for an
     adult child, of which Mr. Pierce disclaims beneficial ownership.

                                       55
<PAGE>

(4)  Includes 41,000 shares held in trust for the benefit of Thomas B. Lovejoy's
     children, 49,500 shares held in Mr. Lovejoy's IRA account, 10,000 shares
     held by Mr. Lovejoy's spouse's IRA account and 210,000 shares held by
     Lovejoy Associates, Inc. (of which Mr. Lovejoy is sole owner). Mr. Lovejoy
     is deemed to hold dispositive power over all of such shares. Mr. Lovejoy's
     address is 48 Burying Hill Road, Greenwich CT 06831.
(5)  Includes 123,000 shares held by Scott J. Duncan jointly with his wife,
     Cathy H. Duncan; 7,000 shares held solely by Cathy H. Duncan and 48,000
     shares held by Cathy Duncan as custodian for minor children. Mr. Duncan is
     deemed to hold or share voting and dispositive power over all of such
     shares.
(6)  These vested options give the holders the right to acquire shares of common
     stock at prices ranging from $1.50 to $10.25 per share with various
     expiration dates ranging from August 2000 to December 2006.
(7)  Includes 400 shares held by Dennis B. Goldstein as custodian for a minor
     child. Mr. Goldstein is deemed to hold or share voting and dispositive
     power over all of such shares.

                                       56
<PAGE>

                          Description of Capital Stock

We are authorized to issue 30,000,000 shares of common stock, $0.001 par value,
and 5,000,000 shares of preferred stock (including 500,000 shares of Series A
Preferred Stock), $0.001 par value. The board of directors has proposed to the
stockholders at the 2000 annual meeting an amendment to the articles of
incorporation to increase the authorized common stock to 100,000,000 shares.

Common Stock

As of June 27, 2000, we had 17,818,003 shares of common stock issued and
outstanding. The holders of common stock are entitled to one vote per share on
each matter submitted to a vote at any meeting of stockholders. Holders of
common stock do not have cumulative voting rights, and therefore, a majority of
the outstanding shares voting at a meeting of stockholders is able to elect the
entire board of directors, and if they do so, minority stockholders would not be
able to elect any members to the board of directors. Our bylaws provide that a
majority of our issued and outstanding shares constitutes a quorum for
stockholders' meetings, except with respect to certain matters for which a
greater percentage quorum is required by statute.

Our stockholders have no preemptive rights to acquire additional shares of
common stock or other securities. Our common stock is not subject to redemption
and carries no subscription or conversion rights. In the event of liquidation of
our company, the shares of common stock are entitled to share equally in
corporate assets after satisfaction of all liabilities and the payment of any
liquidation preferences.

Holders of common stock are entitled to receive such dividends as the board of
directors may from time to time declare out of funds legally available for the
payment of dividends. We seek growth and expansion of our business through the
reinvestment of profits, if any, and do not anticipate that we will pay
dividends on the common stock in the foreseeable future. In certain cases,
common stockholders may not receive dividends, if and when declared by the board
of directors, until we have satisfied our obligations to any preferred
stockholders.

As of June 27, 2000, we had reserved for issuance on exercise of options and
warrants at exercise prices ranging from $1.50 to $10.25 an aggregate of
4,146,167 shares of common stock consisting of 3,124,347 shares issuable on the
exercise of outstanding options and warrants with a weighted average exercise
price of $5.25 per share, and 1,021,820 shares issuable on the exercise of
options previously granted but not yet exercisable at a weighted exercise price
of $6.90 per share.

The board of directors has authority to authorize the offer and sale of
additional securities without the vote of or notice to existing stockholders,
and it is likely that additional securities will be issued to provide future
financing. The issuance of additional securities could dilute the percentage
interest and per share book value of existing stockholders, including persons
purchasing common stock in this offering.

Preferred Stock

Under our articles of incorporation, our board of directors is authorized,
without stockholder action, to issue preferred stock in one or more series and
to fix the number of shares and rights, preferences and limitations of each
series. Among the specific matters that may be determined by the board of
directors are the dividend rate, the redemption price, if any, conversion
rights, if any, the amount payable in the event of any voluntary liquidation or
dissolution of our company and voting rights, if any.

     Series A Preferred Stock

We are authorized to issue 500,000 shares of Series A Preferred Stock. Such
preferred stock is nonredeemable and subordinate to any other series of our
Preferred Stock which may at any time be issued. We currently do not have any
Preferred Stock outstanding. The Series A Preferred Stock is authorized for
issuance pursuant to the preferred

                                       57
<PAGE>

stock purchase rights that trade with the common stock, as described below. Each
share of Series A Preferred Stock is entitled to receive, when, as and if
declared, a dividend in an amount equal to one hundred times the cash dividend
declared on each share of common stock and one hundred times any noncash
dividends declared with respect to each share of common stock, in like kind,
other than a dividend payable in shares of common stock. In the event of
liquidation, the holder of each share of Series A Preferred Stock shall be
entitled to receive a liquidation payment in an amount equal to one hundred
times the liquidation payment made per share of our common stock. Each share of
Series A Preferred Stock has one hundred votes, voting together with the common
stock and not as a separate class, unless otherwise required by law or our
articles of incorporation. In the event of any merger, consolidation or other
transaction in which shares of our common stock are exchanged, each share of
Series A Preferred Stock is entitled to receive one hundred times the amount
received per share of our common stock.

Each share of our common stock includes one right (a Right) which entitles the
registered holder to purchase from us one one-hundredth (1/100) of a share of
Series A Preferred Stock at an exercise price of $100 per Right, subject to
adjustment to prevent dilution. Initially the Rights will not be exercisable,
certificates for the Rights will not be issued and, unless and until the Rights
become exercisable, they will be transferred with and only with the shares of
common stock. The Rights are exercisable on the Separation Date, which will
occur on the earlier of (i) ten calendar days following a public announcement
that certain persons or groups have acquired 20% or more of our outstanding
voting shares, (ii) ten calendar days following the commencement or public
announcement of the intent of any person to acquire 20% or more of our
outstanding voting shares; or (iii) such later date as may be fixed by the board
of directors. Following the Separation Date, certificates representing the
Rights will be mailed to holders of record of common stock and thereafter such
certificates alone will evidence the Rights. If any person acquires more than
20% of our outstanding common stock or we engage in certain business
combinations, other than pursuant to a tender or exchange offering for all
shares of common stock approved by the board of directors, the Rights become
exercisable for common stock, in lieu of Series A Preferred Stock, by paying one
half of the exercise price of the Right for a number of shares of our common
stock having an aggregate market price equal to such exercise price. Any Rights
that are or were beneficially owned by a person who has acquired 20% or more of
the outstanding common stock will become void.

We may redeem the Rights at $.01 per Right at any time until ten business days
after public announcement that a person has acquired 20% or more of the
outstanding shares of common stock, provided that the redemption is approved by
our Rights Redemption Committee, a committee consisting of at least three
continuing directors, a majority of whom is not our employees. The Rights will
expire on April 4, 2007, unless earlier redeemed by us. Unless the Rights have
been previously redeemed, all shares of common stock issued by us will include
Rights. As long as the Rights are redeemable, the Rights Redemption Committee,
without further stockholder approval may, except with respect to the exercise
price or expiration date of the Rights, amend the Rights in any matter that, in
the opinion of the board of directors, does not materially adversely affect the
interests of holders of the Rights.

The Stockholder Rights Agreement contemplates that we will reserve a sufficient
number of authorized but unissued shares of common stock to permit the exercise
in full of the Rights granted to the current stockholders should these Rights
become exercisable. Because of the number of authorized but unissued shares, as
compared to the number of shares that will be outstanding after the offering,
the number of shares of common stock presently authorized may be insufficient to
permit exercise in full of the Rights upon the occurrence of a triggering event.
Consequently, the effectiveness of the Stockholder Rights Agreement may be
impaired if an insufficient number of shares is authorized and reserved for
issuance upon the exercise of Rights under the agreement.

Certain Article and Bylaw Provisions

Our articles of incorporation divide the members of the board of directors into
three classes of directors, with each class to be as nearly equal in number of
directors as possible, serving staggered, three-year terms. Our articles of
incorporation also provide that directors may be removed, with or without cause,
by a two-thirds majority of the stockholders at a meeting called for that
purpose and that any resulting vacancies can be filled by only a vote of a
majority of the directors remaining in office.

                                       58
<PAGE>

Our bylaws permit stockholders to nominate a person for election as a director
or bring other matters before a stockholder meeting only if written notice of
such intent is provided to us at least 30 days prior to the meeting. Such notice
of intent to nominate a person for election as a director is required to set
forth the same kind of information respecting such nominee as would be required
under the proxy rules of the SEC, including the written consent of the nominee
to serve as a director, if elected, and the name and address of the stockholder
making the nomination, as well as the number of shares of stock owned by such
stockholder. In the case of other proposed business, the notice must set forth a
brief description of each matter proposed, the name and address of the
stockholder proposing the matter, the number of shares of stock owned by such
stockholder and any material interest of such stockholder in such matter.

Nevada law provides that a merger or consolidation, sale or similar transaction
involving all or substantially all of our assets, the issuance of securities
having an aggregate value equal to 5% or more of the aggregate market of all our
outstanding shares or the reclassification, recapitalization or similar
transaction involving an "interested stockholder" (as defined), within three
years after the stockholder became interested, cannot be completed unless such
transaction is approved by our board of directors. After the expiration of three
years after a person becomes an interested stockholder, a transaction cannot be
completed with the interested stockholder unless it is approved by the board of
directors or a majority of the outstanding voting power not beneficially owned
by the interested stockholder, unless certain "fair price" provisions are met.
Such fair price provisions generally require that the amount of cash and the
market value of the consideration to be received per share by all holders of our
outstanding common stock not beneficially owned by the interested stockholder be
at least equal to the higher of the price per share paid by the interested
stockholder or the market value on the date of announcement of the proposed
combination. For purposes of these provisions, an interested stockholder is one
who beneficially owns, directly or indirectly, 10% or more of the voting power
of our outstanding stock.

The foregoing provisions may tend to deter any potential unfriendly offers or
other efforts to obtain control of us that are not approved by our board of
directors and thereby deprive the stockholders of opportunities to sell shares
of common stock at prices higher than the prevailing market price. On the other
hand, these provisions may tend to assure continuity of management and corporate
policies and to induce any person seeking control of us or a business
combination with us to negotiate on terms acceptable to our then elected board
of directors.

                                       59
<PAGE>

                              Selling Stockholders

This prospectus relates to the resale of 2,969,000 shares of our common stock by
the selling stockholders. The following table provides certain information
concerning the resale of shares of common stock by the selling stockholders and
assumes that all shares offered by the selling stockholders will be sold. We
will not receive any proceeds from the resale of the common stock by the selling
stockholders.
<TABLE>
<CAPTION>
                                                                                   Common Stock
                                                       ---------------------------------------------------------------------
                                                              Beneficially                              Beneficially
                                                         Owned Before Offering                      Owned After Offering
                                                       ---------------------------    Number     ---------------------------
                 Selling Stockholder                      Number       Percent      to be Sold      Number       Percent
                 -------------------                      ------       -------      ----------      ------       -------
<S>                                                       <C>            <C>         <C>            <C>          <C>
Cumberland Benchmarked Partners, L.P....................   270,000        1.5         270,000            --         --
Longview Partners.......................................   220,000        1.2         220,000            --         --
Longview Partners A, L.P................................    20,000        *            20,000            --         --
Longview Partners B, L.P................................   140,000        *           140,000            --         --
Longview Partners C, L.P................................    50,000        *            50,000            --         --
Spindrift Partners, L.P.................................   800,000        4.5         800,000            --         --
Spindrift Partners (Bermuda) L.P........................   200,000        1.1         200,000            --         --
CastleRock Partners, L.P................................   563,480        3.2         563,480            --         --
CastleRock Partners II, L.P.............................    54,110        *            54,110            --         --
CastleRock Fund, Ltd....................................   232,410        1.3         232,410            --         --
Edith N. Bacon..........................................    10,000        *            10,000            --         --
Eric K. Bacon...........................................    11,000        *            10,000         1,000          *
Robin B. Greenwood......................................    10,000        *            10,000            --         --
Peter J. Lagemann.......................................     2,000        *             2,000            --         --
Carter P. Thacher.......................................    32,000        *            32,000            --         --
Ironman Energy Capital, L.P.............................   130,000        *           130,000            --         --
Longwood Partners, LP...................................   175,000        1.0         175,000            --         --
Daniel V. Drake.........................................    80,000        *            25,000        55,000          *
Talmor Capital Management, L.L.C........................   125,000        *            25,000       100,000          *
                                                                                   -------------
     Total..............................................                            2,969,000
                                                                                   =============
</TABLE>
----------------------------
* Less than 1%.

                                       60
<PAGE>

                              Plan of Distribution

The selling stockholders may from time to time offer any or all of their shares
in one or more of the following transactions (which may include block
transactions):

     o    on Nasdaq;

     o    in the over-the-counter market;

     o    through short sales of shares;

     o    in negotiated transactions other than in such markets;

     o    by pledge to secure debts and other obligations;

     o    in connection with the writing of nontraded and exchange-traded put
          and call options, in hedge transactions, in covering previously
          established short positions and in settlement of other transactions in
          standardized or over-the-counter options; or

     o    in any combination of any of the above transactions.

The selling stockholders may sell their shares at market prices prevailing at
the time of sale, at prices related to such prevailing market prices, at
negotiated prices or at fixed prices. The selling stockholders may sell their
shares directly to purchasers or to or through broker-dealers, which may act as
agents or principals. The selling stockholders may compensate broker-dealers in
the form of commissions, discounts or selling concessions. The broker-dealers
may also receive compensation from any purchaser of the shares for whom the
broker-dealers acts as agent or to whom it sells as a principal.

The selling stockholders may also resell all or a portion of their shares in
open market transactions in reliance on Rule 144 under the Securities Act, as
long as they meet the criteria and comply with the requirements of that rule.

The selling stockholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares, and we do not intend to enter
into any arrangement with any underwriter or coordinating broker-dealer with
respect to sales of the shares by the selling stockholders.

The selling stockholders and any broker-dealers that participate in the
distribution of their shares may be deemed to be "underwriters" within the
meaning of section 2(11) of the Securities Act. Any commissions received by such
broker-dealers and any profits realized on the resale of shares by them may be
considered underwriting discounts and commissions under the Securities Act. We
have agreed to indemnify each selling stockholder against certain liabilities,
including liabilities arising under the Securities Act and, alternatively, to
contribute toward amounts paid by the selling stockholders due to such
liabilities. The selling stockholders may agree to indemnify any agent, dealer
or broker-dealer that participates in sales of the shares against certain
liabilities, including liabilities arising under the Securities Act.

The selling stockholders may be subject to the prospectus delivery requirements
of the Securities Act and to applicable provisions of and regulations under the
Exchange Act that may limit the timing of their purchases and sales of our
shares.

We are required to pay all costs, expenses and fees incident to the registration
of the shares, including fees and disbursements of counsel to the selling
stockholders, and the selling stockholders are required to pay any brokerage
commissions or similar selling expenses incurred by them in connection with the
sales of their shares.

As used in this prospectus, "selling stockholders" includes donees, pledges,
transferees or other successors in interest who are selling shares they received
after the date of this prospectus from a selling stockholder named in this
prospectus as a gift, pledge, partnership distribution or other nonsale related
transfer.

                                       61
<PAGE>

Upon being notified by a selling stockholder that the selling stockholder has
entered into a material arrangement with a broker-dealer for the sale of the
selling stockholder's shares through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, we
will file a supplement to this prospectus, if required by Rule 424(b) under the
Securities Act, disclosing certain information about the arrangement and the
sale of the shares involved. In addition, upon being notified by a selling
stockholder that a donee, pledgee, transferee or other successor-in-interest
intends to sell more than 500 shares, we will file an appropriate supplement to
this prospectus.

                                       62
<PAGE>

                    Where You Can Find Additional Information

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act for the common stock sold in this
offering. This prospectus does not contain all of the information set forth in
the registration statement and the accompanying exhibits and schedules. For
further information about us and our common stock, we refer you to the
registration statement and the accompanying exhibits and schedules. Statements
contained in this prospectus regarding the contents of any contract or any other
document to which we refer are not necessarily complete. In each instance,
reference is made to the copy of the contract or document filed as an exhibit to
the registration statement, and each statement is qualified in all respects by
that reference. Copies of the registration statement and the accompanying
exhibits and schedules may be inspected without charge at the public reference
facilities maintained by the Securities and Exchange Commission at room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Securities and Exchange Commission located at Seven World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials may be
obtained at prescribed rates from the public reference room of the Securities
and Exchange Commission at room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the public reference room
by calling the Securities and Exchange Commission at 1-800-SEC-0330. The
Securities and Exchange Commission maintains a web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Securities and Exchange Commission. The
address of the site is http://www.sec.gov.

We are subject to the reporting requirements of the Securities Exchange Act of
1934, and we file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document that we file at the Securities and Exchange Commission's
public reference rooms in Washington, D.C., New York, New York, and Chicago,
Illinois. Please call the Securities Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to you free of charge at the Securities Exchange Commission's web site
at http://www.sec.gov. The common stock is traded under the symbol "FXEN" on the
Nasdaq National Market. Material filed by us can be inspected at the offices of
the National Association of Securities Dealers, Inc., Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006.

                                  Legal Matters

Certain legal matters respecting the validity under the Nevada Revised Statutes
of the common stock to be sold by the selling stockholders have been passed upon
for us by Kruse, Landa & Maycock, L.L.C.

                                     Experts

The consolidated financial statements as of December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999 included in this
Form S-1 have been so included in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

The estimated reserve evaluations and related calculations of Larry D. Krause,
independent petroleum engineer, respecting our domestic reserves included in
this prospectus have been included herein in reliance upon the authority of Mr.
Krause as an expert in petroleum engineering.

                                       63
<PAGE>

                          Glossary of Oil and Gas Terms

"Bpd" means barrels of oil per day.

"Bbl" means barrel of oil.

"Bcf" means billion cubic feet of natural gas.

"Bcfe" means billion cubic feet of natural gas equivalent using a ratio of one
barrel of oil to 6,000 cubic feet of natural gas.

"Carried" refers to an agreement under which one party (carrying party) agrees
to pay for all or a specified portion of costs of another party (carried party)
on a property in which both parties own a portion of the working interest.

"Condensate" means a light hydrocarbon liquid, generally natural gasoline, that
condenses to a liquid (i.e., falls out of wet gas) as the wet gas is sent
through a mechanical separator near the well.

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

"Exploratory well" means a well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir or to extend a known reservoir.

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

"Gross" acres and "gross" wells means the total number of acres or wells, as the
case may be, in which an interest is owned, either directly or through a
subsidiary or other Polish enterprise in which we have an interest.

"MBbls" means thousand barrels of oil.

"MMBbls" means million barrels of oil.

"MMcfe" means million cubic feet of natural gas equivalent using a ratio of one
barrel of oil to 6,000 cubic feet of gas.

"MMcf" means million cubic feet of natural gas.

"MMBOE" means million barrels of oil equivalent.

"Net" means, when referring to wells or acres, the fractional ownership working
interests held by us, either directly or through a subsidiary or other Polish
enterprise in which we have an interest, multiplied by the gross wells or acres.

"Proved reserves" means the estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. "Proved reserves" may be developed or
undeveloped.

"PV-10 Value" means the estimated future net revenue to be generated from the
production of proved reserves discounted to present value using an annual
discount rate of 10%. These amounts are calculated net of estimated production
costs and future development costs, using prices and costs in effect as of a
certain date, without escalation and without giving effect to nonproperty
related expenses such as general and administrative costs, debt service, future
income tax expense or depreciation, depletion and amortization.

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

                                       64
<PAGE>

"Step-out" means a well drilled outside well locations offsetting a producing
well but within the possible or probable extent of a reservoir.

"Stratigraphic test" means a drilling effort, geologically directed, to obtain
information pertaining to a specific geologic condition. Stratigraphic test
wells are customarily drilled without the intention of completing for oil or gas
production.

"Tcf" means trillion cubic feet of natural gas.

                                       65
<PAGE>

                                     PART II
                     Information Not Required in Prospectus

Item 13.  Other Expenses of Issuance and Distribution

The following table sets forth the estimated expenses payable by us in
connection with the offering (excluding underwriting discounts and commissions):

                       Nature of Expense                              Amount
                       -----------------                              ------

    SEC registration fees......................................     $  4,213
    Transfer agent's, and registrars' fees and expenses........          500
    Accounting fees and expenses...............................       25,000
    Legal fees and expenses....................................       40,000
    Printing and engraving expenses............................        1,000
    Miscellaneous..............................................        4,287
                                                                  ============
         Total.................................................      $75,000
                                                                  ============

Item 14.  Indemnification of Directors and Officers

Section 78.037 of the Nevada corporation law and "Article VI - Indemnification
of Officers, Directors, and Others" of the Registrant's articles of
incorporation provide for indemnification of the Registrant's directors and
officers in a variety of circumstances, which may include liabilities under the
Securities Act of 1933, as amended.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons pursuant
to the foregoing provisions, the Registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
contrary to public policy as expressed in the Securities Act, and therefore, is
unenforceable. See "Item 17. Undertakings."

Item 15.  Recent Sales of Unregistered Securities

Since May 31, 1997, the Registrant has issued and sold the following
unregistered securities:

1. In February 1998, 300,000 shares of common stock were issued to two executive
officers and directors, both of whom were accredited investors, on the exercise
of options at $1.50 per share, for a total of $450,000. Each purchaser confirmed
in writing that the securities were being acquired for investment, and the
certificates bear a restrictive legend. The foregoing issuance and sale of
common stock were effected in reliance upon the exemption from registration
provided by Section 4(2) under the Securities Act of 1933, as amended. There
were no underwriting discounts or commissions in connection with this
transaction.

2. In May 1999, 1,792,500 shares of common stock were issued and sold for $7.2
million in gross proceeds ($7.1 million net proceeds after deducting expenses
associated with such sale) to seven accredited investors. Each purchaser
confirmed in writing that the securities were being acquired for investment, and
the certificates bear a restrictive legend. The foregoing issuance and sale of
common stock were effected in reliance upon the exemption from registration
provided by Section 4(2) and Rule 506 of Regulation D under the Securities Act
of 1933, as amended. There were no underwriting discounts or commissions in
connection with this transaction.

3. In June 2000, 2,969,000 shares of common stock were issued and sold for $10.4
million in gross proceeds ($9.3 million net proceeds after deducting placement
commissions and expenses associated with such sale) to 19 accredited investors.
Each purchaser confirmed in writing that the securities were being acquired for
investment, and the certificates bear a restrictive legend. The foregoing
issuance and sale of common stock were effected in reliance upon the exemption
from registration provided by Section 4(2) and Rule 506 of Regulation D under
the Securities Act of 1933, as amended. CIBC World Markets and Hibernia
Southcoast Capital acted as placement agents for the sale of these securities.

                                      II-i
<PAGE>

Item 16.  Exhibits and Financial Statement Schedules

(a) Exhibits
<TABLE>
<CAPTION>
                  SEC
  Exhibit      Reference
  Number        Number                             Title of Document                               Location
------------ -------------- ----------------------------------------------------------------  -------------------
<S>             <C>         <C>                                                               <C>
Item 3.                     Articles of Incorporation and Bylaws
--------------------------------------------------------------------------------------------
3.1                3        Restated and Amended Articles of  Incorporation                   Incorporated by
                                                                                                  Reference(11)

3.2                3        Bylaws                                                            Incorporated by
                                                                                                  Reference(1)

Item 4.                     Instruments Defining the Rights of Security Holders
--------------------------------------------------------------------------------------------
4.1                4        Specimen Stock Certificate                                        Incorporated by
                                                                                                  Reference(1)

4.2                4        Form of Designation of Rights, Privileges, and Preferences of     Incorporated by
                                Series A Preferred Stock                                          Reference(14)

4.3                4        Form of Rights Agreement dated as of April 4, 1997, between FX    Incorporated by
                                Energy and Fidelity Transfer Corp.                                Reference(14)

Item 5.                     Opinion re: Legality
--------------------------------------------------------------------------------------------
5.1                5        Opinion of Kruse, Landa & Maycock, LLC                            This Filing

Item 10.                    Material Contracts
--------------------------------------------------------------------------------------------
10.1              10        Mining Usufruct Agreement between the State Treasury of the       Incorporated by
                                Republic of Poland and Frontier Poland Exploration and            Reference(3)
                                Producing Company, Sp. z o.o. dated August 22, 1995,
                                relating to Blocks 51, 52, 71, 72, 91, 92, 93, 111, 112,
                                and 113 (Baltic)

10.2              10        Amendment No. 1 to Mining Usufruct Agreement dated August 15,     Incorporated by
                                1996 (Baltic)                                                     Reference(4)

10.3              10        Amendment No. 2 to Mining Usufruct Agreement dated August 22,     Incorporated by
                                1996 (Baltic)                                                     Reference (15)

10.4              10        Form of concession dated December 20, 1995, relating to Baltic    Incorporated by
                                Concessions granted pursuant to the Mining Usufruct               Reference(5)
                                Agreement dated August 15, 1996, with related schedule

10.5              10        Mining Usufruct Agreement between the State Treasury of the       Incorporated by
                                Republic of Poland and Lubex Petroleum Company Sp. z o.o.         Reference(10)
                                dated December 20, 1996, relating to concession blocks
                                255, 275, 295, 316, 336, 337, and 338 (Lublin)

10.6              10        Mining Usufruct Agreement between the State Treasury of the       Incorporated by
                                Republic of Poland and Apache Poland Sp. z o.o. and FX            Reference(12)
                                Energy Poland Sp. z o.o. (East), commercial partnership
                                dated October 14, 1997, related to concession blocks 257,
                                258, 277, 278, 297, 317, and 318 (Lublin)

10.7              10        Mining Usufruct Agreement between the State Treasury of the       Incorporated by
                                Republic of Poland and Apache Poland Sp. z o.o. and FX            Reference(12)
                                Energy Poland Sp. z o.o. (East), commercial partnership
                                dated October 14, 1997, related to concession block 298
                                (Lublin)

                                     II-ii
<PAGE>
<CAPTION>
                  SEC
  Exhibit      Reference
  Number        Number                             Title of Document                               Location
------------ -------------- ----------------------------------------------------------------  -------------------
<S>             <C>         <C>                                                               <C>
10.8              10        Mining Usufruct Agreement between the State Treasury of the       Incorporated by
                                Republic of Poland and Apache Poland Sp. z o.o. and FX            Reference(12)
                                Energy Poland Sp. z o.o. (East), commercial partnership
                                dated October 14, 1997, related to concession blocks 319,
                                320, 339, 340, 340A, 359, 360, 360A, 379, 380, and 380A
                                (Lublin)

10.9              10        Mining Usufruct Agreement between the State Treasury of the       Incorporated by
                                Republic of Poland and Gasex Production Company Sp. z o.o.        Reference(12)
                                and Company, commercial partnership dated October 14,
                                1997, related to concession blocks 410, 411, 412, 413,
                                414, 415, 430, 431, 432, 433, 452 and 453 (Western
                                Carpathian)

10.10             10        Mining Usufruct Agreement between the State Treasury of the       Incorporated by
                                Republic of Poland and FX Energy Poland Sp. z o.o. and            Reference(12)
                                Partners, commercial partnership dated October 30, 1997,
                                related to concession blocks 85, 86, 87, 88, 89, 105,108,
                                109, 129, and 149, in northwestern Poland (Pomeranian)

10.11             10        Option Agreement dated July 18, 1997, between Polish Oil and      Incorporated by
                                Gas Company, FX Energy, and Apache Overseas, Inc.                 Reference(12)

10.12             10        Participation Agreement dated effective as of April 16, 1997,     Incorporated by
                                between Apache Overseas, Inc., and FX Energy, pertaining          Reference(13)
                                to the Lublin Concessions

10.13             10        Letter Agreement dated February 27, 1998, between FX Energy       Incorporated by
                                and Apache Overseas, Inc., regarding modification to all          Reference (15)
                                agreements for acreage in Poland under established area of
                                mutual interest.

10.14             10        Participation Agreement dated effective February 27, 1998,        Incorporated by
                                between FX Energy and Apache Overseas, Inc., pertaining to        Reference (15)
                                the Western Carpathian Concession

10.15             10        Participation Option Agreement dated effective February 27,       Incorporated by
                                1998, between FX Energy and Apache Overseas, Inc.,                Reference (15)
                                pertaining to the Pomeranian Concession

10.16             10        Prospect Agreement between Apache Poland Sp. z o.o., and FX       Incorporated by
                                Energy Poland Sp. z o.o., dated April 17, 1998.                   Reference (18)

10.17             10        Option Agreement dated effective as of February 2, 1998,          Incorporated by
                                between POGC, FX Energy, Inc., and Apache Overseas, Inc.,         Reference (15)
                                pertaining to the Western Carpathian Concessions

10.18             10        Option Agreement dated March 5, 1998, effective as of April       Incorporated by
                                16, 1997, between FX Energy, Inc., Apache Overseas, Inc.,         Reference (17)
                                and POGC, relating to FX Energy's Carpathian Concessions.

10.19             10        Option Agreement between FX Energy Poland Sp. z o.o., and POGC    Incorporated by
                                dated effective May 20, 1998, relating to Pomeranian              Reference (19)
                                Concessions

10.20             10        Agreement dated October 21, 1996, between Sudety Mining           Incorporated by
                                Company Sp. z o.o. and the State Treasury of the Republic         Reference (9)
                                of Poland, for the establishment of the mining usufruct
                                for the purpose of gold exploration in the Sudety
                                Concessions

                                     II-iii
<PAGE>
<CAPTION>
                  SEC
  Exhibit      Reference
  Number        Number                             Title of Document                               Location
------------ -------------- ----------------------------------------------------------------  -------------------
<S>             <C>         <C>                                                               <C>
10.21             10        Earn-In and Exploration Letter of Intent dated June 13, 1997,     Incorporated by
                                between FX Energy and Homestake Mining Company of                 Reference (12)
                                California

10.22             10        Form of Mining Usufruct Agreement between the State Treasury      Incorporated by
                                of the Republic of Poland and FX Energy Poland Sp. z o.o.         Reference (15)
                                Commercial Partnership, dated October 16, 1997, relating
                                to Sudety Concession blocks 43, 63, 64, 65, with related
                                schedule.

10.23             10        Earn-in, Exploration, and Joint Venture Agreement between         Incorporated by
                                Homestake Mining Company of California and FX Energy              Reference (15)
                                effective December 31, 1997, regarding exploration for
                                precious metals in the Republic of Poland (Sudety)

10.24             10        Agreement between Apache Overseas, Inc., and FX Energy dated      Incorporated by
                                effective January 1, 1999, pertaining to oil and gas              Reference (20)
                                operations in Poland

10.25             10        Agreement on Cooperation in the Lachowice Area between POGC,      Incorporated by
                                Apache Overseas, Inc., Apache Poland, Sp. Z o.o., FX              Reference (20)
                                Energy, Inc., and FX Energy Poland Sp. Z o.o., dated
                                February 26, 1999

10.26             10        Frontier Oil Exploration Company 1995 Stock Option and Award      Incorporated by
                                Plan*                                                             Reference(4)

10.27             10        Form of FX Energy, Inc., 1996 Stock Option and Award Plan*        Incorporated by
                                                                                                  Reference(10)

10.28             10        Form of FX Energy, Inc., 1997 Stock Option and Award Plan*        Incorporated by
                                                                                                  Reference (20)

10.29             10        Form of FX Energy, Inc., 1998 Stock Option and Award Plan*        Incorporated by
                                                                                                  Reference (20)

10.30             10        Employment Agreements between FX Energy and each of David         Incorporated by
                                Pierce and Andrew Pierce, effective January 1, 1995*              Reference(1)

10.31             10        Amendments to Employment Agreements between FX Energy and each    Incorporated by
                                of David Pierce and Andrew Pierce, effective May 30, 1996*        Reference(8)

10.32             10        Form of Stock Option with related schedule (D. Pierce and A.      Incorporated by
                                Pierce) *                                                         Reference(1)

10.33             10        Form of Stock Option granted to D. Pierce and A. Pierce*          Incorporated by
                                                                                                  Reference(1)

10.34             10        Form of Non-Qualified Stock Option with related schedule*         Incorporated by
                                                                                                  Reference(4)

10.35             10        Letter Agreement dated effective August 3 , 1995, between         Incorporated by
                                Lovejoy Associates, Inc., and FX Energy re: Financial             Reference(4)
                                Consulting Engagement*

10.36             10        Letter Agreement dated effective August 3, 1995, between          Incorporated by
                                Lovejoy Associates, Inc., and FX Energy re:                       Reference(4)
                                Indemnification

10.37             10        Non-Qualified Stock Option granted to Thomas B. Lovejoy*          Incorporated by
                                                                                                  Reference(4)

                                     II-iv
<PAGE>
<CAPTION>
                  SEC
  Exhibit      Reference
  Number        Number                             Title of Document                               Location
------------ -------------- ----------------------------------------------------------------  -------------------
<S>             <C>         <C>                                                               <C>
10.38             10        Letter Agreement dated effective December 31, 1997, between FX    Incorporated by
                                Energy and Lovejoy Associates, Inc., re: Extension of             Reference (15)
                                Consulting Engagement*

10.39             10        Employment Agreement between FX Energy and Jerzy B. Maciolek*     Incorporated by
                                                                                                  Reference(8)

10.40             10        Addendum to Employment Agreement between FX Energy and Jerzy      Incorporated by
                                B. Maciolek*                                                      Reference (15)

10.41             10        Second Addendum to Employment Agreement between FX Energy and     Incorporated by
                                Jerzy B. Maciolek*                                                Reference (15)

10.42             10        Employment Agreement between FX Energy and Scott J. Duncan*       Incorporated by
                                                                                                  Reference (15)
10.43             10        Form of Indemnification Agreement between FX Energy and           Incorporated by
                                certain directors, with related schedule*                         Reference(10)

10.44             10        Form of Option granted to executive officers and directors,       Incorporated by
                                with related schedule*                                            Reference(10)

10.45             10        Memorandum of Understanding regarding officer loans (reformed     Incorporated by
                                June 19, 1998)                                                    Reference (16)

10.46             10        Limited Recourse Promissory Note of David N. Pierce in the        Incorporated by
                                amount of $950,954 (reformed June 19, 1998)                       Reference (16)

10.47             10        Pledge and Security Agreement between FX Energy, Inc. and         Incorporated by
                                David N. Pierce (reformed June 19, 1998)                          Reference (16)

10.48             10        Agreement to Hold Collateral between FX Energy, Inc. and David    Incorporated by
                                N. Pierce and Kruse, Landa & Maycock as agent to hold             Reference (16)
                                collateral (reformed June 19, 1998)

10.49             10        Limited Recourse Promissory Note of Andrew W. Pierce in the       Incorporated by
                                amount of $769,924 (reformed June 19, 1998)                       Reference (16)

10.50             10        Pledge and Security Agreement between FX Energy, Inc. and         Incorporated by
                                Andrew W. Pierce (reformed June 19, 1998)                         Reference (16)

10.51             10        Agreement to Hold Collateral between FX Energy, Inc. and          Incorporated by
                                Andrew W. Pierce and Kruse, Landa & Maycock as agent to           Reference (16)
                                hold collateral (reformed June 19, 1998)

10.52             10        Form of Indemnification Agreement between FX Energy and           Incorporated by
                                certain directors, with related schedule                          Reference (21)

10.53             10        Agreement on Cooperation in Exploration of Hydrocarbons on        Incorporated by
                                Foresudetic Monocline dated April 11, 2000, between               Reference (22)
                                Polskie Gornictwo Naftowe i Gaxownictwo S.A. ("POGC") and
                                FX Energy Poland Ps. Z o.o. relating to the Fences project

10.54             10        Agreement effective as of January 1, 2000, between FX Energy,     Incorporated by
                                Inc., and Apache Overseas, Inc.                                   Reference (23)

Item 21                     Subsidiaries of the Registrant
-----------------------------------------------------------------------------------------------------------------
21.1                        Schedule of Subsidiaries                                          Incorporated by
                                                                                                  Reference (15)

                                      II-v
<PAGE>
<CAPTION>
                  SEC
  Exhibit      Reference
  Number        Number                             Title of Document                               Location
------------ -------------- ----------------------------------------------------------------  -------------------
<S>             <C>         <C>                                                               <C>
Item 23                     Consents of Experts and Counsel
--------------------------------------------------------------------------------------------
23.1              23        Consent of PricewaterhouseCoopers LLP, independent accountants    This Filing

23.2              23        Consent of Larry D. Krause, Petroleum Engineer                    This Filing

23.3              23        Consent of Kruse, Landa & Maycock, LLC                            Included in
                                                                                                  Exhibit 5.1

Item 27                     Financial Data Schedule
--------------------------------------------------------------------------------------------
27.1              27        Financial Data Schedule                                           This Filing
------------------------
</TABLE>

*    Identifies each management contract or compensatory plan or arrangement
     required to be filed as an exhibit.
(1)  Incorporated by reference from the registration statement on Form SB-2, SEC
     File No. 33-88354-D.
(2)  Incorporated by reference from the report on Form 8-K dated August 16,
     1995.
(3)  Incorporated by reference from the report on Form 8-K dated August 22,
     1995.
(4)  Incorporated by reference from the quarterly report on Form 10-Q for the
     quarter ended September 30, 1995.
(5)  Incorporated by reference from the annual report on Form 10-K for the year
     ended December 31, 1995.
(6)  Incorporated by reference from the reports on Form 8-K dated May 3, 1996.
(7)  Incorporated by reference from the report on Form 8-K dated May 21, 1996.
(8)  Incorporated by reference from the registration statement on Form S-1, SEC
     File No.333-05583.
(9)  Incorporated by reference from the report on Form 8-K dated October 1,
     1996.
(10) Incorporated by reference from the annual report on Form 10-KSB for the
     year ended December 31, 1996.
(11) Incorporated by reference from the proxy statement respecting the 1997
     annual meeting of stockholders.
(12) Incorporated by reference from the quarterly report on Form 10-QSB for the
     quarter ended September 30, 1997.
(13) Incorporated by reference from the report on Form 8-K dated August 6, 1997.
(14) Incorporated by reference from the report on Form 8-K dated April 4, 1997.
(15) Incorporated by reference from the annual report on Form 10-KSB for the
     year ended December 31, 1997.
(16) Incorporated by reference from the annual report on Form 10-Q for the
     quarter ended March 31, 1998, as amended on Form 10-Q/A filed July 15,
     1998.
(17) Incorporated by reference from the report on Form 8-K dated March 23, 1998.
(18) Incorporated by reference from the report on Form 8-K dated April 20, 1998.
(19) Incorporated by reference from the report on Form 8-K dated June 2, 1998.
(20) Incorporated by reference from the annual report on Form 10-K for the year
     ended December 31, 1998.
(21) Incorporated by reference from the annual report on Form 10-K for the year
     ended December 31, 1999.
(22) Incorporated by reference from the report on Form 8-K dated April 18, 2000.
(23) Incorporated by reference from the quarterly report on Form 10-Q for the
     quarter ended March 31, 2000.


(b) Consolidated Financial Statement Schedules.

All schedules have been omitted because they are not required or because the
required information is given in the Consolidated Financial Statements or Notes
to those statements.

Item 17.  Undertakings

The undersigned registrant hereby undertakes :

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

     (i)  to include any prospectus required by section 10(a)(3) of the
          Securities Act of 1933;

                                     II-vi
<PAGE>

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

     (iii) to include any material information with respect to the plan of
          distribution not previously disclosed in the registration statement or
          any material change to such information in the registration statement;

     Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section
     do not apply if the registration statement is on Form S-3, Form S-8 or Form
     F-3, and the information required to be included in a post-effective
     amendment by those paragraphs is contained in periodic reports filed with
     or furnished to the Commission by the Registrant pursuant to Section 13 or
     15(d) of the Securities Exchange Act of 1934 that are incorporated by
     reference in the registration statement.

(2)  That, for the purpose of determining any liability under the Securities Act
     of 1933, each such post-effective amendment shall be deemed to be a new
     registration statement relating to the securities offered therein, and the
     offering of such securities at that time shall be deemed to be the initial
     bona fide offering thereof.

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

(4)  If the registrant is a foreign private issuer, to file a post-effective
     amendment to the registration statement to include any financial statements
     required by Rule 3-19 of this chapter at the start of any delayed offering
     or throughout a continuous offering. Financial statements and information
     otherwise required by Section 10(a)(3) of the Securities Act of 1933 need
     not be furnished, provided that the Registrant includes in the prospectus,
     by means of a post-effective amendment, financial statements required
     pursuant to this paragraph (a)(4) and other information necessary to ensure
     that all other information in the prospectus is at least as current as the
     date of those financial statements. Notwithstanding the foregoing, with
     respect to registration statements on Form F-3, a post-effective amendment
     need not be filed to include financial statements and information required
     by Section 10(a)(3) of the Securities Act of 1933 or Rule 3-19 of this
     chapter if such financial statements and information are contained in
     periodic reports filed with or furnished to the Commission by the
     Registrant pursuant to Section 13 or Section 15(d) of the Securities
     Exchange Act of 1934 that are incorporated by reference in the Form F-3.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.

                                     II-vii
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Salt Lake City, Utah, on June 28,
2000.

                                                 FX Energy, Inc.

                                                 By: /s/  David N. Pierce
                                                     --------------------------
                                                     David N. Pierce
                                                     President



                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints each of David N. Pierce and Scott J. Duncan such
person's true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement (or to any
other registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act), and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that any said attorney-in-fact and agent, or any
substitute or substitutes of any of them, may lawfully do or cause to be done by
virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

         Name                       Title                             Date
         ----                       -----                             ----

/s/  David N. Pierce      Director, President, and Chief          June 28, 2000
-----------------------   Executive Officer (Principal Executive
David N. Pierce           and Financial Officer)


/s/ Andrew W. Pierce      Vice President, Chief Operations        June 28, 2000
-----------------------   Officer and  Director  (Principal
Andrew W. Pierce          Operations officer)


                          Vice President International            June 28, 2000
-----------------------   Exploration and Director
Jerzy B. Maciolek


/s/ Thomas B. Lovejoy     Director, Chief Financial Officer       June 28, 2000
-----------------------   and Vice Chairman
Thomas B. Lovejoy


/s/  Scott J. Duncan      Director, Vice President Investor       June 28, 2000
-----------------------   Relations and  Secretary
Scott J. Duncan

                                    II-viii
<PAGE>

         Name                       Title                             Date
         ----                       -----                             ----

/s/  Dennis L. Tatum      Director, Vice President and Treasurer  June 28, 2000
-----------------------    (Principal Accounting Officer)
Dennis L. Tatum


/s/  Peter L. Raven       Director                                June 28, 2000
-----------------------
Peter L. Raven

/s/  Jay W. Decker        Director                                June 28, 2000
-----------------------
Jay W. Decker

                          Director                                June 28, 2000
------------------------
Dennis B. Goldstein

                                     II-ix
<PAGE>

                          Index to Financial Statements


                                                                           Page

Consolidated Balance Sheets as of March 31, 2000 and
  December 31, 1999........................................................F-2
Consolidated Statements of Operations for the Three Months
  Ended March 31, 2000 and 1999............................................F-4
Consolidated Statements of Cash Flows for the Three Months
  Ended March 31, 2000 and 1999............................................F-5
Notes to Consolidated Financial Statements.................................F-6



Report of PricewaterhouseCoopers LLP, Independent Accountants..............F-9
Consolidated Balance Sheets as of December 31, 1999 and 1998...............F-10
Consolidated Statements of Operations for the Years Ended
  December 31, 1999, 1998 and 1997.........................................F-12
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1999, 1998 and 1997.........................................F-13
Consolidated Statements of Stockholders' Equity for the Years
  Ended December 31, 1999, 1998 and 1997...................................F-14
Notes to Consolidated Financial Statements.................................F-15

                                      F-1
<PAGE>
<TABLE>
<CAPTION>
                        FX ENERGY, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                                                                       March                  December
                                                                                      31, 2000                31, 1999
                                                                                  ---------------          ---------------
ASSETS

Current assets:
<S>                                                                               <C>                      <C>
  Cash and cash equivalents..............................................         $   3,254,304            $   1,619,237
  Investment in marketable debt securities...............................             2,091,908                5,249,003
  Accounts receivable:
    Accrued oil sales....................................................               293,499                  243,183
    Interest receivable..................................................                29,788                  171,242
    Joint interest owners and others.....................................                62,152                   86,723
  Advances to oil and gas ventures.......................................                13,192                       --
  Inventory..............................................................                70,844                   66,361
  Other current assets...................................................               106,894                  126,006
                                                                                  ---------------          ---------------
      Total current assets...............................................             5,922,581                7,561,755
                                                                                  ---------------          ---------------

Property and equipment, at cost:
  Oil and gas properties (successful efforts method):
    Proved...............................................................             2,175,442                1,687,089
    Unproved.............................................................             1,398,546                1,382,880
  Other property and equipment...........................................             2,793,510                2,652,102
                                                                                  ---------------          ---------------
      Gross property and equipment.......................................             6,367,498                5,722,071
  Less accumulated depreciation, depletion and amortization..............            (3,216,824)              (3,173,493)
                                                                                  ---------------          ---------------
      Net property and equipment.........................................             3,150,674                2,548,578
                                                                                  ---------------          ---------------

Other assets:
  Certificates of deposit................................................               356,500                  356,500
  Other..................................................................                 2,789                    2,789
                                                                                  ---------------          ---------------
      Total other assets.................................................               359,289                  359,289
                                                                                  ---------------          ---------------
Total assets.............................................................         $   9,432,544            $  10,469,622
                                                                                  =============            =============
</TABLE>

                                 -- Continued --

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       F-2
<PAGE>
<TABLE>
<CAPTION>
                        FX ENERGY, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                                 -- Continued --

                                                                                      March                    December
                                                                                     31, 2000                  31, 1999
                                                                                  ---------------          ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
<S>                                                                               <C>                      <C>
  Accounts payable.......................................................         $     712,379            $     623,911
  Accrued liabilities....................................................             1,118,675                1,478,862
                                                                                  ---------------          ---------------
      Total current liabilities..........................................             1,831,054                2,102,773
                                                                                  ---------------          ---------------
      Total liabilities..................................................             1,831,054                2,102,773
                                                                                  ---------------          ---------------

Stockholders' equity:
  Common stock, $.001 par value, 30,000,000 shares
    authorized, 14,849,003 issued and outstanding as of
    March 31, 2000 and December 31, 1999.................................                14,849                   14,849
  Notes receivable from officers.........................................            (1,400,040)              (1,370,873)
  Additional paid-in capital.............................................            38,480,556               38,480,556
  Accumulated deficit....................................................           (29,493,875)             (28,757,683)
                                                                                  ---------------          ---------------
    Total stockholders' equity...........................................             7,601,490                8,366,849
                                                                                  ---------------          ---------------

Total liabilities and stockholders' equity...............................         $   9,432,544            $  10,469,622
                                                                                  ===============          ===============
</TABLE>
               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       F-3
<PAGE>
<TABLE>
<CAPTION>
                        FX ENERGY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                                       For the three months ended
                                                                                March 31,
                                                                 ----------------------------------------
                                                                       2000                   1999
                                                                 -----------------      -----------------
Revenues:
<S>                                                              <C>                    <C>
  Oil sales............................................          $       596,630        $       233,708
  Drilling revenue.....................................                   73,738                 87,543
                                                                 -----------------      -----------------
      Total revenues...................................                  670,368                321,251
                                                                 -----------------      -----------------

Operating costs and expenses:
  Lease operating expenses.............................                  284,992                236,069
  Production taxes.....................................                    6,946                 14,368
  Geological and geophysical costs.....................                  484,409                179,832
  Drilling costs.......................................                   75,265                 52,874
  Depreciation, depletion and amortization.............                   87,068                126,429
  General and administrative...........................                  596,967                536,389
                                                                 -----------------      -----------------
      Total operating costs and expenses...............                1,535,647              1,145,961
                                                                 -----------------      -----------------
Operating loss.........................................                 (865,279)              (824,710)
                                                                 -----------------      -----------------
Other income (expense):
  Interest and other income............................                  134,254                102,191
  Interest expense.....................................                     (308)                    --
  Impairment of notes receivable from officers.........                   (4,859)                    --
                                                                 -----------------      -----------------
      Total other income...............................                  129,087                102,191
                                                                 -----------------      -----------------
Net loss...............................................          $      (736,192)       $      (722,519)
                                                                 =================      =================
Basic and diluted net loss per common share............          $          (.05)       $          (.06)
                                                                 =================      =================
Basic and diluted weighted average number
  of shares outstanding................................               14,849,003             13,054,503
                                                                 =================      =================
</TABLE>
               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       F-4
<PAGE>
<TABLE>
<CAPTION>
                        FX ENERGY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                                                     For three months ended
                                                                                             March 31,
                                                                              ---------------------------------------
                                                                                    2000                  1999
                                                                              -----------------     -----------------
Cash flows from operating activities:
<S>                                                                           <C>                   <C>
  Net loss...........................................................         $      (736,192)      $      (722,519)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation, depletion and amortization.......................                  87,068               126,429
      Impairment of notes receivable from officers...................                   4,859                    --
      Interest income on officer loans...............................                 (34,026)              (28,340)
  Increase (decrease) from changes in working capital items:
    Accounts receivable..............................................                 115,709                10,700
    Advances to oil and gas ventures.................................                 (13,192)                   --
    Inventory........................................................                  (4,483)                1,621
    Other current assets.............................................                  19,112                (4,214)
    Accounts payable and accrued liabilities.........................                (447,223)             (103,484)
                                                                              -----------------     -----------------
      Net cash used in operating activities..........................              (1,008,368)             (719,807)
                                                                              -----------------     -----------------
Cash flows from investing activities:
  Additions to oil and gas properties................................                (382,475)              (65,036)
  Additions to other property and equipment..........................                (131,185)              (12,382)
  Additions to other assets..........................................                      --                (2,789)
  Proceeds from sale of property interests...........................                      --                 3,000
  Purchase of marketable debt securities.............................              (1,384,905)           (1,041,915))
  Proceeds from maturing marketable debt securities..................               4,542,000             1,065,000
                                                                              -----------------     -----------------
    Net cash provided by (used in) investing activities..............               2,643,435               (54,122)
                                                                              -----------------     -----------------
Cash flows from financing activities:
  Advances to officers...............................................                      --               (97,810)
                                                                              -----------------     -----------------
    Net cash used in financing activities............................                      --               (97,810)
                                                                              -----------------     -----------------
Increase (decrease) in cash and cash equivalents.....................               1,635,067              (871,739)
Cash and cash equivalents at beginning of period.....................               1,619,237             1,811,780
                                                                              -----------------     -----------------
Cash and cash equivalents at end of period...........................         $     3,254,304       $       940,041
                                                                              =================     =================
</TABLE>

Supplemental non-cash activity disclosure:

Non-cash investing activities

         Additions to oil and gas properties  included  $121,544 and $269,047 of
additions financed with accounts payable and accrued liabilities for the periods
ended March 31, 2000 and 1999,  respectively.  Additions  to other  property and
equipment  included $53,960 of additions  financed with accounts payable for the
period ended March 31, 2000.

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       F-5
<PAGE>

                        FX ENERGY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1:           Basis of Presentation

         The interim  financial data are unaudited;  however,  in the opinion of
the  management  of FX  Energy,  Inc.  and  Subsidiaries  ("FX  Energy"  or  the
"Company"), the interim data includes all adjustments, consisting only of normal
recurring  adjustments,  necessary  for a fair  statement of the results for the
interim periods.  The interim financial statements should be read in conjunction
with FX  Energy's  annual  report on Form  10-K as  amended  for the year  ended
December 31, 1999, including the financial statements and notes thereto.

         The consolidated financial statements include the accounts of FX Energy
and its wholly-owned subsidiaries and FX Energy's undivided interests in Poland.
All significant  inter-company accounts and transactions have been eliminated in
consolidation.  At March 31,  2000,  FX Energy owned 100% of the voting stock of
all of its subsidiaries.

         Certain   balances  in  the  1999   financial   statements   have  been
reclassified to conform to the current quarter  presentation.  These changes had
no effect on total assets, total liabilities, stockholders' equity or net loss.

Note 2:           Income Taxes

         FX Energy recognized no income tax benefit from the losses generated in
the first quarter of 2000 and the first quarter of 1999.

Note 3:           Officer Loans

         As of March 31,  2000,  notes  receivable  and  accrued  interest  from
officers, before an impairment allowance, totaled $2,070,411, with a due date of
on or before  December 31, 2000. The notes  receivable and accrued  interest are
collateralized by 233,340 shares of FX Energy's common stock. In accordance with
SFAS No. 114,  "Accounting by Creditors for Impairment of a Loan," FX Energy has
recorded a  cumulative  impairment  allowance  of $670,371 as of March 31, 2000,
including  $4,859 for the quarter ended March 31, 2000 and $665,512 for the year
ended December 31, 1999, based on the value of the underlying collateral.

         In consideration  for extending the term from December 31, 1999 through
December 31, 2000, the officers  agreed that if the average closing price of the
common  stock  for  five  consecutive  trading  days  results  in a value of the
collateral equal to or above the total principal and accrued interest  balances,
the officers will repay the loans within 45 days thereafter either in cash or by
tendering  to the  Company  such number of shares  which at the average  closing
price for the previous  five  consecutive  trading days equals the principal and
accrued interest then due.

         The impairment  allowance will continue to be adjusted  quarterly based
on the market value of the collateral shares.

                                       F-6
<PAGE>

Note 4:  Business Segment Information

         FX Energy operates within two segments of the oil and gas industry: the
exploration and production  segment  ("E&P") and the contract  drilling and well
servicing segment ("contract services").

         Reportable  business  segment  information as of March 31, 2000 and for
the three months ended March 31, 2000 follows:

<TABLE>
<CAPTION>
                                                                   Non-
                                               Contract         Segmented
                                 E&P           Services         Items (1)         Total
                            --------------   --------------   ------------------------------
<S>                         <C>              <C>              <C>              <C>
Revenues..................  $    596,630     $     73,738     $       --       $   670,368
Net loss..................      (195,659)         (52,713)      (487,820)         (736,192)
Identifiable net property
  and equipment (2).......     2,365,128          630,418        155,128         3,150,674
</TABLE>
--------------------
(1)  Net loss reconciling  items include $596,967 of general and  administrative
     expenses,  $19,940  of  corporate  DD&A and  $129,087  of other  income and
     expense.  Identifiable  net property  and  equipment  includes  $155,128 of
     corporate office equipment, hardware and software.

(2)  Identifiable  net property and equipment  are reported by business  segment
     for  management   reporting  and  reportable  business  segment  disclosure
     purposes.  Current  assets,  other assets and current  liabilities  are not
     allocated to business segments for management reporting or business segment
     disclosure purposes.

         Reportable  business  segment  information as of March 31, 1999 and for
the three months ended March 31, 1999 follows:

<TABLE>
<CAPTION>
                                                                   Non-
                                               Contract         Segmented
                                 E&P           Services         Items (1)         Total
                            --------------   --------------   ------------------------------
<S>                         <C>              <C>              <C>              <C>
Revenues..................  $    233,708     $     87,543     $       --       $   321,251
Net loss..................      (211,004)         (46,266)      (465,249)         (722,519)
Identifiable net property
  and equipment (2).......     1,957,953          655,963        222,374         2,836,290
--------------------
</TABLE>
(1)  Net loss reconciling  items include $536,389 of general and  administrative
     expenses,  $31,051  of  corporate  DD&A and  $102,191  of other  income and
     expense.  Identifiable  net property  and  equipment  includes  $222,374 of
     corporate office equipment, hardware and software.
(2)  Identifiable  net property and equipment  are reported by business  segment
     for  management   reporting  and  reportable  business  segment  disclosure
     purposes.  Current  assets,  other assets and current  liabilities  are not
     allocated to business segments for management reporting or business segment
     disclosure purposes.

Note 5:           Subsequent Events

         Fences Project Area

         On April 11, 2000,  FX Energy  signed an agreement  with the Polish Oil
and Gas Company  ("POGC") under which FX Energy will earn a 49% working interest
in  approximately  300,000  gross acres in west  central  Poland  (the  "Fences"
project area) by spending $16 million for agreed exploration  drilling,  seismic
acquisition and related activities.

         Sale of Common Stock

         In June 2000, FX Energy sold 2,969,000 shares of restricted common
stock for $10,391,500, resulting in net proceeds of approximately $9,300,000.

                                       F-7
<PAGE>

                       THIS PAGE INTENTIONALLY LEFT BLANK


                                      F-8
<PAGE>

                             PricewaterhouseCoopers

                       Report of Independent Accountants



To the Stockholders and Board of Directors
of FX Energy, Inc., and Subsidiaries:

In our opinion,  the accompanying consolidated  balance sheets  and the  related
consolidated statements  of operations,  cash  flows, and  stockholders'  equity
present fairly, in all material respects, the consolidated financial position of
FX Energy, Inc., and  Subsidiaries (the "Company") as  of December 31, 1999  and
1998, and the consolidated results of their operations and their cash flows  for
each of the three  years in the  period ended December  31, 1999, in  conformity
with accounting  principles generally  accepted in  the  United States.    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
auditing standards generally accepted in the United States 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.


PricewaterhouseCoopers LLP
Salt Lake City, Utah
February 8, 2000

                                       F-9
<PAGE>

                  FX ENERGY, INC., AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS
                   As of December 31, 1999 and 1998


                                                  1999             1998
                                             -------------     -----------
ASSETS

Current assets:
 Cash and cash equivalents                   $   1,619,237     $ 1,811,780
 Investment in marketable debt securities        5,249,003       2,929,914
 Receivables:
   Accrued oil sales                               243,183          95,064
   Joint interest and other receivables            171,242         240,102
   Interest receivable                              86,723          86,258
 Inventory                                          66,361          68,327
 Other current assets                              126,006          66,053
                                             -------------     -----------
    Total current assets                         7,561,755       5,297,498
                                             -------------     -----------

Property and equipment, at cost:
 Oil and gas properties (successful efforts
 method):
   Proved                                        1,687,089       1,605,279
   Unproved                                      1,382,880       1,178,408
 Other property and equipment                    2,652,102       2,494,688
                                             -------------     -----------
    Gross property and equipment                 5,722,071       5,278,375
 Less accumulated depreciation, depletion
 and amortization                               (3,173,493)     (2,679,441)
                                             -------------     -----------

    Net property and equipment                   2,548,578       2,598,934
                                             -------------     -----------

Other assets:
 Certificates of deposit                           356,500         356,500
    Deposits                                         2,789              --
                                             -------------     -----------
    Total other assets                             359,289         356,500
                                             -------------     -----------

Total assets                                 $  10,469,622     $ 8,252,932
                                             =============     ===========


                             -Continued-

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

                                      F-10
<PAGE>

                  FX ENERGY, INC., AND SUBSIDIARIES
                CONSOLIDATED BALANCE SHEETS, Continued
                   As of December 31, 1999 and 1998


                                                          1999           1998
                                                     -----------    -----------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable                                    $   623,911    $   420,906
 Accrued liabilities                                   1,478,862        911,950
                                                     -----------    -----------
   Total current liabilities                           2,102,773      1,332,856
                                                     -----------    -----------

Commitments (Notes 2 and 11)


Stockholders' equity:
 Preferred stock, $.001 par value, 5,000,000 shares
  authorized; 1999 and 1998: no shares outstanding            --             --
 Common stock, $.001 par value, 30,000,000 shares
  authorized;
   1999: 14,849,003 shares issued and outstanding;
   1998: 13,054,503 shares issued and outstanding         14,849         13,055
 Notes receivable from officers                       (1,370,873)    (1,304,527)
 Additional paid-in capital                           38,480,556     31,112,861
 Accumulated deficit                                 (28,757,683)   (22,901,313)
                                                     -----------    -----------
 Total stockholders' equity                            8,366,849      6,920,076
                                                     -----------    -----------
 Total liabilities and stockholders' equity          $10,469,622    $ 8,252,932
                                                     ===========    ===========



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

                                      F-11
<PAGE>
<TABLE>
<CAPTION>
                       FX ENERGY, INC., AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
              For the years ended December 31, 1999, 1998 and 1997


                                                      1999             1998           1997
                                                 ------------      -----------     ----------
<S>                                              <C>               <C>             <C>
Revenues:
  Oil sales                                      $  1,554,474      $ 1,123,511     $2,040,233
  Drilling revenue                                    864,689          322,769        496,158
  Gain on sale of property interests                       --          466,891        272,234
                                                 ------------      -----------     ----------
   Total revenues                                   2,419,163        1,913,171      2,808,625
                                                 ------------      -----------     ----------
<S>
Operating costs and expenses:                    <C>               <C>             <C>
  Lease operating costs                               899,258          966,732      1,094,043
  Production taxes                                     63,141           79,602        145,372
  Geological and geophysical costs                  1,959,422        2,109,375      1,683,753
  Exploratory dry hole costs                        1,001,433           17,422      3,478,456
  Impairments                                          92,605        5,885,042        152,105
  Drilling costs                                      641,871          240,061        328,820
  Depreciation, depletion and amortization            494,052          671,277        634,559
  General and administrative                        2,961,878        2,572,212      2,565,690
                                                 ------------      -----------     ----------
   Total operating costs and expenses               8,113,660       12,541,723      10,082,798
                                                 ------------      -----------     ----------

Operating loss                                     (5,694,497)     (10,628,552)     (7,274,173)
                                                 ------------      -----------     ----------

Other income (expense):
  Interest and other income                           511,636          506,209        661,665
  Interest expense                                     (7,997)              --        (83,273)
  Impairment of notes receivable from
    officers                                         (665,512)              --             --
                                                 ------------      -----------     ----------
   Total other income (expense)                      (161,873)         506,209        578,392
                                                 ------------      -----------     ----------

Net loss before extraordinary gain                 (5,856,370)     (10,122,343)    (6,695,781)

Extraordinary gain (Note 2)                                --               --      3,076,242
                                                 ------------      -----------     ----------
Net loss                                           (5,856,370)     (10,122,343)    (3,619,539)
                                                 ============      ===========     ==========


Basic and diluted net loss per share:
  Net loss before extraordinary gain             $      (0.41)     $     (0.78)    $    (0.53)
  Extraordinary gain                                       --               --           0.24
  Net Loss                                       $      (0.41)     $     (0.78)    $    (0.29)
Basic and diluted weighted average number of     ------------      -----------     ----------
shares outstanding                                 14,198,724       12,978,900     12,596,977
                                                 ============      ===========     ==========
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                   statements

                                      F-12
<PAGE>
<TABLE>
<CAPTION>
                       FX ENERGY, INC., AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the years ended December 31, 1999, 1998 and 1997


                                                      1999             1998           1997
<S>                                              ------------     ------------    ------------
Cash flows from operating activities:            <C>              <C>             <C>
Net loss                                         $ (5,856,370)    $(10,122,343)   $ (3,619,539)
Adjustments to reconcile net loss to net cash
used in operating activities:
  Extraordinary gain                                       --               --      (3,076,242)
  Depreciation, depletion and amortization            494,052          671,277         634,559
  Impairments                                          92,605        5,885,042          28,515
  Gain on sale of property interests                       --         (466,891)       (272,234)
  Exploratory dry hole costs                          240,132               --         210,205
  Common stock and options issued for services        302,687          119,375          70,625
  Accrued interest income from officer loans         (134,295)         (64,170)             --
  Impairment of notes receivable from officers        665,512               --              --
  Increase (decrease) from changes in:
   Receivables                                       (100,044)         260,024        (147,678)
   Inventory                                            1,966             (945)        (47,166)
   Other current assets                               (59,953)          20,960         (19,530)
   Accounts payable and accrued liabilities           608,285          588,908         357,752
                                                 ------------     ------------    ------------
    Net cash used in operating activities          (3,745,423)      (3,108,763)     (5,880,733)
                                                 ------------     ------------    ------------

Cash flows from investing activities:
Additions to oil and gas properties                  (463,387)        (179,765)     (1,136,935)
Additions to other property and equipment            (137,094)        (260,877)       (394,291)
Net change in other assets                             (2,789)              --          25,000
Proceeds from sale of property interests                6,000          506,000         340,152
Proceeds from sale of equipment                            --            6,928          13,051
Employee advances                                          --               --         (15,000)
Purchase of marketable debt securities             (6,617,089)      (6,578,332)     (3,940,582)
Proceeds from maturities of marketable debt
securities                                          4,298,000        7,589,000       5,476,574
                                                 ------------     ------------    ------------
    Net cash provided by (used) in  investing
     activities                                    (2,916,359)       1,082,954         367,969
                                                 ------------     ------------    ------------

Cash flows from financing activities:
Proceeds from long-term debt                               --               --      1,575,992

Notes receivable from officers                       (597,563)        (840,357)      (150,000)
Proceeds from issuance of common stock,
 options and warrants, net of offering
 costs                                              7,066,802          166,027        252,777
                                                 ------------     ------------    ------------
    Net cash provided by (used in) financing
    activities                                      6,469,239         (674,330)     1,678,769
                                                 ------------     ------------    ------------

Increase (decrease) in cash                          (192,543)      (2,700,139)    (3,833,995)
   Cash and cash equivalents at beginning of
   year                                             1,811,780        4,511,919      8,345,914
                                                 ------------     ------------    ------------

Cash and cash equivalents at end of year         $  1,619,237     $  1,811,780    $  4,511,919
                                                 ============     ============    ============
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                   statements

                                      F-13
<PAGE>
<TABLE>
<CAPTION>
                       FX ENERGY, INC., AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
              for the years ended December 31, 1999, 1998 and 1997


                                          Common Stock
                                       -------------------                  Officers'
                                                      Par        Paid-in      Notes        Accumulated
                                       Shares        Value       Capital    Receivable       Deficit         Total
<S>                                  ----------     -------   -----------  ------------   ------------   ------------
                                     <C>            <C>       <C>           <C>           <C>            <C>
Balance at January 1, 1997           12,492,547     $12,492   $30,054,620  $        --    $(9,159,431)   $ 20,907,681
  Exercise of warrants and options      159,334         160       252,617           --             --         252,777
  Common stock issued for services       10,000          10        70,615           --             --          70,625
  Net loss                                   --          --            --           --     (3,619,539)     (3,619,539)
                                     ----------     -------   -----------  ------------  ------------    ------------
Balance at December 31, 1997         12,661,881      12,662    30,377,852           --     12,778,970)     17,611,544
  Exercise of warrants and options      382,622         383       615,644           --             --         616,027
  Common stock issued for services       10,000          10       119,365           --             --         119,375
  Officers' notes - principal                --          --            --   (1,240,357)            --      (1,240,357)
  Officers' notes - interest                 --          --            --      (64,170)            --         (64,170)
  Net loss                                   --          --            --           --    (10,122,343)    (10,122,343)
                                     ----------     -------   -----------  ------------  ------------    ------------
Balance at December 31, 1998         13,054,503      13,055    31,112,861   (1,304,527)   (22,901,313)      6,920,076
  Exercise of warrants and options        2,000           2        13,248           --             --          13,250
  Sale of common stock                1,792,500       1,792     7,168,208           --             --       7,170,000
  Common stock placement costs               --          --      (116,448)          --             --        (116,448)
  Officers' notes - principal                --          --            --     (597,563)            --        (597,563)
  Officers' notes - interest                 --          --            --     (134,295)            --        (134,295)
  Officers' notes - impairment               --          --            --      665,512             --         665,512
  Options issued for services                --          --       302,687           --             --         302,687
  Net loss                                   --          --            --           --     (5,856,370)     (5,856,370)
                                     ----------     -------   -----------  ------------  ------------    ------------
Balance at December 31, 1999         14,849,003     $14,849   $38,480,556  $(1,370,873)  $(28,757,683)   $  8,366,849
                                     ==========     =======   ===========  ============  ============    ============
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                   statements

                                      F-14
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   Summary of Significant Accounting Policies:

     Organization

     FX Energy, Inc.,  a Nevada corporation  and its subsidiaries  (collectively
     hereinafter referred  to as  the  "Company") operate  in  the oil  and  gas
     industry in  Poland and  the United  States.   In  Poland, the  Company  is
     engaged in oil  and gas  exploration, appraisal,  development and  property
     acquisition activities.  In  the United States, the  Company is engaged  in
     producing, exploring and developing oil and  gas properties and operates  a
     drilling and well servicing company.

     Principles of Consolidation

     The consolidated financial statements include  the accounts of the  Company
     and its wholly-owned subsidiaries and the Company's undivided interests  in
     Poland.  All significant inter-company accounts and transactions have  been
     eliminated in consolidation.  At December 31, 1999, the Company owned  100%
     of the voting common stock or other equity securities of its subsidiaries.

     Inventory

     Inventory consists primarily of tubular  supplies and other well  equipment
     and is valued at the lower of average cost or market.

     Oil and Gas Properties

     The Company follows the successful efforts method of accounting for its oil
     and gas  operations.    Under  this  method  of  accounting,  all  property
     acquisition costs  and  costs  of exploratory  and  development  wells  are
     capitalized when incurred, pending  determination of whether an  individual
     well has found proved  reserves.  If it  is determined that an  exploratory
     well has not  found proved  reserves, the costs  of drilling  the well  are
     expensed. The costs of development wells are capitalized whether productive
     or nonproductive.

     Geological and geophysical costs on exploratory prospects and the costs  of
     carrying and retaining unproved  properties are expensed  as incurred.   An
     impairment allowance is provided  to the extent  that capitalized costs  of
     unproved properties, on a  field-by-field basis, are  not considered to  be
     realizable.  Depletion,   depreciation   and   amortization   ("DD&A")   of
     capitalized costs of proved oil and gas properties is provided on a  field-
     by-field basis using  the units-of-production method.   The computation  of
     DD&A takes into  consideration restoration,  dismantlement and  abandonment
     costs and the anticipated proceeds from  equipment salvage.  The  estimated
     restoration, dismantlement and abandonment costs are expected to be  offset
     by the estimated residual value of lease and well equipment.

     An impairment loss is recorded if  the net capitalized costs of proved  oil
     and gas properties  exceed the aggregate  undiscounted future net  revenues
     determined on  a  field-by-field basis.    The impairment  loss  recognized
     equals the excess  of net  capitalized costs  over the  related fair  value
     determined on a property by property basis.  (Note 14)

     Gains and losses are recognized on sales of entire interests in proved  and
     unproved properties.  Sales of partial interests are generally treated as a
     recovery of costs.

                                      F-15
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     Other Property and Equipment

     Other  property  and  equipment,  including  drilling  and  well  servicing
     equipment, are  stated  at cost.      Depreciation of  other  property  and
     equipment is calculated using the  straight-line method over the  estimated
     useful lives (ranging from 3  to 40 years) of  the respective assets.   The
     cost of normal maintenance  and repairs is charged  to operating costs  and
     expensed as incurred.  Material expenditures  that increase the life of  an
     asset are capitalized and depreciated  over the estimated remaining  useful
     life of the  asset.   The cost  of other  property and  equipment sold,  or
     otherwise disposed of, and the related accumulated depreciation are removed
     from the accounts and any gain or loss is reflected in current operations.

     Other property and equipment (gross) is summarized as follows:


                                               December 31,          Estimated
                                        -------------------------   Useful Life
                                           1999          1998       (in years)
                                        -----------   -----------   -----------
     Other Property and Equipment:            (In thousands)

       Drilling and well servicing
         equipment                      $    1,906    $    1,771         6
       Trucks                                  190           188         5
       Building                                 80            80        40
       Office Equipment                        476           456      3 to 6
                                        -----------   -----------
           Total                        $    2,652    $    2,495
                                        ===========   ===========

     Concentration of Credit Risk

     The majority  of the  Company's  receivables are  within  the oil  and  gas
     industry, primarily  from the  purchasers  of its  oil  (Note 12)  and  its
     industry partners.  The receivables are  not collateralized.  To date,  the
     Company has experienced minimal bad debts.   The majority of the  Company's
     cash and cash equivalents is held by three financial institutions in  Utah,
     Montana and New York.

     Cash Equivalents and Statement of Cash Flows

     The Company considers all highly-liquid debt instruments purchased with  an
     original maturity of three months or less to be cash equivalents.  Non-cash
     transactions not reflected  in the  consolidated statements  of cash  flows
     include the following:

                                                  Years Ended December 31,
                                             ---------------------------------
                                                 1999       1998        1997
                                             ----------   ---------  ---------
     Non-cash transactions:                             (In thousands)
     Bonus applied to stock option exercise  $     --     $    200   $      --
       by officers
     Recourse notes receivable from officers
       due to stock option exercise                --          250          --
     Reclassification of notes receivable          --          150          --
       from officers
     Additions to oil and gas properties
       financed with accrued                       63           --          --
       iabilities

     Supplemental disclosure of cash flow
       information:
       Cash paid during the year for:
         Interest                            $      8     $     --   $     534
         Taxes                                     --           --          --

                                      F-16
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     Income Taxes

     Deferred income taxes are provided for the difference between the tax basis
     of an  asset  or  liability  and  its  reported  amount  in  the  financial
     statements.  Such difference will result  in taxable or deductible  amounts
     in future  years when  the reported  amount of  the asset  or liability  is
     recovered or settled, respectively.

     Reclassifications

     Certain balances  in  the 1998  and  1997 financial  statements  have  been
     reclassified to conform to  the current year  presentation.  These  changes
     had no effect on total assets,  total liabilities, stockholders' equity  or
     net loss.

     Foreign Operations

     The Company's investments and  operations in Poland  are comprised of  U.S.
     Dollar expenditures.

     Use of Estimates

     The preparation  of  financial  statements  in  conformity  with  generally
     accepted accounting principles  requires management to  make estimates  and
     assumptions that affect the reported amounts of assets and liabilities  and
     disclosure of  contingent  assets  and  liabilities  at  the  date  of  the
     financial statements  and the  reported amounts  of revenues  and  expenses
     during the  reporting  period.   Actual  results could  differ  from  those
     estimates.

     Net Loss Per Share

     Basic earnings  per share  is computed  by  dividing the  net loss  by  the
     weighted average number of common shares outstanding.  Diluted earnings per
     share is computed  by dividing  the net  loss by  the sum  of the  weighted
     average number  of common  shares and  the effect  of dilutive  unexercised
     stock options and  warrants and convertible  preferred stock.   Outstanding
     options and  warrants  as of  December  31, 1999,  1998  and 1997  were  as
     follows:

                         Options and
        December 31,      Warrants        Price Range
        ------------     -----------     --------------
           1999           4,167,073      $1.50 - $10.25
           1998           3,684,239      $1.50 - $10.25
           1997           3,707,694      $1.10 - $10.25

     The Company had a net loss  in 1999, 1998 and 1997.   The above options  or
     warrants were not included in the computation of diluted earnings per share
     for the years  ended December  31, 1999, 1998  or 1997  because the  effect
     would have been antidilutive.

2.   Investment in Poland:

     Apache Exploration Program

     Effective January 1,  1999, the Company  and Apache Corporation  ("Apache")
     entered into an  agreement which further  defined the relationship  between
     the Company and Apache in Poland by establishing an Area of Mutual Interest
     Agreement ("AMI Agreement")  covering the entire country of Poland,  except
     for the 0.9 million acre Baltic Project Area, for oil and gas  exploration,
     production, development  and acquisition  activities for  a period  of  two
     years.   The  AMI Agreement effectively consolidated  the terms of  various
     agreements signed between the Company and Apache during 1997, 1998 and 1999
     into  one  basic  agreement,  referred   to  collectively  as  the   Apache
     Exploration Program.

                                      F-17
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     Under terms of the Apache Exploration Program, Apache has either agreed  to
     or completed the following primary terms:

     o    Apache paid the Company $950,000 in up-front cash, including  $450,000
          during 1997 for  the Lublin Basin   and $500,000  during 1998 for  the
          Carpathian area;
     o    Apache must cover the Company's pro-rata share  of cost to  drill  ten
          exploratory wells, including paying for drilling and completion  costs
          for seven  wells in  the Lublin  Basin and  drilling costs  (excluding
          completion costs) for three wells in the Carpathian area;
     o    Apache must cover the Company's pro-rata share of cost to shoot  2,000
          kilometers of 2D seismic; including 1,650 kilometers of 2D seismic  in
          the Lublin  Basin completed  during 1998  and  350 kilometers  in  the
          Carpathian area that has yet to be completed;
     o    Apache  must  cover  all  of  the  Company's  pro-rata  share  of  all
          concession and  usufruct fees  during the  first  three years  in  the
          Lublin  Basin    (approximately  $695,000)  and  the  Carpathian  area
          (approximately $160,000);
     o    Apache must  cover  all of  the  Company's pro-rata  share  of  annual
          training costs  during  the first  three  years in  the  Lublin  Basin
          ($80,000 per year) and the Carpathian area ($15,000 per year); and
     o    Apache may not  charge the Company  for any of  its pro-rata share  of
          Polish G&A costs through June 30, 2000.  Thereafter, Apache may charge
          the Company for 25% of its Polish G&A costs, increased by 5% upon  the
          drilling of each  of the  five remaining  exploratory wells;  up to  a
          maximum of 50%.

     The AMI  Agreement  modified and  further  defined the  Apache  Exploration
     Program by adding the following additional terms:

     o    The Company and Apache must offer each other a fifty-percent  interest
          in any new exploration,  appraisal, development, property  acquisition
          or other activities conducted  by either party  within the AMI  during
          all of 1999 and 2000.
     o    The ten exploratory wells under the Apache Exploration Program may, at
          the consent of both parties, be drilled anywhere within the AMI.
     o    The Company  and  Apache  have equal  50%  working  interests  in  the
          Pomeranian and Warsaw West areas.
     o    Apache is the  operator of  all areas  controlled by  the Company  and
          Apache within the AMI.

          Option Agreements between the Company, Apache and POGC

     As a result of  various agreements included  within the Apache  Exploration
     Program between  the Company,  Apache and  POGC, the  Company and  Apache's
     working interest in the  Lublin Basin, Carpathian  and Pomeranian areas  is
     subject to being reduced by POGC's option  to participate for up to a  one-
     third working interest on a block  by block basis in each respective  area.
     In turn, the Company and Apache  each have an independent reciprocal  right
     to participate in the exploration of  the POGC controlled areas in each  of
     the respective project areas with up to a one-third working interest  each.
     Should POGC elect to participate in  any of the Company's concessions,  the
     Company's and Apache's interest will be reduced in equal proportions.   The
     Company does not have any option agreements with POGC covering Warsaw  West
     or the Baltic Project Area.

          Exploration Activities

     The first  four  exploratory  wells  drilled  under  terms  of  the  Apache
     Exploration Program were all determined to be exploratory dry holes  during
     1999.  In accordance with terms  of the Apache Exploration Program,  Apache
     covered all of the Company's working  interest share of costs for all  four
     wells, including 33.3% for

                                      F-18
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     the Czernic 277-2, 47.5% for the Poniatowa 317- 1, 45.0% for the Witkow 1
     and 33.3% for the Siedliska 2. The fifth well, the Wilga 2, was announced
     to be an exploratory success on January 25, 2000 after initial production
     test results indicated a combined flow rate of 16.9 Mmcf of gas and 570
     Bbls of condensate per day from three intervals in a Carboniferous horizon.
     Under terms of the Apache Exploration Program, Apache will cover all of the
     Company's 45.0% drilling and completion costs for the Wilga 2. (Note 16)

     During June 1999, the  Company elected to participate  with a 5.0%  working
     interest in drilling the Andrychow 6, an exploratory well operated by  POGC
     on POGC option  acreage in southern  Poland.  The  well cost  approximately
     $99,000 net to the Company and was determined to be an exploratory dry hole
     during December 1999.

          Appraisal and Development Activities

     On February  26,  1999,  The  Company, Apache  and  POGC  entered  into  an
     agreement to  jointly develop  the Lachowice  Farm-in, a  shut-in POGC  gas
     discovery with three wells in the Carpathian area, with Apache as operator.
     Under terms of the agreement, The Company  and Apache agreed to pay all  of
     the following  costs in  order to  earn a  one-third interest  each in  the
     project: (1) test  and recomplete  up to three  shut-in gas  wells; (2)  if
     warranted, drill three additional wells;  and, (3) if warranted,  construct
     gathering  and  processing  facilities.     All  costs  and  net   revenues
     thereafter, including additional development  drilling and lease  operating
     costs, would be shared one-third each by the Company, Apache and POGC.

     During June 1999, the Company and Apache commenced testing and recompletion
     procedures on the Stryszawa 2K.  The Stryszawa 2K was subsequently  plugged
     and abandoned after  it failed to  maintain a  commercial production  rate.
     During September 1999,  the Company and  Apache tested the  Lachowice 7  to
     determine its commercial potential.    The test results of the Lachowice  7
     did not  warrant constructing  gathering and  processing facilities.    The
     Company and Apache plan to turn the Lachowice 7 back to POGC and  terminate
     the Lachowice Farm-in.

     Baltic Project Area

     On May 3, 1996, the Company entered into a agreement with RWE-DEA, formerly
     Deutsche Texaco, to jointly explore the  Baltic Project Area.  Under  terms
     of the Agreement, RWE-DEA had the right to earn a fifty-percent interest in
     the Baltic Project Area by paying the Company $250,000 in cash, paying  the
     first $1,100,000 for  a 2D  seismic survey,  the first  $1,000,000 of  cost
     relating to the initial exploratory well to be drilled at a location to  be
     designated by RWE-DEA and fifty-percent of the cost relating to the  second
     exploratory  well  at  a  location  designated  by  the  Company.    Polish
     government approval was required to approve RWE-DEA's participation in  the
     Baltic  Project  Area  by  purchasing  fifty-percent  of  Warmia  Petroleum
     Company, Sp z  o.o. ("Warmia"), a  wholly owned subsidiary  of the  Company
     which holds the Baltic Project Area.   The Company obtained a $2.5  million
     Irrevocable Standby Letter of Credit whereby  the Company agreed to  refund
     RWE-DEA all advanced  funds should  the Polish  government disapprove  RWE-
     DEA's purchase of fifty-percent of Warmia.  The Irrevocable Standby  Letter
     of Credit expired on  January 31, 1997 and  the Polish government  approved
     RWE-DEA's purchase of fifty-percent  of Warmia in June  1997.  RWE-DEA  had
     advanced Warmia  $3,076,000  through  June 30,  1997  to  fund  exploration
     activity on the Baltic  Project Area, which the  Company had recorded as  a
     long-term note payable.

     Prior to drilling the second well  on the Baltic Project Area, RWE-DEA  had
     advanced the  Company all   funds  required to  date under  the  Agreement,
     including funding the first $1,000,000 of costs relating to the Orneta  #1,
     the initial exploratory well drilled on  the Baltic Project Area which  was
     plugged and  abandoned as  a dry  hole in  April 1997  at a  gross cost  of
     $1,834,000.   On June  30, 1997,  RWE-DEA elected  to not  fund its  fifty-
     percent share of the Gladysze #1-A, the second exploratory well drilled  on
     the Baltic Project  Area, which resulted  in the  termination of  RWE-DEA's
     right to earn  a fifty-percent interest  in the Baltic  Project Area.   The
     Gladysze #1-A  was  drilled  without  RWE-DEA  as  a  participant  and  was
     subsequently plugged and  abandoned as a  dry hole in  September 1997 at  a
     gross cost of $1,262,000.   Upon termination of  RWE-DEA's right to earn  a
     fifty-percent interest in the Baltic  Project

                                      F-19
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     Area, the Company eliminated its long-term notes payable relating to
     RWE-DEA and recognized an extraordinary gain of $3,076,000.

     During March 1999, the Company relinquished approximately 1.2 million acres
     within the  Baltic  Project Area,  leaving  a total  of  approximately  0.9
     million undeveloped  acres  in  the  Baltic Project  Area.      The  Polish
     government also  consented  to apply  the  Gladysze 1-A,  the  second  well
     drilled on the Baltic Project Area during 1997, to the work commitment  for
     the second  three-year  exploration  phase.    As  such,  the  Company  has
     satisfied all work commitments applicable to the Baltic Project Area's six-
     year exploration phase.   The  Company's Baltic  Project Area  is the  only
     acreage holding  in  Poland in  which  the  Company has  an  interest  that
     contains mandatory acreage relinquishment provisions.

     At December 31,  1999, the Company  had $494,000  of capitalized  leasehold
     costs related to the Baltic Project Area.  The Company is currently seeking
     a strategic partner  to participate in  further exploration  of the  Baltic
     Project Area.

     Gold Exploration - Sudety Project Area

     On July 26, 1999,  Homestake terminated its agreement  with the Company  to
     jointly  explore  for  gold  on  the  Company's  Sudety  Project  Area   in
     southwestern Poland.   During 1997,  Homestake initially  paid the  Company
     $212,000 and  agreed  to spend  a  minimum  of $1,100,000  over  two  years
     exploring the  Sudety  Project Area.     Homestake  completed  its  minimum
     exploration commitments during the first six  months of 1999.  The  Company
     has discontinued further gold exploration in the Sudety Project Area.

3.   Performance Bond Deposits:

     As of December 31, 1999,  the Company had a  replacement bond to a  federal
     agency in the amount of $463,000,  which was collateralized by  certificate
     of deposits  totaling $231,500.   In  addition, there  are certificates  of
     deposits totaling $125,000 covering performance bonds in other states.

4.   Investment in Marketable Debt Securities:

     The Company follows the provisions of SFAS No. 115, "Accounting for Certain
     Investments in Debt and  Equity Securities."  In  accordance with SFAS  No.
     115, the Company has  classified all of its  marketable debt securities  as
     held-to-maturity because the  Company has both  the intent  and ability  to
     hold these  investments until  they  mature.   At  December 31,  1999,  the
     Company's held-to-maturity  securities consisted  of corporate  bonds  with
     remaining contractual  maturities  of  less  than  twelve  months  and  the
     carrying amount of these investments approximated market value.

5.   Accrued Liabilities:

     The Company's accrued liabilities as of December 31, 1999 and 1998 are
     composed of the following:

                                          As of December 31,
                                      -------------------------
                                          1999          1998
                                      ----------     ----------
     Accrued Liabilities:                   (In thousands)
       Compensation costs             $   1,185      $    699
       Unproved property additions           63            --
       Exploratory dry hole costs            99            --
       Seismic costs                         28           131
       Other costs                          104            82
                                      ----------     ----------
         Total                        $   1,479      $    912
                                      ==========     ==========

                                      F-20
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued


6.   Long-term Debt:

     During 1998, the Company had a  bank credit facility with a borrowing  base
     of $2,850,000 as of January 1, 1998.   The borrowing base was subject to  a
     monthly basis reduction of $25,000.  The Company did not utilize the credit
     facility and subsequently  terminated the credit  facility during the  year
     ended December 31, 1998.

7.   Income Taxes:

     The Company  recognized no  income tax  benefit from  the losses  generated
     during the years ended December 31, 1999, 1998 and 1997.

     The components of the net  deferred tax asset as  of December 31, 1999  and
     1998 are as follows:

                                                       December 31,
                                               -------------------------
                                                  1999           1998
                                               -----------    ----------
                                                      (In thousands)
     Deferred tax liability:
     Property and equipment basis
       differences                             $    (104)     $    (962)
     Deferred tax asset:
       Net operating loss carryforwards           11,180          9,437
       Impairment of oil and gas properties        1,218          2,196
       Impairment of notes receivable from
         officers                                    248             --
       Options issued for services                   113             --
       Other                                         193             14
       Valuation allowance                       (12,848)       (10,685)
                                               -----------    ----------
     Net deferred tax asset                    $      --      $      --
                                               ===========    ==========


     The change in the valuation allowance  during the years ended December  31,
     1999, 1998 and 1997 is as follows:

                                                        December 31,
                                            -----------------------------------
                                               1999         1998         1997
                                            ----------   ----------   ---------
                                                       (In thousands)
     Balance, beginning of year             $ (10,685)   $  (6,131)  $  (3,868)
       Increase due to property and
         equipment basis differences                4           22          24
       Decrease (increase) due to
         impairment of oil and gas properties      --       (2,196)         --
       Decrease due to investment in Warmia        --           --         661
       Increase due to net operating loss      (1,989)      (2,444)     (2,876)
       Other                                     (178)          64         (72)
                                            ----------   ----------   ---------
     Balance, end of year       .           $ (12,848)   $ (10,685)  $  (6,131)
                                            ==========   ==========   =========

     SFAS No. 109 requires that a valuation allowance be provided if it is  more
     likely than not that some portion or all  of a deferred tax asset will  not
     be realized.  The Company's ability to realize the benefit of its  deferred
     tax asset will depend  on the generation of  future taxable income  through
     profitable operations and expansion of the Company's oil and gas  producing
     activities.    The  risks  associated  with  that  growth  requirement  are
     considerable, resulting in the Company's  conclusion that a full  valuation
     allowance be provided at December 31, 1999 and 1998.

                                      F-21
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued


     At  December  31,  1999,  the  Company  had  net  operating  loss   ("NOL")
     carryforwards,  including  foreign  losses,  of  approximately  $30,000,000
     available  to  offset  future   taxable  income,  of  which   approximately
     $18,749,000  expires  from  2008  through  2012  and  $11,251,000   expires
     subsequent to 2017.  The utilization of these carryforwards against  future
     taxable income may  become subject to  an annual limitation  if there is  a
     change in ownership.   $6,168,000 of  the NOL carryforward  relates to  tax
     deductions resulting from the exercise of  stock options during 1999,  1998
     and 1997.  The tax benefit  from adjusting the valuation allowance  related
     to this portion  of the  NOL carryforward  will be  credited to  additional
     paid-in capital.

8.   Related Party Transactions:

     On February 17, 1998,  two of the Company's  officers exercised options  to
     purchase 300,000 shares of  the Company's common stock  at $1.50 per  share
     that were scheduled to expire on  May 6, 1998.   The officers paid for  the
     cost of exercising the options by utilizing a bonus credit of $100,000 each
     issued to them during 1997 and signing a full recourse note payable to  the
     Company for $125,000  each with  interest accrued at  7.7%.   On April  10,
     1998, in consideration of the agreement of the two officers to not sell the
     Company's common  stock  in  market transactions,  the  Company  agreed  to
     advance the officers, on  a non-recourse basis,  additional funds to  cover
     their tax liabilities and other considerations.   As of December 31,  1999,
     the notes receivable  and accrued interest  totaled $2,036,385  with a  due
     date of on or before December 31, 2000 (as extended).   The Company has  no
     further commitment to advance additional funds to the officers.

     In consideration  for extending  the term  from December  31, 1999  through
     December 31, 2000, the officers agreed that if the average closing price of
     the common stock for  five consecutive trading days  results in a value  of
     the collateral equal to or above  the total principal and accrued  interest
     balances, the  officers will  repay the  loans  within 45  days  thereafter
     either in cash or by tendering to  the Company such number of shares  which
     at the average closing price for the previous five consecutive trading days
     equals the principal and accrued interest then due.

     The notes receivable  and accrued  interest are  collateralized by  233,340
     shares of the  Company's common stock.   In accordance  with SFAS No.  114,
     "Accounting by Creditors for Impairment of a Loan," the Company recorded an
     impairment allowance of  $666,000 as  of December  31, 1999,  based on  the
     value of  the underlying  collateral.   The  impairment allowance  will  be
     adjusted quarterly based on the market value of the collateral shares.

9.   Stock Options and Warrants:

     Stock Options

     As of December 31,  1999, the Company's 1998  Stock Option Plan had  issued
     options to  purchase 438,501  shares  out of  a  maximum total  of  500,000
     authorized shares  allowed  within the  1998  Stock  Option Plan.    As  of
     December 31, 1999, all other prior  year stock option plans had issued  the
     maximum allowed  options  under  each respective  stock  option  plan.  The
     Company has submitted the 1999 Stock Option Plan, which includes a  maximum
     of  500,000  options,   for  shareholder  approval   at  the  2000   annual
     shareholders' meeting.

     All  stock  option  plans  are  each  administered  by  a  committee   (the
     "Committee") consisting of the board of  directors or a committee  thereof.
     At its discretion, the Committee may  grant stock options to any  employee,
     including officers, in  the form of  incentive stock  options ("ISOs"),  as
     defined in the Internal  Revenue Code, or options  which do not qualify  as
     ISOs or stock awards.  In addition  to the options granted under the  stock
     option plans, the  Company also  issues non-qualified  options outside  the
     stock option plans.   Options granted under these  stock option plans  have
     terms ranging from five to seven  years and vest over periods ranging  from
     the date of grant to three years.

                                      F-22
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued


     As of December  31, 1999,  the Company  had options  outstanding under  the
     Plans as well  as from other  individual grants.   The Company applies  APB
     Opinion No.  25  and  related interpretations  in  accounting  for  options
     granted under the Plans and for other option agreements.  Had  compensation
     cost for the Company's options been  determined based on the fair value  at
     the grant dates consistent  with SFAS No. 123,  the Company's net loss  and
     loss per share would have been increased to the pro forma amounts indicated
     in the following table:

                                        Years Ended December 31,
                                  -----------------------------------
                                      1999         1998        1997
                                  -----------   ----------   --------
                                     (In thousands, except per share
                                                amounts)
     Net Loss:
          As Reported             $ (5,856)    $ (10,122)  $ (3,620)
          Pro Forma                 (7,930)      (11,680)    (5,991)
     Basic and Diluted
     Net Loss Per Share:
          As Reported             $  (0.41)       $(0.78)  $  (0.29)
          Pro Forma                  (0.56)        (0.90)     (0.48)


     The effects of applying SFAS No. 123 are not necessarily representative  of
     the effects on the reported net income or loss for future years.

     The fair  value  of each  option  granted during  1999,  1998 and  1997  is
     estimated on  the date  of grant  using  the Black-Scholes  option  pricing
     model. The  following weighted-average  assumptions were  utilized for  the
     Black-Scholes valuation:  (1) expected volatility of 80.5%, 76.2% and 80.4%
     for 1999, 1998 and 1997, respectively; (2) expected lives ranging from four
     to seven years; (3) risk-free interest  rates at the date of grant  ranging
     from 4.44% to 6.43%; and, (4) dividend yield of zero for each year.

     The following table summarizes  fixed option activity  for the years  ended
     December 31, 1999, 1998 and 1997:
     <TABLE>
     <CAPTION>
                                                                December 31,
                           ----------------------------------------------------------------------
                                    1999                      1998                   1997
                           ------------------------  ----------------------  --------------------
                                         Weighted                 Weighted               Weighted
                                         Average                  Average                Average
                                         Exercise                 Exercise               Exercise
                             Shares       Price        Shares      Price      Shares      Price
                           ---------   -----------   ---------   ----------  ---------  ---------
<S>                        <C>         <C>           <C>         <C>         <C>        <C>
     Fixed Options
     Outstanding:
      Beginning of year    3,413,667   $    6.590    3,357,500   $  4.473    2,732,834  $  3.710
        Granted              521,000        5.866      480,000      8.875      725,500     7.203
        Exercised             (2,000)       6.625     (303,000)     1.500      (78,334)    1.698
        Canceled             (36,166)       7.920     (120,833)     8.400      (22,500)    9.486
                           ---------   -----------   ---------   ----------  ---------  ---------
     End of year           3,896,501   $    6.481    3,413,667   $  6.590    3,357,500  $  4.473
                           =========   ===========   =========   ==========  =========  =========
     Exercisable at
     year-end              2,872,681   $    4.656    2,329,012   $  6.970    2,242,000  $  3.878
                           =========   ===========   =========   ==========  =========  =========

     Weighted-average
     fair value of
     options granted
     during the year       $    3.61                 $   3.930               $   4.458
     </TABLE>

                                      F-23
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     The  following table  summarizes information  about   fixed  stock  options
     outstanding at December 31, 1999:

                             Options Outstanding             Options Exercisable
                  --------------------------------------   ---------------------
                                   Weighted
                                   Average      Weighted                Weighted
                     Number       Remaining     Average      Number     Average
    Exercise      Outstanding    Contractual    Exercise   Exercisable  Exercise
     Prices       at 12/31/99       Life         Price     at 12/31/99   Price
                                  (in years)
 -------------    -----------    -----------  ----------   -----------  --------
     $1.500          178,000         .668     $   1.500      178,000    $  1.500
      3.000        1,700,000        3.082         3.000    1,700,000       3.000
 5.750 - 7.250     1,011,500        5.795         6.279      351,673       6.752
 7.375 - 8.875     1,001,001        4.320         8.660      639,008       8.753
     10.250            6,000        5.129        10.250        4,000      10.250
                  -----------    -----------  ----------   -----------  --------
    Total          3,896,501        3.993     $   5.641    2,872,681    $  4.656
                  ===========    ===========  ==========   ===========  ========


     Warrants

          The following table summarizes changes in outstanding warrants  during
     the years ended December 31, 1999, 1998 and 1997:

                                                Shares            Price Range
                                          ------------------   ---------------
     Warrants:
     Outstanding at December 31, 1996     431,194              $   1.10 - 6.90
     Exercisable at December 31, 1996                281,194       1.10 - 3.00
                                                     =======
       Warrants exercised during 1997     (81,000)                 1.10 - 2.60
                                          -------
     Outstanding at December 31, 1997     350,194                  1.10 - 6.90
     Exercisable at December 31, 1997                350,194       1.10 - 6.90
                                                     =======
       Warrants exercised during 1998     (79,622)                 1.10 - 2.60
     Outstanding at December 31, 1998     270,572                  1.65 - 6.90
                                          =======
     Exercisable at December 31, 1998                270,572       1.65 - 6.90
     Outstanding at December 31, 1999     270,572    =======       1.65 - 6.90
                                          =======
     Exercisable at December 31, 1999                270,572   $   1.65 - 6.90
                                                     =======

10.  Private Placement of Common Stock:

     On April 8, 1999, the Company  initiated a private placement that  resulted
     in the  sale  of 1,792,500  shares  of common  stock  for net  proceeds  of
     $7,054,000.  No placement fees were paid by the Company in connection  with
     the sale of the aforementioned shares.

11.  Commitments:

     Employment Agreements

     Effective January 1, 1995, the  Company entered into three-year  employment
     agreements with David N. Pierce  and Andrew W. Pierce,  each of whom is  an
     officer  and  director.    The   agreements  provide  for  initial   annual
     compensation of $120,000 and  $96,000, respectively, with annual  increases
     of at  least  7.5%,  as  determined  by  the  board  of  directors  or  the
     compensation committee.   Each employment agreement,  as amended,  provides
     that on the initiation of the first  test well in the Baltic Project  Area,
     which commenced in late January 1997,  the executive employee was  entitled
     to receive a $100,000 bonus  that may, at the  election of the officer,  be
     applied against the exercise of options to purchase common stock or paid in
     cash upon termination of employment with the Company.  The Company  accrued
     $200,000 at December 31, 1997 to reflect this obligation.  On February  17,
     1998, each officer exercised options to  purchase common

                                      F-24
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     stock and applied their respective bonuses awarded to him in 1997 towards
     the exercise price (Note 8). The terms of such employment agreements are
     automatically extended for an additional year on the anniversary date of
     each such agreement. In the event of termination of employment resulting
     from a change in control of the Company not approved by the Board of
     Directors, each of the two officers would be entitled to a termination
     payment equal to 150% of his annual salary at the time of termination and
     the value of previously granted employee benefits, including stock options
     and stock awards.

     On July 1, 1996, the Company entered into a three-year employment agreement
     with Jerzy B. Maciolek, who is an officer of the Company, providing for  an
     initial annual salary of $96,000 with  an annual increase to be  determined
     by the Company's  board of directors  or the compensation  committee.   The
     employment agreement also provides  for annual incentive  bonuses of up  to
     $100,000, payable in  cash, stock  or options and  a $100,000  bonus to  be
     issued annually on   May  12, 1998,  1999 and  2000 to  be applied  against
     future stock option exercises.  In  the event such bonuses are earned,  but
     not used by Mr. Maciolek and his employment with the Company is terminated,
     the Company must pay the bonus to Mr. Maciolek  in cash.  In the event  the
     employment contract is terminated by the Company, other than for cause,  or
     by Mr. Maciolek for cause or because of a change in control of the Company,
     Mr. Maciolek is entitled to a termination payment equal to any accrued  but
     unpaid salary and unreimbursed  expenses and benefits  plus his salary  for
     the remaining term of the employment agreement.  Additionally, all  options
     held by Mr.  Maciolek shall  immediately vest and  not be  forfeited.   The
     agreement will automatically be  extended for an  additional one year  upon
     each anniversary date  of the  effective date  unless otherwise  terminated
     pursuant to the terms thereof.

     Consulting Agreement

     Effective August 3, 1995, the Company  entered into a consulting  agreement
     with Lovejoy and Associates, a consulting  company owned by Tom Lovejoy,  a
     director of the Company,  under which Lovejoy  and Associates would  advise
     the Company respecting future  financing alternatives, possible sources  of
     debt and  equity financing,  with particular  emphasis on  funding for  the
     Company's  Polish  activities  and  the  Company's  relationship  with  the
     investment community at a fee of  $10,000 per month commencing October  15,
     1995 and continuing through December 31, 1997.  The agreement was  extended
     through December 31, 1999 at  a rate of $15,000  per month for January  and
     February 1998 and a subsequent rate  of $17,000 per month thereafter.   The
     consulting agreement was terminated effective May 1, 1999 when Mr.  Lovejoy
     became the Company's Chief Financial Officer.
     Polish Exploration Agreements

     The Company is committed to the following obligations in Poland,  presented
     on a gross basis, to retain its exploratory concession acreage:
    <TABLE>
    <CAPTION>
                                            Exploratory Wells
                                            -----------------
                        Beginning           First     Second                           Concession
                           of               Three     Three                    Annual      and
                       Exploration Whole    Year       Year     2D Seismic    Training   Usufruct
                         Period    Blocks   Phase     Phase     Acquisition   Fees (5)   Fees (6)
                       ------------------   -----  -----------  -----------  ---------  ---------
     <S>               <C>         <C>      <C>    <C>          <C>          <C>        <C>
     Lublin (1), (2)   Various (7)   24       6    1 per block   1,650 km    $ 80,000   $ 675,000
     Carpathian (2)     12/31/98     12       1         2          350 km      15,000     160,000
     Pomeranian (3)     12/31/98     10       1         2          600 km      25,000     250,000
     Warsaw West (3)    11/13/98     13       1         2        1,500 km      25,000     390,000
     Baltic (4)         03/07/96     10       1         1          None        25,000     200,000
     </TABLE>

     (1)  The Company must  drill an exploratory  well in  each undrilled  block
          during the second three year phase  or relinquish the undrilled  block
          at the end  of the exploration  term.  The  Lublin Basin includes  the
          Block 298 usufruct, which includes  only one exploration block,  which
          has a requirement  to drill two  exploratory wells  during the  second
          three year  phase.  All  other  Lublin  Basin  usufructs  require  the
          drilling of one well per block during the second three year phase.  As
          of December 31, 1999, the Company had drilled two exploratory wells to
          be applied against the first three year exploration phase  exploratory
          well  requirement,  covered  all  concession  and  usufruct  fees  and
          acquired 1,650 kilometers of 2D seismic.

                                      F-25
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     (2)  Apache has agreed  to cover all  of the  Company's drilling,  seismic,
          annual training fees, concession, and  usufruct fees during the  first
          three year phase to earn a fifty percent interest in the Lublin  Basin
          and Carpathian areas.
     (3)  The Company and Apache are equal partners in the Pomeranian and Warsaw
          West  areas.   As of December  31, 1999, the  Company had covered  all
          concession and usufruct fees.
     (4)  The Company has a one-hundred percent  interest in the Baltic  Project
          Area.  As of December 31, 1999, the Company had satisfied the  minimum
          exploratory well  requirement  for  the  entire  exploration  term  by
          drilling two exploratory wells.
     (5)  Annual training costs  are for each  year during the  entire six  year
          exploration term.
     (6)  Concession and usufruct  fees are payable  on various  terms over  the
          first three year  exploration term,  except the  Baltic Project  Area,
          which is payable in  equal installments of $33,333  per year over  six
          years.
     (7)  The Lublin  Basin  consists of  four  usufructs, the  Vistula,  Lublin
          Middle,  Block  298,  and  Komarow  which  have  exploration   periods
          beginning August 8, 1997,  June 30, 1998, June  30, 1998 and March  4,
          1998, respectively.

     Capital Requirements

     As of  December  31, 1999,  the  Company had  $6.9  million of  cash,  cash
     equivalents and marketable debt securities with no long-term debt.  In view
     of the Apache Exploration Program, this amount is expected to be sufficient
     to fund the Company's present minimum exploration and operating commitments
     during 2000  and part  of 2001.   The  Company intends  to seek  additional
     capital to fund  any activities outside  the scope of  its present  minimum
     exploration  and  operating  activities,  including  further   exploration,
     appraisal and  development costs  for the  Wilga  discovery and  any  other
     additional exploration,  appraisal,  development  or  property  acquisition
     activities.

12.  Business Segments:

     The Company  operates within  two segments  of the  oil and  gas  industry:
     exploration  and  production  ("E&P")  and  drilling  and  well   servicing
     ("Drilling") and within  the exploration  segment of  the mining  industry.
     For segment and management reporting purposes the Company's mining  segment
     is not material and is excluded from the discussion herein.

     The Company's revenues associated with its E&P activities are comprised  of
     oil sales from its producing properties in Montana and Nevada and gains  on
     the sale  of  partial  property  interests  of  the  Company's  exploratory
     properties in Poland.   For  the years ended  December 31,  1999, 1998  and
     1997, over  85% of  the Company's  total oil  sales were  to one  purchaser
     located in Montana.  The Company believes this purchaser could be replaced,
     if necessary, without a loss in revenue.  E&P operating costs are comprised
     of: (1)  exploration costs,  including  geological and  geophysical  costs,
     exploratory dry  holes and  non-producing leasehold  impairments; and,  (2)
     production costs  which include  lease  operating expenses  and  production
     taxes.  Substantially all  exploration costs are  applied to the  Company's
     operations in  Poland and  all lease  operating costs  are applied  to  the
     Company's domestic production.  The Company's revenues associated with  its
     drilling activities are comprised of  contract drilling and well  servicing
     fees generated  by the  Company's drilling  rig  and other  well  servicing
     equipment in Montana.   Drilling operating  costs are  comprised of  direct
     costs associated with  its drilling and  well servicing  operations.   DD&A
     directly associated  with a  respective segment  is disclosed  within  that
     segment.  The  Company does not  allocate current  assets, corporate  DD&A,
     general  and  administrative  expenses,  income  taxes,  interest  expense,
     interest income, other income, other expense or officer loan impairments to
     its operating segments for management and segment reporting purposes.   All
     material inter-company transactions between the Company's business segments
     are eliminated for management and segment reporting purposes.

                                      F-26
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued


     Information on the Company's operations by  business segment for the  years
     ended December 31, 1999, 1998 and 1997 is summarized as follows:


                                                 Year Ended December 31, 1999
                                             -----------------------------------
                                                E&P       Drilling       Total
                                             ---------    ---------    ---------
     Operations Summary:                                (In thousands)

      Revenues                               $  1,554     $    865     $  2,419
      Cash operating costs (1)                  3,844          642        4,486
      Non-cash operating costs (2)                140           --          140
                                             ---------    ---------    ---------
         Operating income or (loss) before
         DD&A                                  (2,430)         223       (2,207)
      Depreciation, depletion, &
        amortization                               51          334          385
                                             ---------    ---------    ---------
         Operating loss                      $ (2,481)    $   (111)    $ (2,592)
                                             =========    =========    =========

     Identifiable net property and
       equipment:

      Non-producing leaseholds -  Poland     $    691     $      --     $    691
      Non-producing leaseholds - United
        States                                    692            --          692
      Producing properties                        494            --          494
      Equipment and other                          --           581          581
                                             ---------    ----------    --------
          Total                              $  1,877     $     581     $  2,458
                                             =========    ==========    ========
     Property and equipment capital
     expenditures                            $    526     $     138     $    664
                                             =========    ==========    ========

     (1)  Excludes $31,000 of exploratory costs  relating to the Company's  gold
          concessions.
     (2)  Includes stock options valued at $119,000  issued to a Polish  citizen
          for consulting services and $21,000 non-producing leasehold impairment
          comprised of costs incurred prior to 1999.


                                                 Year Ended December 31, 1998
                                              ---------------------------------
                                                E&P       Drilling      Total
                                              --------   ----------    --------
     Operations Summary:                                (In thousands)
       Revenues (1)                           $ 1,590    $    323      $ 1,913
       Cash operating costs (2)                 3,025         240        3,265
       Non-cash operating costs (3)               119          --          119
                                              --------   ----------    --------
         Operating income or (loss) before
         DD&A                                  (1,554)         83       (1,471)
       Depreciation, depletion, &
         amortization                             231         322          553
                                              --------   ----------    --------
        Operating loss                        $(1,785)   $   (239)     $(2,024)
                                              ========   ==========    ========

     Identifiable net property and
       equipment:
       Non-producing leaseholds - Poland      $   461    $     --      $   461
       Non-producing leaseholds - United
        States                                    717          --          717
       Producing properties                       463          --          463
       Equipment and other                         --         780          780
                                              -------    ----------    --------
          Total                                 1,641    $    780      $ 2,421
     Property and equipment capital           =======    ==========    ========
     expenditures                             $   180    $    156      $   336
                                              =======    ==========    ========

     (1)  E&P  revenues include $1,123,000 generated  in the  United States  and
          $467,000 generated  in Poland.
     (2)  Excludes $29,000  of exploratory costs relating to the Company's  gold
          concessions.
     (3)  Includes  Company  common  stock  issued for  services of $119,000 and
          excludes non-cash impairment charge of $5,885,000 for  domestic proved
          properties.

                                      F-27
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

<TABLE>
<CAPTION>
                                                             Year Ended December 31, 1997
                                                     ----------------------------------------
                                                         E&P          Drilling        Total
                                                     ----------     -----------     ---------
     Operations Summary:                                            (In thousands)
    <S>                                            <C>            <C>             <C>
       Revenues (1)                                  $   2,242      $      496      $  2,738
       Cash operating costs                              6,455             329         6,784
       Non-cash operating costs (2)                         99              --            99
                                                     ----------     -----------     ---------
         Operating income or (loss) before DD&A         (4,312)            167        (4,145)
       Depreciation, depletion, & amortization             261             289           550
                                                     ----------     -----------     ---------
         Operating loss                              $  (4,573)     $     (122)     $ (4,695)
                                                     ==========     ===========     =========
     Identifiable net property and equipment:
       Non-producing leaseholds - Poland             $     461      $       --      $    461
       Non-producing leaseholds - United States            709              --           709
       Producing properties                              6,447              --         6,447
       Equipment and other                                  --             935           935
                                                     ---------      -----------     ---------
         Total net assets                            $   7,617      $      935      $  8,552
                                                     =========      ===========     =========

     Property and equipment capital expenditures     $     860      $      210      $  1,070
                                                     =========      ===========     =========
     </TABLE>

    (1)   E&P revenues include $2,040,000 generated in the United States and
          $202,000 generated in Poland.  Excludes $71,000  gain from sale  of
          property interest relating  to  the Company's gold concessions in
          Poland.
    (2)   Includes   Company  common  stock  issued  for services  of $70,000
          and  a  non-cash impairment  charge  of $29,000 for a lease  in
          Wyoming acquired prior  to  1997.

     A   reconciliation of  the  segment  information to  the  consolidated
     totals   for   the years ended December 31, 1999, 1998  and  1997 follows:
     <TABLE>
     <CAPTION>
                                                                 Year Ended December 31,
                                                      ------------------------------------------
                                                         1999            1998            1997
                                                      ----------    -----------     ------------
     Revenues:                                                       (In thousands)
<S>                                                   <C>           <C>             <C>
       Reportable segments                            $   2,419     $    1,913      $     2,738
       Non-reportable segments                               --             --               71
                                                      ----------    -----------     ------------
        Total consolidated revenues                   $   2,419     $    1,913      $     2,809
                                                      ==========    ===========     ============
     Operating Loss:
       Reportable segments                            $  (2,592)    $   (2,024)     $    (4,695)
       Expense or (revenue) adjustments:
         Non-reportable segments                             31             29              (71)
         Impairment of domestic proved property              --          5,885               --
         General and administrative expenses              2,962          2,572            2,566
         Corporate DD&A                                     109            118               85
         Other                                               --              1               (1)
                                                      ----------    -----------     ------------
           Consolidated net operating loss            $  (5,694)    $  (10,629)     $    (7,274)
                                                      ==========    ===========     ============
     Net Property and Equipment:
       Reportable segments                            $   2,458     $    2,421      $     8,552
       Corporate assets                                      91            178              209
                                                      ----------    -----------     ------------
        Net property and equipment                    $   2,549     $    2,599      $     8,761
                                                      ==========    ===========     ============
     Property and Equipment Capital Expenditures:
       Reportable segments                            $     581     $      336      $     1,070
       Corporate assets                                      19            105              461
                                                      ----------    -----------     ------------
        Net property and equipment capital
          expenditures                                $     600     $      441      $     1,531
                                                      ==========    ===========     ============
</TABLE>
                                      F-28
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued


13.   Quarterly Financial Data (Unaudited):

     During  the  year  ended  ended  December 31, 1999, the  Company  recorded
     exploratory dry hole  costs  of $580,000  and $389,000 during the third and
     fourth  quarters,  respectively,  and  an  officer  loan  impairment  of
     $666,000  during the  fourth quarter.  During  the  year  ended  December
     31, 1998, the  Company  incurred  a  domestic  proved  property  impairment
     of $5,885,000, of  which $5,640,000  and $245,000  were  recorded  during
     the  third  and fourth quarters,  respectively.

     Summary quarterly information for the years ended December 31, 1999 and
     1998  is  as  follows:

                                              For the Quarter Ended
                             ---------------------------------------------------
                              December 31  September 30    June 30    March 31
                             ------------  ------------  ----------  -----------
                                    (In thousands, except per share amounts)
     1999 Quarterly
     Information:
       Revenues              $      785    $      862    $    451     $    321
       Net operating loss        (2,746)       (1,228)       (895)        (825)
       Net loss              $   (3,272)   $   (1,072)   $   (789)        (723)
       Basic and diluted net
        loss per common
        share                $     (.21)   $     (.08)   $   (.06)    $   (.06)

     1998 Quarterly
        Information:
       Revenues              $      416    $      426    $    272     $    799
       Operating income or
        (loss)                   (1,949)       (6,511)     (1,465)        (704)
       Net income or                       $   (6,392)   $ (1,353)    $   (519)
        (loss)               $   (1,858)
       Basic and diluted net
        loss per Common
        share                $     (.15)   $    (.49)    $   (.10)    $   (.04)


14.  Disclosure about Oil and Gas Properties and Producing Activities:

     Impairment of Unproved Oil and Gas Properties

     In accordance with  generally accepted accounting  principles, the  Company
     must record an impairment expense to  the extent that capitalized costs  of
     unproved properties, on a  property by property  basis, are considered  not
     realizable.  During the year ended December 31, 1999, the Company  recorded
     an impairment expense of $21,000 relating  to a prospect located in  Nevada
     and $72,000 relating to the Lachowice  Farm-in in Poland.  During the  year
     ended December  31, 1997,  the Company  recorded an  impairment expense  of
     $152,000 relating to several prospects in Montana, Nevada and Wyoming.

     Impairment of Proved Oil and Gas Properties

     In accordance with  generally accepted accounting  principles, the  Company
     must record an impairment  expense if the Company  determines the net  book
     value of  its proved  oil and  gas properties,  on a  property by  property
     basis, exceeds the aggregate future net  revenues from such properties.  As
     of December 31, 1998, the Company's  future undiscounted net revenues  from
     its domestic proved developed properties was $1,015,000 and its  discounted
     future net revenues (PV-10) of it domestic proved developed properties  was
     $472,000.    The future  net revenues at  December 31,  1998 were  computed
     using a price of $8.11 per barrel, the average price at December 31,  1998.
     Accordingly, the Company recorded an  impairment expense of $5,885,000  for
     the year ended December 31, 1998,  which reduced the carrying value of  its
     domestic proved properties  to $463,000, an  amount which approximated  the
     fair value  of  its domestic  proved  developed reserves  determined  on  a
     property by property basis.

                                      F-29
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     In view of  the Company's  increased focus  on its  Polish exploration  and
     development opportunities and  the probability of  continued depressed  oil
     prices, management has determined it is unlikely the Company will incur any
     domestic development costs  in the  foreseeable future.   Accordingly,  the
     Company's proved reserves  as of December  31, 1999 and  1998 include  only
     those reserves attributable to developed properties.

     Capitalized Costs

     Capitalized costs  relating  to oil  and  gas producing  activities  as  of
     December 31, 1999 and 1998 are summarized as follows:

                                        United States     Poland      Total
                                       --------------   ---------   ---------
                                                    (In thousands)
     December 31, 1999:
      Proved properties                 $    1,687      $    --     $  1,687
      Unproved properties                      692          691        1,383
                                        --------------   ---------   ---------
        Total gross properties               2,379          691        3,070
      Less accumulated, depreciation,                        --
      depletion and amortization            (1,193)                  (1,193)
                                        --------------   ---------   ---------
         Total                          $    1,186      $   691     $  1,877
                                        ==============  ==========  ==========


     December 31, 1998:
      Proved properties                 $    1,605      $    --     $  1,605
      Unproved properties                      718          461        1,179
                                        -------------   ---------   ---------
         Total gross properties              2,323          461        2,784
      Less accumulated depreciation,                         --
       depletion and amortization           (1,142)                   (1,142)
                                        -------------   ---------   ---------
         Total                          $    1,181      $   461     $  1,642
                                        =============   =========   =========


     Acquisition, Exploration and Development Activities

     Costs incurred  in oil  property acquisition,  exploration and  development
     activities during the years ended December 31, 1999, 1998 and 1997, whether
     capitalized or expensed, are summarized as follows:

                                        United
                                        States      Poland      Total
                                      ---------   ---------   ---------
                                                (In thousands)
     December 31, 1999:
       Acquisition of properties:
         Proved                      $     --     $     --    $      --
         Unproved                           1          230          231
       Exploration costs                   38        3,016        3,054
       Development costs                   82           --           82
                                     --------     --------    ---------
         Total                       $    121     $  3,246    $   3,367
                                     ========     ========    =========

     December 31, 1998:
       Acquisition of properties:
         Proved                      $     --     $     --    $      --
         Unproved                          15           33           48
       Exploration costs                   34        2,092        2,126
       Development costs                  132           --          132
                                     --------     --------    ---------
         Total                       $    181     $  2,125    $   2,306
                                     ========     ========    =========

                                      F-30
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued


     December 31, 1997:
       Acquisition of properties:
         Proved                      $     --    $     --    $      --
         Unproved                         733          66          799
       Exploration costs                1,419       3,895        5,314
       Development costs                  187          --          187
                                     --------     --------    ---------
         Total                       $  2,339    $   3,961    $  6,300
                                     ========     ========    =========


15.  Summary Oil and Gas Reserve Data (Unaudited):

     The following quantity and value information  is based on prices as of  the
     end of  each respective    reporting period.    No price  escalations  were
     assumed.  Operating costs and production taxes were deducted in determining
     the quantity and  value information.   Such costs were  estimated based  on
     current costs  and  were  not  adjusted  to  anticipate  increases  due  to
     inflation or other factors.  No amounts were deducted for general overhead,
     depreciation, depletion  and  amortization,  interest  expense  and  income
     taxes.

     The determination of  oil and  gas reserves is  based on  estimates and  is
     highly complex and interpretive.  The  estimates are subject to  continuing
     revisions  as  additional  information  becomes  available  or  assumptions
     change.  All of the Company's oil reserves are in the United States.

     Estimated Quantities of Proved Oil Reserves

     Following is a reconciliation of the  Company's interest in net  quantities
     of proved oil reserves.  All proved oil reserves are located in the  United
     States.  Proved reserves  are the estimated quantities  of crude oil  which
     geological and engineering data demonstrate with reasonable certainty to be
     recoverable in future years from known reserves under existing economic and
     operating conditions.

     Changes in  estimated oil  reserves  of the  Company  for the  years  ended
     December 31, 1999, 1998 and 1997 are as follows:

                                         For the years ended December 31,
                                        ---------------------------------
                                          1999         1998        1997
                                        ----------   ---------   --------
                                            (In thousands bbls of oil)
     Total proved reserves:
       Beginning of year                  1,535        4,760      5,443
       Purchase of minerals in-place         --           --         --
       Extensions and discoveries            --           --         18
       Revisions of previous estimates     (354)      (3,110)      (575)
       Production                          (101)        (115)      (126)
                                        ----------   ---------   --------
       End of year                        1,080        1,535      4,760
                                        ----------   ---------   --------
     Proved developed reserves:
       Beginning of year                  1,535        2,282      2,829
                                        ----------   ---------   --------
       End of year                        1,080        1,535      2,282
                                        ----------   ---------   --------

     The decrease in 1999 reserves as compared to 1998 reserves was  principally
     due to higher operating costs and a higher production decline rate utilized
     in the 1999 report as compared  to the 1998 report.   The decrease in  1998
     reserves as compared  to 1997  was principally  due to  the elimination  of
     2,478,000 bbls of proved undeveloped reserves which were included as of  as
     of December 31, 1997 and a $5.70 per bbl decrease in oil prices at year-end
     1998 as compared to year-end 1997.

                                      F-31
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued


     Standardized Measure  of  Discounted Future  Net  Cash Flows  ("SMOG")  and
     Changes Therein Relating to Proved Oil Reserves

     Estimated discounted  future  net  cash  flows  and  changes  therein  were
     determined in accordance with SFAS  No. 69. Certain information  concerning
     the assumptions  used in  computing the  valuation of  proved reserves  and
     their inherent limitations are discussed below.  The Company believes  such
     information is essential for a proper  understanding and assessment of  the
     data presented.

     Future net cash flows were computed by applying the year-end oil prices  of
     $22.37, $8.11 and $13.81  for the years ended  December 31, 1999, 1998  and
     1997, respectively and production costs per bbl of $14.11, $7.43 and  $6.86
     for 1999, 1998 and 1997, respectively, to the period-end quantities of  the
     Company's proved reserves. The variance in price from year to year was  due
     to price volatility associated with world-wide oil price fluctuations.  The
     increase in production costs of $6.68  per barrel for 1999, as compared  to
     1998, is primarily due the economic lives of marginal wells being  extended
     due to an oil price $14.26 per bbl  higher in the 1999 report, as  compared
     to the 1998 report.

     The assumptions  used  to  compute the  proved  reserve  valuation  do  not
     necessarily reflect the  Company's expectations  of actual  revenues to  be
     derived from those reserves  nor their present  worth.  Assigning  monetary
     values to  the reserve  quantity estimation  process  does not  reduce  the
     subjective and ever-changing nature of such reserve estimates.   Additional
     subjectivity occurs when  determining present  values because  the rate  of
     producing the reserves must be estimated.   In addition to errors  inherent
     in predicting the  future, variations  from the  expected production  rates
     also could result directly or indirectly from factors outside the Company's
     control,  such  as  unintentional  delays  in  development,   environmental
     concerns and  changes  in  prices or  regulatory  controls.    The  reserve
     valuation assumes  that all  reserves will  be disposed  of by  production.
     However, if reserves are sold in place, additional economic  considerations
     also  could  affect  the  amount  of  cash  eventually  realized.    Future
     development and production costs are computed by estimating expenditures to
     be incurred in developing and producing the proved oil reserves at the  end
     of the  period, based  on period-end  costs  and assuming  continuation  of
     existing economic conditions.  A discount rate of 10% per year was used  to
     reflect the timing of the future net cash flows.

     The components of SMOG are detailed below:

                                              As of December 31,
                                   ---------------------------------------
                                        1999          1998          1997
                                   ------------    ----------   ----------
     SMOG Components:                           (In thousands)

      Future cash flows             $   24,229     $  12,518    $
                                                                   65,740
      Future production costs          (15,240)      (11,408)     (32,658)
      Future development costs            (105)          (95)      (6,273)
                                   ------------    ----------   ----------
      Future net cash flows              8,884         1,015       26,809
      Future income tax expense             --            --         (125)
                                   ------------    ----------   ----------
      Future net cash flows              8,884         1,015       26,684
      10% annual discount for
        estimated timing of cash
        flows                           (3,424)         (543)     (13,109)
                                   ------------    ----------   ----------
          Total                     $    5,460     $     472    $  13,575
                                   ============    ==========   ==========

                                      F-32
<PAGE>

                       FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued



     The following are principal sources of changes in SMOG:


                                            Years Ended December 31,
                                   ----------------------------------------
                                       1999           1998          1997
                                   -----------   -----------    -----------
     SMOG Sources:                              (In thousands)

      Balance, beginning of year   $      472    $   13,575     $   26,284
       Sales of oil produced, net
         of production costs             (592)          (77)          (801)
       Net changes in prices and
         production costs               5,032        (4,482)       (16,707)
       Purchases of minerals in
         place                             --            --             --
       Extensions and discoveries,
         net of future costs               --            --            108
       Changes in estimated future
         development costs                 (6)        2,875            (79)
       Development costs incurred
         during the year                   82           132            394
       Revisions in previous
         quantity estimates            (1,650)       (9,076)        (1,969)
       Accretion of discount               47         1,357          2,628
       Net change in income taxes          --          (952)         9,071
       Changes in rates of
         production and other           2,075        (2,880)        (5,354)
                                   -----------   -----------    -----------
         Balance, end of year      $    5,460    $      472     $   13,575
                                   ===========   ===========    ===========


16.  Subsequent Events:

     On January 25,  2000, the  Company announced that  the Wilga  2, the  fifth
     exploratory well drilled under terms of the Apache Exploration Program, was
     an exploratory success after initial test results indicated a combined flow
     rate of 16.9  Mmcf of gas  and 570 Bbls  of condensate per  day from  three
     intervals in a  Carboniferous Horizon  at a  depth between  7,732 feet  and
     8,550 feet.   The Wilga 2  is located approximately  25 miles southeast  of
     Warsaw and approximately 12 miles from an existing pipeline.  In accordance
     with terms  of  the  Apache Exploration  Program,  Apache  will  cover  the
     Company's 45.0% share of  drilling and completion  costs pertaining to  the
     Wilga 2.  The Company will pay for its 45.0% share of costs thereafter. The
     Company and its partners  plan an appraisal  well immediately, followed  by
     additional development drilling  and facilities construction  later in  the
     year, with initial production expected to  commence during early 2001.   In
     addition, the Company will promptly begin seismic acquisition in the  Wilga
     area to identify a target near the Wilga discovery to be drilled later this
     year to  test the  possibility of  additional  reserves outside  the  Wilga
     structure.

                                      F-33
[{"type": "S-1", "sequence": "1", "filename": "0001.txt", "description": "FORM S-1 DATED JUNE 29, 2000", "secsgml_size_bytes": 432535}]
{"company-data": {"conformed-name": "FX ENERGY INC", "cik": "0000907649", "assigned-sic": "1311", "irs-number": "870504461", "state-of-incorporation": "NV", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-40480", "film-number": "665422"}, "business-address": {"street1": "3006 HIGHLAND DR", "street2": "STE 206", "city": "SALT LAKE CITY", "state": "UT", "zip": "84106", "phone": "8014865555"}, "mail-address": {"street1": "3006 HIGHLAND DR", "street2": "STE 206", "city": "SALT LAKE CITY", "state": "UT", "zip": "84106"}, "former-company": {"former-conformed-name": "FRONTIER OIL EXPLORATION CO", "date-changed": "19940223"}}
As filed with the Securities and Exchange Commission on June 29, 2000
                                                     Registration No. 333-______
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM S-1

             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

                                 FX ENERGY, INC.
                        --------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

           NEVADA                         1311               87-0504461
           ------                         ----               ----------
      (State or other             (Primary Standard      (I.R.S. Employer
      jurisdiction of                Industrial           Identification
     incorporation or              Classification             Number)
       organization)                                        Code Number)

                               3006 Highland Drive
                                    Suite 206
                           Salt Lake City, Utah 84106
                                 (801) 486-5555

       (Address, including zip code, and telephone number, including area
               code, of Registrant's principal executive offices)

                                 David N. Pierce
                               3006 Highland Drive
                                    Suite 206
                           Salt Lake City, Utah 84106
                                 (801) 486-5555

            (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)

                                    Copy to:

                              James R. Kruse, Esq.
                           Kruse, Landa & Maycock, LLC
                                50 West Broadway
                                    8th Floor
                            Salt Lake City, UT 84101
                                 (801) 531-7090
                               fax: (801) 531-7091

     Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.

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

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

     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]

     If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]

     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
Calculation of Registration Fee
--------------------------- ------------------------ ------------------------- ------------------------ -------------------------
  Title of Each Class of                                                          Proposed Maximum
     Securities to be                                    Proposed Maximum        Aggregate Offering            Amount of
        Registered          Amount to be Registered  Offering Price Per Unit(1)         Price               Registration Fee
--------------------------- ------------------------ ------------------------- ------------------------ -------------------------
Common Stock, par
value $0.001 per
share                              2,969,000                  $5.375                 $15,958,375                 $4,213
--------------------------- ------------------------ ------------------------- ------------------------ -------------------------
(1)  Estimated solely for the purpose of computing the amount of the
     registration fee pursuant to Rule 457(c), based on a price of $5.375, the
     average of the high and low prices for the issuer's common stock on June
     27, 2000 as reported on the Nasdaq National Market.

     The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant files
a further amendment which specifically states that this registration statement
will thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the registration statement becomes effective on
such date as the Securities and Exchange Commission, acting pursuant to Section
8(a) may determine.
Subject To Completion, Dated June 28, 2000

The information contained in this preliminary prospectus is not complete and may
be changed. The selling stockholders may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.

                                 [COMPANY LOGO]

                   Resale of 2,969,000 shares of common stock

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

This prospectus relates to the resale of our shares of common stock by the
stockholders named under the caption "Selling Stockholders" on page 60. The
selling stockholders may offer and sell from time to time common stock using
this prospectus in transactions:

     o    on the Nasdaq National Market or otherwise;

     o    at market  prices,  which may vary during the offering  period,  or at
          negotiated prices; and

     o    in  ordinary  brokerage  transactions,   in  block  transactions,   in
          privately negotiated transactions, or otherwise.

The selling stockholders will receive all of the proceeds from the sale of the
shares and will pay all underwriting discounts and selling commissions relating
to the sale of the shares. FX Energy has agreed to pay the legal, accounting,
printing and other expenses related to the registration of the sale of the
shares.

Our common stock is listed on the Nasdaq National Market under the symbol
"FXEN." On June 27, 2000, the last reported sale price of our common stock was
$5.375.

An investment in our shares involves certain risks. We urge you to read the
"Risk Factors" section beginning on page 6 and the rest of this prospectus
before making an investment decision.

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

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

              The date of this prospectus is _______________, 2000.
Table of Contents

                                                                            Page

About This Prospectus..........................................................i
Prospectus Summary.............................................................1
Risk Factors...................................................................6
Forward-Looking Statements....................................................12
Price Range of Common Stock and Dividend Policy...............................13
No Net Proceeds to Us.........................................................13
Capitalization................................................................14
Dilution......................................................................15
Selected Consolidated Financial Data..........................................16
Management's Discussion and Analysis of Financial
  Condition and Results of Operations.........................................18
Business......................................................................29
The Republic of Poland........................................................45
Management ...................................................................47
Principal Stockholders........................................................55
Description of Capital Stock..................................................57
Selling Stockholders..........................................................60
Plan of Distribution..........................................................61
Where You Can Find Additional Information.....................................63
Legal Matters.................................................................63
Experts.......................................................................63
Glossary of Oil and Gas Terms.................................................64
Index to Financial Statements................................................F-1

                              About This Prospectus

As used in this prospectus, the terms "we," "us" and "our" refer to FX Energy,
Inc., a corporation organized under the laws of the state of Nevada, our
subsidiaries and the entities or enterprises organized under Polish law in which
we have an interest and through which we conduct our activities in that country,
unless the context indicates a different meaning.

As used in this prospectus, "Bcf" means 1,000,000,000 cubic feet of natural gas,
"Bcfe" means 1,000,000,000 cubic feet of natural gas equivalent, "MBbls" means
1,000 barrels of crude oil, including condensate or natural gas liquids, "Mcf"
means 1,000 cubic feet of natural gas, "Mcfe" means 1,000 cubic feet of natural
gas equivalent using a ratio of 1 barrel of oil equals 6,000 cubic feet of
natural gas, "MMcf" means 1,000,000 cubic feet and "MMcfe" means 1,000,000 cubic
feet of natural gas equivalent. "Gross" acres and "gross" wells mean the total
number of acres or wells, as the case may be, in which an interest is owned,
either directly or through a subsidiary or other Polish enterprise in which we
have an interest. "Net" means, when referring to wells or acres, the fractional
ownership working interests we hold, either directly or through a subsidiary or
other Polish enterprise in which we have an interest, multiplied by the gross
wells or gross acres.

All historical production and test data about Poland, excluding wells in which
we have participated, have been derived from information furnished by either the
Polish Oil and Gas Company or the Polish Ministry of Environmental Protection,
Natural Resources and Forestry.

All production numbers set forth in this prospectus, whether amounts, costs,
revenues or otherwise, are reported net of royalties, unless otherwise
indicated.

                                      -i-
--------------------------------------------------------------------------------

                               Prospectus Summary

This prospectus summary contains an overview of the information from this
prospectus, but may not contain all of the information that is important to you.
This prospectus includes specific terms of the offering of our common stock,
information about our business and financial data. We encourage you to read this
prospectus, including the "Risk Factors" section beginning on page 6, in its
entirety before making an investing decision. We have provided definitions for
some of the oil and gas industry terms used in this prospectus in the "Glossary
of Oil and Gas Terms" on page 64 of this prospectus.

                                    FX Energy

We are an independent oil and gas company focused on exploration, development
and production opportunities in the Republic of Poland. We are the largest
foreign oil and gas exploration acreage holder in Poland with exploration rights
covering approximately 16.1 million gross acres. Our activities are conducted
under strategic alliances with Apache Corporation and the Polish Oil and Gas
Company, or POGC, which allow us to utilize the operating and technical
personnel of those companies, gain access to geological and geophysical data and
obtain other necessary support activities in Poland.

We are currently conducting oil and gas exploration activities with Apache in
Poland in areas where we and Apache jointly hold exploration rights, a program
to which we refer as the Apache Exploration Program. One of the wells drilled
under the Apache Exploration Program resulted in our first exploration success
in the Wilga project, which is located in the northwest portion of the Lublin
Basin project area. The Wilga 2 well tested at an initial flow rate of 16.9 MMcf
of gas per day and 570 Bbls of condensate from the Carboniferous at a depth of
approximately 2,800 meters. The Wilga 2 well was the first successful
exploration well drilled by a foreign operator in Poland. We own a 45% interest
in the 250,000 acre block in which the Wilga project is located, POGC owns 10%
and Apache owns 45% and is the operator.

The Wilga 2 was followed by the Wilga 3 well, which encountered good reservoir
rock in Carboniferous sands and a Lower Devonian sand package in a separate
fault block, but was determined to be a dry hole after test results did not
yield commercial quantities of oil or gas. We believe the absence of oil and gas
in the Wilga 3 is related to faulting and therefore does not alter the
expectation that the Wilga 2 discovery is indicative of a larger oil and gas
accumulation. The next well, the Wilga 4, commenced drilling on June 17, 2000,
at a location east of the Wilga 2 discovery, on the opposite side of the fault
from the Wilga 3. Subject to satisfactory results from the Wilga 4 and the 2-D
seismic data currently being shot, we intend to drill three additional wells
through early 2001 to begin to determine the extent of the Wilga accumulation or
the existence of other accumulations in the Wilga area. In anticipation of
further development in the Wilga project, we expect to begin design and
installation of production facilities and construction of an approximately 18
kilometer pipeline that will be designed with the capacity to support several
additional productive wells.

On April 11, 2000, we signed an agreement with POGC under which we will earn a
49% working interest in approximately 300,000 gross acres in the Fences project
area by spending $16.0 million on exploration and development activities. We
have identified several separate exploration prospects in the Fences project
area based on POGC's existing seismic data and adjacent productive areas. Our
first well in this project area, the Kleka 11, was announced as an exploratory
success on June 28, 2000, after the well tested a calculated open flow rate of
34.3 MMcf of gas per day from the Rotliegendes at a depth of approximately 3,000
meters. As part of our commitment, we plan to shoot 200 or more kilometers of
3-D seismic data and drill approximately four additional wells. After we
complete our work commitment, POGC will begin bearing its 51% of further costs.
POGC is the operator of the Fences project area, which we have referred to
previously as the Radlin project area.

                             Strategic Relationships

Apache. Apache Corporation is a leading independent exploration and production
company based in the U.S. with an equity market capitalization of over $5.5
billion as of June 2000. Apache has successful exploration programs in the
United States, Canada, Australia, Egypt, Poland and China. We and Apache have
established an area of mutual interest for oil and gas exploration and
development covering current and future holdings in most of Poland. Apache
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
does not participate in our new 300,000 gross acre Fences project area or our
900,000 gross acre Baltic project area. In addition to our share of the costs in
the five exploratory wells and over 2,000 kilometers of seismic data gathered to
date in the Apache Exploration Program, Apache will cover our share of costs to
drill an equivalent of four additional exploratory wells, shoot and analyze
approximately 350 kilometers of 2-D seismic data and cover all general and
administrative costs under the Apache Exploration Program through June 30, 2000.
In addition, we and Apache may seek to acquire from POGC appraisal, development
or exploration projects on existing POGC discoveries, shut-in fields and
underdeveloped properties in Poland.

POGC. The Polish Oil and Gas Company, or POGC, is the largest holder of oil and
gas rights in Poland. POGC is a state-owned, integrated oil and gas company with
approximately 30,000 employees and over 6.0 Tcfe of reserves, according to
industry sources. Our strategic alliance with POGC provides us with access to
important exploration data as well as technical and operational support. We and
Apache have granted POGC an option to earn up to a one-third interest in our
Lublin, Pomeranian and Carpathian project areas, which cover approximately 8.6
million gross acres. In turn, POGC has granted us and Apache each the right to
earn up to a one-third interest in approximately 3.4 million POGC controlled
gross acres. As indicated above, we signed an agreement in April 2000 to
participate with POGC in the Fences project area. In addition, we are currently
pursuing proposals to acquire additional appraisal, development or exploration
projects on existing POGC discoveries. We believe that our relationship with
POGC may provide additional opportunities in Poland.

                                Business Strategy

Our strategy is to increase our reserves, production and cash flow through
exploration and development drilling. The principal components of our business
strategy are:

  o  Focus on Poland. We believe Poland is an attractive area in which to
     conduct exploration activities because of its known productive basins,
     limited oil and gas exploration and development in those basins and heavy
     dependence on oil and gas imports. In addition, Poland's industrial
     infrastructure combined with its fiscal regime favorable to foreign
     investment reinforce the attractiveness of Poland.

  o  Leverage Our Exploration Success. Although we currently have no debt, when
     we convert an exploration prospect into a development project, we intend to
     fund the majority of exploitation costs with debt financing, if available.

  o  Balance Our Growth Profile. We intend to diversify our portfolio of
     properties and our risk profile by adding additional development
     opportunities to our inventory of high potential exploration projects. We
     intend to seek the acquisition of proved reserves with additional
     exploitation potential or proved reserves with infrastructure constraints.
     We believe that our relationship with POGC may provide us access to such
     opportunities in Poland.

  o  Expand Existing and Develop New Strategic Relationships. We intend to
     expand our strategic relationships with Apache and POGC to obtain
     operational assistance and to enhance our ability to pursue additional
     opportunities in Poland. We may seek new strategic alliances with other
     operating or financial partners to exploit fully our recent exploratory
     success as well as any possible new ventures in Poland.

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

                                       2
--------------------------------------------------------------------------------
                        Exploration and Development Plan

Our current exploration and development plan consists of three primary
components:

  o  drilling and, if warranted, completing appraisal and development wells,
     constructing production facilities and further exploring our Wilga project
     area with Apache and POGC;

  o  fulfilling our $16.0 million commitment to earn our interest in the Fences
     project area with POGC; and

  o  drilling (excluding completion costs, if any) the remaining exploration
     wells to be funded by Apache under the Apache Exploration Program.

The following table sets forth our current exploration and development plan. The
capital expenditures included within the table are estimates based on
information currently available to us and are subject to being revised as
warranted. Actual capital expenditures may vary significantly from the estimated
amounts.
Interest
                                                 --------------------                   Capital Expenditures
                                                              Net     Estimated  ------------------------------
                                                  Working  Revenue(1)   Date         Total         FX Share
                                                 -------------------- ---------- -------------- ---------------
                                                                                         (In millions)
Wilga Project(2)..........................      45%       42%
       Wilga 3 well (drilled)(3)..............                          1H 2000    $  4.00          $  0.90
       Wilga 4 well (commenced)(3)............                          2H 2000       3.00             0.68
       Seismic data...........................                          2H 2000       0.53             0.24
       Wilga 5 well...........................                          2H 2000       3.00             1.35
       Wilga 6 well...........................                             2001       3.00             1.35
       Wilga 7 well...........................                             2001       3.00             1.35
       Facilities/pipeline....................                             2001      11.11             5.00
                                                                                 -------------- ---------------
                                                                                    $27.64          $ 10.87
                                                                                 -------------- ---------------

    Fences Project Area(2)....................      49%       46%
       Kleka 11 well (drilled)................                          1H 2000    $  2.50          $  2.50
       Mieszkow well..........................                          2H 2000       2.50             2.50
       Boguszyn well..........................                          2H 2000       2.50             2.50
       Donatowo well..........................                             2001       2.50             2.50
       Zaniemysl well.........................                             2001       2.50             2.50
       Lugi well..............................                             2001       2.50             1.23
       Seismic data...........................                          Various       3.50             3.50
                                                                                 -------------- ---------------
                                                                                    $18.50           $17.23
                                                                                 -------------- ---------------

    Apache Exploration Program(2).............      50%       47%
       Pomeranian well(4).....................                          2H 2000    $  3.50         $  --
       Warsaw West well.......................                          2H 2000       3.50            --
       Carpathian well(4).....................                             2001       3.80            --
       Seismic data...........................                          Various       6.30             0.15
                                                                                 -------------- ---------------
                                                                                    $17.10          $  0.15
                                                                                 -------------- ---------------

         Total................................                                      $63.24           $28.25
                                                                                 ============== ===============
(1)  Assuming the current base rate royalty of 6%.

(2)  Capital expenditures in the Wilga project area include completion costs,
     which are included within facilities/pipeline costs. Capital expenditures
     in the Fences project area and the Apache Exploration Program do not
     include completion costs.

(3)  Effective June 22, 2000, Apache agreed to cover one-half of our share of
     costs to drill the Wilga 3 and Wilga 4 wells in exchange for a release of
     Apache's commitment to cover our share of costs for one exploratory well in
     Poland.

(4)  Our interests could be reduced to as low as a 331/3% working interest and a
     311/3% net revenue interest if POGC exercises its option to participate in
     these exploratory wells.

                                   Our Address

Our principal executive offices are located at 3006 Highland Drive, Suite 206,
Salt Lake City, Utah 84106, and our telephone number is (801) 486-5555.

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

                                       3
--------------------------------------------------------------------------------

                                  The Offering

Common stock outstanding .....................................17,818,003 shares

Common stock to be offered by selling stockholders............2,969,000 shares

Nasdaq National Market symbol.................................FXEN

The number of outstanding shares shown above excludes an aggregate of 4,146,167
shares that may be issued on the exercise of options and warrants outstanding as
of June 27, 2000.

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

                                       4
--------------------------------------------------------------------------------

                       Summary Consolidated Financial Data

The summary historical consolidated financial data for each of the three fiscal
years in the period ended December 31, 1999 are derived from our audited
consolidated financial statements, which are included in this prospectus. The
historical financial information for the three months ended March 31, 2000 and
1999 and as of March 31, 2000 was derived from our unaudited consolidated
financial statements, which also are included in this prospectus. The unaudited
adjusted balance sheet data have been adjusted only to reflect our sale in June
2000, of 2,969,000 shares of common stock to the selling stockholders at a price
of $3.50 per share from which we received net proceeds of $9.3 million ($10.4
million gross), but does not reflect any other changes to our financial
condition subsequent to March 31, 2000. All amounts are in thousands, except per
share amounts.
Three Months Ended
                                                         March 31,                Years Ended December 31,
                                                  ------------------------- -------------------------------------
                                                     2000         1999         1999         1998         1997
                                                  ------------ ------------ ------------ ------------ -----------
Statement of Operations Data
Revenues:
Oil sales.......................................   $  597      $  234        $1,554     $  1,124       $2,040
  Drilling revenue................................       73          88           865          323          496
  Gain on sale of property interests..............       --          --            --          467          272
                                                  ------------ ------------ ------------ ------------ -----------
    Total revenues................................      670         322         2,419        1,914        2,808
                                                  ------------ ------------ ------------ ------------ -----------
Operating Costs and Expenses:
  Lease operating costs (1).......................      292         252           962        1,046        1,239
  Exploration costs (2)...........................      484         180         3,053        2,127        5,314
  Producing property impairment...................       --          --            --        5,885           --
  Drilling costs..................................       75          53           642          240          329
  Depreciation, depletion and amortization........       87         126           494          672          635
  General and administrative......................      597         536         2,962        2,572        2,566
                                                  ------------ ------------ ------------ ------------ -----------
    Total operating costs and expenses............    1,535       1,147         8,113       12,542       10,083
                                                  ------------ ------------ ------------ ------------ -----------

Operating loss....................................     (865)       (825)       (5,694)     (10,628)      (7,275)
                                                  ------------ ------------ ------------ ------------ -----------

Other income (expense):
  Interest and other income.......................      134         102           511          506          662
  Interest expense................................       --          --            (7)          --          (83)
  Impairment of notes receivable from officers....       (5)         --          (666)          --           --
                                                  ------------ ------------ ------------ ------------ -----------
    Total other income (expense)..................      129         102          (162)         506          579
                                                  ------------ ------------ ------------ ------------ -----------
Net loss before extraordinary gain................     (736)       (723)       (5,856)     (10,122)      (6,696)
  Extraordinary gain..............................       --          --            --           --        3,076
                                                  ------------ ------------ ------------ ------------ -----------
Net loss..........................................   $ (736)     $ (723)      $(5,856)    $(10,122)     $(3,620)
                                                  ============ ============ ============ ============ ===========

Basic and diluted net loss per share:
  Net loss before extraordinary gain..............    $(0.05)     $(0.06)     $  (0.41)  $    (0.78)    $ (0.53)
  Extraordinary gain..............................       --          --            --           --         0.24
                                                  ------------ ------------ ------------ ------------ -----------
    Net loss......................................    $(0.05)     $(0.06)     $  (0.41)  $    (0.78)    $ (0.29)
                                                  ============ ============ ============ ============ ===========
Basic and diluted weighted average shares
   outstanding....................................    14,849      13,055        14,199       12,979       12,597
                                                  ============ ============ ============ ============ ===========
March 31, 2000
                                                                                         -----------------------
                                                                                           Actual    As Adjusted
                                                                                         ----------- -----------
Balance Sheet Data:
Working capital......................................................................    $4,092     $13,392
  Total assets.........................................................................     9,433      18,733
  Long-term debt.......................................................................        --          --
  Stockholders' equity.................................................................    $7,601     $16,901
(1)  Includes lease operating expenses and production taxes.

(2)  Includes geophysical and geological costs, exploratory dry hole costs and
     nonproducing leasehold impairments.
--------------------------------------------------------------------------------

                                       5
Risk Factors

An investment in our common stock involves significant risks. You should
carefully consider the following risk factors before you decide to buy our
common stock. You should also carefully read and consider all the information we
have included in this prospectus before you decide to buy our common stock.

Risks Relating to our Business

     Our success depends on our discovery of economic quantities of oil or gas
in Poland.

We do not currently have any oil or gas production in Poland and do not generate
sufficient revenues to cover our costs of operation. Our exploration program is
based on interpretations of geological and geophysical data. The factors listed
below, most of which are outside our control, may prevent us from establishing
commercial production or substantial reserves as a result of our exploration,
appraisal and development activities in Poland:

o    we cannot assure that any well will encounter oil or gas;

o    there is no way to know in advance of drilling and testing whether any
     prospect encountering oil or gas will yield oil or gas in sufficient
     quantities to cover drilling or completion costs or to be economically
     viable;

o    one or more appraisal wells are typically required to confirm the
     commercial potential of any oil or gas discovery;

o    we may continue to incur exploration costs in specific areas even if
     initial appraisal wells are plugged and abandoned or, if completed for
     production, do not result in production of commercial quantities; and

o    drilling operations may be curtailed, delayed or canceled as a result of
     numerous factors, including operating problems encountered during drilling,
     weather conditions, compliance with governmental requirements and shortages
     or delays in the delivery of equipment or availability of services.

We have committed to spend $16.0 million to earn an interest in the Fences
project area, which may require us to fulfill our commitment although initial
exploration may indicate that further exploration is not warranted.

     We have limited control over our exploration and development activities in
     Poland.

We rely to a significant extent on the expertise and financial capabilities of
our strategic partners, Apache and POGC. The failure of Apache or POGC to
perform its obligations under contracts with us would most likely have a
material adverse effect on us. In particular, we have prepared our exploration
budget through 2000 and into 2001, based on the funding to be provided by Apache
and, to a limited extent, POGC. In the future, we may become even more reliant
upon the expertise and financial capabilities of our strategic partners. Apache
has worldwide oil and gas interests outside of Poland in which we do not
participate. If Apache's separately-held interests should become more promising
to Apache than interests held with us in Poland, Apache may focus its efforts,
funds, expertise and other resources elsewhere. In addition, should our
relationship with Apache deteriorate or terminate, our oil and gas exploratory
programs in Poland may be delayed significantly. Although we have rights to
participate in exploration and development activities on some POGC controlled
acreage, we have no right to initiate such activities. Further, we have no
interest in the underlying agreements, licenses and grants from the Polish
agencies governing the exploration, exploitation, development or production of
acreage controlled by POGC. Thus, our program in Poland involving POGC
controlled acreage would be adversely affected if POGC should elect not to
pursue activities on such acreage, if the relationship between us, Apache or
POGC should deteriorate or terminate or if POGC or the government agencies
should fail to fulfill the requirements of or elect to terminate such
agreements, licenses or grants.

     We may not achieve the results anticipated in placing our current or future
     discoveries into production.

We may encounter delays in placing the Wilga project into production due to the
requirements to obtain rights-of-way for an approximately 18 kilometer pipeline
to connect to the POGC pipeline system, permits for construction of surface
facilities, equipment, installation and construction services and materials and
related

                                       6
infrastructure components. We may also encounter similar delays regarding our
Kleka discovery in the Fences project area, which is approximately one kilometer
from a pipeline. In addition, our efforts to complete a gas purchase contract
with the transportation and storage division of POGC may also be delayed. Such
delays would correspondingly delay the commencement of cash flow from sales of
gas and may require us to obtain additional short-term financing pending
commencement of production. Further, we have designed the proposed surface
facilities and pipeline based on possible estimated results of additional
drilling. We cannot assure that additional drilling will establish additional
reserves or production that will provide an economic return for currently
planned expenditures for facilities. We may have to change our anticipated
expenditures if costs of placing a particular discovery into production are
higher, if the project is smaller or if the commencement of production takes
longer than expected.

     We cannot assure the exploration models we have developed in Poland will
     improve our chances of finding oil or gas in Poland.

We cannot assure the exploration models we, Apache and POGC have developed will
provide a useful or effective guide for selecting exploration prospects and
drilling targets. We will have to revise or replace these exploration models as
a guide to further exploration if ongoing drilling results do not confirm their
validity. These exploration models may be based on incomplete or unconfirmed
data and theories that have not been fully tested. The seismic data, other
technologies and the study of producing fields in the area do not enable us to
know conclusively prior to drilling that oil or gas will be present in
commercial quantities. We cannot assure that the analogies that we draw from
available data from other wells, more fully explored prospects or producing
fields will be applicable to our drilling prospects.

     We cannot accurately predict the size of exploration targets or foresee all
     related risks.

Notwithstanding the accumulation and study of 2-D and 3-D seismic data, drilling
logs, production information from established fields and other data, we cannot
predict accurately the oil or gas potential of individual prospects and drilling
targets or the related risks. Our predictions are only rough, preliminary
geological estimates of the forecasted volume and characteristics of possible
reservoirs and are not an estimate of reserves. In some cases, our estimates may
be based on a review of data from other exploration or producing fields in the
area that may not be similar to our exploration prospects. The oil or gas
potential of individual prospects can only be determined by several test wells
and long-term analysis of test data and history of any production.

     We have had limited exploratory success in Poland.

We have participated in drilling eleven exploratory wells in Poland, including
the Wilga 4, which is currently underway. To date, we have had two exploratory
successes; the Wilga 2 and the Kleka 11. We have completed drilling six
exploratory wells with Apache and POGC as partners under terms of the Apache
Exploration Program, five of which were exploratory dry holes and one of which,
the Wilga 2, was an exploratory success. We have drilled one exploratory well
with POGC as our partner in the Fences project area, the Kleka 11, which was an
exploratory success. We have also drilled two exploratory dry holes on the
Baltic project area and participated in an exploratory dry hole in the
Carpathian project area. In addition, we participated in testing and appraising
two shut-in gas wells in the Lachowice area in Poland that did not result in
commercial production.

     Privatization of POGC could affect our relationship and future
     opportunities in Poland.

Our activities in Poland have benefited from our relationship with POGC, which
has provided us with exploration acreage and data under our agreements. We and
Apache continue to seek new exploration, exploitation and acquisition
opportunities with POGC. The Polish government has commenced the privatization
of POGC by selling POGC's refining and storage assets and has stated its intent
to privatize POGC's exploration and production operations. Such privatization
may result in new policies, strategies or ownership that could adversely affect
our existing relationship and agreements as well as any availability of
opportunities with POGC in the future.

                                       7
Before we can commence production, we must construct infrastructure and
     enter into marketing arrangements.

We and our partners will need to complete production and transportation
facilities as well as marketing arrangements relating to oil or gas that may be
produced from our acreage in Poland. We currently do not have any agreements to
transport or market our production in Poland. Therefore, our wells may be
shut-in until we are able to complete production facilities and marketing
arrangements.

     We have a history of operating losses and may require additional capital in
     the future to fund our operations.

From our inception in January 1989 through March 31, 2000, we have incurred
cumulative net losses of $29.5 million. We expect that our exploration
activities will continue to result in losses and that our accumulated deficit
will increase. We anticipate that we will incur losses through 2000 and possibly
beyond, depending on whether our exploration, appraisal, development and
property acquisition activities in Poland result in sufficient production to
cover related operating expenses.

Until sufficient cash flow from operations can be obtained, we expect we will
need additional capital to fully fund our ongoing planned exploration,
appraisal, development and property acquisition programs in Poland. We have no
current arrangement for any such additional financing, but may seek required
funds from the issuance of debt and equity securities, project financing,
strategic alliances or other arrangements. Obtaining additional financing may
dilute the interest of our existing stockholders or our interest in the specific
project being financed. We cannot assure that additional funds could be obtained
or, if obtained, would be on terms favorable to us. In addition to planned
activities in Poland, we may require funds for general corporate purposes after
the end of 2000 if we do not have positive cash flow from operations.

     The loss of key personnel could have an adverse impact on our operations.

We rely on our officers and key employees and their expertise, particularly
David N. Pierce, President and Chief Executive Officer, Andrew W. Pierce,
Vice-President and Chief Operating Officer, and Jerzy B. Maciolek,
Vice-President of International Exploration, a Polish national who is
instrumental in assisting us in our operations in Poland. The loss of the
services of any of these individuals may materially and adversely affect us. We
have entered into employment agreements with Mr. David Pierce, Mr. Andrew
Pierce, Mr. Maciolek and other key executives. We do not maintain key man
insurance on any of our employees.

     Oil and gas price decreases and volatility could adversely affect our
     operations and our ability to obtain financing.

Oil and gas prices have been and are likely to continue to be volatile and
subject to wide fluctuations in response to the following factors:

   o changes in the supply of and demand for oil and gas;

   o market uncertainty;

   o political conditions in international oil and gas producing regions;

   o the extent of production and importation of oil and gas into existing or
     potential markets;

   o the level of consumer demand;

   o weather conditions affecting production, transportation and consumption;

   o the competitive position of oil or gas as a source of energy, as compared
     with coal, nuclear energy, hydroelectric power and other energy sources;

   o the availability, proximity and capacity of gathering systems, pipelines
     and processing facilities;

   o the refining capacity of prospective oil purchasers;

                                       8
o the effect of government regulation on the production, transportation and
     sale of oil and gas; and

   o other factors beyond our control.

We have not entered into any agreements to protect us from price fluctuations
and may not do so in the future.

     Our industry is subject to numerous operating risks. Insurance may not be
     adequate to protect us against all these risks.

Our oil and gas drilling and production operations are subject to hazards
incidental to the industry. These hazards include blowouts, cratering,
explosions, uncontrollable flows of oil, natural gas or well fluids, fires,
pollution, releases of toxic gas and other environmental hazards and risks.
These hazards can cause personal injury and loss of life, severe damage to and
destruction of property and equipment, pollution or environmental damage and
suspension of operations. To lessen the effects of these hazards, we maintain
insurance of various types to cover our domestic operations. We cannot assure
that the general liability insurance of $9.0 million carried by us or the $25.0
million carried by Apache, as the operator of the Apache Exploration Program,
can continue to be obtained on reasonable terms. POGC, as operator of the Fences
project area, is self-insured. The current level of insurance does not cover all
of the risks involved in oil and gas exploration, drilling and production. Where
additional insurance coverage does exist, the amount of coverage may not be
sufficient to pay the full amount of such liabilities. We may not be insured
against all losses or liabilities that may arise from all hazards because such
insurance is unavailable at economic rates, because of limitations on existing
insurance coverage or other factors. For example, we do not maintain insurance
against risks related to violations of environmental laws. We would be adversely
affected by a significant adverse event that is not fully covered by insurance.
Further, we cannot assure that we will be able to maintain adequate insurance in
the future at rates we consider reasonable.

Risks Relating to Conducting Business in Poland

     Polish laws, regulations and policies may be changed in ways that could
adversely impact our business.

Our oil and gas exploration, development and production activities in Poland are
and will be subject to ongoing uncertainties and risks, including:

   o possible changes in government personnel, the development of new
     administrative policies and practices and political conditions in Poland
     that may affect the administration of agreements with governmental agencies
     or enterprises;

   o possible changes to the laws, regulations and policies applicable to us and
     our partners or the oil and gas industry in Poland in general;

   o uncertainties as to whether the laws and regulations will be applicable in
     any particular circumstance;

  o  uncertainties as to whether we will be able to enforce our rights in
     Poland;

  o  uncertainty as to whether we will be able to demonstrate, to the
     satisfaction of the Polish authorities, our, Apache's and POGC's compliance
     with governmental requirements respecting exploration expenditures, results
     of exploration, environmental protection matters and other factors;

  o  the inability to recover previous payments to the Polish government made
     under the exploration rights or any other costs incurred respecting those
     rights if we were to lose or cancel our exploration and exploitation rights
     at any time;

  o  political instability and possible changes in government;

  o  export and transportation tariffs;

  o  local and national tax requirements; and

  o  expropriation or nationalization of private enterprises and other risks
     arising out of foreign government sovereignty over our acreage in Poland.

                                       9
Poland has a developing regulatory regime governing exploration and development,
production, marketing, transportation and storage of oil and gas. These
provisions were recently promulgated and are relatively untested. Therefore,
there is little or no administrative or enforcement history or established
practice that can aid us in evaluating how the regulatory regime will affect our
operations. It is possible that such governmental policies will change or that
new laws and regulations, administrative practices or policies or
interpretations of existing laws and regulations will materially and adversely
affect our activities in Poland. For example, Poland's laws, policies and
procedures may be changed to conform to the minimum requirements that must be
met before Poland is admitted as a full member of the European Union.

     Our oil and gas operations are subject to rapidly changing environmental
     laws and regulations that could negatively impact our operations.

Operations on our project areas are subject to environmental laws and
regulations in Poland that provide for restrictions and prohibitions on spills,
releases or emissions of various substances produced in association with oil and
gas exploration and development. Additionally, if significant quantities of gas
are produced with oil, regulations prohibiting the flaring of gas may inhibit
oil production. In such circumstances, the absence of a gas gathering and
delivering system may restrict production or may require significant
expenditures to develop such a system prior to producing oil and gas. We may be
required to prepare and obtain approval of environmental impact assessments by
governmental authorities in Poland prior to commencing oil or gas production,
transportation and processing functions.

We and our partners cannot assure that we have complied with all applicable laws
and regulations in drilling wells, acquiring seismic data or completing other
activities in Poland to date. More restrictive regulations or administrative
policies or practices may be adopted by the Polish government. The cost of
compliance with current regulations or any changes in environmental regulations
could require significant expenditures. Further, breaches of such regulations
may result in the imposition of fines and penalties, any of which may be
material. These environmental costs could have a material adverse effect on our
financial condition or results of operations in the future.

     Certain risks of loss arise from our need to conduct transactions in
     foreign currency.

The amounts in our agreements relating to our activities in Poland are normally
expressed and payable in United States dollars or equivalent Polish zlotys.
Conversions between United States dollars and Polish zlotys are made on the date
amounts are paid or received. In the future, our financial results and cash
flows in Poland may be affected by fluctuations in exchange rates between the
Polish zloty and the United States dollar. We have not hedged our foreign
currency activities in the past and have no future plans to do so. Currencies
used by us may not be convertible at satisfactory rates. In addition, the
official conversion rates between United States and Polish currencies may not
accurately reflect the relative value of goods and services available or
required in Poland. Further, inflation may lead to the devaluation of the Polish
zloty.

Under the Foreign Exchange Law, prior to making transfers of nonresident income
(such as dividends, interest, rent) abroad, a bank generally must be furnished
with documents evidencing title for the payment, as well as with a certificate
issued by the Polish tax authorities confirming the expiration of tax liability
in Poland or a foreign exchange permit releasing the transferor from this
obligation. If the income to be transferred is not subject to taxation in
Poland, a written declaration to this effect may be sufficient.

Given that the Foreign Exchange Law has come into effect recently and no
detailed rules and regulations under it have been issued to date by the Polish
authorities, the interpretation of the law's provisions will remain in the near
term subject to considerable uncertainty.

                                       10
Risks Related to an Investment in our Common Stock

     Our stockholder rights plan and bylaws discourage unsolicited takeover
     proposals and could prevent you from realizing a premium for your common
     stock.

We have a stockholder rights plan that may have the effect of discouraging
unsolicited takeover proposals. The rights issued under the stockholder rights
plan would cause substantial dilution to a person or group that attempts to
acquire us on terms not approved in advance by our board of directors. In
addition, our articles of incorporation and bylaws contain provisions that may
discourage unsolicited takeover proposals that stockholders may consider to be
in their best interests that include:

   o provisions that members of the board of directors are elected and retire in
     rotation; and

   o the ability of the board of directors to designate the terms of, and to
     issue new series of, preferred shares.

Together, these provisions and our stockholder rights plan may discourage
transactions that otherwise could involve payment to you of a premium over
prevailing market prices for your common shares.

     Our common stock price has been extremely volatile and may continue to be.

Our common stock has traded as low as $3.87 and as high as $13.37 between
January 1, 1998 and June 27, 2000. Some of the factors leading to this
volatility include:

   o the outcome of individual wells or the timing of exploration efforts in
     Poland, as evidenced by significant price declines following the
     announcement of exploratory dry holes in Poland and the significant price
     and volume volatility following the announcement of our first successful
     exploratory well in Poland;

   o the results of other operations in which we have an interest in Poland;

   o the potential sale by us of newly issued common stock to raise capital or
     by existing stockholders of restricted securities;

   o price and volume fluctuations in the general securities markets that are
     unrelated to our results of operations;

   o the investment community's view of companies with assets and operations
     outside the United States in general and in Poland in particular;

   o actions or announcements by Apache and POGC that may affect us;

   o prevailing world prices for oil and gas;

   o the potential of our current and planned activities in Poland; and

   o changes in stock market analysts' recommendations respecting us, other oil
     and gas companies or the oil and gas industry in general.

We may encounter additional exploration failures in Poland that will adversely
affect the trading prices for our common stock.

                                       11
Forward-Looking Statements

This prospectus contains statements about the future, sometimes referred to as
"forward-looking" statements. Forward-looking statements are typically
identified by the use of the words "believe," "may," "will," "should," "expect,"
"anticipate," "estimate," "project," "propose," "plan," "intend" and similar
words and expressions. Statements that describe our future strategic plans,
goals or objectives are also forward-looking statements. Any forward-looking
statements, including those regarding our or our management's current beliefs,
expectations, anticipations, estimations, projections, proposals, plans or
intentions, are not guarantees of future performance or results or events and
involve risks and uncertainties, such as those discussed in this prospectus.

The forward-looking statements are based on present circumstances and on our
predictions respecting events that have not occurred, that may not occur or that
may occur with different consequences and timing than those now assumed or
anticipated. Actual events or results may differ materially from those discussed
in the forward-looking statements as a result of various factors, including the
risk factors discussed in this prospectus. These cautionary statements are
intended to be applicable to all related forward-looking statements wherever
they appear in this prospectus. Any forward-looking statements are made only as
of the date of this prospectus, and we assume no obligation to update
forward-looking statements to reflect subsequent events or circumstances. We
intend any forward-looking statements to be covered by the safe harbor
provisions contained in Section 27A of the Securities Act and Section 21E of the
Exchange Act.

                                       12
Price Range of Common Stock and Dividend Policy

The following table sets forth for the periods indicated the high and low
closing prices for our common stock as quoted under the symbol "FXEN" on the
Nasdaq National Market:

                                                      High          Low
                                                   -----------    ---------
1998:
  First Quarter....................................   $10.50         $6.25
  Second Quarter...................................    12.81          8.25
  Third Quarter....................................     9.50          5.63
  Fourth Quarter...................................    10.13          6.50

1999:
  First Quarter....................................   $ 9.75         $4.00
  Second Quarter...................................     7.00          4.13
  Third Quarter....................................     9.43          6.31
  Fourth Quarter...................................     7.00          4.00

2000:
  First Quarter....................................   $ 9.13         $4.66
  Second Quarter (through June 27).................     8.31          4.44

On June 27, 2000, the closing price per share of our common stock on the Nasdaq
National Market was $5.375. As of June 27, 2000, there were approximately 4,200
beneficial owners of our common stock.

We have never paid cash dividends on our common stock and do not anticipate that
we will pay dividends in the foreseeable future. We intend to reinvest any
future earnings to further expand our business.

                              No Net Proceeds to Us

We will receive no proceeds from the sale of stock by the selling stockholders.

                                       13
Capitalization

The following table sets forth as of March 31, 2000, our historical
capitalization, as adjusted to reflect the subsequent sale of 2,969,000 shares
to the selling stockholders in June 2000 for net proceeds of approximately $9.3
million ($10.4 million gross), but not adjusted to reflect any other changes to
our financial condition since that date.

This information should be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this prospectus.
March 31, 2000
                                                                                 ---------------------------
                                                                                    Actual       As adjusted
                                                                                 --------------  -----------
                                                                                 (Unaudited, in thousands)
Long-term debt..................................................................         --            --

Stockholders' equity
   Common stock, $.001 par value, 30,000,000 shares authorized.  Issued and
   outstanding: 14,849,003 shares as of March 31, 2000 and 17,818,003 as
   adjusted..................................................................... $        15     $      18
   Notes receivable from officers...............................................     (1,400)        (1,400)
   Additional paid-in capital...................................................     38,481         47,778
   Accumulated deficit..........................................................    (29,495)       (29,495)
                                                                                 --------------  -----------
      Total stockholders' equity................................................      7,601         16,901
                                                                                 --------------  -----------
      Total capitalization......................................................  $   7,601        $16,901
                                                                                 ==============  ===========
The number of outstanding shares shown above excludes an aggregate of 4,146,167
shares that may be issued on the exercise of options and warrants outstanding as
of March 31, 2000.

                                       14
Dilution

Our net tangible book value on March 31, 2000, as adjusted to reflect the
subsequent sale of 2,969,000 shares for net proceeds of approximately $9.3
million, but not adjusted to reflect any other changes in our financial
condition since that date, was approximately $16.9 million or $0.95 per share.
"Net tangible book value" is total assets minus the sum of liabilities and
intangible assets. "Net tangible book value per share" is net tangible book
value divided by the total number of shares outstanding before the offering.

The following table illustrates the dilution, or the difference between the
offering price per share, assuming an offering price equivalent to the trading
price on June 27, 2000, and the adjusted net tangible book value per share on
March 31, 2000.
Trading price on June 27, 2000................................................................            $5.38
     Net tangible book value per share as of March 31, 2000, as adjusted to reflect subsequent
         sale of 2,969,000 shares..................................................................             0.95
                                                                                                            ----------
     Dilution per share to purchasers in this offering.............................................            $4.43
                                                                                                            ==========
15
Selected Consolidated Financial Data

The following consolidated financial data for each of the five fiscal years in
the period ended December 31, 1999, are derived from our audited consolidated
financial statements and related notes thereto, certain of which are included in
this prospectus. The historical financial information for the three months ended
March 31, 2000 and 1999, and as of March 31, 2000, was derived from our
unaudited consolidated financial statements, which also are included in this
prospectus. All amounts are in thousands, except per share amounts.
Three Months Ended
                                              March 31,                  Years Ended December 31,
                                        --------------------- ------------------------------------------------------
                                          2000       1999        1999       1998       1997       1996      1995
------------------------------------------------------------- ------------------------------------------------------
Statement of Operations Data

Revenues:
Oil sales...........................  $    597   $    234   $  1,554   $  1,124   $   2,040  $   2,346  $   1,981
  Drilling revenue....................        73         88        865        323        496         75        111
  Gain on sale of property interests..        --         --         --        467        272         --         75
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------
    Total revenues....................       670        322      2,419      1,914      2,808      2,421      2,167
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Costs and Expenses:
  Lease operating costs (1)...........       292        252        962      1,046      1,239      1,225      1,272
  Exploration costs (2)...............       484        180      3,053      2,127      5,314      3,716        862
  Producing property impairment.......        --         --         --      5,885         --         --         --
  Drilling costs......................        75         53        642        240        329        154        141
  Depreciation, depletion and
    amortization......................        87        126        494        672        635        558        503
  General and administrative..........       597        536      2,962      2,572      2,566      1,715      1,466
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------
    Total operating costs and expenses     1,535      1,147      8,113     12,542     10,083      7,368      4,244
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------

Operating loss........................      (865)      (825)    (5,694)   (10,628)    (7,275)    (4,947)    (2,077)
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------

Other income (expense):
  Interest and other income...........       134        102        511        506        662        370         98
  Interest expense....................        --         --         (7)        --        (83)      (333)      (448)
  Impairment of notes receivable from
    officers..........................        (5)        --       (666)        --         --         --         --
  Minority interest: noncash
    dividends (3).....................        --         --         --         --         --         --        (93)
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------
    Total other income (expense)......       129        102       (162)       506        579         37       (443)
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss before extraordinary gain....      (736)      (723)    (5,856)   (10,122)    (6,696)    (4,910)    (2,520)
  Extraordinary gain..................        --         --         --         --      3,076         --         --
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------

Net loss..............................  $   (736)  $   (723)  $ (5,856)  $(10,122)  $ (3,620)  $ (4,910)  $ (2,520)
                                        ========== ========== ========== ========== ========== ========== ==========

Basic and diluted net loss per share:
  Net loss before extraordinary gain..   $  (0.05) $   (0.06) $   (0.41) $   (0.78) $  (0.53)  $  (0.49)  $  (0.47)
  Extraordinary gain..................        --         --         --         --       0.24         --         --
                                        ---------- ---------- ---------- ---------- ---------- ---------- ----------
    Net loss:.........................   $  (0.05) $   (0.06) $   (0.41) $   (0.78) $  (0.29)  $  (0.49)  $  (0.47)
                                        ========== ========== ========== ========== ========== ========== ==========

Basic and diluted weighted average
 shares outstanding:..................    14,849     13,055     14,199     12,979     12,597     10,018      5,389
                                        ========== ========== ========== ========== ========== ========== ==========

                                       16
Three Months Ended
                                               March 31,                      Years Ended December 31,
                                          --------------------- ------------------------------------------------------
                                            2000       1999       1999       1998       1997       1996       1995
                                          ---------- ---------- ---------- ---------- ---------- ---------- ----------
Cash Flow Statement Data
Net cash used in operating activities...   $(1,008)     $(720)   $(3,745)   $(3,109)    $(5,881)  $(3,651)  $ (1,030)
Net cash provided by (used in) investing
    activities..........................     2,643        (54)    (2,916)     1,083         368    (7,005)    (1,489)
Net cash provided by (used in) financing
    activities..........................        --         --      6,469       (674)      1,679    18,259      2,974
As of December 31,
                                                                ------------------------------------------------------
                                          As of March 31, 2000    1999       1998       1997       1996       1995
                                          --------------------- ---------- ---------- ---------- ---------- ----------
Balance Sheet Data (Actual)
Working capital (deficit)...........         $4,092         $  5,459    $ 3,965    $  8,494  $ 13,843   $   (278)
    Total assets........................          9,433           10,470      8,253      18,555     2,294     10,039
    Long-term debt......................             --               --         --          --     1,500      3,359
    Stockholders' equity................          7,601            8,367      6,920      17,612    20,908      5,224
(1)  Includes lease operating expenses and production taxes.
(2)  Includes geophysical and geological costs, exploratory dry hole costs and
     nonproducing leasehold impairments.
(3)  Noncash dividend on FX Producing convertible preferred stock.

                                       17
Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

You should read the following discussion and analysis in conjunction with our
consolidated financial statements included in this prospectus. The following
information contains forward-looking statements. See "Forward-Looking
Statements." Our activities are subject to significant risks. See "Risk
Factors."

Overview

We are an independent energy company engaged in the exploration, development and
production of oil and gas from properties located primarily in the Republic of
Poland. However, to date, all of our revenue from oil and gas production has
been from our United States producing properties. In the western United States,
we produce oil from fields in Montana and Nevada and have a drilling and well
servicing company in northern Montana and oil and gas exploration prospects in
several western states.

We conduct substantially all of our exploration and development activities in
Poland jointly with others and, accordingly, recorded amounts for our activities
in Poland reflect only our proportionate interest in these activities.

Our results of operations may vary significantly from year to year based on the
factors discussed in "Risk Factors" above and on other factors such as our
exploratory and development drilling success. Therefore, the results of any one
year may not be indicative of future results.

We follow the successful efforts method of accounting for our oil and gas
properties. Under this method of accounting, all property acquisition costs and
costs of exploratory and development wells are capitalized when incurred,
pending determination of whether the well has found proved reserves. If an
exploratory well has not found proved reserves, these costs plus the costs of
drilling the well are expensed. The costs of development wells are capitalized,
whether productive or nonproductive. Geological and geophysical costs on
exploratory prospects and the costs of carrying and retaining unproved
properties are expensed as incurred. An impairment allowance is provided to the
extent that capitalized costs of unproved properties, on a property-by-property
basis, are considered not to be realizable. An impairment loss is recorded if
the net capitalized costs of proved oil and gas properties exceed the aggregate
undiscounted future net revenues determined on a property-by-property basis. The
impairment loss recognized equals the excess of net capitalized costs over the
related fair value, determined on a property-by-property basis. As a result of
the foregoing, our results of operations for any particular period may not be
indicative of the results that could be expected over longer periods.

We have reviewed all recently issued, but not yet adopted, accounting standards
in order to determine their effects, if any, on our results of operations or
financial position. Based on that review, we believe that none of these
pronouncements will have a significant effect on current or future earnings or
operations.

Results of Operations by Business Segment

We operate within two segments of the oil and gas industry: exploration and
production and contract servicing. Depreciation, depletion and amortization
costs directly associated with the exploration and production and contract
servicing segments are detailed within the following discussion. General and
administrative costs, interest income, other income, interest expense and
officer loan impairment are not allocated to individual operating segments for
management or segment reporting purposes and are discussed in their entirety
following the segment discussion.

                                       18
Three months ended March 31, 2000 compared to the three months ended March
     31, 1999

         Exploration and Production Segment

Oil Revenues. Oil revenues were $597,000 during the first quarter of 2000, an
increase of $363,000, as compared to $234,000 during the same period of 1999.
During the first quarter of 2000, our oil revenues were positively affected by
higher oil prices and negatively affected by lower production rates attributable
to the natural production declines of our producing properties. During the first
quarter of 1999, our oil revenues were adversely affected by depressed oil
prices and lower production rates attributable to the natural production
declines of our producing properties. A summary of the percentage change in oil
revenues, average oil price and oil production for first quarter of 2000 and
1999, as compared to their respective prior year's period, is set forth on the
following table:
Quarter ended March 31,
                                                                              --------------------------------------
                                                                                    2000                1999
                                                                              ------------------  ------------------
Oil revenues...............................................................        $597,000            $234,000
  Percent change versus prior year's quarter...............................           +155%                -30%

Average oil price..........................................................         $ 24.94              $ 8.80
  Percent change versus prior year's quarter...............................           +184%                -22%

Production volumes (Bbls)..................................................          23,924              26,572
  Percent change versus prior year's quarter...............................            -10%                -10%
Lease Operating Costs. Our lease operating costs are composed of normal
recurring lease operating expenses and production taxes. Lease operating costs
were $292,000 during the first quarter of 2000, an increase of $42,000, as
compared to $250,000 during the same period of 1999.

Lease operating expense was $285,000 during the first quarter of 2000, an
increase of $49,000, as compared to $236,000 during the same period of 1999.
During the first quarter of 2000, we increased our lease operating expense to
cover various repair and maintenance items that were previously deferred due to
low oil prices. As a result, lifting costs were $11.91 per barrel during the
first quarter of 2000, an increase of $3.03, as compared to $8.88 during the
first quarter of 1999. During the first quarter of 1999, we reduced our lease
operating expense by redesigning the pattern of injecting fluids into the Cut
Bank Sand Unit, our principal producing property, and deferred major repairs and
maintenance items due to depressed oil prices.

Production taxes were $7,000 during the first quarter of 2000, a decrease of
$7,000, as compared to $14,000 during the same period of 1999. Production taxes
averaged approximately 1.2% and 6.1% of oil revenues during the first quarters
of 2000 and 1999, respectively. During late 1999, the state of Montana
substantially reduced the production tax rate for stripper wells, which in turn
resulted in substantially less production taxes for the first quarter of 2000,
as compared to the same period of 1999.

Depreciation, Depletion and Amortization Expense - Exploration and Production.
Depreciation, depletion and amortization expense for producing properties was
$16,000 for the first quarter of 2000, an increase of $2,000, as compared to
$14,000 during the same period of 1999. The depreciation, depletion and
amortization expense rate per barrel for the first quarter of 2000 was $0.67, an
increase of $0.14, as compared to $0.53 during the same period of 1999. We
utilize the units-of-production method to calculate our depreciation, depletion
and amortization expense for producing properties. As such, the depreciation,
depletion and amortization expense rate may vary year to year based on net
capitalized costs and the volumes of reserves reported in the current year's
reserve report, as compared to the prior year. The reserve report as of December
31, 1999 reflected proved reserves of 1.1 million barrels of oil, 0.4 million
barrels less than the 1.5 million barrels of oil reported as of December 31,
1998.

Exploration Costs. Our exploration costs consist of geological and geophysical
costs, exploratory dry holes and nonproducing leasehold impairments. Exploration
costs were $484,000 during the first quarter of 2000, an increase of $304,000,
as compared to $180,000 during the same period of 1999.

                                       19
Geological and geophysical costs were $484,000 during the first quarter of 2000,
an increase of $304,000, as compared to $180,000 during the same period of 1999.
During the first quarter of 2000, we spent $162,000 reprocessing seismic data on
the Pomeranian project area, $108,000 reprocessing seismic data on the Warsaw
West project area, $74,000 for travel and related expenses and $140,000 on other
geological and geophysical activities. During the first quarter of 1999,
geological and geophysical costs were comprised primarily of $75,000 for the
Polish Lowlands Study, $65,000 for travel and related expenses and $40,000 for
other geological and geophysical activities. Geological and geophysical costs
will continue to fluctuate from period to period, based on our level of
exploratory activity in Poland and the respective cost participation percentage
of our industry partners.

We had no exploratory dry hole costs during the first quarters of 2000 and 1999.
During late 1998, we participated in drilling two exploratory dry holes, the
Czernic 277-2 and the Poniatowa 317-1, on the Lublin Basin project area in
Poland, both of which were subsequently determined to be exploratory dry holes
during February 1999. The Czernic 277-2 and the Poniatowa 317-1 were each
counted as exploratory wells under the Apache Exploration Program. As such,
Apache covered all of our pro rata share of costs for each well.

There were no nonproducing leasehold impairments during the first quarters of
2000 and 1999. As of March 31, 2000, we had capitalized unproved property costs
of $1.399 million, including $692,000 domestically and $707,000 in Poland. In
accordance with generally accepted accounting principles, an impairment charge
will be recognized, determined on a property-by-property basis, in the event we
determine any capitalized unproved property costs are not recoverable following
unsuccessful exploratory drilling or other factors. Nonproducing leasehold
impairments will continue to vary from period to period based on our
determination that capitalized costs of unproved properties, on a
property-by-property basis, are not realizable.

     Contract Servicing Segment

Contract Servicing Revenues. We had contract servicing revenues of $74,000
during the first quarter of 2000, a decrease of $14,000, as compared to $88,000
for the first quarter of 1999. During the first quarters of 2000 and 1999, our
drilling rig was idle, and all revenues were generated by our well servicing
equipment. Contract servicing revenue will continue to fluctuate from period to
period based on whether our drilling rig is active, the degree of emphasis on
utilizing equipment on our own properties, the number of wells drilled, the
amount of retained working interest, if any, and other factors.

Contract Servicing Costs. Contract servicing costs were $75,000 during the first
quarter of 2000, an increase of $22,000, as compared to $53,000 for the same
period of 1999. During the first quarter of 2000, our well and servicing
equipment generated a gross profit of 25% on direct costs of $55,000 and
incurred downtime maintenance costs of $20,000 associated with our drilling rig.
During the first quarter of 1999, our well and servicing equipment generated a
gross profit of 39% on direct costs of $53,000, and the drilling rig was idle.
Contract servicing costs will continue to fluctuate from period to period based
on whether our drilling rig is active, the degree of emphasis on utilizing
equipment on our own properties, the number of wells drilled, the amount of
retained working interest, if any, and other factors.

Depreciation, Depletion and Amortization Expense - Contract Servicing.
Depreciation, depletion and amortization expense for contract servicing was
$51,000 during the first quarter of 2000, a decrease of $30,000, as compared to
$81,000 during the same period of 1999. Depreciation, depletion and amortization
expense for contract servicing was lower during the first quarter of 2000, as
compared to the same quarter of 1999, due to capital items being depreciated in
the first quarter of 1999 subsequently becoming fully depreciated prior to the
first quarter of 2000.

     Nonsegmented Information

Depreciation, Depletion and Amortization Expense - Corporate. Depreciation,
depletion and amortization expense for corporate activities was $20,000 during
the first quarter of 2000, a decrease of $11,000, as compared to $31,000 during
the same period of 1999. Depreciation, depletion and amortization expense for
corporate activities was lower during the first quarter of 2000, as compared to
the same quarter of 1999, due to capital items being depreciated in the first
quarter of 1999 subsequently becoming fully depreciated prior to the first
quarter of 2000.

                                       20
General and Administrative Costs. General and administrative costs were $597,000
during the first quarter of 2000, an increase of $61,000, as compared to
$536,000 for the same period of 1999. During the first quarter of 2000, we
incurred substantially more travel and other associated costs, as compared to
the same period of 1999. General and administrative costs are expected to be
higher in future periods as we begin to pay for part of our pro rata share of
Apache's general and administrative costs in Poland beginning in July 2000.

Interest and Other Income. Interest and other income was $134,000 during the
first quarter of 2000, an increase of $32,000, as compared to $102,000 during
the same period of 1999. Our cash and marketable debt securities balance was
$5.346 million as of March 31, 2000, $1.499 million more than the balance of
$3.847 million as of March 31, 1999. As a result of higher average cash and
marketable debt securities balances during the first quarter of 2000, as
compared to the same period of 1999, we earned $126,000 of interest income
during the first quarter of 2000, an increase of $34,000, as compared to $92,000
for the same period of 1999.

Officer Loan Impairment. Officer loan impairment was $5,000 for the quarter
ended March 31, 2000, as compared to no officer loan impairment for the same
period of 1999. In accordance with Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan," we recorded an
additional impairment allowance of $5,000 for the quarter ended March 31, 2000.
The notes receivable from officers totaled $1.4 million as of March 31, 2000,
including principal and interest of $2.07 million, reduced by an impairment
allowance of $670,000. The notes receivable from officers are collateralized by
233,340 shares of our common stock. The impairment allowance will continue to be
adjusted quarterly based on the market value of the collateral shares.

     Comparison of years ended December 31, 1999, 1998 and 1997

         Exploration and Production Segment

Oil Revenues. Oil revenues were $1.554 million, $1.124 million and $2.04 million
for the years ended December 31, 1999, 1998 and 1997, respectively. During these
three years, our oil revenues fluctuated primarily due to volatile oil prices.
Our oil revenues during three years were also negatively affected by lower
production rates attributable to the natural production declines of our
producing properties and the increased utilization of our well servicing
equipment on third-party properties rather than our own properties during 1998
and 1999. A summary of the percentage change in oil revenues, average oil price
and oil production for 1999, 1998 and 1997, as compared to their respective
prior year, is set forth on the following table:
Year Ended December 31,
                                                             ------------------------------------------------------
                                                                   1999              1998               1997
                                                             ----------------- -----------------  -----------------
Oil revenues.................................................   $1,554,000        $1,124,000         $2,040,000
  Percent change versus prior year...........................      +38.26%           -44.90%            -13.04%

Average oil price............................................     $  15.35           $  9.78           $  16.16
  Percent change versus prior year...........................      +56.95%           -39.48%            -10.42%

Production volumes (Bbls)....................................      101,275           114,909            126,271
  Percent change versus prior year...........................      -11.87%            -9.00%             -2.88%
Gain on Sale of Property Interests. There was no gain on sale of property
interests for the year ended December 31, 1999. We recognized a gain on sale of
property interests of $467,000 and $272,000 for the years ended December 31,
1998 and 1997, respectively. During 1998, Apache paid us $500,000 in initial
cash consideration relating to our participation in the Carpathian project area,
which was offset by $33,000 of associated costs. During 1997, we received
$450,000 from Apache in initial cash consideration relating to our participation
in the Lublin Basin project area, which was offset by $344,000 of associated
costs and $95,000 from the purchase of Lubex Petroleum Company, a wholly-owned
Polish exploration subsidiary. The 1997 gain on sale of property interests also
includes $71,000 relating to our mining operations, which are excluded from the
discussion of the results of operations by business segment. The amount of gain
on sale of property interests will continue to vary from year to year, depending
on the timing of completed deals and the amount of up-front cash consideration,
if any.

                                       21
Lease Operating Costs. Lease operating costs were $962,000, $1.046 million and
$1.239 million for the years ended December 31, 1999, 1998 and 1997,
respectively, or $9.50, $9.11 and $9.82, respectively, per barrel.

Lease operating expenses were $899,000, $966,000 and $1.094 million for the
years ended December 31, 1999, 1998 and 1997, respectively. During these years,
we performed only routine maintenance on our producing properties and deferred
workovers in an effort to control operating costs. Lifting costs per barrel
(exclusive of production taxes) were relatively flat during 1999, 1998 and 1997,
amounting to $8.88, $8.41 and $8.66 per barrel, respectively.

Production taxes were $63,000, $80,000 and $145,000 for the years ended December
31, 1999, 1998 and 1997, respectively. During 1999, production taxes decreased
to an average of approximately 4.1% of annual oil revenues, as compared to 7.0%
during 1998 and 1997, primarily due to a reduction in the production tax rate on
stripper wells by the state of Montana. The decrease in the amount of production
taxes from year to year is also directly associated with the fluctuation of oil
prices and decreased oil production from year to year. Refer to the table in
"Exploration and Production Segment- Oil Revenues" for the percentage
fluctuations in the average oil price and oil production for 1999, 1998 and
1997.

Depreciation, Depletion and Amortization Expense - Producing Operations.
Depreciation, depletion and amortization expenses for producing properties were
$51,000, $231,000 and $261,000 for the years ended December 31, 1999, 1998 and
1997, respectively. The depreciation, depletion and amortization expense rate
per barrel was $0.50 during 1999, a decrease of $1.51, as compared to 1998. The
decrease is directly attributable to the $5,885,000 write down of our domestic
proved developed oil and gas properties during 1998, which resulted in a
substantially lower depreciable property basis during 1999. The depreciation,
depletion and amortization expense rate per barrel was relatively constant at
$2.01 and $2.07 for 1998 and 1997, respectively.

Domestic Proved Property Impairment. There were no proved domestic proved
property impairments for the years ended December 31, 1999 or 1997. For the year
ended December 31, 1998, we incurred a domestic proved developed property
impairment of $5.885 million due to low oil prices and our decision to focus our
resources on Poland. As of December 31, 1998, our PV-10 value for our domestic
proved properties was approximately $472,000, consisting solely of proved
developed reserves. In accordance with generally accepted accounting principles,
we recorded total impairment expense of $5.885 million for the year ended
December 31, 1998, which represented the difference between the net book value
of our domestic proved developed properties and the related fair value,
determined on a property-by property basis, as of December 31, 1998.

Exploration Costs. Exploration costs were $3.053 million, $2.127 million and
$5.314 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Geological and geophysical costs of $31,000 and $29,000 incurred
during the years ended December 31, 1999 and 1998, respectively, relate to gold
exploration in Poland, which management does not consider to be a material
business segment. Accordingly, gold exploration is excluded from the following
discussion.

Geological and geophysical costs were $1.928 million, $2.08 million and $1.684
million during the years ended December 31, 1999, 1998 and 1997, respectively.
During 1999, we spent approximately $310,000 reprocessing seismic data on the
Pomeranian and Warsaw West project areas, granted stock options valued at
approximately $119,000 to a Polish consultant and spent approximately $374,000
evaluating potential property acquisitions from POGC. During 1998, we incurred
approximately $400,000 of cost relating to our share of the Lublin Basin project
area seismic acquisition program with Apache and $75,000 relating to a
geological and geophysical study. During 1997, we completed a seismic survey on
Wola, a POGC Concession in the Carpathian project area, costing $210,000. From
January 1, 1997 through December 31, 1999, we spent an average amount of
approximately $1.402 million annually relating to reprocessing 2-D seismic data
and the wages and associated expenses for employees and consultants directly
engaged in geological and geophysical activities. Geological and geophysical
costs are expected to continue at current or higher levels as we increase our
exploratory efforts in Poland and continue to spend a limited amount on our
exploratory acreage in the western United States.

                                       22
Exploratory dry hole costs were $1.001 million, $17,000 and $3.478 million for
the years ended December 31, 1999, 1998 and 1997, respectively. During 1999, we
participated in drilling three exploratory dry holes in Poland. Two of these
wells were exploratory wells under the Apache Exploration Program. As such,
Apache covered all of our pro rata share of costs for these wells. We retained
and paid for a 5% interest in the Andrychow 6 well, an exploratory dry hole on
the Carpathian project area of southern Poland, which cost $99,000. On the
Lachowice Farm-in, we spent $869,000 to recomplete one well and test another.
Also, during 1999, we spent $33,000 associated with an exploratory dry hole
drilled during 1997. During 1998, we participated in drilling two exploratory
dry holes in Poland on the Lublin Basin project area. Both wells were plugged
and abandoned during the first quarter of 1999 and counted as exploratory wells
under the Apache Exploration Program. As such, Apache covered all of our pro
rata share of costs for each well. All of the exploratory dry hole costs
recorded during 1998 were associated with wells drilled prior to 1998. During
1997, we drilled four exploratory dry holes; two in Poland and two in the
western United States. In Poland, we drilled two wells in the Baltic project
area, both of which were exploratory dry holes, at a cost of $3.096 million. In
the western United States, we drilled one well in central Montana at a cost of
$222,000 and one in Nevada at a cost of $160,000.

Nonproducing leasehold impairments were $93,000 and $152,000 for the years ended
December 31, 1999 and 1997. There were no nonproducing leasehold impairments
during the year ended December 31, 1998. During 1999, we wrote off $72,000
relating to the Lachowice Farm-in and $21,000 pertaining to a prospect in
Nevada. During 1997, we wrote off $45,000 relating to a prospect in central
Montana, $78,000 relating to a prospect in Nevada and $29,000 relating to a
prospect in Wyoming. Nonproducing leasehold impairments will vary from period to
period based on our determination that capitalized costs of unproved properties,
on a property-by property basis, are not realizable.

Extraordinary Gain - Baltic Project Area. There were no extraordinary gains
during the years ended December 31, 1999 and 1998, respectively, as compared to
$3.076 million for the year ended December 31, 1997. As of December 31, 1996, we
had $1.5 million of long-term debt associated with advances received from
RWE-DEA relating to RWE-DEA's commitment to earn a 50% interest in our Baltic
project area. During 1997, RWE-DEA advanced us an additional $1.576 million,
bringing the total amount of such advances to $3.076 million, all of which we
recorded as notes payable prior to the Polish government approving RWE-DEA's
participation in our Baltic project area. On June 30, 1997, after the Polish
government had approved RWE-DEA's participation in the Baltic project area,
RWE-DEA elected not to earn an interest in our Baltic project area. We were not
contractually obligated to repay any funds previously advanced by RWE-DEA.
Accordingly, we eliminated the long-term debt associated with the RWE-DEA
advances and recognized an extraordinary gain of $3.076 million for the year
ended December 31, 1997.

     Contract Servicing Operations

Contract Servicing Revenues. Contract servicing revenues were $865,000, $323,000
and $496,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
During 1999, we focused our drilling and well servicing equipment on third-party
contract servicing in an effort to increase our domestic revenues rather than
utilizing our drilling and well servicing equipment on company-owned properties.
During 1998, our contract servicing revenues consisted of $262,000 from
third-party contract drilling and well servicing work conducted in the third and
fourth quarters as we began to shift the primary focus of utilizing our drilling
and well servicing equipment from our own properties to third-party contract
servicing. During 1997, we drilled two wells on a day work contract basis
resulting in contract servicing revenues of $496,000 and a gross profit before
depreciation, depletion and amortization costs of $167,000. We retained a
working interest in each of the two wells drilled. The $167,000 gross operating
profit before depreciation, depletion and amortization costs helped offset the
combined working interest cost of $242,000 that we incurred on the two wells.
Contract servicing revenues will continue to fluctuate year to year based on the
number, timing, retained working interest of wells drilled and the degree of
emphasis on utilizing drilling and well servicing equipment on our company-owned
properties.

Contract Servicing Costs. Contract servicing costs were $642,000, $240,000 and
$329,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
During these years, contract servicing costs were 74.2%, 74.4% and 66.3% of
contract servicing revenues, respectively. Contract servicing costs are directly
associated with

                                       23
contract servicing revenues. As such, contract servicing costs will continue to
fluctuate year to year based on revenues generated, the number of wells drilled,
timing and the degree of emphasis on utilizing drilling and well servicing
equipment on our own properties.

Depreciation, Depletion and Amortization Expense - Contract Servicing.
Depreciation, depletion and amortization expenses for contract servicing were
$334,000, $322,000 and $289,000 for the years ended December 31, 1999, 1998 and
1997, respectively. We spent $138,000, $156,000 and $210,000 on upgrading our
drilling and well servicing equipment during 1999, 1998 and 1997, respectively.
Depreciation, depletion and amortization expenses were progressively higher year
to year due to prior year capital additions being depreciated in succeeding
years.

     Nonsegmented Information

Depreciation, Depletion and Amortization Expense - Corporate. Depreciation,
depletion and amortization expenses for corporate activities were $110,000,
$118,000 and $85,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. Depreciation, depletion and amortization expenses during 1999 were
$8,000 less, as compared to the same period of 1998, primarily due to less
capital additions during 1999, coupled with equipment purchased during 1996 and
1997 becoming fully depreciated during 1999. We spent $20,000, $85,000 and
$205,000 during 1999, 1998 and 1997, respectively, on software, hardware and
office equipment utilized primarily for corporate purposes.

General and Administrative Costs. General and administrative costs were $2.962
million, $2.572 million and $2.566 million for the years ended December 31,
1999, 1998 and 1997, respectively. During 1999, general and administrative costs
were $390,000 higher, as compared to the same period of 1998, due to higher
payroll and other related costs associated with our increasing emphasis on
expanding our activities in Poland. General and administrative costs incurred
during 1998 were substantially unchanged as compared to 1997. General and
administrative costs are expected to be higher in future periods as we begin to
pay for part of our pro rata share of Apache's general and administrative costs
in Poland beginning in July 2000.

Interest and Other Income. Interest and other income were $512,000, $506,000 and
$662,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Our
cash, cash equivalent and marketable debt securities balances were $6.868
million, $4.742 million and $8.453 million as of December 31, 1999, 1998 and
1997, respectively. The average cash and marketable securities balances during
1999 were relatively unchanged, as compared to the same period of 1998. Interest
and other income were lower in 1998, as compared to 1997, due to lower average
cash and marketable debt security balances during 1998, as compared to the same
period of 1997. We earned interest income of $499,000, $492,000 and $616,000
during 1999, 1998 and 1997, respectively. Interest income associated with
officers' notes receivable was $134,000 and $64,000 during 1999 and 1998,
respectively.

Interest Expense. Interest expense was $8,000 and $83,000 for the years ended
December 31, 1999 and 1997, respectively. We had no interest expense for the
year ended December 31, 1998. During 1999, we incurred $8,000 of interest
expense primarily relating to the settlement of an audit by the Blackfeet Tribe
pertaining to the Cut Bank Field. During 1997, we incurred interest expense of
$83,000. We had long-term debt associated with RWE-DEA of $1.5 million as of
December 31, 1996 and received $1.576 million in additional funding from RWE-DEA
during the first six months of 1997, all of which was recorded as long-term
debt. However, upon RWE-DEA's election not to earn an interest in the Baltic
project area on June 30, 1997, we eliminated our long-term debt associated with
RWE-DEA and recognized an extraordinary gain of $3.076 million. As of December
31, 1999 and 1998, we had no long-term debt.

Officer Loan Impairment. As of December 31, 1999, notes receivable and accrued
interest from officers, before impairment, totaled $2.036 million, with a due
date of on or before December 31, 2000 (as extended). The notes receivable and
accrued interest are collateralized by 233,340 shares of our common stock. In
accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," we recorded an impairment allowance of $666,000 as of December 31, 1999,
based on the value of the underlying collateral. The impairment allowance will
be adjusted quarterly based on the market value of the collateral shares.

                                       24
Income Taxes. We incurred net losses after extraordinary gains of $5.856
million, $10.122 million and $3.62 million for the years ended December 31,
1999, 1998 and 1997, respectively, which can be carried forward to offset future
taxable income. SFAS No. 109 requires that a valuation allowance be provided if
it is more likely than not that some portion or all of a deferred tax asset will
not be realized. Our ability to realize the benefit of our deferred tax asset
will depend on the generation of future taxable income through profitable
operations and the expansion of our exploration and development activities. The
market and capital risks associated with achieving the above requirement are
considerable, resulting in our conclusion that a full valuation allowance be
provided. Accordingly, we did not recognize any tax benefit in our consolidated
statement of operations for these years.

Net Loss. We incurred net losses of $5.856 million, $10.122 million and $3.62
million for the years ended December 31, 1999, 1998 and 1997, respectively. The
net loss in 1999 was due principally to $3.054 million of exploration costs, an
officer loan impairment of $666,000 and $2.962 million of general and
administrative costs. The net loss in 1998 was due principally to a domestic
proved property impairment of $5.885 million, geological and geophysical costs
of $2.109 million and a 44.9% decline in oil prices coupled with a 9.0% decline
in oil production. The net loss in 1997 was due principally to geological and
geophysical costs of $1,684,000, an exploratory dry hole costing $1,262,000
drilled without an outside partner and leasehold impairments of $152,000.

Liquidity and Capital Resources

Historically, we have relied primarily on proceeds from the sale of equity
securities to fund our operating and investing activities. During 1999, 1998 and
1997, we received net proceeds of $7.067 million, $166,000 and $253,000,
respectively, from the sale of our common stock. In June 2000, we received net
proceeds of approximately $9.3 million ($10.4 million gross) from the sale of
2,969,000 shares of our common stock in private transactions. We also benefit
from funds provided by industry partners.

     Working Capital

We had working capital of $5.459 million, $3.965 million and $8.494 million as
of December 31, 1999, 1998 and 1997, respectively. Working capital as of
December 31, 1999 was $1.494 million higher, as compared to the end of 1998,
primarily due to net proceeds of $7.067 million from the private placement of
1,792,500 shares and the exercise of options to purchase 2,000 shares of common
stock, which was offset by a $5.856 million net loss during 1999. Working
capital as of December 31, 1998 was $4.529 million lower, as compared to the end
of 1997, primarily due to cash used in operating and financing activities of
$3.783 million and additions to properties of $441,000 during 1998.

Our working capital was $4.092 million as of March 31, 2000, a decrease of
$1.367 million, as compared to $5.459 million at December 31, 1999. The decrease
was due principally to a net loss before depreciation, depletion and
amortization costs of $649,000 and net additions to property and equipment of
$645,000 during the first quarter of 2000. Our working capital has increased
significantly since March 31, 2000, as a result of the sale of 2,969,000 shares
of our common stock for net proceeds of $9.3 million ($10.4 million gross)
during June 2000.

     Operating Activities

We used net cash of $3.745 million, $3.109 million, and $5.881 million in our
operating activities during 1999, 1998 and 1997, respectively, primarily as a
result of the net losses incurred in those years. During 1999, 1998 and 1997, we
spent $4.195 million, $3.978 million, and $6.024 million, respectively, on
operating activities exclusive of working capital adjustments. Working capital
adjustments reduced cash used in operating activities by $450,000, $869,000 and
$143,000 during 1999, 1998 and 1997, respectively.

Net cash used in operating activities was $1.008 million during the first
quarter of 2000, an increase of $288,000, as compared to $720,000 for the same
period of 1999. We used net cash in operating activities before changes in
working capital items of $678,000 and $624,000 during the first quarters of 2000
and 1999, respectively. Cash used to fund changes in working capital items was
$330,000 and $96,000 during the first quarters of 2000 and 1999, respectively.

                                       25
Investing Activities

We used net cash of $2.916 million in investing activities during 1999, and
received net cash from investing activities of $1.083 million and $368,000
during 1998 and 1997, respectively. During 1999, we spent $603,000 on additions
to properties, equipment and other assets, received $6,000 from the sale of
property interests and spent a net amount of $2.319 million relating to
investing in marketable debt securities. During 1998, we spent $441,000 on
additions to properties and equipment, received $513,000 of proceeds from the
sale of property interests and equipment and received a net amount of $1.011
million relating to investing in marketable debt securities. During 1997, we
spent a net amount of $1.506 million on additions to properties and other
assets, received $353,000 from the sale of property interests and equipment,
advanced an employee $15,000 in relocation costs and received a net amount of
$1.536 million relating to investing in marketable debt securities.

Our investing activities provided net cash of $2.643 million during the first
quarter of 2000, as compared to using net cash of $54,000 during the same period
of 1999. During the first quarter of 2000, we spent $322,000 on drilling the
Wilga 3 well in Poland, $44,000 to upgrade our domestic properties, $16,000 on
annual concession fees for the Baltic project area in Poland, $16,000 on office
equipment and a net amount of $116,000 to upgrade our drilling and well
servicing equipment and realized a net amount of $3.157 million from investing
in marketable debt securities. During the first quarter of 1999, we spent
$31,000 on upgrading our producing properties, spent $33,000 on annual
concession fees relating to the Baltic project area, received $3,000 from the
sale of a partial property interest in the Williston Basin of North Dakota,
spent $8,000 to upgrade our drilling well servicing equipment, spent $5,000 to
upgrade our corporate office equipment, spent $3,000 on other assets and
realized a net amount of $23,000 from investing in marketable debt securities.

     Financing Activities

We received net cash of $6.469 million from our financing activities during
1999, used net cash of $674,000 in our financing activities during 1998, and
received net cash of $1.679 million from our financing activities during 1997.
During 1999, we advanced $598,000 to two officers, received net proceeds of
$7.054 million from a private placement of 1,792,500 shares of common stock and
$13,000 from the exercise of options on 2,000 shares of common stock. During
1998, we advanced $840,000 to officers and received $166,000 in cash and a full
recourse note receivable of $250,000 from the exercise of warrants and options
on 382,622 shares of common stock. During 1997, we advanced $150,000 to an
officer, realized $1.576 million in advances from RWE-DEA relating to
exploration of its Baltic project area and $253,000 from the exercise of
warrants and options on 159,334 shares of common stock.

No cash was used in financing activities during the first quarter of 2000, as
compared to $98,000 used in the same period of 1999. During the first quarter of
1999, we advanced two of our officers a total of $98,000. As of April 8, 1999,
we had no further commitment to advance additional funds to the officers.
Subsequent to March 31, 2000, financing activities provided net proceeds of
approximately $9.3 million ($10.4 million gross) from the sale of 2,969,000
shares of our common stock.

In the past, our strategic partners have provided a substantial amount of the
capital required under our exploration agreements with them, and we expect they
may continue to do so in the future. For instance, in 1997, Apache committed to
cover our 50% share of an exploration program in Poland estimated to cost $60.0
million gross ($30.0 million net). Apache had covered approximately $40.0
million of those gross costs through December 31, 1999, and is committed to
covering our share of costs to drill the equivalent of four additional wells,
shoot 350 kilometers of 2-D seismic data and a portion of our share of Apache's
overhead in Poland during 2000. Other industry partners have previously covered
approximately $2.9 million of our share of costs in other projects during the
last five years.

     Capital Requirements

We had $5.3 million of cash, cash equivalents and marketable debt securities
with no long-term debt as of March 31, 2000. During June 2000, we sold 2,969,000
shares of our common stock for net proceeds of approximately $9.3

                                       26
million ($10.4 million gross). However, to fully fund our planned activities, we
will need additional capital during late 2000 or early 2001.

Fences Project Area. We have agreed to spend $16.0 million of exploration and
development costs on the Fences project area to earn a 49% interest. We expect
the $16.0 million will cover the costs to drill the Kleka 11 ($2.5 million net
and gross) and approximately four additional wells ($10.0 million net and gross)
and to acquire approximately 200 square kilometers of 3-D seismic data ($3.5
million net and gross) to supplement the 3-D seismic data already acquired by
POGC. After the first $16.0 million, all costs and net revenues will be shared
49% by us and 51% by POGC. We and POGC are currently discussing the schedule for
operations to be conducted during the balance of 2000 and 2001.

Based on initial test results from the Kleka 11 well, we expect revenues from
this field by late 2000.

Wilga Project Area. On June 5, 2000, the Wilga 3 was determined to be an
exploratory dry hole with an estimated net cost of approximately $0.9 million
($4.0 million gross). The Wilga 3 was drilled to define the perimeter of the
northwest section of the Wilga field, an area where proved reserves were not
assigned prior to drilling. In accordance with Generally Accepted Accounting
Principles, or "GAAP," the Wilga 3 will be classified as an exploratory dry hole
for accounting purposes, although in our industry parlance we have previously
referred to the Wilga 3, the first well drilled near the Wilga 2 discovery well,
as either an appraisal or a developmental well. The next well, the Wilga 4,
commenced drilling on June 17, 2000. Effective June 22, 2000, Apache agreed to
cover one-half of our share of costs to drill the Wilga 3 and Wilga 4 wells in
exchange for a release of Apache's commitment to cover our share of costs for
one exploratory well in Poland. Additional wells may be drilled thereafter. We
estimate each additional well in the Wilga project area will cost an average of
approximately $3.0 million gross ($1.4 million net). Assuming successful
drilling results and available funding, we anticipate completing production
facilities and pipelines during 2001, at a cost of approximately $11.0 million
gross ($5.0 million net).

Based on our exploration success in the Wilga project and our planned completion
of production facilities, we anticipate receiving production revenue from the
Wilga field in 2001. We expect these revenues will supplement our capital from
other sources to be used for further development of the Wilga field.

Apache Exploration Program. During the remainder of 2000 and 2001, we expect to
have substantially all of our share of exploration activities relating to the
Apache Exploration Program paid for by Apache. During the second half of 2000,
we and Apache have scheduled to commence drilling one exploratory well in each
of the Warsaw West and Pomeranian project areas. During 2001, we and Apache
expect to commence drilling one exploratory well in the Carpathian project area.
Apache will cover our share of costs to drill all three wells. In addition,
Apache has committed to covering our share of costs to shoot 350 kilometers of
2-D seismic data in the Carpathian project area.

Property Acquisition. We will need additional capital if we are able to reach an
agreement with POGC to purchase appraisal, development or exploration projects
on existing POGC discoveries, shut-in fields and underdeveloped properties in
Poland. Capital may be required to pay costs of acquisition, the installation of
production infrastructure and the implementation of a long-term exploitation
program. We may undertake such projects alone or under our arrangement with
Apache. We may seek additional capital that may be required for such purposes
through a variety of means, including the issuance of debt and equity
securities, project financing, bank financing or other financing alternatives.
We cannot assure that we will be able to obtain funds that will enable us to
participate in any such further acquisitions or joint activities.

Other. We expect to incur minimal exploration expenditures on our Baltic project
area in Poland during the remainder of 2000 and 2001. Similarly, we expect to
incur minimal exploration, appraisal and development expenditures on our
domestic operations during the remainder of 2000 and 2001.

We may change the allocation of capital among the categories of anticipated
expenditures depending upon future events that we cannot predict. For example,
we may change the allocation of our expenditures based on the actual results and
costs of future exploration, appraisal, development, production, property
acquisition and other activities.

                                       27
In addition, we may have to change our anticipated expenditures if costs of
placing any particular discovery into production are higher, if the field is
smaller or if the commencement of production takes longer than expected.

We may obtain funds for future capital investments from the sale of additional
securities, project financing, sale of partial property interests, strategic
alliances with other energy or financial partners or other arrangements, all of
which may dilute the interest of our existing stockholders or our interest in
the specific project financed.

We previously initiated discussions with a commercial lender for a possible
project loan secured by proved reserves that may be developed as a result of our
Wilga discovery. We now intend to expand those discussions to include possible
project loan financing for the Kleka discovery as well as possible other
discoveries. We cannot assure we can establish such a credit facility. In any
event, borrowed funds are not likely to be available until significant reserves
are established through additional drilling. If we are able to obtain such a
loan, amounts initially allocated to develop those discoveries may be allocated
to other operations in Poland.

                                       28
Business

We are an independent oil and gas company focused on exploration, development
and production opportunities in the Republic of Poland. We are the largest
foreign oil and gas exploration acreage holder in Poland with exploration rights
covering approximately 16.1 million gross acres. Our activities are conducted
under strategic alliances with Apache and POGC, which allow us to utilize the
operating and technical personnel of those companies, gain access to geological
and geophysical data and obtain other necessary support activities in Poland.

We are currently conducting oil and gas exploration activities with Apache in
Poland in areas where we and Apache jointly hold exploration rights, a program
to which we refer as the Apache Exploration Program. One of the wells drilled
under the Apache Exploration Program resulted in our first exploration success
in the Wilga project, which is located in the northwest portion of the Lublin
Basin project area. The Wilga 2 well tested at an initial flow rate of 16.9 MMcf
of gas per day and 570 Bbls of condensate from the Carboniferous at a depth of
approximately 2,800 meters. The Wilga 2 well was the first successful
exploration well drilled by a foreign operator in Poland. We own a 45% interest
in the 250,000 acre block in which the Wilga project area is located, POGC owns
10% and Apache owns 45% and is the operator.

The Wilga 2 was followed by the Wilga 3, which encountered good reservoir rock
in Carboniferous sands and a Lower Devonian sand package in a separate fault
block, but was determined to be a dry hole after test results did not yield
commercial quantities of oil or gas. We believe the absence of oil and gas in
the Wilga 3 is related to faulting and therefore does not alter the expectation
that the Wilga 2 discovery is indicative of a larger oil and gas accumulation.
The next well, the Wilga 4, commenced drilling on June 17, 2000, at a location
east of the Wilga 2 discovery, on the opposite side of the fault from the Wilga
3. Subject to satisfactory results from the Wilga 4 and the 2-D seismic data
currently being shot, we intend to drill three additional wells through early
2001 to begin to determine the extent of the Wilga accumulation or the existence
of other accumulations in the Wilga area. In anticipation of further development
in the Wilga project, we expect to begin design and installation of production
facilities and construction of an approximately 18 kilometer pipeline that will
be designed with the capacity to support several additional productive wells.

On April 11, 2000, we signed an agreement with POGC under which we will earn a
49% working interest in approximately 300,000 gross acres in the Fences project
area by spending $16.0 million on exploration and development activities. We
have identified several separate exploration prospects in the Fences project
area based on POGC's existing seismic data and adjacent productive areas. Our
first well in this project area, the Kleka 11, was announced as an exploratory
success on June 28, 2000, after the well tested a calculated open flow rate of
34.3 MMcf of gas per day from the Rotliegendes at a depth of approximately 3,000
meters. As part of our commitment, we plan to shoot 200 or more kilometers of
3-D seismic data and drill approximately four additional wells. After we
complete our work commitment, POGC will begin bearing its 51% of further costs.
POGC is the operator of the Fences project area.

                                       29
Areas of Exploration

The following table shows the acreage in which we have or have the option to
acquire an interest.
Acreage
                                                     -------------------------------------------------------------
                                                           FX Energy /
                        Project Area                       Apache AMI         POGC        FX Energy          Total
----------------------------------------------------      --------------    ----------    -----------     -------------
                                                                                  (in millions)
Lublin(1)........................................          5.0(2)         0.6(3)         --                5.6
Pomeranian.......................................          2.2(2)         1.3(3)         --                3.5
Carpathian.......................................          1.4(2)         1.5(3)         --                2.9
Warsaw West......................................          2.9           --              --                2.9
Baltic...........................................          --            --               0.9              0.9
Fences...........................................          --             0.3(4)         --                0.3
                                                     --------------- -------------- -------------- ---------------
   Total.........................................         11.5            3.7             0.9             16.1
                                                     =============== ============== ============== ===============
(1)  The Wilga project is located on a 250,000 acre block included within our
     Lublin Basin project area.
(2)  Apache operates the FX Energy/Apache AMI acreage. We and Apache each have a
     50% interest in this exploration area, subject to pro rata reduction upon
     exercise by POGC of its option to participate in this area for up to a
     331/3% interest on a 250,000 acre block-by-block basis.
(3)  POGC operates this acreage. We and Apache each have an option to
     participate in this POGC exploration area for up to a 331/3% interest.
(4)  On April 11, 2000, we signed an agreement with POGC to earn a 49% interest
     in this area by spending $16.0 million on exploration activities.

                                       30
Exploration and Development Plan

Our current exploration and development plan consists of three primary
components:

   o drilling and, if warranted, completing appraisal and development wells and
     constructing production facilities in our Wilga project area with Apache
     and POGC;

   o fulfilling our $16.0 million commitment to earn our interest in the Fences
     project area with POGC; and

   o drilling (excluding completion costs, if any) the remaining exploration
     wells to be funded by Apache under the Apache Exploration Program.

The following table sets forth our current exploration and development plan. The
capital expenditures included within the table are estimates based on
information currently available to us and are subject to being revised as
warranted. Actual capital expenditures may vary significantly from the estimated
amounts.
Interest
                                                 --------------------
                                                              Net     Estimated       Capital Expenditures
                                                                                  ------------------------------
                                                  Working  Revenue(1)   Date          Total         FX Share
                                                 -------------------- ----------  --------------  --------------
                                                                                          (In millions)
Wilga Project(2)...........................     45%       42%
       Wilga 3 well (drilled)(3)...............                         1H 2000     $  4.00           $  0.90
       Wilga 4 well (commenced) (3)............                         2H 2000        3.00              0.68
       Seismic data............................                         2H 2000        0.53              0.24
       Wilga 5 well............................                         2H 2000        3.00              1.35
       Wilga 6 well............................                            2001        3.00              1.35
       Wilga 7 well............................                            2001        3.00              1.35
       Facilities/pipeline.....................                            2001       11.11              5.00
                                                                                  --------------  --------------
                                                                                     $27.64            $10.87
                                                                                  --------------  --------------
Fences Project Area(2).....................     49%       46%
       Kleka 11 well (drilled).................                         1H 2000     $  2.50           $  2.50
       Mieszkow well...........................                         2H 2000        2.50              2.50
       Boguszyn well...........................                         2H 2000        2.50              2.50
       Donatowo well...........................                            2001        2.50              2.50
       Zaniemysl well..........................                            2001        2.50              2.50
       Lugi well...............................                            2001        2.50              1.23
       Seismic data............................                         Various        3.50              3.50
                                                                                  --------------  --------------
                                                                                     $18.50            $17.23
                                                                                  --------------  --------------
Apache Exploration Program(2)..............     50%       47%
       Pomeranian well(4)......................                         2H 2000     $  3.50          $  --
       Warsaw West well........................                         2H 2000        3.50             --
       Carpathian well(4)......................                            2001        3.80             --
       Seismic data............................                         Various        6.30              0.15
                                                                                  --------------  --------------
                                                                                     $17.10           $  0.15
                                                                                  --------------  --------------
         Total.................................                                      $63.24            $28.25
                                                                                  ==============  ==============
(1)  Assuming the current base rate royalty of 6%.
(2)  Capital expenditures in the Wilga project area include completion costs,
     which are included within facilities/pipeline costs. Capital expenditures
     in the Fences project area and the Apache Exploration Program do not
     include completion costs.
(3)  Effective June 22, 2000, Apache agreed to cover one-half of our share of
     costs to drill the Wilga 3 and Wilga 4 wells in exchange for a release of
     Apache's commitment to cover our share of costs for one exploratory well in
     Poland.
(4)  Our interests could be reduced to as low as a 331/3% working interest and a
     311/3% net revenue interest if POGC exercises its option to participate in
     these exploratory wells.

                                       31
Recent Developments

     Wilga Project/Lublin Basin Project Area

The Wilga project area is located in the northwest portion of the Lublin Basin
project area. In the 1960s, a Polish geological institute drilled the Wilga 1, a
stratigraphic test well, as part of a scientific survey and encountered several
gas and oil shows at the lower Carboniferous and upper Devonian. Based on
reprocessed and additional seismic data, we identified what we believe to be the
top of the Wilga structure approximately 5 kilometers northeast of the Wilga 1,
where in January 2000, we drilled the Wilga 2 well. This well tested at an
initial flow rate of 16.9 MMcf of gas per day and 570 Bbls of condensate from
the Carboniferous at a depth of approximately 2,800 meters. The Wilga 2 well was
the first successful exploration well drilled by a foreign operator in Poland.
The next well, the Wilga 3, was drilled from the same pad as the Wilga 2. The
Wilga 3 encountered good reservoir rock in Carboniferous sands and a Lower
Devonian sand package in a separate fault block, but was determined to be a dry
hole after test results did not yield commercial quantities of oil or gas. We
believe the absence of oil and gas in the Wilga 3 is related to faulting and
therefore does not alter the expectation that the Wilga 2 discovery is
indicative of a larger oil and gas accumulation. The next well, the Wilga 4,
commenced drilling on June 17, 2000, at a location east of the Wilga 2
discovery, on the opposite side of the fault from the Wilga 3. Effective June
22, 2000, Apache agreed to cover one-half of our share of costs to drill the
Wilga 3 and Wilga 4 wells in exchange for a release of Apache's commitment to
cover our share of costs for one exploratory well in Poland.

Subject to satisfactory results from the Wilga 4 well, we anticipate scheduling
three additional wells to be drilled through early 2001, subject to further
collection and analysis of 2-D seismic data and satisfactory results from
drilling. The drilling locations will be selected to begin to determine the
extent of the Wilga accumulation or the existence of other accumulations in the
Wilga area. We estimate each of these wells will cost approximately $3.0 million
gross, for an aggregate cost of approximately $12.0 million gross ($4.7 million
net, as adjusted for Apache covering one-half of our share of costs to drill the
Wilga 4). We own a 45% interest in the 250,000 acre block in which the Wilga
project is located, POGC owns 10% and Apache owns 45% and is the operator.

If further drilling and testing are consistent with results from the Wilga 2
well, we plan to work with Apache and POGC to design and install surface
production facilities and an approximately 18 kilometer pipeline to connect the
Wilga wells to POGC's pipeline system in early 2001. Initially, surface
facilities will be modular for ease of expansion, and pipeline capacity will be
capable of supporting the production from several additional wells. Before
beginning construction, which we expect will take approximately four months, we
must obtain permits and a pipeline right-of-way. We estimate these facilities
will cost approximately $11.0 million gross ($5.0 million net). A gas purchase
agreement with an adjustable price based on the price movements of European
heating oil is now being negotiated with the transportation and storage division
of POGC. We anticipate initial production from the Wilga field to commence
during 2001.

     The Fences Project Area

The Fences project area comprises approximately 300,000 acres in a region of
west central Poland where POGC has recently had several significant exploratory
successes utilizing 3-D seismic data and applying western technology. POGC has
discovered four fields that are adjacent to or surrounded by the Fences project
area that are excluded from the Fences project area acreage. POGC currently has
allocated a limited amount of funds for exploration in this area. Due to our
close strategic relationship with POGC and our performance record to date in
Poland, POGC invited us to fund and participate in further exploration of the
Fences project area.

On April 11, 2000, we signed an agreement with POGC under which we will earn a
49% working interest in approximately 300,000 gross acres in the Fences project
area by spending $16.0 million on exploration and development activities. We
have identified several separate exploration prospects in our project area based
on POGC's existing seismic data and adjacent productive areas. Our first well in
this project area, the Kleka 11, was announced as an exploratory success on June
28, 2000, after the well tested a calculated open flow rate of 34.3 MMcf of gas
per day from the Rotliegendes at a depth of approximately 3,000 meters. As part
of our commitment, we plan to shoot 200 or more kilometers of 3-D seismic data
and drill approximately four additional wells. After we

                                       32
complete our work commitment, POGC will begin bearing its 51% of further costs.
POGC is the operator of the Fences project area, which we have previously
referred to as the Radlin project area.

Our Strategic Partners

We implement our strategy in Poland through agreements and relationships with
POGC and Apache. Historical data and technical and operational support from
POGC, combined with financial support and technical and operational expertise
from Apache, provide a solid base for major exploration efforts in several
different geographical and geologically diverse areas of Poland.

     The Apache Exploration Program

We conduct our Apache Exploration Program under our agreements with Apache that
establish an area of mutual interest covering our current and future holdings
throughout the entire country of Poland, except for the 300,000 gross acre
Fences project area and our 900,000 gross acre Baltic project area. The area of
mutual interest covers our oil and gas exploration, production, development and
acquisition activities through December 2000 or completion of Apache's
exploratory well commitment, whichever comes later.

Under terms of the Apache Exploration Program, Apache has either agreed to or
completed the following primary terms:

     o    Apache must pay our pro rata share of costs to drill the equivalent of
          nine exploratory wells in Poland. To date, Apache has covered our
          share of costs to drill five exploratory wells. Two exploratory wells
          are scheduled to be drilled during the second half of 2000 and one
          during 2001. In addition, effective June 22, 2000, Apache agreed to
          cover one-half of our share of costs to drill the Wilga 3 and Wilga 4
          wells in exchange for a release of Apache's commitment to cover our
          share of costs for one exploratory well;

     o    Apache must pay our pro rata share of costs to shoot 2,722 kilometers
          of 2-D seismic data, including 1,650 kilometers of 2-D seismic data in
          the Lublin Basin project area completed during 1998, 300 kilometers in
          the Pomeranian project area, and 422 kilometers in the Warsaw West
          project area completed during early 2000 and 350 kilometers of 2-D
          seismic data in the Carpathian project area that is scheduled to be
          completed during mid-2000;

     o    Apache has committed to pay all of our pro rata share of $855,000 in
          concession and usufruct fees during the first three years in the
          Lublin Basin project area and the Carpathian project area;

     o    Apache must pay all of our pro rata share of annual training costs
          during the first three years in the Lublin Basin project area ($80,000
          per year) and the Carpathian project area ($15,000 per year);

     o    Apache may not charge us for any of our pro rata share of Polish
          general and administrative costs through June 30, 2000. Thereafter,
          Apache may charge us for 30% of its Polish general and administrative
          costs, increased by 5% upon completing each of its four remaining
          drilling requirements, up to a maximum of 50%;

     o    Apache paid us $500,000 during 1998 and $450,000 during 1997;

     o    We and Apache must offer each other a 50% interest in any new
          exploration, appraisal, development, property acquisition or other
          agreement entered into by either party within the area of mutual
          interest during all of 1999 and 2000 or the completion of Apache's
          nine exploratory well commitment, whichever is later; and

     o    Apache is the operator of all areas controlled by us and Apache within
          the area of mutual interest.

     Our POGC Relationship

We and Apache have granted to POGC the right to participate with up to a
one-third interest, on a 250,000 acre block-by-block basis, in oil and gas
exploration on 8.6 million gross acres in Poland controlled by us and Apache,
which excludes our 300,000 acre Fences project area, our 900,000 acre Baltic
project area and our 2.9 million acre

                                       33
Warsaw West project area. In turn, POGC has granted to us and Apache each the
right to participate, with up to a one-third interest each, in oil and gas
exploration of an aggregate of approximately 3.4 million POGC controlled gross
acres in the vicinity of our Lublin, Pomeranian and Carpathian project areas.

To date, seven exploratory wells (one exploratory success and six exploratory
dry holes) have been drilled on acreage subject to these terms, including five
exploratory wells in which Apache paid for our pro rata share of costs under
terms of the Apache Exploration Program. POGC participated in each of these
wells for various amounts ranging from 5% to 331/3%.

At POGC's invitation, we also agreed in April 2000, to spend $16.0 million to
earn a 49% interest in the 300,000 acre Fences project area in western Poland.
Apache declined to exercise its right to participate in the Fences project area.

During the latter part of 1999, we and Apache conducted discussions and
negotiations toward a proposed acquisition by us and Apache of certain producing
properties from POGC. Progress toward such an acquisition recently has slowed,
but we believe all the parties remain interested in completing an acquisition.

Exploration Acreage Overview - Apache Exploration Program

     Lublin Basin

The 5.6 million acre Lublin Basin project area in central southeast Poland
consists of exploration rights on approximately 5.0 million gross acres held by
us and Apache and options to participate in 600,000 acres controlled by POGC. We
and Apache have an option to participate, with up to a one-third interest each,
in the exploration of the POGC option acreage. In turn, POGC has the option to
participate in the exploration of the acreage that we and Apache hold, with up
to a one-third interest, by participating in the first exploratory well on each
250,000 acre block.

The Lublin Basin has been explored extensively by POGC in recent years,
resulting in the discovery of five fields. Additional wells drilled by POGC in
the Lublin Basin have also encountered oil or gas shows. Seismic data analyzed
to date and correlated with data from drilling logs and core samples from
previous wells show a number of exploration leads within the area covered by the
Lublin Basin project area. We and Apache have acquired over 2,000 kilometers of
new 2-D seismic data and reprocessed over 5,400 kilometers of existing 2-D
seismic data on the Lublin Basin project area to date. The seismic data, along
with well log and core analysis data, were used to pick the first five
exploratory well sites jointly drilled by us, Apache and POGC in the Lublin
Basin project area.

The first four exploratory wells under the Apache Exploration Program, all
drilled within the Lublin Basin project area during 1999, were nonproductive. In
accordance with terms of the Apache Exploration Program, Apache covered all of
our share of costs for all four wells. As discussed under "Recent Developments,"
on January 25, 2000, the Wilga 2, the fifth well in the Apache Exploration
Program, was announced as an exploratory success. Initial production tests
indicated a combined flow rate of 16.9 MMcf of gas and 570 Bbls of condensate
per day from the Carboniferous at a depth of approximately 2,800 meters. In
accordance with the Apache Exploration Program terms, Apache has paid all of our
45% share of costs to drill the Wilga 2. Apache has agreed to pay one-half of
our 45% share of costs to drill the Wilga 3 (dry hole) and the Wilga 4
(now drilling). We will pay 45% of all other costs incurred in the Wilga project
area.

     Pomeranian

The 3.5 million acre Pomeranian project area is located in northwestern Poland
and consists of exploration rights on 2.2 million gross acres held by us and
Apache and options on 1.3 million gross acres controlled by POGC. We and Apache
have an option to participate, with up to a one-third interest each, in the
exploration of the POGC option acreage. In turn, POGC has the option to
participate in the exploration of the acreage we and Apache hold, with up to a
one-third interest, by participating in the first exploratory well on each
250,000 acre block. The Pomeranian project area lies along the underexplored
northern edge of the Permian trend in northwestern Poland. Although

                                       34
POGC has made a few, mostly small oil and gas discoveries in this region, there
still has been relatively little exploration and no significant oil and gas
production to date. Stratigraphic test wells drilled by the Polish government
have reported oil and gas shows. POGC has made available to us and Apache the
existing seismic data and well logs and cores from the Pomeranian project area
for reprocessing and analysis. We believe portions of the Pomeranian project
area may be geologically similar to the BMB field to the southwest on which POGC
has drilled approximately 22 commercial wells on a 3-D seismic-defined
structure.

Since 1997, we and Apache have reprocessed existing seismic data and reviewed
logs and cores made available by POGC. This study resulted in a number of
exploration leads on which we gathered approximately 300 kilometers of
additional 2-D seismic data in early 2000. After final processing and
interpretation, we and Apache plan to drill our first exploratory well on this
acreage during the second half of 2000. Our share of costs in this first well
will be covered by Apache.

     Warsaw West

The 2.9 million acre Warsaw West project area is located adjacent to the
northwest section of our Lublin Basin project area in central Poland and
consists of exploration rights on 2.9 million gross acres held by us and Apache.
POGC has no option to participate in the Warsaw West project area.

There has been no oil and gas production from the Warsaw West project area. We
and Apache have recently completed gathering approximately 422 kilometers of 2-D
seismic data and plan to drill one exploratory well during the second half of
2000 on the Warsaw West project area. Under terms of the Apache Exploration
Program, Apache covered our share of costs to shoot approximately 422 kilometers
of 2-D seismic data and will cover our share of costs in the first exploratory
well.

     Carpathian

The 2.9 million acre Carpathian project area is located in southern Poland and
comprises exploration rights on 1.4 million gross acres held by us and Apache
and options on 1.5 million gross acres controlled by POGC. We and Apache have an
option to participate, with up to a one-third interest each, in the exploration
of the POGC option acreage. In turn, POGC has the option to participate in the
exploration of the acreage that we and Apache own, with up to a one-third
interest, by participating in the first exploratory well on each 250,000 acre
block.

Oil and gas were first discovered in the Carpathian area in 1854. A limited
number of deep wells drilled in recent years by POGC evidence additional
possible reservoir potential within the area. Over the past few years, there
have been several new oil and gas discoveries in the Carpathian region.
Potential producing horizons within the Carpathian are Jurassic, Miocene,
Cretaceous and Devonian.

During 1999, we elected to participate with a 5% interest in drilling the
Andrychow 6, an exploratory well operated by POGC on its option acreage in
southern Poland. The well tested a Devonian formation and was determined to be
an exploratory dry hole during December 1999.

During the second quarter of 1999, we and Apache commenced testing and
recompletion operations on the Lachowice Farm-in, an undeveloped gas discovery
on a POGC concession located within the Carpathian project area. Under terms of
the agreement, we and Apache agreed to pay the costs of testing three shut-in
wells and, if warranted, additional wells and production infrastructure in order
to earn a one-third interest each in the project. The test results from this
project did not warrant constructing gathering and processing facilities. On May
4, 2000, we and Apache each turned the project back to POGC and terminated the
Lachowice Farm-in.

We and Apache have identified several leads in the Carpathian project area based
on reprocessed existing seismic data and are scheduled to acquire approximately
350 kilometers of 2-D seismic data and drill our first exploratory well in the
Carpathian project area during 2001. Under terms of the Apache Exploration
Program, Apache will pay our share of costs to shoot approximately 350
kilometers of 2-D seismic data and drill the first exploratory well.

                                       35
POGC Exploration Acreage

     The Fences

The Fences project area comprises approximately 300,000 acres in a region of
west central Poland where POGC has recently had several significant exploratory
successes utilizing 3-D seismic data and applying western technology. POGC has
discovered four productive fields that are adjacent to or surrounded by the
Fences project area but are excluded from the Fences project area acreage. POGC
currently has allocated limited funds for exploration in this area. Due to our
close strategic relationship with POGC and our performance record to date in
Poland, POGC invited us to fund and participate in further exploration of the
Fences project area. We have previously referred to this project as the Radlin
project area, the name of one of the POGC productive fields in the area.

On April 11, 2000, we signed an agreement with POGC under which we will earn a
49% working interest in approximately 300,000 gross acres in the Fences project
area by spending $16.0 million on exploration and development activities. We
have identified several separate exploration prospects in our project area based
on POGC's existing seismic data and adjacent producing areas. Our first well in
this project area, the Kleka 11, was announced as an exploratory success on June
28, 2000, after the well tested a calculated open flow rate of 34.3 MMcf of gas
per day from the Rotliegendes at a depth of approximately 3,000 meters. As part
of our commitment, we plan to shoot 200 or more kilometers of 3-D seismic data
and drill approximately four additional wells. After we complete our work
commitment, POGC will begin bearing its 51% of further costs. POGC is the
operator of the Fences project area.

     Possible Additional Acquisition, Appraisal, Development and Exploration
     Projects

We and Apache have reviewed additional acquisition, appraisal, development and
exploration projects for possible joint development and production operations on
existing POGC discoveries, shut-in fields and underdeveloped properties in
Poland. During the latter part of 1999, we and Apache conducted discussions and
negotiations toward a proposed acquisition by us and Apache of certain
properties from POGC. Progress toward a possible acquisition recently has
slowed, but we believe all the parties remain interested in resuming discussions
and completing an acquisition.

Other Polish Project Areas

     Baltic Project Area

The Baltic project area, which was our first concession in Poland, is located
onshore near the Baltic Sea and consists of exploration rights covering
approximately 900,000 net acres in northern Poland. The Baltic project area is
part of the Baltic Platform geological region that covers the southeastern
portion of the Baltic Sea, portions of the bordering onshore areas of northern
Poland and areas to the northeast in the Kaliningrad district of Russia,
Lithuania and Latvia. Approximately 34 onshore and offshore fields have been
discovered in the Baltic Platform. Industry sources report that four of the
largest fields in this region have produced an aggregate of over 150 MMBbls of
high-grade oil through 1994.

During 1997, we drilled two wells in the Baltic project area. Neither of the
wells yielded commercial quantities of oil and gas. We hold a 100% interest and
have no further work commitment. There are no current plans to conduct
exploratory work in the Baltic project area during 2000. However, recent
reported Cambrian successes in southern Kaliningrad near the Polish border and
developments in our Fences and Wilga project areas may encourage industry
interest in participating with us in this concession.

     Sudety Project Area

On July 26, 1999, Homestake Mining Company completed its two-year, $1.1 million
minimum exploration commitment and terminated its agreement with us to jointly
explore for gold on our Sudety Project Area in southwestern Poland. We have
discontinued further gold exploration in the Sudety project area.

                                       36
Legal Framework for our Polish Operations

In 1994, Poland adopted the Geological and Mining Law, which specifies the
process for obtaining domestic exploration and exploitation rights. All of our
rights in Poland have been awarded pursuant to this law. Under the Geological
and Mining Law, the concession authority enters into oil, gas and mining
usufruct agreements that grant the holder the exclusive right to explore for and
exploit the designated oil and gas or minerals for a specified period under
prescribed terms and conditions. The holder of the mining usufruct must also
acquire an exploration concession to obtain surface access to the exploration
area by applying to the concession authority and providing the opportunity for
comment by local governmental authorities. If a commercially viable discovery is
made in an exploration concession area, it is necessary for the holder of the
exploration concession license to obtain an exploitation concession license for
a specific term by then applying to the concession authority and negotiating
with local government authorities. The holder of a usufruct and exploration and
exploitation concession licenses must also acquire rights to use the land from
the surface owner.

The concession authority has granted us oil and gas exploration rights on the
Lublin Basin, Carpathian, Pomeranian and Baltic project areas, granted Apache
oil and gas exploration rights on the Warsaw West project area and granted POGC
oil and gas exploration rights on the Fences project area and POGC option
acreage. The agreements divide these areas into blocks, generally containing
approximately 250,000 acres each. Concession licenses have been acquired for
surface access to all areas that lie within existing usufructs. For concessions
owned by us and/or Apache, the first three-year exploration period begins after
the date of the last concession signed under each respective usufruct. We
believe all material concession terms have been satisfied.

For concessions owned by us and/or Apache, each of the oil and gas usufructs
divides exploration rights into successive exploration phases expiring in three
and six years, respectively, after the grant of the last concession agreements
covered by the applicable usufruct. A number of exploratory wells are required
to be drilled during the first three-year and second three-year exploration
phases, a minimum amount of 2-D seismic acquisition must be completed (except in
the Baltic project area), and other expenditures must be made, all as set forth
in the applicable usufructs, in order to retain an interest in each usufruct.

The dates of the last concession signed and work commitments for each of the
usufructs owned by us and/or Apache are set forth in the following table:
Work Commitment
                                                     -------------------------------------------------------------
                                                      First Three-          Second Three-               2-D
                        No. of       Date of Last      Year Phase             Year Phase              Seismic
    Project Area        Blocks(1)     Concession        Drilling             Drilling(2)            Acquisition
----------------------  ----------   --------------  ----------------  -------------------------  ----------------
Lublin Basin:
Vistula...........        8          08/08/97        One well           One well per block         500 km
  Lublin Middle.....        7          06/30/98        Two wells          One well per block         500 km
  Block 298.........        1          06/30/98        One well           Two wells in usufruct      150 km
  Komarow...........       11          03/04/98        Two wells          One well per block         500 km
Carpathian..........       12          12/31/98        One well           Two wells in usufruct      350 km
Pomeranian..........       10          12/31/98        One well           Two wells in usufruct      600 km
Warsaw West(3)......       13          11/13/98        One well           Two wells in usufruct      1,500 km
Baltic..............       11          03/07/96        One well           One well in usufruct       None
(1)  The Baltic project area includes one block that is approximately half the
     size of the other blocks. The Komarow usufruct includes three extra partial
     blocks adjacent to the border of Poland and the Ukraine.
(2)  The drilling commitments in a block or area may be terminated by
     relinquishing such block or area at the end of the first three-year phase.
(3)  The 2-D seismic acquisition requirements for the Warsaw West project area
     include 1,000 kilometers during the first three-year exploration period and
     500 kilometers during the second three-year exploration period. 2-D seismic
     acquisition requirements for all other areas apply to the first three-year
     exploration period only.

                                       37
We may relinquish our interest in any usufruct at any time without having to
fulfill any remaining work commitments if we determine the oil and gas potential
does not warrant further holding or exploration costs.

As of March 31, 2000, we had completed shooting all of the required 2-D seismic
data on the Lublin Basin project area, drilled one exploratory well on the
Vistula usufruct, one exploratory well on the Lublin Middle usufruct and two
exploratory wells on the Baltic usufructs. We have also participated in drilling
four other exploratory wells on the above project areas that were on concessions
controlled by POGC and did not count towards the above referenced work
commitments.

The annual training fees for Polish citizens and the estimated aggregate other
fixed concession and usufruct fees over the respective usufruct's six-year
exploration term, including the net amounts payable by us and Apache, are set
forth in the following table:
Concession and Usufruct Fees
                                                   Training Fees   -------------------------------------------------
                Project Area (1)                   Per Year (2)       Gross (3)          Net FX        Net Apache
  ----------------------------------------------  ---------------- -----------------  -------------- ---------------
  Lublin Basin:
Vistula.....................................     $ 25,000         $  220,000               --      $ 220,000
    Lublin Middle...............................       25,000            224,000               --        224,000
    Block 298...................................        5,000             51,000               --         51,000
    Komarow.....................................       25,000            200,000               --        200,000
  Carpathian....................................       15,000            160,000               --        160,000
  Pomeranian....................................       25,000            250,000         $125,000        125,000
  Warsaw West...................................       25,000            390,000           97,500        292,500
  Baltic........................................       25,000            200,000          200,000             --
                                                  ---------------- -----------------  -------------- ---------------
      Total.....................................     $170,000         $1,695,000         $422,500     $1,272,500
                                                  ================ =================  ============== ===============
(1)  There are no training, concession or usufruct fees applicable to the Fences
     project area.
(2)  On the Lublin Basin and the Carpathian usufructs, Apache has committed to
     cover all training fees during the first three-year exploration period. We
     must cover our pro rata share of training fee costs on the Lublin and
     Carpathian usufructs during the second three-year exploration period. On
     the Carpathian, Pomeranian and Warsaw West usufructs, we must cover our pro
     rata share of training fees for the entire exploration period. On the
     Baltic project area, we must cover all training fees for the entire
     exploration period.
(3)  As of June 27, 2000, all the required concession and usufruct costs in the
     Lublin Basin, Carpathian, Pomeranian and Warsaw West project areas had been
     fully paid. The Baltic usufruct includes payments of $33,333 per year over
     six years beginning March 7, 1996.

The Fences project area consists of portions of three exploratory oil and gas
concessions (Koscian-Serem, Solec-Jarocin and Jaraczewo-Pogorzela concessions)
controlled by POGC. Three producing areas are included within the three
exploratory oil and gas concession boundaries (Radlin, Kleka and Kaleje
exploitation concessions), but are excluded from the Fences project area. A
fourth producing area, the Jarocin area, is adjacent to the Fences project area
in a different POGC concession. The following table sets forth the exploration
terms of each exploratory oil and gas concession:
Six Year Exploration Period        Optional
                                                                  ----------------------------------
                          Concession                                 Beginning           End            Extension
----------------------------------------------------------------  ---------------- -----------------  --------------
Koscian-Serem...................................................      9/28/95          9/28/01          3 years
Solec-Jarocin...................................................      4/30/96          4/30/02          3 years
Jaraczewo-Pogorzela.............................................     11/19/96         11/19/02          3 years
We believe POGC has paid all required usufruct and concession fees and completed
all material work commitments to date for the three exploratory oil and gas
concessions included within the Fences project area.

If commercially viable oil or gas is developed, the concession owner would be
required to apply for an exploitation concession, as provided by the usufructs,
with a term of 30 years and so long thereafter as commercial production
continues. Upon the grant of the exploitation concession, the concession owner
may become obligated to pay a fee, to be negotiated within the range of 0.01% to
0.50% of the market value of the estimated recoverable reserves in place,
payable in five equal annual installments. The concession owner would also be
required to pay a royalty on any production, the amount of which will be set by
the concession authority, within a range established on the base royalty rate
for the mineral being extracted. The base royalty rate for oil and gas is
currently 6%, but could be increased unilaterally to up to 10% (the current
statutory maximum base royalty rate) by the Council of Ministers. The concession
authority can set the royalty rate for any particular commercial production in a
range between 50% and 150% of the base royalty rate, depending on the economic
viability of such operation, but not to exceed the statutory maximum rate.
Therefore, with the current base rate of 6% for oil and gas, the concession
authority could

                                       38
establish the royalty rate between 3% and 9%. If, however, the base rate is
increased to 10%, the current statutory maximum, the royalty rate would be
between 5% and 15%. The royalty rate may vary for different producing fields and
may be changed from time to time during the productive life of a field. Local
governments will receive 60% of any royalties paid on production. The concession
owner could be subject to significant delays in obtaining the consents of local
authorities or satisfying other governmental requirements prior to obtaining an
exploitation license.

Polish Joint Venture Structure. Within the framework of the Apache Exploration
Program, Apache is the operator on areas controlled jointly by us and Apache.
POGC is the operator on areas controlled by POGC. Even though we, Apache and
POGC will conduct our activities jointly, we have agreed to treat our respective
interests and obligations as separate, such that each company is responsible for
providing its own funding for joint activities and is entitled to take and sell
its share of oil and gas independently of the others. Customary western industry
standard joint operating agreement terms, modified somewhat to conform to Polish
technical requirements, govern the parties' respective actions, rights and
obligations.

We and Apache have each created Polish subsidiaries to carry out our joint
projects in Poland. We have created several wholly-owned spolka z o. s., a form
of limited liability company, to hold all of our interests in Poland. For
example, in the Vistula area in the western portion of the Lublin Basin project
area containing eight exploration blocks, we and Apache are each 50% beneficial
participants in a Polish limited liability company (the "Lublin LLC"), all of
the title ownership of which has been assigned by us to the Lublin LLC, subject
to the terms of the participation agreement. Prior to undertaking long-term
production, an exploitation license must be applied for. The exploitation
license will be owned by a newly created Polish entity that reflects the true
beneficial ownership interests of all parties.

In other instances, we and Apache have paired our interests in Poland into
several spolka jawnas, a form of registered joint operation, to hold record
title to the various usufructs and concessions. For example, we and Apache are
each 50% participants in a Polish spolka jawna that has been awarded usufructs
and exploration concessions covering 16 exploration blocks in the Lublin Basin,
the Carpathian and the Pomeranian project areas.

In the Fences project area, we and POGC will form a jointly owned Polish
operating company that will hold record of title and operate the concessions
included in the Fences project area in accordance with our respective beneficial
property interests.

The ownership structure in Poland may be altered by us, Apache and POGC from
time to time in response to developments in the Polish legal system to most
accurately reflect their various agreements regarding jointly owned projects in
Poland.

Domestic Properties and Activities

     Domestic Production

We currently produce oil domestically in Montana and Nevada. All of our
producing properties, except for an exploratory discovery during 1997, were
purchased during 1994. In Montana, we operate the Cut Bank and Bears Den fields
and have an interest in the Rattlers Butte field, which is operated by an
industry partner. In Nevada, we operate the Trap Spring and Munson Ranch fields
and have an interest in the Bacon Flat field, which is operated by an industry
partner. As of May 31, 2000, we had no producing activities outside the United
States.

During 1999, we had average daily production of 460 gross Bbls (279 net). Our
average sales price per Bbl was $15.35, with an average production cost per
barrel of $9.50. We sell oil at posted field prices to one of several purchasers
in each of our production areas. During the last three years, over 85% of our
total oil sales was to CENEX, a regional refiner and marketer. Posted prices are
published and are generally competitive among the various purchasers. The crude
oil sales contracts may be terminated by either party upon 30 days' notice.

                                       39
Domestic Oil Reserves

All of our oil properties containing proved oil reserves are located in Montana
and Nevada. All information set forth in this document regarding proved
reserves, related future net revenues and PV-10 Value is taken from the report
of Larry D. Krause, independent petroleum engineer, Billings, Montana. In
accordance with SEC guidelines, our estimates of future net revenues from our
proved reserves and the PV-10 Value were made using a sales price of $22.37, the
weighted average oil sales price as of December 31, 1999, the date of such
estimate, and held constant throughout the life of the properties. No estimates
of reserves have been filed with or included in any report to any other federal
agency during 1999.

Our estimated proved reserves by reserve category as of December 31, 1999 are
detailed in the following table:
December 31, 1999
                                                                                          --------------------------
                                                                                           Oil (Bbl)    PV-10 Value
                                                                                          ------------  ------------
Developed Producing.....................................................................    738,790     $3,386,483
Developed Nonproducing..................................................................    341,162      2,073,667
                                                                                          ------------  ------------
Total Developed.........................................................................  1,079,952     $5,460,150
                                                                                          ============  ============
Domestic Nonproducing Acreage

During 1996 and 1997, we acquired 16,875 acres of undeveloped oil and gas leases
in the Williston Basin area of North Dakota. The Williston Basin area has
established oil and gas production from numerous zones, including the
Mississippian, Devonian, Silurian and Ordovician. We have identified several
leads over our acreage and intend to pursue a strategic alliance with an
industry partner to jointly explore the acreage.

     Drilling Rig and Well Servicing Equipment

In Montana, we have a drilling rig capable of drilling to a vertical depth of up
to 6,000 feet, two well servicing rigs and other associated oilfield equipment.
Historically, prior to late 1998, we utilized our drilling rig and well
servicing equipment primarily on our producing oil properties in Montana. During
late 1998, we shifted our emphasis away from our properties to third-party
contract work in an effort to increase our domestic revenues.

Drilling Activities

The following table sets forth the wells drilled and completed by us during
1999, 1998 and 1997:
Years Ended December 31,
                                                 ----------------------------------------------------------------
                                                         1999                  1998                  1997
                                                 --------------------- ---------------------  -------------------
                                                   Gross       Net      Gross        Net       Gross       Net
                                                 ---------- ---------- ---------  ----------  ---------  --------
Development Wells:
  Producing....................................     --         --          --         --        --          --
  Nonproducing.................................     --         --          --         --        --          --
                                                 ---------- ---------- ---------  ----------  ---------  --------
        Total..................................     --         --          --         --        --          --
                                                 ========== ========== =========  ==========  =========  ========
Exploratory Wells:
Discoveries:
     Poland....................................      1.0        0.5        --         --        --          --
     United States.............................     --         --          --         --         1.0         0.1
  Exploratory Dry Holes:
     Poland....................................      5.0        1.6        --         --         2.0         1.5
     United States.............................     --         --          --         --         2.0         1.3
                                                 ---------- ---------- ---------  ----------  ---------  --------
        Total..................................      6.0        2.1        --         --         5.0         2.9
                                                 ========== ========== =========  ==========  =========  ========
40
The above table does not include the Kleka 11, Wilga 2, Wilga 3 and Wilga 4
wells. During the first half of 2000, the Kleka 11 and Wilga 2 were exploratory
successes (0.5 net each), the Wilga 3 was an exploratory dry hole (0.5 net) and
drilling commenced on the Wilga 4 (0.5 net) on June 17, 2000.

Wells and Acreage

As of December 31, 1999, we had 114 gross and 108 net producing oil wells, all
of which are located in Montana and Nevada.

The following table sets forth our gross and net acres of developed and
undeveloped oil and gas leases as of December 31, 1999:
Developed Acreage           Undeveloped Acreage
                                                             ------------------------   -----------------------------
                                                               Gross         Net           Gross            Net
                                                             ------------------------   -----------------------------
United States:
North Dakota............................................          --           --         16,875          16,875
  Montana.................................................      10,732       10,418          1,150           1,057
  Nevada..................................................         400          128             37              16
                                                             -----------  -----------   -------------   -------------
     Total................................................      11,132       10,546         18,062          17,948
                                                             -----------  -----------   -------------   -------------

Poland:(1)...............................................
  Apache Exploration Program(2)
    Lublin Basin.........................................           --           --      5,000,000       2,500,000
    Carpathian...........................................           --           --      1,400,000         700,000
    Pomeranian...........................................           --           --      2,200,000       1,100,000
    Warsaw West..........................................           --           --      2,900,000       1,450,000
                                                             -----------  -----------   -------------   -------------
     Total...............................................           --           --     11,500,000       5,750,000

  Baltic Project Area....................................           --           --        900,000         900,000
                                                             -----------  -----------   -------------   -------------
    Total Polish acreage.................................           --           --     12,400,000       6,650,000

    Total Acreage(3).....................................       11,132       10,546     12,418,062       6,667,948
                                                             ===========  ===========   =============   =============
(1)  All Polish acreage is rounded to the nearest 100,000 acres.
(2)  Gives effect to 50% beneficial ownership of Apache in the Lublin Basin,
     Carpathian, Pomeranian and Warsaw West project areas under our joint
     exploration arrangements with Apache under the Apache Exploration Program.
     Does not give effect to options on POGC controlled areas containing
     approximately 600,000 acres in the Lublin Basin project area, 1.5 million
     acres in the Carpathian project area and 1.3 million acres in the
     Pomeranian project area under the POGC option agreements.
(3)  Excludes the 300,000 acre Fences project area where we signed an agreement
     with POGC on April 11, 2000, to earn a 49% interest by paying for the first
     $16.0 million of exploration costs.

Operational Hazards and Insurance

We are engaged in the drilling and production of oil and gas, and as such, our
operations are subject to the usual hazards incident to the industry. These
hazards include blowouts, cratering, explosions, uncontrollable flows of oil,
natural gas or well fluids, fires, pollution, releases of toxic gas and other
environmental hazards and risks. These hazards can cause personal injury and
loss of life, severe damage to and destruction of property and equipment,
pollution or environmental damage and suspension of operations.

To lessen the effects of these hazards, we maintain insurance of various types
to cover our domestic operations and maintain general liability coverage for our
activities in Poland. We have $9.0 million of general liability insurance.
Apache, as the operator of the Apache Exploration Program, is carrying $25.0
million of general liability insurance for joint operations on Polish areas in
which we and Apache have interests. We have elected to be included on Apache's
well control insurance policy for all jointly drilled wells to date in Poland.
POGC, as operator of the Fences project area, is self-insured. Our seismic and
drilling contractors are required to maintain insurance coverage for operations
by them in Poland. There can be no assurance that we, Apache or POGC will be
able to continue to obtain insurance coverage for current or future activities
in Poland, or that any insurance obtained will provide coverage customary in
either the industry or in the United States, or be comparable to the insurance
now maintained by us, Apache and POGC, or be on favorable terms or at premiums
that are reasonable. This insurance, moreover,

                                       41
does not cover all of the risks involved in oil and gas exploration, drilling
and production and, if coverage does exist, may not be sufficient to pay the
full amount of such liabilities. We may not be insured against all losses or
liabilities that may arise from all hazards because such insurance may not be
available at economic rates, the respective insurance policies may have limited
coverage and other factors. For example, insurance against risks related to
violations of environmental laws is not maintained. The occurrence of a
significant adverse event that is not fully covered by insurance could have a
materially adverse effect on us. Further, we cannot assure that we will be able
to maintain adequate insurance in the future at rates we consider reasonable.

Government Regulation

     Poland

Our activities in Poland are subject to political, economic and other
uncertainties, including the adoption of new laws, regulations or administrative
policies that may adversely affect us or the terms of our exploration or
production rights; political instability and changes in government or public or
administrative policies, export and transportation tariffs and local and
national taxes; foreign exchange and currency restrictions and fluctuations;
repatriation limitations; inflation; environmental regulations and other
matters. These operations in Poland are subject to the Geological and Mining
Law, as well as the Act of January 31, 1994, concerning the Protection and
Management of the Environment, which are the primary statutes governing
environmental protection. Agreements with the government of Poland respecting
our project areas create certain standards to be met regarding environmental
protection. Participants in oil and gas exploration, development and production
activities generally are required to (1) adhere to good international petroleum
industry practices, including practices relating to the protection of the
environment; and (2) prepare and submit geological work plans, with specific
attention to environmental matters, to the appropriate agency of state
geological administration for its approval prior to engaging in field operations
such as seismic acquisition, exploratory drilling and field-wide development.
Poland's regulatory framework respecting environmental protection is not as
fully developed and detailed as that which exists in the United States. We
intend that our operations in Poland will be designed to meet good international
petroleum industry practices and, as they develop, Polish requirements.

     United States - State and Local Regulation of Drilling and Production

Our exploration and production operations are subject to various types of
regulation at the federal, state and local levels. Such regulation includes
requiring permits for the drilling of wells, maintaining bonding requirements in
order to drill or operate wells, regulating the location of wells, the method of
drilling and casing wells, the surface use and restoration of properties upon
which wells are drilled and the plugging and abandoning of wells. Our operations
are also subject to various conservation laws and regulations. These include the
regulation of the size of drilling and spacing units or proration units and the
density of wells that may be drilled and the unitization or pooling of oil and
gas properties. In this regard, some states allow the forced pooling or
integration of tracts to facilitate exploration while other states rely on
voluntary pooling of lands and leases. In addition, state conservation laws
establish maximum rates of production from oil and natural gas wells, generally
prohibit the venting or flaring of natural gas and impose certain requirements
regarding the ratability of production. The effect of these regulations is to
limit the amounts of oil and natural gas we can produce from our wells and to
limit the number of wells or the locations that we can drill.

Production of any oil and gas by us is affected to some degree by state
regulations, some of which regulate the production and sale of oil and gas,
including provisions regarding deliverability. Such statutes and related
regulations are generally intended to prevent waste of oil and gas and to
protect correlative rights to produce oil and gas between owners of a common
reservoir. Certain state authorities also regulate the amount of oil and gas
produced by assigning allowable rates of production to each well or proration
unit.

     Environmental Regulations

The federal government and various state and local governments have adopted laws
and regulations regarding the control of contamination of the environment. These
laws and regulations may require the acquisition of a permit by

                                       42
operators before drilling commences, restrict the types, quantities and
concentration of various substances that can be released into the environment in
connection with drilling and production activities, limit or prohibit drilling
activities on certain lands lying within wilderness, wetlands and other
protected areas and impose substantial liabilities for pollution resulting from
our operations. These laws and regulations may also increase the costs of
drilling and operation of wells. We may also be held liable for the costs of
removal and damages arising out of a pollution incident to the extent set forth
in the Federal Water Pollution Control Act, as amended by the Oil Pollution Act
of 1990. In addition, we may be subject to other civil claims arising out of any
such incident. As with any owner of property, we are also subject to clean-up
costs and liability for toxic or hazardous substance that may exist on or under
any of our properties. We believe that we are in compliance in all material
respects with such laws, rules and regulations and that continued compliance
will not have a material adverse effect on our operations or financial
condition. Furthermore, we do not believe that we are affected in a
significantly different manner by these laws and regulations than are our
competitors in the oil and gas industry.

The Comprehensive Environmental Response, Compensation and Liability Act, also
known as the "Superfund" law, imposes liability, without regard to fault or the
legality of the original conduct, on certain classes of persons who are
considered to be responsible for the release of a "hazardous substance" into the
environment. These persons include the owner or operator of the disposal site or
sites where the release occurred and companies that disposed or arranged for the
disposal of the hazardous substances. Such persons may be subject to joint and
several liability for the costs of cleaning up the hazardous substances that
have been released into the environment, for damages to natural resources and
for the costs of certain health damages or studies. Furthermore, it is not
uncommon for neighboring landowners and other third parties to file claims for
personal injury and property damage allegedly caused by hazardous substances or
other pollutants released into the environment.

The Resource Conservation and Recovery Act and regulations promulgated
thereunder govern the generation, storage, transfer and disposal of hazardous
wastes. This law, however, excludes from the definition of hazardous wastes
"drilling fluids, produced waters and other wastes associated with the
exploration, development, or production of crude oil, natural gas or geothermal
energy." Because of this exclusion, many of our operations are exempt from these
regulations. Nevertheless, we must comply with these regulations for any of our
operations that do not fall within the exclusion.

The Oil Pollution Act of 1990 and regulations promulgated pursuant thereto
impose a variety of regulations on responsible parties related to the prevention
of oil spills and liability for damages resulting from such spills. The Oil
Pollution Act of 1990 establishes strict liability for owners of facilities that
are the site of a release of oil into "waters of the United States." While
liability more typically applies to facilities near substantial bodies of water,
at least one district court has held that liability can attach if the
contamination could enter waters that may flow into navigable waters.

Stricter standards in environmental legislation may be imposed on the oil and
gas industry in the future, such as proposals made in Congress, and at the state
level from time to time that would reclassify certain oil and natural gas
exploration and production wastes as "hazardous wastes" and make the
reclassified wastes subject to more stringent and costly handling, disposal and
clean-up requirements. The impact of any such changes, however, would not likely
be any more burdensome to us than to any other similarly situated company
involved in oil and gas exploration and production.

     Federal and Indian Leases

A substantial part of our Montana producing properties is operated under oil and
gas leases issued by the Bureau of Land Management or by certain Indian nations
under the supervision of the Bureau of Indian Affairs. These activities must
comply with rules and orders that regulate aspects of the oil and gas industry,
including drilling and operating on leased land and the calculation and payment
of royalties to the federal government or the governing Indian nation.
Operations on Indian lands must also comply with applicable requirements of the
governing body of the tribe involved including, in some instances, the
employment of tribal members. We believe we currently comply with all material
provisions of such regulations.

                                       43
Safety and Health Regulations

We must also conduct our operations in accordance with various laws and
regulations concerning occupational safety and health. Currently, we do not
foresee expending material amounts to comply with these occupational safety and
health laws and regulations. However, since such laws and regulations are
frequently changed, we are unable to predict the future effect of these laws and
regulations.

Title to Properties

We rely on sovereign ownership of exploration rights and mineral interests by
the Polish government in connection with our activities in Poland and have not
conducted and do not plan to conduct any independent title examination. We
consult with Polish legal counsel when doing business in Poland.

Nearly all of our United States working interests are held under leases from
third parties. We typically obtain a title opinion concerning such properties
prior to the commencement of drilling operations. We have obtained such title
opinions or other third-party review on nearly all of our producing properties
and believe that we have satisfactory title to all such properties sufficient to
meet standards generally accepted in the oil and gas industry. Our United States
properties are subject to typical burdens, including customary royalty interests
and liens for current taxes, but we have concluded that such burdens do not
materially interfere with our use of such properties. Further, we believe the
economic effects of such burdens have been appropriately reflected in our
acquisition cost of such properties and reserve estimates. Title investigation
before the acquisition of undeveloped properties is less thorough than that
conducted prior to drilling, as is standard practice in the industry.

Employees and Consultants

As of June 27, 2000, we had 36 employees, consisting of eight in Salt Lake City,
Utah; 25 in Oilmont, Montana; one in Greenwich, Connecticut; and two in Houston,
Texas. None of our employees is represented by a collective bargaining
organization, and we consider our relationship with our employees to be
satisfactory. In addition to our employees, we regularly engage technical
consultants to provide specific geological, geophysical and other professional
services.

Offices and Facilities

Our approximately 3,010 square feet of executive office space located at 3006
Highland Drive, Suite 206, Salt Lake City, Utah, are rented at $2,960 per month
under a month-to-month agreement. We own a 16,160 square foot office building
located at the corner of Central and Main in Oilmont, Montana. We use 4,800
square feet for our field office and rent the remaining space to unrelated third
parties for $875 per month. We rent a small office suite for $1,400 per month in
Warsaw, Poland, at Al. Jana Pawla II 29, as an office of record in Poland.

Legal Proceedings

We are not a party to any material legal proceedings, and to our knowledge, no
such legal proceedings have been threatened against us.

                                       44
The Republic of Poland

The Republic of Poland, with a population of about 40 million people, peacefully
asserted its independence in 1989 and adopted a new constitution that
established a parliamentary democracy. Poland's comprehensive economic reform
programs and stabilization measures implemented since 1989 have enabled it to
move toward a free market economy that is currently one of the fastest growing
in eastern Europe, with annual growth rates of 5% to 7%, even though recent
growth has slowed somewhat. Poland experienced relatively high levels of
inflation in the early 1990s, but inflation has fallen to less than 12% and 10%
per annum during 1998 and 1999, respectively. Demand growth appears strong with
a growing economy and a commitment to convert power plants from lignite to gas
in order to meet the clean air standards required for European Union membership.

Poland recently joined NATO and is poised to join the European Union within the
next few years. Poland's international trade has also undergone significant
progress. Its economic ties have turned from the east to the west, with most of
its current international trade with the countries of the European Union. The
Polish government credits foreign investment as a forceful growth factor,
generating over one third of the country's total investment and acting as a
powerful restraint on unemployment. Cumulating foreign direct investment flows
to Poland aggregated $38.9 billion through the end of 1999. The Polish Foreign
Investment Agency, or PAIZ, expects Poland to receive $10.0 to $12.0 billion of
foreign direct investment during 2000, compared to $8.3 billion for 1999 and
$10.0 billion in 1998. German companies were the largest foreign investors in
Poland with a cumulative $6.1 billion, followed by U.S. companies with $5.2
billion and France with $2.4 billion. PAIZ reports that, as of the end of 1999,
the largest foreign investors are South Korea's Daewoo Group ($1.6 billion),
Italy's Fiat ($1.5 billion) and France's Vivendi ($1.2 billion). Almost half of
cumulative foreign direct investment was in production ($17.3 billion), of which
$4.6 billion was for food production and $4.4 billion was for vehicle
production. Other significant categories include financial services ($7.7
billion), trade and repair services ($3.4 billion) and construction ($1.9
billion).

Since the 1850s when oil was first commercially produced in Poland, in excess of
122 MMBbls of oil and 2.6 Tcf of gas in the southeastern Carpathian region and
24 MMBbls of oil and 2.3 Tcf of gas in the southwestern Polish Lowlands have
been produced to date. Over the last several decades, the exploration and
development of Poland's oil and gas resources have been hindered by a
combination of foreign influence, a centrally controlled economy, limited
financial resources and a lack of modern exploration technology. Poland
currently imports approximately 98% of its oil, primarily from countries of the
former Soviet Union and the Middle East, and approximately 60% of its natural
gas, primarily from countries of the former Soviet Union. Poland is about the
size of New Mexico and contains approximately 77.3 million acres. As of June 27,
2000, we have exploration rights to approximately 16.1 million of those acres.

Poland has crude oil pipelines traversing the country and a network of gas
pipelines serving major cities, commercial and industrial areas and many gas
production areas, including significant portions of our exploratory acreage.
Poland has a well-developed infrastructure of hard-surfaced roads and railways
over which we believe oil produced could be transported for sale. There are
refineries in Gdansk and Plock in Poland and one in Germany near the western
Polish border that we believe could process crude oil produced in Poland. We
will most likely incur substantial expenditures for constructing and operating
facilities to gather and transport any oil and gas produced from our properties,
including the recently discovered Wilga field.

Since its relatively recent transition to a market economy and pluralistic
political system, Poland is continuing to experience significant political
changes and economic growth. Poland has developed and is refining legal and
regulatory systems characteristic of parliamentary democracies with
interpretation and procedural safeguards to ensure the rule of law.

Poland's legal framework and fiscal regime for oil and gas production are
attractive, as Poland has intentionally sought to entice foreign companies to
offset its own lack of sufficient capital to develop the country's oil and gas
resources.

                                       45
The Polish government is currently negotiating with the European Union regarding
Poland's application to become a member state of the European Union. The Polish
government has generally taken steps to harmonize Polish legislation with that
of the European Union in anticipation of Poland's entry into the European Union
and to facilitate interaction with European Union members.

In July 1995, Poland's Council of Ministers approved a program to restructure
and privatize the Polish petroleum sector. Although no single program or
specific timeline has been established for privatizing the exploration and
production divisions of POGC, the increased participation by Western companies
using Western capital to undertake oil and gas exploration and to develop and
produce existing reserves is consistent with the approved privatization policy.

The Polish corporate income tax rate is 30% for 2000 and 28% for 2001. Further
reductions in the income tax rate of 2% per year may be enacted down to a rate
of 22%. In some circumstances, tax relief may be available for certain
qualifying capital investments which provide deductions during the initial years
of operation.

                                       46
Management

General

Our articles of incorporation provide that the board of directors shall be
divided into three classes, with each class as equal in number as practicable.
One class is to be elected each year for a three-year term. Officers serve at
the pleasure of the board of directors.

Executive Officers and Directors

The following table sets forth our directors, executive officers and other
significant employees, their ages, all offices and positions with our company
and each respective term of directorship as of June 27, 2000.

                                      Term
           Name               Age    Expires              Title
           ----               ---    -------              -----

David N. Pierce............   53       2002    Chairman of the Board, President
                                               and Chief Executive Officer(1)
Andrew W. Pierce...........   52       2000    Vice-President, Chief Operations
                                               Officer and Director(1)
Scott J. Duncan............   51       2001    Vice-President, Secretary and
                                               Director
Thomas B. Lovejoy..........   64       2001    Vice-Chairman, Chief Financial
                                               Officer and Director(2)
Jerzy B. Maciolek..........   49       2000    Vice-President, International
                                               Exploration and Director
Dennis L. Tatum............   39       2002    Vice-President, Treasurer and
                                               Director
Peter L. Raven.............   61       2002    Director(1)(2)
Jay W. Decker..............   48       2000    Director(1)(2)
Dennis B. Goldstein........   54       2001    Director(1)(2)
-----------------------
(1)  Member of the Rights Redemption Committee. See "Description of Capital
     Stock-Preferred Stock."
(2)  Member of the Compensation and Audit Committees.

David N. Pierce has been our president, director and chairman since 1992.
Previously, he was president and director of our predecessor, Frontier
Exploration Company, co-founded with his brother, Andrew W. Pierce, in January
1989, which was acquired by us in 1992. Mr. Pierce is a graduate of Princeton
University and Stanford Law School.

Andrew W. Pierce has been our vice-president and director since 1992.
Previously, he was vice-president and director of our predecessor, Frontier
Exploration Company, co-founded with his brother, David N. Pierce, in January
1989, which was acquired by us in 1992.

Scott J. Duncan has been our vice-president and director since May 1993, and
served as treasurer between 1993 and 1998 and secretary since 1998. Mr. Duncan
was a financial consultant to us from our inception in 1992 through April 1993,
when he became a full-time employee. Scott Duncan is a graduate of the
University of Utah School of Business.

Thomas B. Lovejoy has been our vice-chairman of the board of directors and a
consultant to us since 1995. Mr. Lovejoy has been the principal of Lovejoy
Associates, Inc., Greenwich, Connecticut, which provides financial strategic
advice respecting private placements, mergers and acquisitions since 1992. Mr.
Lovejoy has been a director of Scaltech, Inc., Houston, Texas, a processor of
petroleum refinery oil waste since 1993. From 1989 to 1992, Mr. Lovejoy was the
managing director and head of the Natural Resource, Mining and Utility Groups of
Prudential Securities, Inc., and from 1980 to 1988, he was managing director and
head of the Energy and Natural Resources Group of Paine Webber, Inc., New York
City. Mr. Lovejoy received a B.S. from the Massachusetts Institute of Technology
and an M.B.A. from Harvard Business School.

                                       47
Jerzy B. Maciolek has been employed by us since September 1995, and since that
time has been instrumental in our exploration efforts in Poland. Jerzy Maciolek
is a member of the advisory board of POGC. Prior to his employment with us, Mr.
Maciolek was a private consultant for over five years, including consulting on
the oil and gas potential of Poland and Kazakhstan, translating and interpreting
geological and geophysical information for several integrated oil and gas
potential reports on Poland and Kazakhstan and developing applied integrated
geophysical interpretations over gold mines in Nevada, California and Mexico. He
has provided consulting services to us regarding exploration projects in the
western United States and Poland since 1992. Mr. Maciolek obtained a M.S. degree
in exploration geophysics from the Mining and Metallurgy Academy in Krakow,
Poland.

Dennis L. Tatum is our vice-president and treasurer. Mr. Tatum joined us in
March 1997 as controller prior to becoming treasurer in December 1998. From 1989
to 1997, he was employed by Zilkha Energy, Houston, Texas, a private oil and gas
firm with interests in the Gulf of Mexico, where he was instrumental in
overseeing joint ventures. Mr. Tatum received a B.B.A. in accounting from the
University of Texas at Tyler in 1983 and a CPA certificate from the state of
Texas in 1984.

Peter L. Raven is a retired former president of American Ultramar. From 1957
through 1985, he held various positions with Ultramar, PLC, London, England, a
fully integrated oil and gas company, and its U.K. and U.S. subsidiaries,
including chief financial officer of Ultramar, PLC. From 1985 through 1988, he
was executive vice-president, and from 1988 through 1992, president of American
Ultramar. Mr. Raven is a graduate of the Downside School in England, the
Institute of Chartered Accountants in 1962, and the Harvard Business School
Advanced Management Program in 1987.

Jay W. Decker has been president of Patina Oil & Gas Corporation, an independent
oil company, Denver, Colorado, since March 1998, and director of our company
since May 1996. From September 1995 through March 1998, he was executive
vice-president and a director of Hugoton Energy Corporation, Denver, Colorado,
an independent oil company. From 1989 until its merger into Hugoton, Mr. Decker
was president and chief executive officer of Consolidated Oil & Gas, Inc.,
Denver, Colorado. Mr. Decker received a B.S. degree from the University of
Wyoming.

Dennis B. Goldstein is corporate counsel, assistant secretary and manager of
land services for Homestake Mining Company, San Francisco, California, a large
international gold mining company, where he has been employed since 1976. Mr.
Goldstein is a graduate of Brown University and Stanford University Law School,
was a Graduate Fellow in comparative law at the University of Florence, Italy,
and attended the Stanford Executive Program at Stanford University's Graduate
School of Business.

     Committees of the Board

There are three committees of the Board of Directors: the Audit Committee, the
Compensation Committee and the Rights Redemption Committee. The members of the
each of these committees are indicated in the previous table.

Certain Relationships and Related Transactions

Unless otherwise indicated, the terms of the following transactions between
related parties were not determined as a result of arm's length negotiations.

     Consulting Agreements

From 1997 through April 1999, we engaged Lovejoy and Associates, a consulting
company owned by Thomas B. Lovejoy, one of our directors, to advise us
respecting future financing alternatives and possible sources of debt and equity
financing, with particular emphasis on funding for our Poland activities and our
relationship with the investment community. Under this arrangement, we paid
Lovejoy and Associates $120,000, $200,000 and $60,000 during 1997, 1998 and
1999, respectively. During 1999, the consulting agreement was terminated when
Mr. Lovejoy became our chief financial officer. We engage Dennis B. Goldstein to
provide special legal services from time to time at an hourly rate, not to
exceed an aggregate of $60,000 per year.

                                       48
Officer Loans

On February 17, 1998, two of our executive officers and directors, David N.
Pierce and Andrew W. Pierce, exercised options expiring May 1998 to purchase
300,000 shares of common stock at $1.50 per share. Each of those officers paid
the cost of exercising the options by using a bonus credit of $100,000 awarded
to him during 1997 and signing a full recourse note payable to us for $125,000,
bearing interest at 7.7%. On April 10, 1998, in consideration of the agreement
of the two officers to refrain from selling common stock in market transactions,
we agreed to advance the officers, on a nonrecourse basis, additional funds to
cover their tax liabilities and other amounts. As of December 31, 1999, the
notes receivable and accrued interest totaled $2,036,385. We have no commitment
to advance additional funds to the officers.

In consideration of extending the term of the loans from December 31, 1999
through December 31, 2000, the officers agreed that if the average closing price
of the common stock for five consecutive trading days results in a value of the
collateral equal to or above the total principal and accrued interest balances,
the officers will repay the loans within 45 days either in cash or by tendering
to us that number of shares which, at the average closing price for the previous
five consecutive trading days, equals the principal and interest then accrued.

The notes receivable and accrued interest are collateralized by 233,340 shares
of common stock. In accordance with SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," we recorded an impairment allowance of $670,371 as of
March 31, 2000, based on the value of the underlying collateral. We will adjust
the impairment allowance quarterly based on the market value of the collateral
shares.

                                       49
Executive Compensation

     Summary compensation

The following table sets forth for our last three fiscal years the annual and
long-term compensation earned by, awarded to or paid to the person who was our
chief executive officer and each of our four other highest compensated executive
officers as of the end of the last fiscal year (the "Named Executive Officers").
Long Term Compensation
                                                                        ----------------------------------
                                         Annual Compensation                    Awards           Payouts
                                 -------------------------------------  -----------------------  ---------
                                                             Other      Restricted  Securities             All Other
                        Year                                Annual        Stock     Underlying     LTIP     Compen-
      Name and          Ended                  Bonus        Compen-     Award(s)     Options/    Payouts     sation
 Principal Position    Dec 31    Salary ($)   ($) (1)     sation ($)       ($)      SARs(#)(5)     ($)       ($)(6)
---------------------  --------  ----------- -----------  ------------  ----------  -----------  --------- -----------
David N. Pierce.....    1999     $197,466     $242,983    $      --        --          60,000       --        7,409
  President (CEO)       1998      185,600      185,760      100,000(2)     --          60,000       --           --
                        1997      153,256      185,760           --        --          55,000       --           --

Andrew W. Pierce....    1999     $146,951     $151,307    $      --        --          50,000       --        9,228
  Vice-President        1998      134,400      115,200      100,000(2)     --          50,000       --           --
  (COO)                 1997      114,267      115,200           --        --          45,000       --           --

Thomas B. Lovejoy...    1999     $146,951     $151,307    $    --(4)       --          50,000       --        5,878
  Vice-Chairman         1998           --           --         --(4)       --              --       --           --
  (CFO)                 1997           --           --         --(4)       --              --       --           --

Scott J. Duncan.....    1999     $114,806     $118,209    $    --          --          50,000       --        7,325
  Vice President        1998      105,000       90,000         --          --          50,000       --           --
  Secretary             1997       88,750       90,000         --          --          45,000       --           --

Jerzy B. Maciolek...    1999     $146,951     $151,307     $100,000(3)     --          50,000       --        7,149
  Vice-President        1998      134,400      115,200      100,000(3)     --          50,000       --           --
  Exploration           1997      113,600      115,200           --        --          45,000       --           --
--------------------------
(1)  All 1999 bonuses were approved by our board of directors on November 1,
     1999 and accrued as of December 31, 1999. 25% of the accrued bonus was paid
     on February 15, 2000.
(2)  During 1998, David N. Pierce and Andrew W. Pierce applied a $100,000 bonus,
     which was awarded to them during 1997, against their exercise of stock
     options to purchase 150,000 shares each. See "Certain Relationships and
     Related Transactions."
(3)  During 1998 and 1999, Jerzy B. Maciolek was awarded a $100,000 bonus each
     year to be used against future stock option exercises or payable in cash in
     the event his employment with us is terminated. At the end of 1999, Mr.
     Maciolek had not used the $200,000 bonus.
(4)  Excludes $60,000, $200,000 and $120,000 paid during 1999, 1998 and 1997,
     respectively, to Lovejoy and Associates, a consulting firm owned by Mr.
     Lovejoy, prior to Mr. Lovejoy becoming our chief financial officer during
     1999.
(5)  Includes stock options only.
(6)  Consists of our contributions under our 401(k) plan. No material benefits
     are payable on retirement under this plan, which was initiated in 1999.

                                       50
Option/SAR Grants in Last Fiscal Year

The following table sets forth information respecting all individual grants of
options and stock appreciation rights ("SARs") made during the last completed
fiscal year to our Named Executive Officers.
Number
                              of           % of Total
                          Securities      Options/SARs                                Potential Realizable Value at
                          Underlying       Granted to                                  Assumed Rates of Share Price
                         Options/SARs      Employees     Exercise or                 Appreciation for Option Term ($)
                           Granted       During Fiscal    Base Price    Expiration  ---------------------------------
         Name              (no.)(1)         Year(1)       ($/share)        Date            5%              10%
----------------------- ---------------  --------------- ------------- ------------- ---------------  ---------------
David N. Pierce              60,000           14.0%         $5.750       11/01/06       $140,520          $327,360
Andrew W. Pierce             50,000           11.6           5.750       11/01/06        117,100           272,800
Thomas B. Lovejoy            50,000           11.6           5.750       11/01/06        117,100           272,800
Scott J. Duncan              50,000           11.6           5.750       11/01/06        117,100           272,800
Jerzy B. Maciolek            50,000           11.6           5.750       11/01/06        117,100           272,800
---------------------------
(1)  Includes stock options only.

                                       51
Aggregate Option/SAR Exercises in Last Fiscal Year and Year-End Option/SAR
     Values

The following table sets forth information respecting the exercise of options
and SARs during the last completed fiscal year by our Named Executive Officers
and the fiscal year-end values of unexercised options and SARs.
Number of Securities         Value of Unexercised
                                                            Underlying Unexercised    In-the-Money Options/SARs at
                                                            Options/SARs at FY End               FY End
                              Shares                                 (no.)                         ($)
                            Acquired on         Value            Exercisable/                 Exercisable/
          Name            Exercise (no.)    Realized ($)         Unexercisable              Unexercisable(1)
------------------------- ----------------  --------------  ------------------------  ------------------------------
David N. Pierce                 --               --          706,667 / 118,333(2)            $ 1,425,000 / $ --
Andrew W. Pierce                --               --           661,667 / 98,333(3)              1,306,250 /   --
Thomas B. Lovejoy               --               --           461,667 / 98,333(4)               831,250 /    --
Scott J. Duncan                 --               --           151,667 / 98,333(5)               118,750 /    --
Jerzy B. Maciolek               --               --          361,668 / 148,332(6)               581,250 /    --
-------------------------
(1)  Based on the closing sales price for the common stock of $5.375 on December
     31, 1999.
(2)  Consists of options to purchase 500,000 shares of common stock becoming
     exercisable in installments of 100,000 shares per year commencing June 1,
     1995, at an exercise price of $3.00 per share, expiring June 9, 2004;
     100,000 shares of common stock at an exercise price of $3.00 per share,
     expiring October 5, 2000; 50,000 shares of common stock at an exercise
     price of $8.875 per share expiring November 4, 2001; 55,000 shares of
     common stock becoming exercisable in installments of 18,333 shares per year
     commencing December 1, 1998, at an exercise price of $6.625 per share,
     expiring November 30, 2004; 60,000 shares of common stock becoming
     exercisable in installments of 20,000 shares per year commencing November
     10, 1999, at an exercise price of $8.625 per share, expiring November 10,
     2005; and 60,000 shares of common stock becoming exercisable in
     installments of 20,000 shares per year commencing November 1, 2000, at an
     exercise price of $5.75 per share, expiring November 1, 2006.
(3)  Consists of options to purchase 500,000 shares of common stock becoming
     exercisable in installments of 100,000 shares per year commencing June 1,
     1995, at an exercise price of $3.00 per share, expiring June 9, 2004;
     50,000 shares of common stock at an exercise price of $3.00 per share,
     expiring October 5, 2000; 65,000 shares of common stock at an exercise
     price of $8.875 per share, expiring November 4, 2001; 45,000 shares of
     common stock becoming exercisable in installments of 15,000 shares per year
     commencing on December 1, 1998, at an exercise price of $6.625 per share,
     expiring November 30, 2004; 50,000 shares of common stock becoming
     exercisable in installments of 16,667 shares per year commencing on
     November 10, 1999, at an exercise price of $8.625 per share, expiring
     November 10, 2005; and 50,000 shares of common stock becoming exercisable
     in installments of 16,667 shares per year commencing November 1, 2000, at
     an exercise price of $5.75 per share, expiring November 1, 2006.
(4)  Consists of options to purchase 150,000 shares of common stock becoming
     exercisable on August 3, 1995, at an exercise price of $3.00 per share,
     expiring August 3, 2000; 100,000 shares of common stock becoming
     exercisable on August 3, 1995, at an exercise price of $3.00 per share,
     expiring August 3, 2001; 100,000 shares of common stock becoming
     exercisable on August 3, 1995, at an exercise price of $3.00 per share,
     expiring August 3, 2002; 65,000 shares of common stock at an exercise price
     of $8.875 per share, expiring November 4, 2001; 45,000 shares of common
     stock becoming exercisable in installments of 15,000 shares per year
     commencing on December 1, 1998, at an exercise price of $6.625 per share,
     expiring November 30, 2004; 50,000 shares of common stock becoming
     exercisable in installments of 16,667 shares per year commencing on
     November 10, 1999, at an exercise price of $8.625 per share, expiring
     November 10, 2005; and 50,000 shares of common stock becoming exercisable
     in installments of 16,667 shares per year commencing November 1, 2000, at
     an exercise price of $5.75 per share, expiring November 1, 2006.
(5)  Includes options to purchase 50,000 shares of common stock at an exercise
     price of $3.00 expiring October 5, 2000; 55,000 shares of common stock at
     an exercise price of $8.875 per share, expiring November 4, 2001; 45,000
     shares of common stock becoming exercisable in installments of 15,000
     shares per year commencing December 1, 1998, at an exercise price of $6.625
     per share, expiring November 30, 2004; 50,000 shares of common stock
     becoming exercisable in installments of 16,667 shares per year commencing
     on November 10, 1999, at an exercise price of $8.625 per share, expiring
     November 10, 2005; and 50,000 shares of common stock becoming exercisable
     in installments of 16,667 shares per year commencing November 1, 2000, at
     an exercise price of $5.75 per share, expiring November 1, 2006.
(6)  Includes options to purchase 150,000 shares of common stock at any time
     through August 30, 2000, at an exercise price of $1.50; 65,000 shares of
     common stock at an exercise price of $8.875 per share through November 4,
     2001; 50,000 shares of common stock becoming exercisable in installments of
     16,667 shares per year commencing on May 12, 1998, at an exercise price of
     $8.25 per share, expiring May 11, 2004; 100,000 shares of common stock
     becoming exercisable in installments of 33,333 shares per year commencing
     on July 18, 1998, at an exercise price of $7.25 per share, expiring July
     17, 2004; 45,000 shares of common stock becoming exercisable in
     installments of 15,000 shares per year commencing December 1, 1998, at an
     exercise price of $6.625 per share, expiring November 30, 2004; 50,000
     shares of common stock becoming exercisable in installments of 16,667 per
     year commencing on November 10, 1999, at an exercise price of $8.625 per
     share, expiring November 10, 2005; and 50,000 shares of common stock
     becoming exercisable in installments of 16,667 shares per year commencing
     November 1, 2000, at an exercise price of $5.75 per share, expiring
     November 1, 2006.

                                       52
Directors' Compensation

We pay our nonemployee directors $18,000 per year and have historically granted
them stock options to purchase our common stock. We also reimburse our directors
for costs they incur in attending meetings of the board of directors and our
committees. We do not pay any separate compensation to employees who serve on
the board of directors.

During 1999, we paid Lovejoy and Associates, a consulting firm owned by Thomas
B. Lovejoy, $60,000 prior to Mr. Lovejoy becoming our chief financial officer;
we paid Peter L. Raven a cash fee of $18,000 and granted him seven-year options
to purchase 10,000 shares of common stock at $5.75 per share; we paid Jay W.
Decker a cash fee of $18,000 and granted him seven-year options to purchase
10,000 shares of common stock at $5.75 per share; and we paid Dennis B.
Goldstein a cash fee of $16,500 and granted him seven-year options to purchase
16,000 shares of common stock at a weighted average exercise price of $6.13 per
share. The exercise prices of the foregoing options are equal to the market
price of the common stock as of the date of each grant.

     Employment Agreements, Termination of Employment and Change in Control

We have entered into executive employment agreements with each of the executive
officers named in the Summary Compensation Table, except for Thomas B. Lovejoy.
Each employment agreement is for a three-year term and is automatically extended
for an additional year on the anniversary date of such agreement. Annual
salaries during 2000 are David N. Pierce, $218,568; Andrew W. Pierce, Thomas B.
Lovejoy and Jerzy B. Maciolek, $162,655 each, and Scott J. Duncan, $127,075. In
addition, the executive officers may receive such bonuses or incentive
compensation as the board of directors or compensation committee may deem
appropriate. Each agreement provides that the board of directors or compensation
committee may increase the base salary under the agreements at the beginning of
each year, with such increases to be at least 7.5% for David N. Pierce, Andrew
W. Pierce and Scott J. Duncan. Each executive officer is entitled under his
employment agreement to certain continuation of compensation in the event the
agreement is terminated upon death or disability or if we terminate the
agreement other than for cause.

In addition to the foregoing terms, Mr. Maciolek's employment agreement provides
for annual bonuses of $100,000, payable in cash, stock or options, as may be
determined by the board of directors or the compensation committee, based on the
progress of projects on which Mr. Maciolek is primarily engaged. On each of May
12, 1998, 1999 and 2000, Mr. Maciolek received a bonus in the form of a $100,000
credit that may be applied against the exercise of his options to purchase
common stock or be paid in cash if his employment with us is terminated.

Each executive employment agreement provides that, on the occurrence of a change
of control event, the employee may terminate the agreement. In the event of such
termination, the employee is entitled to a termination payment equal to 150% of
his annual salary (100% in the case Jerzy B. Maciolek) and the value of
previously granted employee benefits. Additionally, we are required to maintain
certain benefits and, in the case of David N. Pierce, Andrew W. Pierce and Scott
J. Duncan, repurchase outstanding options. Options held by Jerzy B. Maciolek
will immediately vest on such termination. For purposes of the foregoing, a
change of control shall exist on any of the following events: (i) our sale of
all or substantially all of our assets; (ii) a transaction or series of
transactions resulting in a single person or group of persons under common
control owning 25% of the outstanding common stock; (iii) a change in the
composition of the board of directors so that more than 50% of the directors are
persons neither nominated nor elected by the board of directors or any
authorized committee; (iv) our decision to terminate our business and liquidate
our assets; or (v) a merger or consolidation in which our existing stockholders
own less than 50% of the outstanding voting shares of the surviving entity.

     Options Granted to Officers, Directors, Employees and Consultants

We currently have outstanding options to purchase an aggregate of 3,896,501
shares that have been granted to our officers, directors, employees and
consultants. Of such options, 587,334 contain vesting limitations contingent on
continuing association with us. These options are exercisable at prices ranging
between $1.50 and $10.25 per share. Options issued to executive officers and
directors contain terms providing that in the event of a change in control as

                                       53
described above and at the election of the option holder, the unexercised
options will be canceled, and we will pay to the option holder an amount equal
to the number of unexercised options multiplied by the amount by which the fair
market value of the common stock as of the date preceding the change of control
event exceeds the option exercise price. The grants of options to officers and
directors were not the result of arm's length negotiations.

                                       54
Principal Stockholders

The following table sets forth, as of June 27, 2000, the name, address and
shareholdings of each person who owns of record, or was known by us to own
beneficially, 5% or more of the common stock currently issued and outstanding;
the name and shareholdings of each director; and the shareholdings of all
executive officers and directors as a group. Unless otherwise indicated, all
shares consist of common stock, and the named person or group owns all such
shares beneficially and of record. Options include only vested amounts; unvested
options are excluded.
Directors and Principal Stockholders

                                                                                                    Percentage of
                   Beneficial Owner                      Nature of Ownership       Amount(1)         Ownership(2)
David N. Pierce...................................    Common Stock                200,493(3)             1.1%
                                                         Options                     706,667(6)             3.8
                                                                                 -------------
                                                           Total                     907,160                4.9

   Andrew W. Pierce..................................    Common Stock                200,500                1.1
                                                         Options                     661,667(6)             3.6
                                                                                 -------------
                                                           Total                     862,167                4.7

   Scott J. Duncan...................................    Common Stock                175,500(5)             1.0
                                                         Options                     151,667(6)             0.8
                                                                                 -------------
                                                           Total                     327,167                1.8

   Thomas B. Lovejoy.................................    Common Stock                527,367(4)             3.0
                                                         Options                     461,667(6)             2.5
                                                                                 -------------
                                                           Total                     989,034                5.4

   Jerzy B. Maciolek.................................    Options                     378,334(6)             2.1

   Dennis L. Tatum...................................    Common Stock                  2,500               --
                                                         Options                      46,801(6)             0.3
                                                                                 -------------
                                                           Total                      49,301                0.3

   Peter L. Raven....................................    Common Stock                 40,000                0.2
                                                         Options                      12,000(6)             0.1
                                                                                 -------------
                                                           Total                      52,000                0.3

   Jay W. Decker.....................................    Options                      12,000(6)             0.1

   Dennis B. Goldstein...............................    Common Stock                  5,400(7)            --
                                                         Options                       2,000               --
                                                                                 -------------
                                                           Total                       7,400               --

   All Executive Officers............................    Common Stock              1,151,760                6.5
      and Directors as a                                 Options                   2,432,803               12.0
                                                                                 -------------     -----------------
      Group (9 persons)                                    Total                   3,584,563               17.8
                                                                                 =============
-----------------------------
(1)  Except as otherwise noted, shares are owned beneficially and of record, and
     such record stockholder has sole voting, investment and dispositive power.
(2)  Calculations of total percentages of ownership outstanding for each
     individual assume the exercise of currently vested options held by that
     individual to which the percentage relates. Percentages calculated for
     totals of all executive officers and directors as a group assume the
     exercise of all vested options held by the indicated group.
(3)  Includes 48,000 shares held by David N. Pierce as custodian for minor
     children. Mr. Pierce is deemed to hold or share voting and dispositive
     power over all of such shares. Excludes 19,000 shares held by Mr. Pierce's
     wife, Mary Phillips, and 23,000 held by Mary Phillips as custodian for an
     adult child, of which Mr. Pierce disclaims beneficial ownership.

                                       55
(4)  Includes 41,000 shares held in trust for the benefit of Thomas B. Lovejoy's
     children, 49,500 shares held in Mr. Lovejoy's IRA account, 10,000 shares
     held by Mr. Lovejoy's spouse's IRA account and 210,000 shares held by
     Lovejoy Associates, Inc. (of which Mr. Lovejoy is sole owner). Mr. Lovejoy
     is deemed to hold dispositive power over all of such shares. Mr. Lovejoy's
     address is 48 Burying Hill Road, Greenwich CT 06831.
(5)  Includes 123,000 shares held by Scott J. Duncan jointly with his wife,
     Cathy H. Duncan; 7,000 shares held solely by Cathy H. Duncan and 48,000
     shares held by Cathy Duncan as custodian for minor children. Mr. Duncan is
     deemed to hold or share voting and dispositive power over all of such
     shares.
(6)  These vested options give the holders the right to acquire shares of common
     stock at prices ranging from $1.50 to $10.25 per share with various
     expiration dates ranging from August 2000 to December 2006.
(7)  Includes 400 shares held by Dennis B. Goldstein as custodian for a minor
     child. Mr. Goldstein is deemed to hold or share voting and dispositive
     power over all of such shares.

                                       56
Description of Capital Stock

We are authorized to issue 30,000,000 shares of common stock, $0.001 par value,
and 5,000,000 shares of preferred stock (including 500,000 shares of Series A
Preferred Stock), $0.001 par value. The board of directors has proposed to the
stockholders at the 2000 annual meeting an amendment to the articles of
incorporation to increase the authorized common stock to 100,000,000 shares.

Common Stock

As of June 27, 2000, we had 17,818,003 shares of common stock issued and
outstanding. The holders of common stock are entitled to one vote per share on
each matter submitted to a vote at any meeting of stockholders. Holders of
common stock do not have cumulative voting rights, and therefore, a majority of
the outstanding shares voting at a meeting of stockholders is able to elect the
entire board of directors, and if they do so, minority stockholders would not be
able to elect any members to the board of directors. Our bylaws provide that a
majority of our issued and outstanding shares constitutes a quorum for
stockholders' meetings, except with respect to certain matters for which a
greater percentage quorum is required by statute.

Our stockholders have no preemptive rights to acquire additional shares of
common stock or other securities. Our common stock is not subject to redemption
and carries no subscription or conversion rights. In the event of liquidation of
our company, the shares of common stock are entitled to share equally in
corporate assets after satisfaction of all liabilities and the payment of any
liquidation preferences.

Holders of common stock are entitled to receive such dividends as the board of
directors may from time to time declare out of funds legally available for the
payment of dividends. We seek growth and expansion of our business through the
reinvestment of profits, if any, and do not anticipate that we will pay
dividends on the common stock in the foreseeable future. In certain cases,
common stockholders may not receive dividends, if and when declared by the board
of directors, until we have satisfied our obligations to any preferred
stockholders.

As of June 27, 2000, we had reserved for issuance on exercise of options and
warrants at exercise prices ranging from $1.50 to $10.25 an aggregate of
4,146,167 shares of common stock consisting of 3,124,347 shares issuable on the
exercise of outstanding options and warrants with a weighted average exercise
price of $5.25 per share, and 1,021,820 shares issuable on the exercise of
options previously granted but not yet exercisable at a weighted exercise price
of $6.90 per share.

The board of directors has authority to authorize the offer and sale of
additional securities without the vote of or notice to existing stockholders,
and it is likely that additional securities will be issued to provide future
financing. The issuance of additional securities could dilute the percentage
interest and per share book value of existing stockholders, including persons
purchasing common stock in this offering.

Preferred Stock

Under our articles of incorporation, our board of directors is authorized,
without stockholder action, to issue preferred stock in one or more series and
to fix the number of shares and rights, preferences and limitations of each
series. Among the specific matters that may be determined by the board of
directors are the dividend rate, the redemption price, if any, conversion
rights, if any, the amount payable in the event of any voluntary liquidation or
dissolution of our company and voting rights, if any.

     Series A Preferred Stock

We are authorized to issue 500,000 shares of Series A Preferred Stock. Such
preferred stock is nonredeemable and subordinate to any other series of our
Preferred Stock which may at any time be issued. We currently do not have any
Preferred Stock outstanding. The Series A Preferred Stock is authorized for
issuance pursuant to the preferred

                                       57
stock purchase rights that trade with the common stock, as described below. Each
share of Series A Preferred Stock is entitled to receive, when, as and if
declared, a dividend in an amount equal to one hundred times the cash dividend
declared on each share of common stock and one hundred times any noncash
dividends declared with respect to each share of common stock, in like kind,
other than a dividend payable in shares of common stock. In the event of
liquidation, the holder of each share of Series A Preferred Stock shall be
entitled to receive a liquidation payment in an amount equal to one hundred
times the liquidation payment made per share of our common stock. Each share of
Series A Preferred Stock has one hundred votes, voting together with the common
stock and not as a separate class, unless otherwise required by law or our
articles of incorporation. In the event of any merger, consolidation or other
transaction in which shares of our common stock are exchanged, each share of
Series A Preferred Stock is entitled to receive one hundred times the amount
received per share of our common stock.

Each share of our common stock includes one right (a Right) which entitles the
registered holder to purchase from us one one-hundredth (1/100) of a share of
Series A Preferred Stock at an exercise price of $100 per Right, subject to
adjustment to prevent dilution. Initially the Rights will not be exercisable,
certificates for the Rights will not be issued and, unless and until the Rights
become exercisable, they will be transferred with and only with the shares of
common stock. The Rights are exercisable on the Separation Date, which will
occur on the earlier of (i) ten calendar days following a public announcement
that certain persons or groups have acquired 20% or more of our outstanding
voting shares, (ii) ten calendar days following the commencement or public
announcement of the intent of any person to acquire 20% or more of our
outstanding voting shares; or (iii) such later date as may be fixed by the board
of directors. Following the Separation Date, certificates representing the
Rights will be mailed to holders of record of common stock and thereafter such
certificates alone will evidence the Rights. If any person acquires more than
20% of our outstanding common stock or we engage in certain business
combinations, other than pursuant to a tender or exchange offering for all
shares of common stock approved by the board of directors, the Rights become
exercisable for common stock, in lieu of Series A Preferred Stock, by paying one
half of the exercise price of the Right for a number of shares of our common
stock having an aggregate market price equal to such exercise price. Any Rights
that are or were beneficially owned by a person who has acquired 20% or more of
the outstanding common stock will become void.

We may redeem the Rights at $.01 per Right at any time until ten business days
after public announcement that a person has acquired 20% or more of the
outstanding shares of common stock, provided that the redemption is approved by
our Rights Redemption Committee, a committee consisting of at least three
continuing directors, a majority of whom is not our employees. The Rights will
expire on April 4, 2007, unless earlier redeemed by us. Unless the Rights have
been previously redeemed, all shares of common stock issued by us will include
Rights. As long as the Rights are redeemable, the Rights Redemption Committee,
without further stockholder approval may, except with respect to the exercise
price or expiration date of the Rights, amend the Rights in any matter that, in
the opinion of the board of directors, does not materially adversely affect the
interests of holders of the Rights.

The Stockholder Rights Agreement contemplates that we will reserve a sufficient
number of authorized but unissued shares of common stock to permit the exercise
in full of the Rights granted to the current stockholders should these Rights
become exercisable. Because of the number of authorized but unissued shares, as
compared to the number of shares that will be outstanding after the offering,
the number of shares of common stock presently authorized may be insufficient to
permit exercise in full of the Rights upon the occurrence of a triggering event.
Consequently, the effectiveness of the Stockholder Rights Agreement may be
impaired if an insufficient number of shares is authorized and reserved for
issuance upon the exercise of Rights under the agreement.

Certain Article and Bylaw Provisions

Our articles of incorporation divide the members of the board of directors into
three classes of directors, with each class to be as nearly equal in number of
directors as possible, serving staggered, three-year terms. Our articles of
incorporation also provide that directors may be removed, with or without cause,
by a two-thirds majority of the stockholders at a meeting called for that
purpose and that any resulting vacancies can be filled by only a vote of a
majority of the directors remaining in office.

                                       58
Our bylaws permit stockholders to nominate a person for election as a director
or bring other matters before a stockholder meeting only if written notice of
such intent is provided to us at least 30 days prior to the meeting. Such notice
of intent to nominate a person for election as a director is required to set
forth the same kind of information respecting such nominee as would be required
under the proxy rules of the SEC, including the written consent of the nominee
to serve as a director, if elected, and the name and address of the stockholder
making the nomination, as well as the number of shares of stock owned by such
stockholder. In the case of other proposed business, the notice must set forth a
brief description of each matter proposed, the name and address of the
stockholder proposing the matter, the number of shares of stock owned by such
stockholder and any material interest of such stockholder in such matter.

Nevada law provides that a merger or consolidation, sale or similar transaction
involving all or substantially all of our assets, the issuance of securities
having an aggregate value equal to 5% or more of the aggregate market of all our
outstanding shares or the reclassification, recapitalization or similar
transaction involving an "interested stockholder" (as defined), within three
years after the stockholder became interested, cannot be completed unless such
transaction is approved by our board of directors. After the expiration of three
years after a person becomes an interested stockholder, a transaction cannot be
completed with the interested stockholder unless it is approved by the board of
directors or a majority of the outstanding voting power not beneficially owned
by the interested stockholder, unless certain "fair price" provisions are met.
Such fair price provisions generally require that the amount of cash and the
market value of the consideration to be received per share by all holders of our
outstanding common stock not beneficially owned by the interested stockholder be
at least equal to the higher of the price per share paid by the interested
stockholder or the market value on the date of announcement of the proposed
combination. For purposes of these provisions, an interested stockholder is one
who beneficially owns, directly or indirectly, 10% or more of the voting power
of our outstanding stock.

The foregoing provisions may tend to deter any potential unfriendly offers or
other efforts to obtain control of us that are not approved by our board of
directors and thereby deprive the stockholders of opportunities to sell shares
of common stock at prices higher than the prevailing market price. On the other
hand, these provisions may tend to assure continuity of management and corporate
policies and to induce any person seeking control of us or a business
combination with us to negotiate on terms acceptable to our then elected board
of directors.

                                       59
Selling Stockholders

This prospectus relates to the resale of 2,969,000 shares of our common stock by
the selling stockholders. The following table provides certain information
concerning the resale of shares of common stock by the selling stockholders and
assumes that all shares offered by the selling stockholders will be sold. We
will not receive any proceeds from the resale of the common stock by the selling
stockholders.
Common Stock
                                                       ---------------------------------------------------------------------
                                                              Beneficially                              Beneficially
                                                         Owned Before Offering                      Owned After Offering
                                                       ---------------------------    Number     ---------------------------
                 Selling Stockholder                      Number       Percent      to be Sold      Number       Percent
                 -------------------                      ------       -------      ----------      ------       -------
Cumberland Benchmarked Partners, L.P....................   270,000        1.5         270,000            --         --
Longview Partners.......................................   220,000        1.2         220,000            --         --
Longview Partners A, L.P................................    20,000        *            20,000            --         --
Longview Partners B, L.P................................   140,000        *           140,000            --         --
Longview Partners C, L.P................................    50,000        *            50,000            --         --
Spindrift Partners, L.P.................................   800,000        4.5         800,000            --         --
Spindrift Partners (Bermuda) L.P........................   200,000        1.1         200,000            --         --
CastleRock Partners, L.P................................   563,480        3.2         563,480            --         --
CastleRock Partners II, L.P.............................    54,110        *            54,110            --         --
CastleRock Fund, Ltd....................................   232,410        1.3         232,410            --         --
Edith N. Bacon..........................................    10,000        *            10,000            --         --
Eric K. Bacon...........................................    11,000        *            10,000         1,000          *
Robin B. Greenwood......................................    10,000        *            10,000            --         --
Peter J. Lagemann.......................................     2,000        *             2,000            --         --
Carter P. Thacher.......................................    32,000        *            32,000            --         --
Ironman Energy Capital, L.P.............................   130,000        *           130,000            --         --
Longwood Partners, LP...................................   175,000        1.0         175,000            --         --
Daniel V. Drake.........................................    80,000        *            25,000        55,000          *
Talmor Capital Management, L.L.C........................   125,000        *            25,000       100,000          *
                                                                                   -------------
     Total..............................................                            2,969,000
                                                                                   =============
----------------------------
* Less than 1%.

                                       60
Plan of Distribution

The selling stockholders may from time to time offer any or all of their shares
in one or more of the following transactions (which may include block
transactions):

     o    on Nasdaq;

     o    in the over-the-counter market;

     o    through short sales of shares;

     o    in negotiated transactions other than in such markets;

     o    by pledge to secure debts and other obligations;

     o    in connection with the writing of nontraded and exchange-traded put
          and call options, in hedge transactions, in covering previously
          established short positions and in settlement of other transactions in
          standardized or over-the-counter options; or

     o    in any combination of any of the above transactions.

The selling stockholders may sell their shares at market prices prevailing at
the time of sale, at prices related to such prevailing market prices, at
negotiated prices or at fixed prices. The selling stockholders may sell their
shares directly to purchasers or to or through broker-dealers, which may act as
agents or principals. The selling stockholders may compensate broker-dealers in
the form of commissions, discounts or selling concessions. The broker-dealers
may also receive compensation from any purchaser of the shares for whom the
broker-dealers acts as agent or to whom it sells as a principal.

The selling stockholders may also resell all or a portion of their shares in
open market transactions in reliance on Rule 144 under the Securities Act, as
long as they meet the criteria and comply with the requirements of that rule.

The selling stockholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares, and we do not intend to enter
into any arrangement with any underwriter or coordinating broker-dealer with
respect to sales of the shares by the selling stockholders.

The selling stockholders and any broker-dealers that participate in the
distribution of their shares may be deemed to be "underwriters" within the
meaning of section 2(11) of the Securities Act. Any commissions received by such
broker-dealers and any profits realized on the resale of shares by them may be
considered underwriting discounts and commissions under the Securities Act. We
have agreed to indemnify each selling stockholder against certain liabilities,
including liabilities arising under the Securities Act and, alternatively, to
contribute toward amounts paid by the selling stockholders due to such
liabilities. The selling stockholders may agree to indemnify any agent, dealer
or broker-dealer that participates in sales of the shares against certain
liabilities, including liabilities arising under the Securities Act.

The selling stockholders may be subject to the prospectus delivery requirements
of the Securities Act and to applicable provisions of and regulations under the
Exchange Act that may limit the timing of their purchases and sales of our
shares.

We are required to pay all costs, expenses and fees incident to the registration
of the shares, including fees and disbursements of counsel to the selling
stockholders, and the selling stockholders are required to pay any brokerage
commissions or similar selling expenses incurred by them in connection with the
sales of their shares.

As used in this prospectus, "selling stockholders" includes donees, pledges,
transferees or other successors in interest who are selling shares they received
after the date of this prospectus from a selling stockholder named in this
prospectus as a gift, pledge, partnership distribution or other nonsale related
transfer.

                                       61
Upon being notified by a selling stockholder that the selling stockholder has
entered into a material arrangement with a broker-dealer for the sale of the
selling stockholder's shares through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, we
will file a supplement to this prospectus, if required by Rule 424(b) under the
Securities Act, disclosing certain information about the arrangement and the
sale of the shares involved. In addition, upon being notified by a selling
stockholder that a donee, pledgee, transferee or other successor-in-interest
intends to sell more than 500 shares, we will file an appropriate supplement to
this prospectus.

                                       62
Where You Can Find Additional Information

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act for the common stock sold in this
offering. This prospectus does not contain all of the information set forth in
the registration statement and the accompanying exhibits and schedules. For
further information about us and our common stock, we refer you to the
registration statement and the accompanying exhibits and schedules. Statements
contained in this prospectus regarding the contents of any contract or any other
document to which we refer are not necessarily complete. In each instance,
reference is made to the copy of the contract or document filed as an exhibit to
the registration statement, and each statement is qualified in all respects by
that reference. Copies of the registration statement and the accompanying
exhibits and schedules may be inspected without charge at the public reference
facilities maintained by the Securities and Exchange Commission at room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Securities and Exchange Commission located at Seven World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials may be
obtained at prescribed rates from the public reference room of the Securities
and Exchange Commission at room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the public reference room
by calling the Securities and Exchange Commission at 1-800-SEC-0330. The
Securities and Exchange Commission maintains a web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Securities and Exchange Commission. The
address of the site is http://www.sec.gov.

We are subject to the reporting requirements of the Securities Exchange Act of
1934, and we file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document that we file at the Securities and Exchange Commission's
public reference rooms in Washington, D.C., New York, New York, and Chicago,
Illinois. Please call the Securities Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to you free of charge at the Securities Exchange Commission's web site
at http://www.sec.gov. The common stock is traded under the symbol "FXEN" on the
Nasdaq National Market. Material filed by us can be inspected at the offices of
the National Association of Securities Dealers, Inc., Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006.

                                  Legal Matters

Certain legal matters respecting the validity under the Nevada Revised Statutes
of the common stock to be sold by the selling stockholders have been passed upon
for us by Kruse, Landa & Maycock, L.L.C.

                                     Experts

The consolidated financial statements as of December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999 included in this
Form S-1 have been so included in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

The estimated reserve evaluations and related calculations of Larry D. Krause,
independent petroleum engineer, respecting our domestic reserves included in
this prospectus have been included herein in reliance upon the authority of Mr.
Krause as an expert in petroleum engineering.

                                       63
Glossary of Oil and Gas Terms

"Bpd" means barrels of oil per day.

"Bbl" means barrel of oil.

"Bcf" means billion cubic feet of natural gas.

"Bcfe" means billion cubic feet of natural gas equivalent using a ratio of one
barrel of oil to 6,000 cubic feet of natural gas.

"Carried" refers to an agreement under which one party (carrying party) agrees
to pay for all or a specified portion of costs of another party (carried party)
on a property in which both parties own a portion of the working interest.

"Condensate" means a light hydrocarbon liquid, generally natural gasoline, that
condenses to a liquid (i.e., falls out of wet gas) as the wet gas is sent
through a mechanical separator near the well.

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

"Exploratory well" means a well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir or to extend a known reservoir.

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

"Gross" acres and "gross" wells means the total number of acres or wells, as the
case may be, in which an interest is owned, either directly or through a
subsidiary or other Polish enterprise in which we have an interest.

"MBbls" means thousand barrels of oil.

"MMBbls" means million barrels of oil.

"MMcfe" means million cubic feet of natural gas equivalent using a ratio of one
barrel of oil to 6,000 cubic feet of gas.

"MMcf" means million cubic feet of natural gas.

"MMBOE" means million barrels of oil equivalent.

"Net" means, when referring to wells or acres, the fractional ownership working
interests held by us, either directly or through a subsidiary or other Polish
enterprise in which we have an interest, multiplied by the gross wells or acres.

"Proved reserves" means the estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. "Proved reserves" may be developed or
undeveloped.

"PV-10 Value" means the estimated future net revenue to be generated from the
production of proved reserves discounted to present value using an annual
discount rate of 10%. These amounts are calculated net of estimated production
costs and future development costs, using prices and costs in effect as of a
certain date, without escalation and without giving effect to nonproperty
related expenses such as general and administrative costs, debt service, future
income tax expense or depreciation, depletion and amortization.

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

                                       64
"Step-out" means a well drilled outside well locations offsetting a producing
well but within the possible or probable extent of a reservoir.

"Stratigraphic test" means a drilling effort, geologically directed, to obtain
information pertaining to a specific geologic condition. Stratigraphic test
wells are customarily drilled without the intention of completing for oil or gas
production.

"Tcf" means trillion cubic feet of natural gas.

                                       65
PART II
                     Information Not Required in Prospectus

Item 13.  Other Expenses of Issuance and Distribution

The following table sets forth the estimated expenses payable by us in
connection with the offering (excluding underwriting discounts and commissions):

                       Nature of Expense                              Amount
                       -----------------                              ------

    SEC registration fees......................................     $  4,213
    Transfer agent's, and registrars' fees and expenses........          500
    Accounting fees and expenses...............................       25,000
    Legal fees and expenses....................................       40,000
    Printing and engraving expenses............................        1,000
    Miscellaneous..............................................        4,287
                                                                  ============
         Total.................................................      $75,000
                                                                  ============

Item 14.  Indemnification of Directors and Officers

Section 78.037 of the Nevada corporation law and "Article VI - Indemnification
of Officers, Directors, and Others" of the Registrant's articles of
incorporation provide for indemnification of the Registrant's directors and
officers in a variety of circumstances, which may include liabilities under the
Securities Act of 1933, as amended.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons pursuant
to the foregoing provisions, the Registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
contrary to public policy as expressed in the Securities Act, and therefore, is
unenforceable. See "Item 17. Undertakings."

Item 15.  Recent Sales of Unregistered Securities

Since May 31, 1997, the Registrant has issued and sold the following
unregistered securities:

1. In February 1998, 300,000 shares of common stock were issued to two executive
officers and directors, both of whom were accredited investors, on the exercise
of options at $1.50 per share, for a total of $450,000. Each purchaser confirmed
in writing that the securities were being acquired for investment, and the
certificates bear a restrictive legend. The foregoing issuance and sale of
common stock were effected in reliance upon the exemption from registration
provided by Section 4(2) under the Securities Act of 1933, as amended. There
were no underwriting discounts or commissions in connection with this
transaction.

2. In May 1999, 1,792,500 shares of common stock were issued and sold for $7.2
million in gross proceeds ($7.1 million net proceeds after deducting expenses
associated with such sale) to seven accredited investors. Each purchaser
confirmed in writing that the securities were being acquired for investment, and
the certificates bear a restrictive legend. The foregoing issuance and sale of
common stock were effected in reliance upon the exemption from registration
provided by Section 4(2) and Rule 506 of Regulation D under the Securities Act
of 1933, as amended. There were no underwriting discounts or commissions in
connection with this transaction.

3. In June 2000, 2,969,000 shares of common stock were issued and sold for $10.4
million in gross proceeds ($9.3 million net proceeds after deducting placement
commissions and expenses associated with such sale) to 19 accredited investors.
Each purchaser confirmed in writing that the securities were being acquired for
investment, and the certificates bear a restrictive legend. The foregoing
issuance and sale of common stock were effected in reliance upon the exemption
from registration provided by Section 4(2) and Rule 506 of Regulation D under
the Securities Act of 1933, as amended. CIBC World Markets and Hibernia
Southcoast Capital acted as placement agents for the sale of these securities.

                                      II-i
Item 16.  Exhibits and Financial Statement Schedules

(a) Exhibits
SEC
  Exhibit      Reference
  Number        Number                             Title of Document                               Location
------------ -------------- ----------------------------------------------------------------  -------------------
Item 3.                     Articles of Incorporation and Bylaws
--------------------------------------------------------------------------------------------
3.1                3        Restated and Amended Articles of  Incorporation                   Incorporated by
                                                                                                  Reference(11)

3.2                3        Bylaws                                                            Incorporated by
                                                                                                  Reference(1)

Item 4.                     Instruments Defining the Rights of Security Holders
--------------------------------------------------------------------------------------------
4.1                4        Specimen Stock Certificate                                        Incorporated by
                                                                                                  Reference(1)

4.2                4        Form of Designation of Rights, Privileges, and Preferences of     Incorporated by
                                Series A Preferred Stock                                          Reference(14)

4.3                4        Form of Rights Agreement dated as of April 4, 1997, between FX    Incorporated by
                                Energy and Fidelity Transfer Corp.                                Reference(14)

Item 5.                     Opinion re: Legality
--------------------------------------------------------------------------------------------
5.1                5        Opinion of Kruse, Landa & Maycock, LLC                            This Filing

Item 10.                    Material Contracts
--------------------------------------------------------------------------------------------
10.1              10        Mining Usufruct Agreement between the State Treasury of the       Incorporated by
                                Republic of Poland and Frontier Poland Exploration and            Reference(3)
                                Producing Company, Sp. z o.o. dated August 22, 1995,
                                relating to Blocks 51, 52, 71, 72, 91, 92, 93, 111, 112,
                                and 113 (Baltic)

10.2              10        Amendment No. 1 to Mining Usufruct Agreement dated August 15,     Incorporated by
                                1996 (Baltic)                                                     Reference(4)

10.3              10        Amendment No. 2 to Mining Usufruct Agreement dated August 22,     Incorporated by
                                1996 (Baltic)                                                     Reference (15)

10.4              10        Form of concession dated December 20, 1995, relating to Baltic    Incorporated by
                                Concessions granted pursuant to the Mining Usufruct               Reference(5)
                                Agreement dated August 15, 1996, with related schedule

10.5              10        Mining Usufruct Agreement between the State Treasury of the       Incorporated by
                                Republic of Poland and Lubex Petroleum Company Sp. z o.o.         Reference(10)
                                dated December 20, 1996, relating to concession blocks
                                255, 275, 295, 316, 336, 337, and 338 (Lublin)

10.6              10        Mining Usufruct Agreement between the State Treasury of the       Incorporated by
                                Republic of Poland and Apache Poland Sp. z o.o. and FX            Reference(12)
                                Energy Poland Sp. z o.o. (East), commercial partnership
                                dated October 14, 1997, related to concession blocks 257,
                                258, 277, 278, 297, 317, and 318 (Lublin)

10.7              10        Mining Usufruct Agreement between the State Treasury of the       Incorporated by
                                Republic of Poland and Apache Poland Sp. z o.o. and FX            Reference(12)
                                Energy Poland Sp. z o.o. (East), commercial partnership
                                dated October 14, 1997, related to concession block 298
                                (Lublin)

                                     II-ii
SEC
  Exhibit      Reference
  Number        Number                             Title of Document                               Location
------------ -------------- ----------------------------------------------------------------  -------------------
10.8              10        Mining Usufruct Agreement between the State Treasury of the       Incorporated by
                                Republic of Poland and Apache Poland Sp. z o.o. and FX            Reference(12)
                                Energy Poland Sp. z o.o. (East), commercial partnership
                                dated October 14, 1997, related to concession blocks 319,
                                320, 339, 340, 340A, 359, 360, 360A, 379, 380, and 380A
                                (Lublin)

10.9              10        Mining Usufruct Agreement between the State Treasury of the       Incorporated by
                                Republic of Poland and Gasex Production Company Sp. z o.o.        Reference(12)
                                and Company, commercial partnership dated October 14,
                                1997, related to concession blocks 410, 411, 412, 413,
                                414, 415, 430, 431, 432, 433, 452 and 453 (Western
                                Carpathian)

10.10             10        Mining Usufruct Agreement between the State Treasury of the       Incorporated by
                                Republic of Poland and FX Energy Poland Sp. z o.o. and            Reference(12)
                                Partners, commercial partnership dated October 30, 1997,
                                related to concession blocks 85, 86, 87, 88, 89, 105,108,
                                109, 129, and 149, in northwestern Poland (Pomeranian)

10.11             10        Option Agreement dated July 18, 1997, between Polish Oil and      Incorporated by
                                Gas Company, FX Energy, and Apache Overseas, Inc.                 Reference(12)

10.12             10        Participation Agreement dated effective as of April 16, 1997,     Incorporated by
                                between Apache Overseas, Inc., and FX Energy, pertaining          Reference(13)
                                to the Lublin Concessions

10.13             10        Letter Agreement dated February 27, 1998, between FX Energy       Incorporated by
                                and Apache Overseas, Inc., regarding modification to all          Reference (15)
                                agreements for acreage in Poland under established area of
                                mutual interest.

10.14             10        Participation Agreement dated effective February 27, 1998,        Incorporated by
                                between FX Energy and Apache Overseas, Inc., pertaining to        Reference (15)
                                the Western Carpathian Concession

10.15             10        Participation Option Agreement dated effective February 27,       Incorporated by
                                1998, between FX Energy and Apache Overseas, Inc.,                Reference (15)
                                pertaining to the Pomeranian Concession

10.16             10        Prospect Agreement between Apache Poland Sp. z o.o., and FX       Incorporated by
                                Energy Poland Sp. z o.o., dated April 17, 1998.                   Reference (18)

10.17             10        Option Agreement dated effective as of February 2, 1998,          Incorporated by
                                between POGC, FX Energy, Inc., and Apache Overseas, Inc.,         Reference (15)
                                pertaining to the Western Carpathian Concessions

10.18             10        Option Agreement dated March 5, 1998, effective as of April       Incorporated by
                                16, 1997, between FX Energy, Inc., Apache Overseas, Inc.,         Reference (17)
                                and POGC, relating to FX Energy's Carpathian Concessions.

10.19             10        Option Agreement between FX Energy Poland Sp. z o.o., and POGC    Incorporated by
                                dated effective May 20, 1998, relating to Pomeranian              Reference (19)
                                Concessions

10.20             10        Agreement dated October 21, 1996, between Sudety Mining           Incorporated by
                                Company Sp. z o.o. and the State Treasury of the Republic         Reference (9)
                                of Poland, for the establishment of the mining usufruct
                                for the purpose of gold exploration in the Sudety
                                Concessions

                                     II-iii
SEC
  Exhibit      Reference
  Number        Number                             Title of Document                               Location
------------ -------------- ----------------------------------------------------------------  -------------------
10.21             10        Earn-In and Exploration Letter of Intent dated June 13, 1997,     Incorporated by
                                between FX Energy and Homestake Mining Company of                 Reference (12)
                                California

10.22             10        Form of Mining Usufruct Agreement between the State Treasury      Incorporated by
                                of the Republic of Poland and FX Energy Poland Sp. z o.o.         Reference (15)
                                Commercial Partnership, dated October 16, 1997, relating
                                to Sudety Concession blocks 43, 63, 64, 65, with related
                                schedule.

10.23             10        Earn-in, Exploration, and Joint Venture Agreement between         Incorporated by
                                Homestake Mining Company of California and FX Energy              Reference (15)
                                effective December 31, 1997, regarding exploration for
                                precious metals in the Republic of Poland (Sudety)

10.24             10        Agreement between Apache Overseas, Inc., and FX Energy dated      Incorporated by
                                effective January 1, 1999, pertaining to oil and gas              Reference (20)
                                operations in Poland

10.25             10        Agreement on Cooperation in the Lachowice Area between POGC,      Incorporated by
                                Apache Overseas, Inc., Apache Poland, Sp. Z o.o., FX              Reference (20)
                                Energy, Inc., and FX Energy Poland Sp. Z o.o., dated
                                February 26, 1999

10.26             10        Frontier Oil Exploration Company 1995 Stock Option and Award      Incorporated by
                                Plan*                                                             Reference(4)

10.27             10        Form of FX Energy, Inc., 1996 Stock Option and Award Plan*        Incorporated by
                                                                                                  Reference(10)

10.28             10        Form of FX Energy, Inc., 1997 Stock Option and Award Plan*        Incorporated by
                                                                                                  Reference (20)

10.29             10        Form of FX Energy, Inc., 1998 Stock Option and Award Plan*        Incorporated by
                                                                                                  Reference (20)

10.30             10        Employment Agreements between FX Energy and each of David         Incorporated by
                                Pierce and Andrew Pierce, effective January 1, 1995*              Reference(1)

10.31             10        Amendments to Employment Agreements between FX Energy and each    Incorporated by
                                of David Pierce and Andrew Pierce, effective May 30, 1996*        Reference(8)

10.32             10        Form of Stock Option with related schedule (D. Pierce and A.      Incorporated by
                                Pierce) *                                                         Reference(1)

10.33             10        Form of Stock Option granted to D. Pierce and A. Pierce*          Incorporated by
                                                                                                  Reference(1)

10.34             10        Form of Non-Qualified Stock Option with related schedule*         Incorporated by
                                                                                                  Reference(4)

10.35             10        Letter Agreement dated effective August 3 , 1995, between         Incorporated by
                                Lovejoy Associates, Inc., and FX Energy re: Financial             Reference(4)
                                Consulting Engagement*

10.36             10        Letter Agreement dated effective August 3, 1995, between          Incorporated by
                                Lovejoy Associates, Inc., and FX Energy re:                       Reference(4)
                                Indemnification

10.37             10        Non-Qualified Stock Option granted to Thomas B. Lovejoy*          Incorporated by
                                                                                                  Reference(4)

                                     II-iv
SEC
  Exhibit      Reference
  Number        Number                             Title of Document                               Location
------------ -------------- ----------------------------------------------------------------  -------------------
10.38             10        Letter Agreement dated effective December 31, 1997, between FX    Incorporated by
                                Energy and Lovejoy Associates, Inc., re: Extension of             Reference (15)
                                Consulting Engagement*

10.39             10        Employment Agreement between FX Energy and Jerzy B. Maciolek*     Incorporated by
                                                                                                  Reference(8)

10.40             10        Addendum to Employment Agreement between FX Energy and Jerzy      Incorporated by
                                B. Maciolek*                                                      Reference (15)

10.41             10        Second Addendum to Employment Agreement between FX Energy and     Incorporated by
                                Jerzy B. Maciolek*                                                Reference (15)

10.42             10        Employment Agreement between FX Energy and Scott J. Duncan*       Incorporated by
                                                                                                  Reference (15)
10.43             10        Form of Indemnification Agreement between FX Energy and           Incorporated by
                                certain directors, with related schedule*                         Reference(10)

10.44             10        Form of Option granted to executive officers and directors,       Incorporated by
                                with related schedule*                                            Reference(10)

10.45             10        Memorandum of Understanding regarding officer loans (reformed     Incorporated by
                                June 19, 1998)                                                    Reference (16)

10.46             10        Limited Recourse Promissory Note of David N. Pierce in the        Incorporated by
                                amount of $950,954 (reformed June 19, 1998)                       Reference (16)

10.47             10        Pledge and Security Agreement between FX Energy, Inc. and         Incorporated by
                                David N. Pierce (reformed June 19, 1998)                          Reference (16)

10.48             10        Agreement to Hold Collateral between FX Energy, Inc. and David    Incorporated by
                                N. Pierce and Kruse, Landa & Maycock as agent to hold             Reference (16)
                                collateral (reformed June 19, 1998)

10.49             10        Limited Recourse Promissory Note of Andrew W. Pierce in the       Incorporated by
                                amount of $769,924 (reformed June 19, 1998)                       Reference (16)

10.50             10        Pledge and Security Agreement between FX Energy, Inc. and         Incorporated by
                                Andrew W. Pierce (reformed June 19, 1998)                         Reference (16)

10.51             10        Agreement to Hold Collateral between FX Energy, Inc. and          Incorporated by
                                Andrew W. Pierce and Kruse, Landa & Maycock as agent to           Reference (16)
                                hold collateral (reformed June 19, 1998)

10.52             10        Form of Indemnification Agreement between FX Energy and           Incorporated by
                                certain directors, with related schedule                          Reference (21)

10.53             10        Agreement on Cooperation in Exploration of Hydrocarbons on        Incorporated by
                                Foresudetic Monocline dated April 11, 2000, between               Reference (22)
                                Polskie Gornictwo Naftowe i Gaxownictwo S.A. ("POGC") and
                                FX Energy Poland Ps. Z o.o. relating to the Fences project

10.54             10        Agreement effective as of January 1, 2000, between FX Energy,     Incorporated by
                                Inc., and Apache Overseas, Inc.                                   Reference (23)

Item 21                     Subsidiaries of the Registrant
-----------------------------------------------------------------------------------------------------------------
21.1                        Schedule of Subsidiaries                                          Incorporated by
                                                                                                  Reference (15)

                                      II-v
SEC
  Exhibit      Reference
  Number        Number                             Title of Document                               Location
------------ -------------- ----------------------------------------------------------------  -------------------
Item 23                     Consents of Experts and Counsel
--------------------------------------------------------------------------------------------
23.1              23        Consent of PricewaterhouseCoopers LLP, independent accountants    This Filing

23.2              23        Consent of Larry D. Krause, Petroleum Engineer                    This Filing

23.3              23        Consent of Kruse, Landa & Maycock, LLC                            Included in
                                                                                                  Exhibit 5.1

Item 27                     Financial Data Schedule
--------------------------------------------------------------------------------------------
27.1              27        Financial Data Schedule                                           This Filing
------------------------
*    Identifies each management contract or compensatory plan or arrangement
     required to be filed as an exhibit.
(1)  Incorporated by reference from the registration statement on Form SB-2, SEC
     File No. 33-88354-D.
(2)  Incorporated by reference from the report on Form 8-K dated August 16,
     1995.
(3)  Incorporated by reference from the report on Form 8-K dated August 22,
     1995.
(4)  Incorporated by reference from the quarterly report on Form 10-Q for the
     quarter ended September 30, 1995.
(5)  Incorporated by reference from the annual report on Form 10-K for the year
     ended December 31, 1995.
(6)  Incorporated by reference from the reports on Form 8-K dated May 3, 1996.
(7)  Incorporated by reference from the report on Form 8-K dated May 21, 1996.
(8)  Incorporated by reference from the registration statement on Form S-1, SEC
     File No.333-05583.
(9)  Incorporated by reference from the report on Form 8-K dated October 1,
     1996.
(10) Incorporated by reference from the annual report on Form 10-KSB for the
     year ended December 31, 1996.
(11) Incorporated by reference from the proxy statement respecting the 1997
     annual meeting of stockholders.
(12) Incorporated by reference from the quarterly report on Form 10-QSB for the
     quarter ended September 30, 1997.
(13) Incorporated by reference from the report on Form 8-K dated August 6, 1997.
(14) Incorporated by reference from the report on Form 8-K dated April 4, 1997.
(15) Incorporated by reference from the annual report on Form 10-KSB for the
     year ended December 31, 1997.
(16) Incorporated by reference from the annual report on Form 10-Q for the
     quarter ended March 31, 1998, as amended on Form 10-Q/A filed July 15,
     1998.
(17) Incorporated by reference from the report on Form 8-K dated March 23, 1998.
(18) Incorporated by reference from the report on Form 8-K dated April 20, 1998.
(19) Incorporated by reference from the report on Form 8-K dated June 2, 1998.
(20) Incorporated by reference from the annual report on Form 10-K for the year
     ended December 31, 1998.
(21) Incorporated by reference from the annual report on Form 10-K for the year
     ended December 31, 1999.
(22) Incorporated by reference from the report on Form 8-K dated April 18, 2000.
(23) Incorporated by reference from the quarterly report on Form 10-Q for the
     quarter ended March 31, 2000.

(b) Consolidated Financial Statement Schedules.

All schedules have been omitted because they are not required or because the
required information is given in the Consolidated Financial Statements or Notes
to those statements.

Item 17.  Undertakings

The undersigned registrant hereby undertakes :

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

     (i)  to include any prospectus required by section 10(a)(3) of the
          Securities Act of 1933;

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

     (iii) to include any material information with respect to the plan of
          distribution not previously disclosed in the registration statement or
          any material change to such information in the registration statement;

     Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section
     do not apply if the registration statement is on Form S-3, Form S-8 or Form
     F-3, and the information required to be included in a post-effective
     amendment by those paragraphs is contained in periodic reports filed with
     or furnished to the Commission by the Registrant pursuant to Section 13 or
     15(d) of the Securities Exchange Act of 1934 that are incorporated by
     reference in the registration statement.

(2)  That, for the purpose of determining any liability under the Securities Act
     of 1933, each such post-effective amendment shall be deemed to be a new
     registration statement relating to the securities offered therein, and the
     offering of such securities at that time shall be deemed to be the initial
     bona fide offering thereof.

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

(4)  If the registrant is a foreign private issuer, to file a post-effective
     amendment to the registration statement to include any financial statements
     required by Rule 3-19 of this chapter at the start of any delayed offering
     or throughout a continuous offering. Financial statements and information
     otherwise required by Section 10(a)(3) of the Securities Act of 1933 need
     not be furnished, provided that the Registrant includes in the prospectus,
     by means of a post-effective amendment, financial statements required
     pursuant to this paragraph (a)(4) and other information necessary to ensure
     that all other information in the prospectus is at least as current as the
     date of those financial statements. Notwithstanding the foregoing, with
     respect to registration statements on Form F-3, a post-effective amendment
     need not be filed to include financial statements and information required
     by Section 10(a)(3) of the Securities Act of 1933 or Rule 3-19 of this
     chapter if such financial statements and information are contained in
     periodic reports filed with or furnished to the Commission by the
     Registrant pursuant to Section 13 or Section 15(d) of the Securities
     Exchange Act of 1934 that are incorporated by reference in the Form F-3.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.

                                     II-vii
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Salt Lake City, Utah, on June 28,
2000.

                                                 FX Energy, Inc.

                                                 By: /s/  David N. Pierce
                                                     --------------------------
                                                     David N. Pierce
                                                     President

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints each of David N. Pierce and Scott J. Duncan such
person's true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement (or to any
other registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act), and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that any said attorney-in-fact and agent, or any
substitute or substitutes of any of them, may lawfully do or cause to be done by
virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

         Name                       Title                             Date
         ----                       -----                             ----

/s/  David N. Pierce      Director, President, and Chief          June 28, 2000
-----------------------   Executive Officer (Principal Executive
David N. Pierce           and Financial Officer)

/s/ Andrew W. Pierce      Vice President, Chief Operations        June 28, 2000
-----------------------   Officer and  Director  (Principal
Andrew W. Pierce          Operations officer)

                          Vice President International            June 28, 2000
-----------------------   Exploration and Director
Jerzy B. Maciolek

/s/ Thomas B. Lovejoy     Director, Chief Financial Officer       June 28, 2000
-----------------------   and Vice Chairman
Thomas B. Lovejoy

/s/  Scott J. Duncan      Director, Vice President Investor       June 28, 2000
-----------------------   Relations and  Secretary
Scott J. Duncan

                                    II-viii
Name                       Title                             Date
         ----                       -----                             ----

/s/  Dennis L. Tatum      Director, Vice President and Treasurer  June 28, 2000
-----------------------    (Principal Accounting Officer)
Dennis L. Tatum

/s/  Peter L. Raven       Director                                June 28, 2000
-----------------------
Peter L. Raven

/s/  Jay W. Decker        Director                                June 28, 2000
-----------------------
Jay W. Decker

                          Director                                June 28, 2000
------------------------
Dennis B. Goldstein

                                     II-ix
Index to Financial Statements

                                                                           Page

Consolidated Balance Sheets as of March 31, 2000 and
  December 31, 1999........................................................F-2
Consolidated Statements of Operations for the Three Months
  Ended March 31, 2000 and 1999............................................F-4
Consolidated Statements of Cash Flows for the Three Months
  Ended March 31, 2000 and 1999............................................F-5
Notes to Consolidated Financial Statements.................................F-6

Report of PricewaterhouseCoopers LLP, Independent Accountants..............F-9
Consolidated Balance Sheets as of December 31, 1999 and 1998...............F-10
Consolidated Statements of Operations for the Years Ended
  December 31, 1999, 1998 and 1997.........................................F-12
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1999, 1998 and 1997.........................................F-13
Consolidated Statements of Stockholders' Equity for the Years
  Ended December 31, 1999, 1998 and 1997...................................F-14
Notes to Consolidated Financial Statements.................................F-15

                                      F-1
FX ENERGY, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                                                                       March                  December
                                                                                      31, 2000                31, 1999
                                                                                  ---------------          ---------------
ASSETS

Current assets:
Cash and cash equivalents..............................................         $   3,254,304            $   1,619,237
  Investment in marketable debt securities...............................             2,091,908                5,249,003
  Accounts receivable:
    Accrued oil sales....................................................               293,499                  243,183
    Interest receivable..................................................                29,788                  171,242
    Joint interest owners and others.....................................                62,152                   86,723
  Advances to oil and gas ventures.......................................                13,192                       --
  Inventory..............................................................                70,844                   66,361
  Other current assets...................................................               106,894                  126,006
                                                                                  ---------------          ---------------
      Total current assets...............................................             5,922,581                7,561,755
                                                                                  ---------------          ---------------

Property and equipment, at cost:
  Oil and gas properties (successful efforts method):
    Proved...............................................................             2,175,442                1,687,089
    Unproved.............................................................             1,398,546                1,382,880
  Other property and equipment...........................................             2,793,510                2,652,102
                                                                                  ---------------          ---------------
      Gross property and equipment.......................................             6,367,498                5,722,071
  Less accumulated depreciation, depletion and amortization..............            (3,216,824)              (3,173,493)
                                                                                  ---------------          ---------------
      Net property and equipment.........................................             3,150,674                2,548,578
                                                                                  ---------------          ---------------

Other assets:
  Certificates of deposit................................................               356,500                  356,500
  Other..................................................................                 2,789                    2,789
                                                                                  ---------------          ---------------
      Total other assets.................................................               359,289                  359,289
                                                                                  ---------------          ---------------
Total assets.............................................................         $   9,432,544            $  10,469,622
                                                                                  =============            =============
-- Continued --

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       F-2
FX ENERGY, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                                 -- Continued --

                                                                                      March                    December
                                                                                     31, 2000                  31, 1999
                                                                                  ---------------          ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable.......................................................         $     712,379            $     623,911
  Accrued liabilities....................................................             1,118,675                1,478,862
                                                                                  ---------------          ---------------
      Total current liabilities..........................................             1,831,054                2,102,773
                                                                                  ---------------          ---------------
      Total liabilities..................................................             1,831,054                2,102,773
                                                                                  ---------------          ---------------

Stockholders' equity:
  Common stock, $.001 par value, 30,000,000 shares
    authorized, 14,849,003 issued and outstanding as of
    March 31, 2000 and December 31, 1999.................................                14,849                   14,849
  Notes receivable from officers.........................................            (1,400,040)              (1,370,873)
  Additional paid-in capital.............................................            38,480,556               38,480,556
  Accumulated deficit....................................................           (29,493,875)             (28,757,683)
                                                                                  ---------------          ---------------
    Total stockholders' equity...........................................             7,601,490                8,366,849
                                                                                  ---------------          ---------------

Total liabilities and stockholders' equity...............................         $   9,432,544            $  10,469,622
                                                                                  ===============          ===============
The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       F-3
FX ENERGY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                                       For the three months ended
                                                                                March 31,
                                                                 ----------------------------------------
                                                                       2000                   1999
                                                                 -----------------      -----------------
Revenues:
Oil sales............................................          $       596,630        $       233,708
  Drilling revenue.....................................                   73,738                 87,543
                                                                 -----------------      -----------------
      Total revenues...................................                  670,368                321,251
                                                                 -----------------      -----------------

Operating costs and expenses:
  Lease operating expenses.............................                  284,992                236,069
  Production taxes.....................................                    6,946                 14,368
  Geological and geophysical costs.....................                  484,409                179,832
  Drilling costs.......................................                   75,265                 52,874
  Depreciation, depletion and amortization.............                   87,068                126,429
  General and administrative...........................                  596,967                536,389
                                                                 -----------------      -----------------
      Total operating costs and expenses...............                1,535,647              1,145,961
                                                                 -----------------      -----------------
Operating loss.........................................                 (865,279)              (824,710)
                                                                 -----------------      -----------------
Other income (expense):
  Interest and other income............................                  134,254                102,191
  Interest expense.....................................                     (308)                    --
  Impairment of notes receivable from officers.........                   (4,859)                    --
                                                                 -----------------      -----------------
      Total other income...............................                  129,087                102,191
                                                                 -----------------      -----------------
Net loss...............................................          $      (736,192)       $      (722,519)
                                                                 =================      =================
Basic and diluted net loss per common share............          $          (.05)       $          (.06)
                                                                 =================      =================
Basic and diluted weighted average number
  of shares outstanding................................               14,849,003             13,054,503
                                                                 =================      =================
The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       F-4
FX ENERGY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                                                     For three months ended
                                                                                             March 31,
                                                                              ---------------------------------------
                                                                                    2000                  1999
                                                                              -----------------     -----------------
Cash flows from operating activities:
Net loss...........................................................         $      (736,192)      $      (722,519)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation, depletion and amortization.......................                  87,068               126,429
      Impairment of notes receivable from officers...................                   4,859                    --
      Interest income on officer loans...............................                 (34,026)              (28,340)
  Increase (decrease) from changes in working capital items:
    Accounts receivable..............................................                 115,709                10,700
    Advances to oil and gas ventures.................................                 (13,192)                   --
    Inventory........................................................                  (4,483)                1,621
    Other current assets.............................................                  19,112                (4,214)
    Accounts payable and accrued liabilities.........................                (447,223)             (103,484)
                                                                              -----------------     -----------------
      Net cash used in operating activities..........................              (1,008,368)             (719,807)
                                                                              -----------------     -----------------
Cash flows from investing activities:
  Additions to oil and gas properties................................                (382,475)              (65,036)
  Additions to other property and equipment..........................                (131,185)              (12,382)
  Additions to other assets..........................................                      --                (2,789)
  Proceeds from sale of property interests...........................                      --                 3,000
  Purchase of marketable debt securities.............................              (1,384,905)           (1,041,915))
  Proceeds from maturing marketable debt securities..................               4,542,000             1,065,000
                                                                              -----------------     -----------------
    Net cash provided by (used in) investing activities..............               2,643,435               (54,122)
                                                                              -----------------     -----------------
Cash flows from financing activities:
  Advances to officers...............................................                      --               (97,810)
                                                                              -----------------     -----------------
    Net cash used in financing activities............................                      --               (97,810)
                                                                              -----------------     -----------------
Increase (decrease) in cash and cash equivalents.....................               1,635,067              (871,739)
Cash and cash equivalents at beginning of period.....................               1,619,237             1,811,780
                                                                              -----------------     -----------------
Cash and cash equivalents at end of period...........................         $     3,254,304       $       940,041
                                                                              =================     =================
Supplemental non-cash activity disclosure:

Non-cash investing activities

         Additions to oil and gas properties  included  $121,544 and $269,047 of
additions financed with accounts payable and accrued liabilities for the periods
ended March 31, 2000 and 1999,  respectively.  Additions  to other  property and
equipment  included $53,960 of additions  financed with accounts payable for the
period ended March 31, 2000.

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       F-5
FX ENERGY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1:           Basis of Presentation

         The interim  financial data are unaudited;  however,  in the opinion of
the  management  of FX  Energy,  Inc.  and  Subsidiaries  ("FX  Energy"  or  the
"Company"), the interim data includes all adjustments, consisting only of normal
recurring  adjustments,  necessary  for a fair  statement of the results for the
interim periods.  The interim financial statements should be read in conjunction
with FX  Energy's  annual  report on Form  10-K as  amended  for the year  ended
December 31, 1999, including the financial statements and notes thereto.

         The consolidated financial statements include the accounts of FX Energy
and its wholly-owned subsidiaries and FX Energy's undivided interests in Poland.
All significant  inter-company accounts and transactions have been eliminated in
consolidation.  At March 31,  2000,  FX Energy owned 100% of the voting stock of
all of its subsidiaries.

         Certain   balances  in  the  1999   financial   statements   have  been
reclassified to conform to the current quarter  presentation.  These changes had
no effect on total assets, total liabilities, stockholders' equity or net loss.

Note 2:           Income Taxes

         FX Energy recognized no income tax benefit from the losses generated in
the first quarter of 2000 and the first quarter of 1999.

Note 3:           Officer Loans

         As of March 31,  2000,  notes  receivable  and  accrued  interest  from
officers, before an impairment allowance, totaled $2,070,411, with a due date of
on or before  December 31, 2000. The notes  receivable and accrued  interest are
collateralized by 233,340 shares of FX Energy's common stock. In accordance with
SFAS No. 114,  "Accounting by Creditors for Impairment of a Loan," FX Energy has
recorded a  cumulative  impairment  allowance  of $670,371 as of March 31, 2000,
including  $4,859 for the quarter ended March 31, 2000 and $665,512 for the year
ended December 31, 1999, based on the value of the underlying collateral.

         In consideration  for extending the term from December 31, 1999 through
December 31, 2000, the officers  agreed that if the average closing price of the
common  stock  for  five  consecutive  trading  days  results  in a value of the
collateral equal to or above the total principal and accrued interest  balances,
the officers will repay the loans within 45 days thereafter either in cash or by
tendering  to the  Company  such number of shares  which at the average  closing
price for the previous  five  consecutive  trading days equals the principal and
accrued interest then due.

         The impairment  allowance will continue to be adjusted  quarterly based
on the market value of the collateral shares.

                                       F-6
Note 4:  Business Segment Information

         FX Energy operates within two segments of the oil and gas industry: the
exploration and production  segment  ("E&P") and the contract  drilling and well
servicing segment ("contract services").

         Reportable  business  segment  information as of March 31, 2000 and for
the three months ended March 31, 2000 follows:
Non-
                                               Contract         Segmented
                                 E&P           Services         Items (1)         Total
                            --------------   --------------   ------------------------------
Revenues..................  $    596,630     $     73,738     $       --       $   670,368
Net loss..................      (195,659)         (52,713)      (487,820)         (736,192)
Identifiable net property
  and equipment (2).......     2,365,128          630,418        155,128         3,150,674
--------------------
(1)  Net loss reconciling  items include $596,967 of general and  administrative
     expenses,  $19,940  of  corporate  DD&A and  $129,087  of other  income and
     expense.  Identifiable  net property  and  equipment  includes  $155,128 of
     corporate office equipment, hardware and software.

(2)  Identifiable  net property and equipment  are reported by business  segment
     for  management   reporting  and  reportable  business  segment  disclosure
     purposes.  Current  assets,  other assets and current  liabilities  are not
     allocated to business segments for management reporting or business segment
     disclosure purposes.

         Reportable  business  segment  information as of March 31, 1999 and for
the three months ended March 31, 1999 follows:
Non-
                                               Contract         Segmented
                                 E&P           Services         Items (1)         Total
                            --------------   --------------   ------------------------------
Revenues..................  $    233,708     $     87,543     $       --       $   321,251
Net loss..................      (211,004)         (46,266)      (465,249)         (722,519)
Identifiable net property
  and equipment (2).......     1,957,953          655,963        222,374         2,836,290
--------------------
(1)  Net loss reconciling  items include $536,389 of general and  administrative
     expenses,  $31,051  of  corporate  DD&A and  $102,191  of other  income and
     expense.  Identifiable  net property  and  equipment  includes  $222,374 of
     corporate office equipment, hardware and software.
(2)  Identifiable  net property and equipment  are reported by business  segment
     for  management   reporting  and  reportable  business  segment  disclosure
     purposes.  Current  assets,  other assets and current  liabilities  are not
     allocated to business segments for management reporting or business segment
     disclosure purposes.

Note 5:           Subsequent Events

         Fences Project Area

         On April 11, 2000,  FX Energy  signed an agreement  with the Polish Oil
and Gas Company  ("POGC") under which FX Energy will earn a 49% working interest
in  approximately  300,000  gross acres in west  central  Poland  (the  "Fences"
project area) by spending $16 million for agreed exploration  drilling,  seismic
acquisition and related activities.

         Sale of Common Stock

         In June 2000, FX Energy sold 2,969,000 shares of restricted common
stock for $10,391,500, resulting in net proceeds of approximately $9,300,000.

                                       F-7
THIS PAGE INTENTIONALLY LEFT BLANK

                                      F-8
PricewaterhouseCoopers

                       Report of Independent Accountants

To the Stockholders and Board of Directors
of FX Energy, Inc., and Subsidiaries:

In our opinion,  the accompanying consolidated  balance sheets  and the  related
consolidated statements  of operations,  cash  flows, and  stockholders'  equity
present fairly, in all material respects, the consolidated financial position of
FX Energy, Inc., and  Subsidiaries (the "Company") as  of December 31, 1999  and
1998, and the consolidated results of their operations and their cash flows  for
each of the three  years in the  period ended December  31, 1999, in  conformity
with accounting  principles generally  accepted in  the  United States.    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
auditing standards generally accepted in the United States 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.

PricewaterhouseCoopers LLP
Salt Lake City, Utah
February 8, 2000

                                       F-9
FX ENERGY, INC., AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS
                   As of December 31, 1999 and 1998

                                                  1999             1998
                                             -------------     -----------
ASSETS

Current assets:
 Cash and cash equivalents                   $   1,619,237     $ 1,811,780
 Investment in marketable debt securities        5,249,003       2,929,914
 Receivables:
   Accrued oil sales                               243,183          95,064
   Joint interest and other receivables            171,242         240,102
   Interest receivable                              86,723          86,258
 Inventory                                          66,361          68,327
 Other current assets                              126,006          66,053
                                             -------------     -----------
    Total current assets                         7,561,755       5,297,498
                                             -------------     -----------

Property and equipment, at cost:
 Oil and gas properties (successful efforts
 method):
   Proved                                        1,687,089       1,605,279
   Unproved                                      1,382,880       1,178,408
 Other property and equipment                    2,652,102       2,494,688
                                             -------------     -----------
    Gross property and equipment                 5,722,071       5,278,375
 Less accumulated depreciation, depletion
 and amortization                               (3,173,493)     (2,679,441)
                                             -------------     -----------

    Net property and equipment                   2,548,578       2,598,934
                                             -------------     -----------

Other assets:
 Certificates of deposit                           356,500         356,500
    Deposits                                         2,789              --
                                             -------------     -----------
    Total other assets                             359,289         356,500
                                             -------------     -----------

Total assets                                 $  10,469,622     $ 8,252,932
                                             =============     ===========

                             -Continued-

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

                                      F-10
FX ENERGY, INC., AND SUBSIDIARIES
                CONSOLIDATED BALANCE SHEETS, Continued
                   As of December 31, 1999 and 1998

                                                          1999           1998
                                                     -----------    -----------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable                                    $   623,911    $   420,906
 Accrued liabilities                                   1,478,862        911,950
                                                     -----------    -----------
   Total current liabilities                           2,102,773      1,332,856
                                                     -----------    -----------

Commitments (Notes 2 and 11)

Stockholders' equity:
 Preferred stock, $.001 par value, 5,000,000 shares
  authorized; 1999 and 1998: no shares outstanding            --             --
 Common stock, $.001 par value, 30,000,000 shares
  authorized;
   1999: 14,849,003 shares issued and outstanding;
   1998: 13,054,503 shares issued and outstanding         14,849         13,055
 Notes receivable from officers                       (1,370,873)    (1,304,527)
 Additional paid-in capital                           38,480,556     31,112,861
 Accumulated deficit                                 (28,757,683)   (22,901,313)
                                                     -----------    -----------
 Total stockholders' equity                            8,366,849      6,920,076
                                                     -----------    -----------
 Total liabilities and stockholders' equity          $10,469,622    $ 8,252,932
                                                     ===========    ===========

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

                                      F-11
FX ENERGY, INC., AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
              For the years ended December 31, 1999, 1998 and 1997

                                                      1999             1998           1997
                                                 ------------      -----------     ----------
Revenues:
  Oil sales                                      $  1,554,474      $ 1,123,511     $2,040,233
  Drilling revenue                                    864,689          322,769        496,158
  Gain on sale of property interests                       --          466,891        272,234
                                                 ------------      -----------     ----------
   Total revenues                                   2,419,163        1,913,171      2,808,625
                                                 ------------      -----------     ----------
Operating costs and expenses:
Lease operating costs                               899,258          966,732      1,094,043
  Production taxes                                     63,141           79,602        145,372
  Geological and geophysical costs                  1,959,422        2,109,375      1,683,753
  Exploratory dry hole costs                        1,001,433           17,422      3,478,456
  Impairments                                          92,605        5,885,042        152,105
  Drilling costs                                      641,871          240,061        328,820
  Depreciation, depletion and amortization            494,052          671,277        634,559
  General and administrative                        2,961,878        2,572,212      2,565,690
                                                 ------------      -----------     ----------
   Total operating costs and expenses               8,113,660       12,541,723      10,082,798
                                                 ------------      -----------     ----------

Operating loss                                     (5,694,497)     (10,628,552)     (7,274,173)
                                                 ------------      -----------     ----------

Other income (expense):
  Interest and other income                           511,636          506,209        661,665
  Interest expense                                     (7,997)              --        (83,273)
  Impairment of notes receivable from
    officers                                         (665,512)              --             --
                                                 ------------      -----------     ----------
   Total other income (expense)                      (161,873)         506,209        578,392
                                                 ------------      -----------     ----------

Net loss before extraordinary gain                 (5,856,370)     (10,122,343)    (6,695,781)

Extraordinary gain (Note 2)                                --               --      3,076,242
                                                 ------------      -----------     ----------
Net loss                                           (5,856,370)     (10,122,343)    (3,619,539)
                                                 ============      ===========     ==========

Basic and diluted net loss per share:
  Net loss before extraordinary gain             $      (0.41)     $     (0.78)    $    (0.53)
  Extraordinary gain                                       --               --           0.24
  Net Loss                                       $      (0.41)     $     (0.78)    $    (0.29)
Basic and diluted weighted average number of     ------------      -----------     ----------
shares outstanding                                 14,198,724       12,978,900     12,596,977
                                                 ============      ===========     ==========
The accompanying notes are an integral part of these consolidated financial
                                   statements

                                      F-12
FX ENERGY, INC., AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the years ended December 31, 1999, 1998 and 1997

                                                      1999             1998           1997
------------     ------------    ------------
Cash flows from operating activities:
Net loss                                         $ (5,856,370)    $(10,122,343)   $ (3,619,539)
Adjustments to reconcile net loss to net cash
used in operating activities:
  Extraordinary gain                                       --               --      (3,076,242)
  Depreciation, depletion and amortization            494,052          671,277         634,559
  Impairments                                          92,605        5,885,042          28,515
  Gain on sale of property interests                       --         (466,891)       (272,234)
  Exploratory dry hole costs                          240,132               --         210,205
  Common stock and options issued for services        302,687          119,375          70,625
  Accrued interest income from officer loans         (134,295)         (64,170)             --
  Impairment of notes receivable from officers        665,512               --              --
  Increase (decrease) from changes in:
   Receivables                                       (100,044)         260,024        (147,678)
   Inventory                                            1,966             (945)        (47,166)
   Other current assets                               (59,953)          20,960         (19,530)
   Accounts payable and accrued liabilities           608,285          588,908         357,752
                                                 ------------     ------------    ------------
    Net cash used in operating activities          (3,745,423)      (3,108,763)     (5,880,733)
                                                 ------------     ------------    ------------

Cash flows from investing activities:
Additions to oil and gas properties                  (463,387)        (179,765)     (1,136,935)
Additions to other property and equipment            (137,094)        (260,877)       (394,291)
Net change in other assets                             (2,789)              --          25,000
Proceeds from sale of property interests                6,000          506,000         340,152
Proceeds from sale of equipment                            --            6,928          13,051
Employee advances                                          --               --         (15,000)
Purchase of marketable debt securities             (6,617,089)      (6,578,332)     (3,940,582)
Proceeds from maturities of marketable debt
securities                                          4,298,000        7,589,000       5,476,574
                                                 ------------     ------------    ------------
    Net cash provided by (used) in  investing
     activities                                    (2,916,359)       1,082,954         367,969
                                                 ------------     ------------    ------------

Cash flows from financing activities:
Proceeds from long-term debt                               --               --      1,575,992

Notes receivable from officers                       (597,563)        (840,357)      (150,000)
Proceeds from issuance of common stock,
 options and warrants, net of offering
 costs                                              7,066,802          166,027        252,777
                                                 ------------     ------------    ------------
    Net cash provided by (used in) financing
    activities                                      6,469,239         (674,330)     1,678,769
                                                 ------------     ------------    ------------

Increase (decrease) in cash                          (192,543)      (2,700,139)    (3,833,995)
   Cash and cash equivalents at beginning of
   year                                             1,811,780        4,511,919      8,345,914
                                                 ------------     ------------    ------------

Cash and cash equivalents at end of year         $  1,619,237     $  1,811,780    $  4,511,919
                                                 ============     ============    ============
The accompanying notes are an integral part of these consolidated financial
                                   statements

                                      F-13
FX ENERGY, INC., AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
              for the years ended December 31, 1999, 1998 and 1997

                                          Common Stock
                                       -------------------                  Officers'
                                                      Par        Paid-in      Notes        Accumulated
                                       Shares        Value       Capital    Receivable       Deficit         Total
----------     -------   -----------  ------------   ------------   ------------
Balance at January 1, 1997           12,492,547     $12,492   $30,054,620  $        --    $(9,159,431)   $ 20,907,681
  Exercise of warrants and options      159,334         160       252,617           --             --         252,777
  Common stock issued for services       10,000          10        70,615           --             --          70,625
  Net loss                                   --          --            --           --     (3,619,539)     (3,619,539)
                                     ----------     -------   -----------  ------------  ------------    ------------
Balance at December 31, 1997         12,661,881      12,662    30,377,852           --     12,778,970)     17,611,544
  Exercise of warrants and options      382,622         383       615,644           --             --         616,027
  Common stock issued for services       10,000          10       119,365           --             --         119,375
  Officers' notes - principal                --          --            --   (1,240,357)            --      (1,240,357)
  Officers' notes - interest                 --          --            --      (64,170)            --         (64,170)
  Net loss                                   --          --            --           --    (10,122,343)    (10,122,343)
                                     ----------     -------   -----------  ------------  ------------    ------------
Balance at December 31, 1998         13,054,503      13,055    31,112,861   (1,304,527)   (22,901,313)      6,920,076
  Exercise of warrants and options        2,000           2        13,248           --             --          13,250
  Sale of common stock                1,792,500       1,792     7,168,208           --             --       7,170,000
  Common stock placement costs               --          --      (116,448)          --             --        (116,448)
  Officers' notes - principal                --          --            --     (597,563)            --        (597,563)
  Officers' notes - interest                 --          --            --     (134,295)            --        (134,295)
  Officers' notes - impairment               --          --            --      665,512             --         665,512
  Options issued for services                --          --       302,687           --             --         302,687
  Net loss                                   --          --            --           --     (5,856,370)     (5,856,370)
                                     ----------     -------   -----------  ------------  ------------    ------------
Balance at December 31, 1999         14,849,003     $14,849   $38,480,556  $(1,370,873)  $(28,757,683)   $  8,366,849
                                     ==========     =======   ===========  ============  ============    ============
The accompanying notes are an integral part of these consolidated financial
                                   statements

                                      F-14
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Summary of Significant Accounting Policies:

     Organization

     FX Energy, Inc.,  a Nevada corporation  and its subsidiaries  (collectively
     hereinafter referred  to as  the  "Company") operate  in  the oil  and  gas
     industry in  Poland and  the United  States.   In  Poland, the  Company  is
     engaged in oil  and gas  exploration, appraisal,  development and  property
     acquisition activities.  In  the United States, the  Company is engaged  in
     producing, exploring and developing oil and  gas properties and operates  a
     drilling and well servicing company.

     Principles of Consolidation

     The consolidated financial statements include  the accounts of the  Company
     and its wholly-owned subsidiaries and the Company's undivided interests  in
     Poland.  All significant inter-company accounts and transactions have  been
     eliminated in consolidation.  At December 31, 1999, the Company owned  100%
     of the voting common stock or other equity securities of its subsidiaries.

     Inventory

     Inventory consists primarily of tubular  supplies and other well  equipment
     and is valued at the lower of average cost or market.

     Oil and Gas Properties

     The Company follows the successful efforts method of accounting for its oil
     and gas  operations.    Under  this  method  of  accounting,  all  property
     acquisition costs  and  costs  of exploratory  and  development  wells  are
     capitalized when incurred, pending  determination of whether an  individual
     well has found proved  reserves.  If it  is determined that an  exploratory
     well has not  found proved  reserves, the costs  of drilling  the well  are
     expensed. The costs of development wells are capitalized whether productive
     or nonproductive.

     Geological and geophysical costs on exploratory prospects and the costs  of
     carrying and retaining unproved  properties are expensed  as incurred.   An
     impairment allowance is provided  to the extent  that capitalized costs  of
     unproved properties, on a  field-by-field basis, are  not considered to  be
     realizable.  Depletion,   depreciation   and   amortization   ("DD&A")   of
     capitalized costs of proved oil and gas properties is provided on a  field-
     by-field basis using  the units-of-production method.   The computation  of
     DD&A takes into  consideration restoration,  dismantlement and  abandonment
     costs and the anticipated proceeds from  equipment salvage.  The  estimated
     restoration, dismantlement and abandonment costs are expected to be  offset
     by the estimated residual value of lease and well equipment.

     An impairment loss is recorded if  the net capitalized costs of proved  oil
     and gas properties  exceed the aggregate  undiscounted future net  revenues
     determined on  a  field-by-field basis.    The impairment  loss  recognized
     equals the excess  of net  capitalized costs  over the  related fair  value
     determined on a property by property basis.  (Note 14)

     Gains and losses are recognized on sales of entire interests in proved  and
     unproved properties.  Sales of partial interests are generally treated as a
     recovery of costs.

                                      F-15
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     Other Property and Equipment

     Other  property  and  equipment,  including  drilling  and  well  servicing
     equipment, are  stated  at cost.      Depreciation of  other  property  and
     equipment is calculated using the  straight-line method over the  estimated
     useful lives (ranging from 3  to 40 years) of  the respective assets.   The
     cost of normal maintenance  and repairs is charged  to operating costs  and
     expensed as incurred.  Material expenditures  that increase the life of  an
     asset are capitalized and depreciated  over the estimated remaining  useful
     life of the  asset.   The cost  of other  property and  equipment sold,  or
     otherwise disposed of, and the related accumulated depreciation are removed
     from the accounts and any gain or loss is reflected in current operations.

     Other property and equipment (gross) is summarized as follows:

                                               December 31,          Estimated
                                        -------------------------   Useful Life
                                           1999          1998       (in years)
                                        -----------   -----------   -----------
     Other Property and Equipment:            (In thousands)

       Drilling and well servicing
         equipment                      $    1,906    $    1,771         6
       Trucks                                  190           188         5
       Building                                 80            80        40
       Office Equipment                        476           456      3 to 6
                                        -----------   -----------
           Total                        $    2,652    $    2,495
                                        ===========   ===========

     Concentration of Credit Risk

     The majority  of the  Company's  receivables are  within  the oil  and  gas
     industry, primarily  from the  purchasers  of its  oil  (Note 12)  and  its
     industry partners.  The receivables are  not collateralized.  To date,  the
     Company has experienced minimal bad debts.   The majority of the  Company's
     cash and cash equivalents is held by three financial institutions in  Utah,
     Montana and New York.

     Cash Equivalents and Statement of Cash Flows

     The Company considers all highly-liquid debt instruments purchased with  an
     original maturity of three months or less to be cash equivalents.  Non-cash
     transactions not reflected  in the  consolidated statements  of cash  flows
     include the following:

                                                  Years Ended December 31,
                                             ---------------------------------
                                                 1999       1998        1997
                                             ----------   ---------  ---------
     Non-cash transactions:                             (In thousands)
     Bonus applied to stock option exercise  $     --     $    200   $      --
       by officers
     Recourse notes receivable from officers
       due to stock option exercise                --          250          --
     Reclassification of notes receivable          --          150          --
       from officers
     Additions to oil and gas properties
       financed with accrued                       63           --          --
       iabilities

     Supplemental disclosure of cash flow
       information:
       Cash paid during the year for:
         Interest                            $      8     $     --   $     534
         Taxes                                     --           --          --

                                      F-16
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     Income Taxes

     Deferred income taxes are provided for the difference between the tax basis
     of an  asset  or  liability  and  its  reported  amount  in  the  financial
     statements.  Such difference will result  in taxable or deductible  amounts
     in future  years when  the reported  amount of  the asset  or liability  is
     recovered or settled, respectively.

     Reclassifications

     Certain balances  in  the 1998  and  1997 financial  statements  have  been
     reclassified to conform to  the current year  presentation.  These  changes
     had no effect on total assets,  total liabilities, stockholders' equity  or
     net loss.

     Foreign Operations

     The Company's investments and  operations in Poland  are comprised of  U.S.
     Dollar expenditures.

     Use of Estimates

     The preparation  of  financial  statements  in  conformity  with  generally
     accepted accounting principles  requires management to  make estimates  and
     assumptions that affect the reported amounts of assets and liabilities  and
     disclosure of  contingent  assets  and  liabilities  at  the  date  of  the
     financial statements  and the  reported amounts  of revenues  and  expenses
     during the  reporting  period.   Actual  results could  differ  from  those
     estimates.

     Net Loss Per Share

     Basic earnings  per share  is computed  by  dividing the  net loss  by  the
     weighted average number of common shares outstanding.  Diluted earnings per
     share is computed  by dividing  the net  loss by  the sum  of the  weighted
     average number  of common  shares and  the effect  of dilutive  unexercised
     stock options and  warrants and convertible  preferred stock.   Outstanding
     options and  warrants  as of  December  31, 1999,  1998  and 1997  were  as
     follows:

                         Options and
        December 31,      Warrants        Price Range
        ------------     -----------     --------------
           1999           4,167,073      $1.50 - $10.25
           1998           3,684,239      $1.50 - $10.25
           1997           3,707,694      $1.10 - $10.25

     The Company had a net loss  in 1999, 1998 and 1997.   The above options  or
     warrants were not included in the computation of diluted earnings per share
     for the years  ended December  31, 1999, 1998  or 1997  because the  effect
     would have been antidilutive.

2.   Investment in Poland:

     Apache Exploration Program

     Effective January 1,  1999, the Company  and Apache Corporation  ("Apache")
     entered into an  agreement which further  defined the relationship  between
     the Company and Apache in Poland by establishing an Area of Mutual Interest
     Agreement ("AMI Agreement")  covering the entire country of Poland,  except
     for the 0.9 million acre Baltic Project Area, for oil and gas  exploration,
     production, development  and acquisition  activities for  a period  of  two
     years.   The  AMI Agreement effectively consolidated  the terms of  various
     agreements signed between the Company and Apache during 1997, 1998 and 1999
     into  one  basic  agreement,  referred   to  collectively  as  the   Apache
     Exploration Program.

                                      F-17
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     Under terms of the Apache Exploration Program, Apache has either agreed  to
     or completed the following primary terms:

     o    Apache paid the Company $950,000 in up-front cash, including  $450,000
          during 1997 for  the Lublin Basin   and $500,000  during 1998 for  the
          Carpathian area;
     o    Apache must cover the Company's pro-rata share  of cost to  drill  ten
          exploratory wells, including paying for drilling and completion  costs
          for seven  wells in  the Lublin  Basin and  drilling costs  (excluding
          completion costs) for three wells in the Carpathian area;
     o    Apache must cover the Company's pro-rata share of cost to shoot  2,000
          kilometers of 2D seismic; including 1,650 kilometers of 2D seismic  in
          the Lublin  Basin completed  during 1998  and  350 kilometers  in  the
          Carpathian area that has yet to be completed;
     o    Apache  must  cover  all  of  the  Company's  pro-rata  share  of  all
          concession and  usufruct fees  during the  first  three years  in  the
          Lublin  Basin    (approximately  $695,000)  and  the  Carpathian  area
          (approximately $160,000);
     o    Apache must  cover  all of  the  Company's pro-rata  share  of  annual
          training costs  during  the first  three  years in  the  Lublin  Basin
          ($80,000 per year) and the Carpathian area ($15,000 per year); and
     o    Apache may not  charge the Company  for any of  its pro-rata share  of
          Polish G&A costs through June 30, 2000.  Thereafter, Apache may charge
          the Company for 25% of its Polish G&A costs, increased by 5% upon  the
          drilling of each  of the  five remaining  exploratory wells;  up to  a
          maximum of 50%.

     The AMI  Agreement  modified and  further  defined the  Apache  Exploration
     Program by adding the following additional terms:

     o    The Company and Apache must offer each other a fifty-percent  interest
          in any new exploration,  appraisal, development, property  acquisition
          or other activities conducted  by either party  within the AMI  during
          all of 1999 and 2000.
     o    The ten exploratory wells under the Apache Exploration Program may, at
          the consent of both parties, be drilled anywhere within the AMI.
     o    The Company  and  Apache  have equal  50%  working  interests  in  the
          Pomeranian and Warsaw West areas.
     o    Apache is the  operator of  all areas  controlled by  the Company  and
          Apache within the AMI.

          Option Agreements between the Company, Apache and POGC

     As a result of  various agreements included  within the Apache  Exploration
     Program between  the Company,  Apache and  POGC, the  Company and  Apache's
     working interest in the  Lublin Basin, Carpathian  and Pomeranian areas  is
     subject to being reduced by POGC's option  to participate for up to a  one-
     third working interest on a block  by block basis in each respective  area.
     In turn, the Company and Apache  each have an independent reciprocal  right
     to participate in the exploration of  the POGC controlled areas in each  of
     the respective project areas with up to a one-third working interest  each.
     Should POGC elect to participate in  any of the Company's concessions,  the
     Company's and Apache's interest will be reduced in equal proportions.   The
     Company does not have any option agreements with POGC covering Warsaw  West
     or the Baltic Project Area.

          Exploration Activities

     The first  four  exploratory  wells  drilled  under  terms  of  the  Apache
     Exploration Program were all determined to be exploratory dry holes  during
     1999.  In accordance with terms  of the Apache Exploration Program,  Apache
     covered all of the Company's working  interest share of costs for all  four
     wells, including 33.3% for

                                      F-18
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     the Czernic 277-2, 47.5% for the Poniatowa 317- 1, 45.0% for the Witkow 1
     and 33.3% for the Siedliska 2. The fifth well, the Wilga 2, was announced
     to be an exploratory success on January 25, 2000 after initial production
     test results indicated a combined flow rate of 16.9 Mmcf of gas and 570
     Bbls of condensate per day from three intervals in a Carboniferous horizon.
     Under terms of the Apache Exploration Program, Apache will cover all of the
     Company's 45.0% drilling and completion costs for the Wilga 2. (Note 16)

     During June 1999, the  Company elected to participate  with a 5.0%  working
     interest in drilling the Andrychow 6, an exploratory well operated by  POGC
     on POGC option  acreage in southern  Poland.  The  well cost  approximately
     $99,000 net to the Company and was determined to be an exploratory dry hole
     during December 1999.

          Appraisal and Development Activities

     On February  26,  1999,  The  Company, Apache  and  POGC  entered  into  an
     agreement to  jointly develop  the Lachowice  Farm-in, a  shut-in POGC  gas
     discovery with three wells in the Carpathian area, with Apache as operator.
     Under terms of the agreement, The Company  and Apache agreed to pay all  of
     the following  costs in  order to  earn a  one-third interest  each in  the
     project: (1) test  and recomplete  up to three  shut-in gas  wells; (2)  if
     warranted, drill three additional wells;  and, (3) if warranted,  construct
     gathering  and  processing  facilities.     All  costs  and  net   revenues
     thereafter, including additional development  drilling and lease  operating
     costs, would be shared one-third each by the Company, Apache and POGC.

     During June 1999, the Company and Apache commenced testing and recompletion
     procedures on the Stryszawa 2K.  The Stryszawa 2K was subsequently  plugged
     and abandoned after  it failed to  maintain a  commercial production  rate.
     During September 1999,  the Company and  Apache tested the  Lachowice 7  to
     determine its commercial potential.    The test results of the Lachowice  7
     did not  warrant constructing  gathering and  processing facilities.    The
     Company and Apache plan to turn the Lachowice 7 back to POGC and  terminate
     the Lachowice Farm-in.

     Baltic Project Area

     On May 3, 1996, the Company entered into a agreement with RWE-DEA, formerly
     Deutsche Texaco, to jointly explore the  Baltic Project Area.  Under  terms
     of the Agreement, RWE-DEA had the right to earn a fifty-percent interest in
     the Baltic Project Area by paying the Company $250,000 in cash, paying  the
     first $1,100,000 for  a 2D  seismic survey,  the first  $1,000,000 of  cost
     relating to the initial exploratory well to be drilled at a location to  be
     designated by RWE-DEA and fifty-percent of the cost relating to the  second
     exploratory  well  at  a  location  designated  by  the  Company.    Polish
     government approval was required to approve RWE-DEA's participation in  the
     Baltic  Project  Area  by  purchasing  fifty-percent  of  Warmia  Petroleum
     Company, Sp z  o.o. ("Warmia"), a  wholly owned subsidiary  of the  Company
     which holds the Baltic Project Area.   The Company obtained a $2.5  million
     Irrevocable Standby Letter of Credit whereby  the Company agreed to  refund
     RWE-DEA all advanced  funds should  the Polish  government disapprove  RWE-
     DEA's purchase of fifty-percent of Warmia.  The Irrevocable Standby  Letter
     of Credit expired on  January 31, 1997 and  the Polish government  approved
     RWE-DEA's purchase of fifty-percent  of Warmia in June  1997.  RWE-DEA  had
     advanced Warmia  $3,076,000  through  June 30,  1997  to  fund  exploration
     activity on the Baltic  Project Area, which the  Company had recorded as  a
     long-term note payable.

     Prior to drilling the second well  on the Baltic Project Area, RWE-DEA  had
     advanced the  Company all   funds  required to  date under  the  Agreement,
     including funding the first $1,000,000 of costs relating to the Orneta  #1,
     the initial exploratory well drilled on  the Baltic Project Area which  was
     plugged and  abandoned as  a dry  hole in  April 1997  at a  gross cost  of
     $1,834,000.   On June  30, 1997,  RWE-DEA elected  to not  fund its  fifty-
     percent share of the Gladysze #1-A, the second exploratory well drilled  on
     the Baltic Project  Area, which resulted  in the  termination of  RWE-DEA's
     right to earn  a fifty-percent interest  in the Baltic  Project Area.   The
     Gladysze #1-A  was  drilled  without  RWE-DEA  as  a  participant  and  was
     subsequently plugged and  abandoned as a  dry hole in  September 1997 at  a
     gross cost of $1,262,000.   Upon termination of  RWE-DEA's right to earn  a
     fifty-percent interest in the Baltic  Project

                                      F-19
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     Area, the Company eliminated its long-term notes payable relating to
     RWE-DEA and recognized an extraordinary gain of $3,076,000.

     During March 1999, the Company relinquished approximately 1.2 million acres
     within the  Baltic  Project Area,  leaving  a total  of  approximately  0.9
     million undeveloped  acres  in  the  Baltic Project  Area.      The  Polish
     government also  consented  to apply  the  Gladysze 1-A,  the  second  well
     drilled on the Baltic Project Area during 1997, to the work commitment  for
     the second  three-year  exploration  phase.    As  such,  the  Company  has
     satisfied all work commitments applicable to the Baltic Project Area's six-
     year exploration phase.   The  Company's Baltic  Project Area  is the  only
     acreage holding  in  Poland in  which  the  Company has  an  interest  that
     contains mandatory acreage relinquishment provisions.

     At December 31,  1999, the Company  had $494,000  of capitalized  leasehold
     costs related to the Baltic Project Area.  The Company is currently seeking
     a strategic partner  to participate in  further exploration  of the  Baltic
     Project Area.

     Gold Exploration - Sudety Project Area

     On July 26, 1999,  Homestake terminated its agreement  with the Company  to
     jointly  explore  for  gold  on  the  Company's  Sudety  Project  Area   in
     southwestern Poland.   During 1997,  Homestake initially  paid the  Company
     $212,000 and  agreed  to spend  a  minimum  of $1,100,000  over  two  years
     exploring the  Sudety  Project Area.     Homestake  completed  its  minimum
     exploration commitments during the first six  months of 1999.  The  Company
     has discontinued further gold exploration in the Sudety Project Area.

3.   Performance Bond Deposits:

     As of December 31, 1999,  the Company had a  replacement bond to a  federal
     agency in the amount of $463,000,  which was collateralized by  certificate
     of deposits  totaling $231,500.   In  addition, there  are certificates  of
     deposits totaling $125,000 covering performance bonds in other states.

4.   Investment in Marketable Debt Securities:

     The Company follows the provisions of SFAS No. 115, "Accounting for Certain
     Investments in Debt and  Equity Securities."  In  accordance with SFAS  No.
     115, the Company has  classified all of its  marketable debt securities  as
     held-to-maturity because the  Company has both  the intent  and ability  to
     hold these  investments until  they  mature.   At  December 31,  1999,  the
     Company's held-to-maturity  securities consisted  of corporate  bonds  with
     remaining contractual  maturities  of  less  than  twelve  months  and  the
     carrying amount of these investments approximated market value.

5.   Accrued Liabilities:

     The Company's accrued liabilities as of December 31, 1999 and 1998 are
     composed of the following:

                                          As of December 31,
                                      -------------------------
                                          1999          1998
                                      ----------     ----------
     Accrued Liabilities:                   (In thousands)
       Compensation costs             $   1,185      $    699
       Unproved property additions           63            --
       Exploratory dry hole costs            99            --
       Seismic costs                         28           131
       Other costs                          104            82
                                      ----------     ----------
         Total                        $   1,479      $    912
                                      ==========     ==========

                                      F-20
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

6.   Long-term Debt:

     During 1998, the Company had a  bank credit facility with a borrowing  base
     of $2,850,000 as of January 1, 1998.   The borrowing base was subject to  a
     monthly basis reduction of $25,000.  The Company did not utilize the credit
     facility and subsequently  terminated the credit  facility during the  year
     ended December 31, 1998.

7.   Income Taxes:

     The Company  recognized no  income tax  benefit from  the losses  generated
     during the years ended December 31, 1999, 1998 and 1997.

     The components of the net  deferred tax asset as  of December 31, 1999  and
     1998 are as follows:

                                                       December 31,
                                               -------------------------
                                                  1999           1998
                                               -----------    ----------
                                                      (In thousands)
     Deferred tax liability:
     Property and equipment basis
       differences                             $    (104)     $    (962)
     Deferred tax asset:
       Net operating loss carryforwards           11,180          9,437
       Impairment of oil and gas properties        1,218          2,196
       Impairment of notes receivable from
         officers                                    248             --
       Options issued for services                   113             --
       Other                                         193             14
       Valuation allowance                       (12,848)       (10,685)
                                               -----------    ----------
     Net deferred tax asset                    $      --      $      --
                                               ===========    ==========

     The change in the valuation allowance  during the years ended December  31,
     1999, 1998 and 1997 is as follows:

                                                        December 31,
                                            -----------------------------------
                                               1999         1998         1997
                                            ----------   ----------   ---------
                                                       (In thousands)
     Balance, beginning of year             $ (10,685)   $  (6,131)  $  (3,868)
       Increase due to property and
         equipment basis differences                4           22          24
       Decrease (increase) due to
         impairment of oil and gas properties      --       (2,196)         --
       Decrease due to investment in Warmia        --           --         661
       Increase due to net operating loss      (1,989)      (2,444)     (2,876)
       Other                                     (178)          64         (72)
                                            ----------   ----------   ---------
     Balance, end of year       .           $ (12,848)   $ (10,685)  $  (6,131)
                                            ==========   ==========   =========

     SFAS No. 109 requires that a valuation allowance be provided if it is  more
     likely than not that some portion or all  of a deferred tax asset will  not
     be realized.  The Company's ability to realize the benefit of its  deferred
     tax asset will depend  on the generation of  future taxable income  through
     profitable operations and expansion of the Company's oil and gas  producing
     activities.    The  risks  associated  with  that  growth  requirement  are
     considerable, resulting in the Company's  conclusion that a full  valuation
     allowance be provided at December 31, 1999 and 1998.

                                      F-21
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     At  December  31,  1999,  the  Company  had  net  operating  loss   ("NOL")
     carryforwards,  including  foreign  losses,  of  approximately  $30,000,000
     available  to  offset  future   taxable  income,  of  which   approximately
     $18,749,000  expires  from  2008  through  2012  and  $11,251,000   expires
     subsequent to 2017.  The utilization of these carryforwards against  future
     taxable income may  become subject to  an annual limitation  if there is  a
     change in ownership.   $6,168,000 of  the NOL carryforward  relates to  tax
     deductions resulting from the exercise of  stock options during 1999,  1998
     and 1997.  The tax benefit  from adjusting the valuation allowance  related
     to this portion  of the  NOL carryforward  will be  credited to  additional
     paid-in capital.

8.   Related Party Transactions:

     On February 17, 1998,  two of the Company's  officers exercised options  to
     purchase 300,000 shares of  the Company's common stock  at $1.50 per  share
     that were scheduled to expire on  May 6, 1998.   The officers paid for  the
     cost of exercising the options by utilizing a bonus credit of $100,000 each
     issued to them during 1997 and signing a full recourse note payable to  the
     Company for $125,000  each with  interest accrued at  7.7%.   On April  10,
     1998, in consideration of the agreement of the two officers to not sell the
     Company's common  stock  in  market transactions,  the  Company  agreed  to
     advance the officers, on  a non-recourse basis,  additional funds to  cover
     their tax liabilities and other considerations.   As of December 31,  1999,
     the notes receivable  and accrued interest  totaled $2,036,385  with a  due
     date of on or before December 31, 2000 (as extended).   The Company has  no
     further commitment to advance additional funds to the officers.

     In consideration  for extending  the term  from December  31, 1999  through
     December 31, 2000, the officers agreed that if the average closing price of
     the common stock for  five consecutive trading days  results in a value  of
     the collateral equal to or above  the total principal and accrued  interest
     balances, the  officers will  repay the  loans  within 45  days  thereafter
     either in cash or by tendering to  the Company such number of shares  which
     at the average closing price for the previous five consecutive trading days
     equals the principal and accrued interest then due.

     The notes receivable  and accrued  interest are  collateralized by  233,340
     shares of the  Company's common stock.   In accordance  with SFAS No.  114,
     "Accounting by Creditors for Impairment of a Loan," the Company recorded an
     impairment allowance of  $666,000 as  of December  31, 1999,  based on  the
     value of  the underlying  collateral.   The  impairment allowance  will  be
     adjusted quarterly based on the market value of the collateral shares.

9.   Stock Options and Warrants:

     Stock Options

     As of December 31,  1999, the Company's 1998  Stock Option Plan had  issued
     options to  purchase 438,501  shares  out of  a  maximum total  of  500,000
     authorized shares  allowed  within the  1998  Stock  Option Plan.    As  of
     December 31, 1999, all other prior  year stock option plans had issued  the
     maximum allowed  options  under  each respective  stock  option  plan.  The
     Company has submitted the 1999 Stock Option Plan, which includes a  maximum
     of  500,000  options,   for  shareholder  approval   at  the  2000   annual
     shareholders' meeting.

     All  stock  option  plans  are  each  administered  by  a  committee   (the
     "Committee") consisting of the board of  directors or a committee  thereof.
     At its discretion, the Committee may  grant stock options to any  employee,
     including officers, in  the form of  incentive stock  options ("ISOs"),  as
     defined in the Internal  Revenue Code, or options  which do not qualify  as
     ISOs or stock awards.  In addition  to the options granted under the  stock
     option plans, the  Company also  issues non-qualified  options outside  the
     stock option plans.   Options granted under these  stock option plans  have
     terms ranging from five to seven  years and vest over periods ranging  from
     the date of grant to three years.

                                      F-22
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     As of December  31, 1999,  the Company  had options  outstanding under  the
     Plans as well  as from other  individual grants.   The Company applies  APB
     Opinion No.  25  and  related interpretations  in  accounting  for  options
     granted under the Plans and for other option agreements.  Had  compensation
     cost for the Company's options been  determined based on the fair value  at
     the grant dates consistent  with SFAS No. 123,  the Company's net loss  and
     loss per share would have been increased to the pro forma amounts indicated
     in the following table:

                                        Years Ended December 31,
                                  -----------------------------------
                                      1999         1998        1997
                                  -----------   ----------   --------
                                     (In thousands, except per share
                                                amounts)
     Net Loss:
          As Reported             $ (5,856)    $ (10,122)  $ (3,620)
          Pro Forma                 (7,930)      (11,680)    (5,991)
     Basic and Diluted
     Net Loss Per Share:
          As Reported             $  (0.41)       $(0.78)  $  (0.29)
          Pro Forma                  (0.56)        (0.90)     (0.48)

     The effects of applying SFAS No. 123 are not necessarily representative  of
     the effects on the reported net income or loss for future years.

     The fair  value  of each  option  granted during  1999,  1998 and  1997  is
     estimated on  the date  of grant  using  the Black-Scholes  option  pricing
     model. The  following weighted-average  assumptions were  utilized for  the
     Black-Scholes valuation:  (1) expected volatility of 80.5%, 76.2% and 80.4%
     for 1999, 1998 and 1997, respectively; (2) expected lives ranging from four
     to seven years; (3) risk-free interest  rates at the date of grant  ranging
     from 4.44% to 6.43%; and, (4) dividend yield of zero for each year.

     The following table summarizes  fixed option activity  for the years  ended
     December 31, 1999, 1998 and 1997:
December 31,
                           ----------------------------------------------------------------------
                                    1999                      1998                   1997
                           ------------------------  ----------------------  --------------------
                                         Weighted                 Weighted               Weighted
                                         Average                  Average                Average
                                         Exercise                 Exercise               Exercise
                             Shares       Price        Shares      Price      Shares      Price
                           ---------   -----------   ---------   ----------  ---------  ---------
Fixed Options
     Outstanding:
      Beginning of year    3,413,667   $    6.590    3,357,500   $  4.473    2,732,834  $  3.710
        Granted              521,000        5.866      480,000      8.875      725,500     7.203
        Exercised             (2,000)       6.625     (303,000)     1.500      (78,334)    1.698
        Canceled             (36,166)       7.920     (120,833)     8.400      (22,500)    9.486
                           ---------   -----------   ---------   ----------  ---------  ---------
     End of year           3,896,501   $    6.481    3,413,667   $  6.590    3,357,500  $  4.473
                           =========   ===========   =========   ==========  =========  =========
     Exercisable at
     year-end              2,872,681   $    4.656    2,329,012   $  6.970    2,242,000  $  3.878
                           =========   ===========   =========   ==========  =========  =========

     Weighted-average
     fair value of
     options granted
     during the year       $    3.61                 $   3.930               $   4.458
F-23
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     The  following table  summarizes information  about   fixed  stock  options
     outstanding at December 31, 1999:

                             Options Outstanding             Options Exercisable
                  --------------------------------------   ---------------------
                                   Weighted
                                   Average      Weighted                Weighted
                     Number       Remaining     Average      Number     Average
    Exercise      Outstanding    Contractual    Exercise   Exercisable  Exercise
     Prices       at 12/31/99       Life         Price     at 12/31/99   Price
                                  (in years)
 -------------    -----------    -----------  ----------   -----------  --------
     $1.500          178,000         .668     $   1.500      178,000    $  1.500
      3.000        1,700,000        3.082         3.000    1,700,000       3.000
 5.750 - 7.250     1,011,500        5.795         6.279      351,673       6.752
 7.375 - 8.875     1,001,001        4.320         8.660      639,008       8.753
     10.250            6,000        5.129        10.250        4,000      10.250
                  -----------    -----------  ----------   -----------  --------
    Total          3,896,501        3.993     $   5.641    2,872,681    $  4.656
                  ===========    ===========  ==========   ===========  ========

     Warrants

          The following table summarizes changes in outstanding warrants  during
     the years ended December 31, 1999, 1998 and 1997:

                                                Shares            Price Range
                                          ------------------   ---------------
     Warrants:
     Outstanding at December 31, 1996     431,194              $   1.10 - 6.90
     Exercisable at December 31, 1996                281,194       1.10 - 3.00
                                                     =======
       Warrants exercised during 1997     (81,000)                 1.10 - 2.60
                                          -------
     Outstanding at December 31, 1997     350,194                  1.10 - 6.90
     Exercisable at December 31, 1997                350,194       1.10 - 6.90
                                                     =======
       Warrants exercised during 1998     (79,622)                 1.10 - 2.60
     Outstanding at December 31, 1998     270,572                  1.65 - 6.90
                                          =======
     Exercisable at December 31, 1998                270,572       1.65 - 6.90
     Outstanding at December 31, 1999     270,572    =======       1.65 - 6.90
                                          =======
     Exercisable at December 31, 1999                270,572   $   1.65 - 6.90
                                                     =======

10.  Private Placement of Common Stock:

     On April 8, 1999, the Company  initiated a private placement that  resulted
     in the  sale  of 1,792,500  shares  of common  stock  for net  proceeds  of
     $7,054,000.  No placement fees were paid by the Company in connection  with
     the sale of the aforementioned shares.

11.  Commitments:

     Employment Agreements

     Effective January 1, 1995, the  Company entered into three-year  employment
     agreements with David N. Pierce  and Andrew W. Pierce,  each of whom is  an
     officer  and  director.    The   agreements  provide  for  initial   annual
     compensation of $120,000 and  $96,000, respectively, with annual  increases
     of at  least  7.5%,  as  determined  by  the  board  of  directors  or  the
     compensation committee.   Each employment agreement,  as amended,  provides
     that on the initiation of the first  test well in the Baltic Project  Area,
     which commenced in late January 1997,  the executive employee was  entitled
     to receive a $100,000 bonus  that may, at the  election of the officer,  be
     applied against the exercise of options to purchase common stock or paid in
     cash upon termination of employment with the Company.  The Company  accrued
     $200,000 at December 31, 1997 to reflect this obligation.  On February  17,
     1998, each officer exercised options to  purchase common

                                      F-24
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     stock and applied their respective bonuses awarded to him in 1997 towards
     the exercise price (Note 8). The terms of such employment agreements are
     automatically extended for an additional year on the anniversary date of
     each such agreement. In the event of termination of employment resulting
     from a change in control of the Company not approved by the Board of
     Directors, each of the two officers would be entitled to a termination
     payment equal to 150% of his annual salary at the time of termination and
     the value of previously granted employee benefits, including stock options
     and stock awards.

     On July 1, 1996, the Company entered into a three-year employment agreement
     with Jerzy B. Maciolek, who is an officer of the Company, providing for  an
     initial annual salary of $96,000 with  an annual increase to be  determined
     by the Company's  board of directors  or the compensation  committee.   The
     employment agreement also provides  for annual incentive  bonuses of up  to
     $100,000, payable in  cash, stock  or options and  a $100,000  bonus to  be
     issued annually on   May  12, 1998,  1999 and  2000 to  be applied  against
     future stock option exercises.  In  the event such bonuses are earned,  but
     not used by Mr. Maciolek and his employment with the Company is terminated,
     the Company must pay the bonus to Mr. Maciolek  in cash.  In the event  the
     employment contract is terminated by the Company, other than for cause,  or
     by Mr. Maciolek for cause or because of a change in control of the Company,
     Mr. Maciolek is entitled to a termination payment equal to any accrued  but
     unpaid salary and unreimbursed  expenses and benefits  plus his salary  for
     the remaining term of the employment agreement.  Additionally, all  options
     held by Mr.  Maciolek shall  immediately vest and  not be  forfeited.   The
     agreement will automatically be  extended for an  additional one year  upon
     each anniversary date  of the  effective date  unless otherwise  terminated
     pursuant to the terms thereof.

     Consulting Agreement

     Effective August 3, 1995, the Company  entered into a consulting  agreement
     with Lovejoy and Associates, a consulting  company owned by Tom Lovejoy,  a
     director of the Company,  under which Lovejoy  and Associates would  advise
     the Company respecting future  financing alternatives, possible sources  of
     debt and  equity financing,  with particular  emphasis on  funding for  the
     Company's  Polish  activities  and  the  Company's  relationship  with  the
     investment community at a fee of  $10,000 per month commencing October  15,
     1995 and continuing through December 31, 1997.  The agreement was  extended
     through December 31, 1999 at  a rate of $15,000  per month for January  and
     February 1998 and a subsequent rate  of $17,000 per month thereafter.   The
     consulting agreement was terminated effective May 1, 1999 when Mr.  Lovejoy
     became the Company's Chief Financial Officer.
     Polish Exploration Agreements

     The Company is committed to the following obligations in Poland,  presented
     on a gross basis, to retain its exploratory concession acreage:
Exploratory Wells
                                            -----------------
                        Beginning           First     Second                           Concession
                           of               Three     Three                    Annual      and
                       Exploration Whole    Year       Year     2D Seismic    Training   Usufruct
                         Period    Blocks   Phase     Phase     Acquisition   Fees (5)   Fees (6)
                       ------------------   -----  -----------  -----------  ---------  ---------
Lublin (1), (2)   Various (7)   24       6    1 per block   1,650 km    $ 80,000   $ 675,000
     Carpathian (2)     12/31/98     12       1         2          350 km      15,000     160,000
     Pomeranian (3)     12/31/98     10       1         2          600 km      25,000     250,000
     Warsaw West (3)    11/13/98     13       1         2        1,500 km      25,000     390,000
     Baltic (4)         03/07/96     10       1         1          None        25,000     200,000
(1)  The Company must  drill an exploratory  well in  each undrilled  block
          during the second three year phase  or relinquish the undrilled  block
          at the end  of the exploration  term.  The  Lublin Basin includes  the
          Block 298 usufruct, which includes  only one exploration block,  which
          has a requirement  to drill two  exploratory wells  during the  second
          three year  phase.  All  other  Lublin  Basin  usufructs  require  the
          drilling of one well per block during the second three year phase.  As
          of December 31, 1999, the Company had drilled two exploratory wells to
          be applied against the first three year exploration phase  exploratory
          well  requirement,  covered  all  concession  and  usufruct  fees  and
          acquired 1,650 kilometers of 2D seismic.

                                      F-25
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     (2)  Apache has agreed  to cover all  of the  Company's drilling,  seismic,
          annual training fees, concession, and  usufruct fees during the  first
          three year phase to earn a fifty percent interest in the Lublin  Basin
          and Carpathian areas.
     (3)  The Company and Apache are equal partners in the Pomeranian and Warsaw
          West  areas.   As of December  31, 1999, the  Company had covered  all
          concession and usufruct fees.
     (4)  The Company has a one-hundred percent  interest in the Baltic  Project
          Area.  As of December 31, 1999, the Company had satisfied the  minimum
          exploratory well  requirement  for  the  entire  exploration  term  by
          drilling two exploratory wells.
     (5)  Annual training costs  are for each  year during the  entire six  year
          exploration term.
     (6)  Concession and usufruct  fees are payable  on various  terms over  the
          first three year  exploration term,  except the  Baltic Project  Area,
          which is payable in  equal installments of $33,333  per year over  six
          years.
     (7)  The Lublin  Basin  consists of  four  usufructs, the  Vistula,  Lublin
          Middle,  Block  298,  and  Komarow  which  have  exploration   periods
          beginning August 8, 1997,  June 30, 1998, June  30, 1998 and March  4,
          1998, respectively.

     Capital Requirements

     As of  December  31, 1999,  the  Company had  $6.9  million of  cash,  cash
     equivalents and marketable debt securities with no long-term debt.  In view
     of the Apache Exploration Program, this amount is expected to be sufficient
     to fund the Company's present minimum exploration and operating commitments
     during 2000  and part  of 2001.   The  Company intends  to seek  additional
     capital to fund  any activities outside  the scope of  its present  minimum
     exploration  and  operating  activities,  including  further   exploration,
     appraisal and  development costs  for the  Wilga  discovery and  any  other
     additional exploration,  appraisal,  development  or  property  acquisition
     activities.

12.  Business Segments:

     The Company  operates within  two segments  of the  oil and  gas  industry:
     exploration  and  production  ("E&P")  and  drilling  and  well   servicing
     ("Drilling") and within  the exploration  segment of  the mining  industry.
     For segment and management reporting purposes the Company's mining  segment
     is not material and is excluded from the discussion herein.

     The Company's revenues associated with its E&P activities are comprised  of
     oil sales from its producing properties in Montana and Nevada and gains  on
     the sale  of  partial  property  interests  of  the  Company's  exploratory
     properties in Poland.   For  the years ended  December 31,  1999, 1998  and
     1997, over  85% of  the Company's  total oil  sales were  to one  purchaser
     located in Montana.  The Company believes this purchaser could be replaced,
     if necessary, without a loss in revenue.  E&P operating costs are comprised
     of: (1)  exploration costs,  including  geological and  geophysical  costs,
     exploratory dry  holes and  non-producing leasehold  impairments; and,  (2)
     production costs  which include  lease  operating expenses  and  production
     taxes.  Substantially all  exploration costs are  applied to the  Company's
     operations in  Poland and  all lease  operating costs  are applied  to  the
     Company's domestic production.  The Company's revenues associated with  its
     drilling activities are comprised of  contract drilling and well  servicing
     fees generated  by the  Company's drilling  rig  and other  well  servicing
     equipment in Montana.   Drilling operating  costs are  comprised of  direct
     costs associated with  its drilling and  well servicing  operations.   DD&A
     directly associated  with a  respective segment  is disclosed  within  that
     segment.  The  Company does not  allocate current  assets, corporate  DD&A,
     general  and  administrative  expenses,  income  taxes,  interest  expense,
     interest income, other income, other expense or officer loan impairments to
     its operating segments for management and segment reporting purposes.   All
     material inter-company transactions between the Company's business segments
     are eliminated for management and segment reporting purposes.

                                      F-26
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     Information on the Company's operations by  business segment for the  years
     ended December 31, 1999, 1998 and 1997 is summarized as follows:

                                                 Year Ended December 31, 1999
                                             -----------------------------------
                                                E&P       Drilling       Total
                                             ---------    ---------    ---------
     Operations Summary:                                (In thousands)

      Revenues                               $  1,554     $    865     $  2,419
      Cash operating costs (1)                  3,844          642        4,486
      Non-cash operating costs (2)                140           --          140
                                             ---------    ---------    ---------
         Operating income or (loss) before
         DD&A                                  (2,430)         223       (2,207)
      Depreciation, depletion, &
        amortization                               51          334          385
                                             ---------    ---------    ---------
         Operating loss                      $ (2,481)    $   (111)    $ (2,592)
                                             =========    =========    =========

     Identifiable net property and
       equipment:

      Non-producing leaseholds -  Poland     $    691     $      --     $    691
      Non-producing leaseholds - United
        States                                    692            --          692
      Producing properties                        494            --          494
      Equipment and other                          --           581          581
                                             ---------    ----------    --------
          Total                              $  1,877     $     581     $  2,458
                                             =========    ==========    ========
     Property and equipment capital
     expenditures                            $    526     $     138     $    664
                                             =========    ==========    ========

     (1)  Excludes $31,000 of exploratory costs  relating to the Company's  gold
          concessions.
     (2)  Includes stock options valued at $119,000  issued to a Polish  citizen
          for consulting services and $21,000 non-producing leasehold impairment
          comprised of costs incurred prior to 1999.

                                                 Year Ended December 31, 1998
                                              ---------------------------------
                                                E&P       Drilling      Total
                                              --------   ----------    --------
     Operations Summary:                                (In thousands)
       Revenues (1)                           $ 1,590    $    323      $ 1,913
       Cash operating costs (2)                 3,025         240        3,265
       Non-cash operating costs (3)               119          --          119
                                              --------   ----------    --------
         Operating income or (loss) before
         DD&A                                  (1,554)         83       (1,471)
       Depreciation, depletion, &
         amortization                             231         322          553
                                              --------   ----------    --------
        Operating loss                        $(1,785)   $   (239)     $(2,024)
                                              ========   ==========    ========

     Identifiable net property and
       equipment:
       Non-producing leaseholds - Poland      $   461    $     --      $   461
       Non-producing leaseholds - United
        States                                    717          --          717
       Producing properties                       463          --          463
       Equipment and other                         --         780          780
                                              -------    ----------    --------
          Total                                 1,641    $    780      $ 2,421
     Property and equipment capital           =======    ==========    ========
     expenditures                             $   180    $    156      $   336
                                              =======    ==========    ========

     (1)  E&P  revenues include $1,123,000 generated  in the  United States  and
          $467,000 generated  in Poland.
     (2)  Excludes $29,000  of exploratory costs relating to the Company's  gold
          concessions.
     (3)  Includes  Company  common  stock  issued for  services of $119,000 and
          excludes non-cash impairment charge of $5,885,000 for  domestic proved
          properties.

                                      F-27
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued
Year Ended December 31, 1997
                                                     ----------------------------------------
                                                         E&P          Drilling        Total
                                                     ----------     -----------     ---------
     Operations Summary:                                            (In thousands)
Revenues (1)                                  $   2,242      $      496      $  2,738
       Cash operating costs                              6,455             329         6,784
       Non-cash operating costs (2)                         99              --            99
                                                     ----------     -----------     ---------
         Operating income or (loss) before DD&A         (4,312)            167        (4,145)
       Depreciation, depletion, & amortization             261             289           550
                                                     ----------     -----------     ---------
         Operating loss                              $  (4,573)     $     (122)     $ (4,695)
                                                     ==========     ===========     =========
     Identifiable net property and equipment:
       Non-producing leaseholds - Poland             $     461      $       --      $    461
       Non-producing leaseholds - United States            709              --           709
       Producing properties                              6,447              --         6,447
       Equipment and other                                  --             935           935
                                                     ---------      -----------     ---------
         Total net assets                            $   7,617      $      935      $  8,552
                                                     =========      ===========     =========

     Property and equipment capital expenditures     $     860      $      210      $  1,070
                                                     =========      ===========     =========
(1)   E&P revenues include $2,040,000 generated in the United States and
          $202,000 generated in Poland.  Excludes $71,000  gain from sale  of
          property interest relating  to  the Company's gold concessions in
          Poland.
    (2)   Includes   Company  common  stock  issued  for services  of $70,000
          and  a  non-cash impairment  charge  of $29,000 for a lease  in
          Wyoming acquired prior  to  1997.

     A   reconciliation of  the  segment  information to  the  consolidated
     totals   for   the years ended December 31, 1999, 1998  and  1997 follows:
Year Ended December 31,
                                                      ------------------------------------------
                                                         1999            1998            1997
                                                      ----------    -----------     ------------
     Revenues:                                                       (In thousands)
Reportable segments                            $   2,419     $    1,913      $     2,738
       Non-reportable segments                               --             --               71
                                                      ----------    -----------     ------------
        Total consolidated revenues                   $   2,419     $    1,913      $     2,809
                                                      ==========    ===========     ============
     Operating Loss:
       Reportable segments                            $  (2,592)    $   (2,024)     $    (4,695)
       Expense or (revenue) adjustments:
         Non-reportable segments                             31             29              (71)
         Impairment of domestic proved property              --          5,885               --
         General and administrative expenses              2,962          2,572            2,566
         Corporate DD&A                                     109            118               85
         Other                                               --              1               (1)
                                                      ----------    -----------     ------------
           Consolidated net operating loss            $  (5,694)    $  (10,629)     $    (7,274)
                                                      ==========    ===========     ============
     Net Property and Equipment:
       Reportable segments                            $   2,458     $    2,421      $     8,552
       Corporate assets                                      91            178              209
                                                      ----------    -----------     ------------
        Net property and equipment                    $   2,549     $    2,599      $     8,761
                                                      ==========    ===========     ============
     Property and Equipment Capital Expenditures:
       Reportable segments                            $     581     $      336      $     1,070
       Corporate assets                                      19            105              461
                                                      ----------    -----------     ------------
        Net property and equipment capital
          expenditures                                $     600     $      441      $     1,531
                                                      ==========    ===========     ============
F-28
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

13.   Quarterly Financial Data (Unaudited):

     During  the  year  ended  ended  December 31, 1999, the  Company  recorded
     exploratory dry hole  costs  of $580,000  and $389,000 during the third and
     fourth  quarters,  respectively,  and  an  officer  loan  impairment  of
     $666,000  during the  fourth quarter.  During  the  year  ended  December
     31, 1998, the  Company  incurred  a  domestic  proved  property  impairment
     of $5,885,000, of  which $5,640,000  and $245,000  were  recorded  during
     the  third  and fourth quarters,  respectively.

     Summary quarterly information for the years ended December 31, 1999 and
     1998  is  as  follows:

                                              For the Quarter Ended
                             ---------------------------------------------------
                              December 31  September 30    June 30    March 31
                             ------------  ------------  ----------  -----------
                                    (In thousands, except per share amounts)
     1999 Quarterly
     Information:
       Revenues              $      785    $      862    $    451     $    321
       Net operating loss        (2,746)       (1,228)       (895)        (825)
       Net loss              $   (3,272)   $   (1,072)   $   (789)        (723)
       Basic and diluted net
        loss per common
        share                $     (.21)   $     (.08)   $   (.06)    $   (.06)

     1998 Quarterly
        Information:
       Revenues              $      416    $      426    $    272     $    799
       Operating income or
        (loss)                   (1,949)       (6,511)     (1,465)        (704)
       Net income or                       $   (6,392)   $ (1,353)    $   (519)
        (loss)               $   (1,858)
       Basic and diluted net
        loss per Common
        share                $     (.15)   $    (.49)    $   (.10)    $   (.04)

14.  Disclosure about Oil and Gas Properties and Producing Activities:

     Impairment of Unproved Oil and Gas Properties

     In accordance with  generally accepted accounting  principles, the  Company
     must record an impairment expense to  the extent that capitalized costs  of
     unproved properties, on a  property by property  basis, are considered  not
     realizable.  During the year ended December 31, 1999, the Company  recorded
     an impairment expense of $21,000 relating  to a prospect located in  Nevada
     and $72,000 relating to the Lachowice  Farm-in in Poland.  During the  year
     ended December  31, 1997,  the Company  recorded an  impairment expense  of
     $152,000 relating to several prospects in Montana, Nevada and Wyoming.

     Impairment of Proved Oil and Gas Properties

     In accordance with  generally accepted accounting  principles, the  Company
     must record an impairment  expense if the Company  determines the net  book
     value of  its proved  oil and  gas properties,  on a  property by  property
     basis, exceeds the aggregate future net  revenues from such properties.  As
     of December 31, 1998, the Company's  future undiscounted net revenues  from
     its domestic proved developed properties was $1,015,000 and its  discounted
     future net revenues (PV-10) of it domestic proved developed properties  was
     $472,000.    The future  net revenues at  December 31,  1998 were  computed
     using a price of $8.11 per barrel, the average price at December 31,  1998.
     Accordingly, the Company recorded an  impairment expense of $5,885,000  for
     the year ended December 31, 1998,  which reduced the carrying value of  its
     domestic proved properties  to $463,000, an  amount which approximated  the
     fair value  of  its domestic  proved  developed reserves  determined  on  a
     property by property basis.

                                      F-29
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     In view of  the Company's  increased focus  on its  Polish exploration  and
     development opportunities and  the probability of  continued depressed  oil
     prices, management has determined it is unlikely the Company will incur any
     domestic development costs  in the  foreseeable future.   Accordingly,  the
     Company's proved reserves  as of December  31, 1999 and  1998 include  only
     those reserves attributable to developed properties.

     Capitalized Costs

     Capitalized costs  relating  to oil  and  gas producing  activities  as  of
     December 31, 1999 and 1998 are summarized as follows:

                                        United States     Poland      Total
                                       --------------   ---------   ---------
                                                    (In thousands)
     December 31, 1999:
      Proved properties                 $    1,687      $    --     $  1,687
      Unproved properties                      692          691        1,383
                                        --------------   ---------   ---------
        Total gross properties               2,379          691        3,070
      Less accumulated, depreciation,                        --
      depletion and amortization            (1,193)                  (1,193)
                                        --------------   ---------   ---------
         Total                          $    1,186      $   691     $  1,877
                                        ==============  ==========  ==========

     December 31, 1998:
      Proved properties                 $    1,605      $    --     $  1,605
      Unproved properties                      718          461        1,179
                                        -------------   ---------   ---------
         Total gross properties              2,323          461        2,784
      Less accumulated depreciation,                         --
       depletion and amortization           (1,142)                   (1,142)
                                        -------------   ---------   ---------
         Total                          $    1,181      $   461     $  1,642
                                        =============   =========   =========

     Acquisition, Exploration and Development Activities

     Costs incurred  in oil  property acquisition,  exploration and  development
     activities during the years ended December 31, 1999, 1998 and 1997, whether
     capitalized or expensed, are summarized as follows:

                                        United
                                        States      Poland      Total
                                      ---------   ---------   ---------
                                                (In thousands)
     December 31, 1999:
       Acquisition of properties:
         Proved                      $     --     $     --    $      --
         Unproved                           1          230          231
       Exploration costs                   38        3,016        3,054
       Development costs                   82           --           82
                                     --------     --------    ---------
         Total                       $    121     $  3,246    $   3,367
                                     ========     ========    =========

     December 31, 1998:
       Acquisition of properties:
         Proved                      $     --     $     --    $      --
         Unproved                          15           33           48
       Exploration costs                   34        2,092        2,126
       Development costs                  132           --          132
                                     --------     --------    ---------
         Total                       $    181     $  2,125    $   2,306
                                     ========     ========    =========

                                      F-30
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     December 31, 1997:
       Acquisition of properties:
         Proved                      $     --    $     --    $      --
         Unproved                         733          66          799
       Exploration costs                1,419       3,895        5,314
       Development costs                  187          --          187
                                     --------     --------    ---------
         Total                       $  2,339    $   3,961    $  6,300
                                     ========     ========    =========

15.  Summary Oil and Gas Reserve Data (Unaudited):

     The following quantity and value information  is based on prices as of  the
     end of  each respective    reporting period.    No price  escalations  were
     assumed.  Operating costs and production taxes were deducted in determining
     the quantity and  value information.   Such costs were  estimated based  on
     current costs  and  were  not  adjusted  to  anticipate  increases  due  to
     inflation or other factors.  No amounts were deducted for general overhead,
     depreciation, depletion  and  amortization,  interest  expense  and  income
     taxes.

     The determination of  oil and  gas reserves is  based on  estimates and  is
     highly complex and interpretive.  The  estimates are subject to  continuing
     revisions  as  additional  information  becomes  available  or  assumptions
     change.  All of the Company's oil reserves are in the United States.

     Estimated Quantities of Proved Oil Reserves

     Following is a reconciliation of the  Company's interest in net  quantities
     of proved oil reserves.  All proved oil reserves are located in the  United
     States.  Proved reserves  are the estimated quantities  of crude oil  which
     geological and engineering data demonstrate with reasonable certainty to be
     recoverable in future years from known reserves under existing economic and
     operating conditions.

     Changes in  estimated oil  reserves  of the  Company  for the  years  ended
     December 31, 1999, 1998 and 1997 are as follows:

                                         For the years ended December 31,
                                        ---------------------------------
                                          1999         1998        1997
                                        ----------   ---------   --------
                                            (In thousands bbls of oil)
     Total proved reserves:
       Beginning of year                  1,535        4,760      5,443
       Purchase of minerals in-place         --           --         --
       Extensions and discoveries            --           --         18
       Revisions of previous estimates     (354)      (3,110)      (575)
       Production                          (101)        (115)      (126)
                                        ----------   ---------   --------
       End of year                        1,080        1,535      4,760
                                        ----------   ---------   --------
     Proved developed reserves:
       Beginning of year                  1,535        2,282      2,829
                                        ----------   ---------   --------
       End of year                        1,080        1,535      2,282
                                        ----------   ---------   --------

     The decrease in 1999 reserves as compared to 1998 reserves was  principally
     due to higher operating costs and a higher production decline rate utilized
     in the 1999 report as compared  to the 1998 report.   The decrease in  1998
     reserves as compared  to 1997  was principally  due to  the elimination  of
     2,478,000 bbls of proved undeveloped reserves which were included as of  as
     of December 31, 1997 and a $5.70 per bbl decrease in oil prices at year-end
     1998 as compared to year-end 1997.

                                      F-31
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     Standardized Measure  of  Discounted Future  Net  Cash Flows  ("SMOG")  and
     Changes Therein Relating to Proved Oil Reserves

     Estimated discounted  future  net  cash  flows  and  changes  therein  were
     determined in accordance with SFAS  No. 69. Certain information  concerning
     the assumptions  used in  computing the  valuation of  proved reserves  and
     their inherent limitations are discussed below.  The Company believes  such
     information is essential for a proper  understanding and assessment of  the
     data presented.

     Future net cash flows were computed by applying the year-end oil prices  of
     $22.37, $8.11 and $13.81  for the years ended  December 31, 1999, 1998  and
     1997, respectively and production costs per bbl of $14.11, $7.43 and  $6.86
     for 1999, 1998 and 1997, respectively, to the period-end quantities of  the
     Company's proved reserves. The variance in price from year to year was  due
     to price volatility associated with world-wide oil price fluctuations.  The
     increase in production costs of $6.68  per barrel for 1999, as compared  to
     1998, is primarily due the economic lives of marginal wells being  extended
     due to an oil price $14.26 per bbl  higher in the 1999 report, as  compared
     to the 1998 report.

     The assumptions  used  to  compute the  proved  reserve  valuation  do  not
     necessarily reflect the  Company's expectations  of actual  revenues to  be
     derived from those reserves  nor their present  worth.  Assigning  monetary
     values to  the reserve  quantity estimation  process  does not  reduce  the
     subjective and ever-changing nature of such reserve estimates.   Additional
     subjectivity occurs when  determining present  values because  the rate  of
     producing the reserves must be estimated.   In addition to errors  inherent
     in predicting the  future, variations  from the  expected production  rates
     also could result directly or indirectly from factors outside the Company's
     control,  such  as  unintentional  delays  in  development,   environmental
     concerns and  changes  in  prices or  regulatory  controls.    The  reserve
     valuation assumes  that all  reserves will  be disposed  of by  production.
     However, if reserves are sold in place, additional economic  considerations
     also  could  affect  the  amount  of  cash  eventually  realized.    Future
     development and production costs are computed by estimating expenditures to
     be incurred in developing and producing the proved oil reserves at the  end
     of the  period, based  on period-end  costs  and assuming  continuation  of
     existing economic conditions.  A discount rate of 10% per year was used  to
     reflect the timing of the future net cash flows.

     The components of SMOG are detailed below:

                                              As of December 31,
                                   ---------------------------------------
                                        1999          1998          1997
                                   ------------    ----------   ----------
     SMOG Components:                           (In thousands)

      Future cash flows             $   24,229     $  12,518    $
                                                                   65,740
      Future production costs          (15,240)      (11,408)     (32,658)
      Future development costs            (105)          (95)      (6,273)
                                   ------------    ----------   ----------
      Future net cash flows              8,884         1,015       26,809
      Future income tax expense             --            --         (125)
                                   ------------    ----------   ----------
      Future net cash flows              8,884         1,015       26,684
      10% annual discount for
        estimated timing of cash
        flows                           (3,424)         (543)     (13,109)
                                   ------------    ----------   ----------
          Total                     $    5,460     $     472    $  13,575
                                   ============    ==========   ==========

                                      F-32
FX ENERGY, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   Continued

     The following are principal sources of changes in SMOG:

                                            Years Ended December 31,
                                   ----------------------------------------
                                       1999           1998          1997
                                   -----------   -----------    -----------
     SMOG Sources:                              (In thousands)

      Balance, beginning of year   $      472    $   13,575     $   26,284
       Sales of oil produced, net
         of production costs             (592)          (77)          (801)
       Net changes in prices and
         production costs               5,032        (4,482)       (16,707)
       Purchases of minerals in
         place                             --            --             --
       Extensions and discoveries,
         net of future costs               --            --            108
       Changes in estimated future
         development costs                 (6)        2,875            (79)
       Development costs incurred
         during the year                   82           132            394
       Revisions in previous
         quantity estimates            (1,650)       (9,076)        (1,969)
       Accretion of discount               47         1,357          2,628
       Net change in income taxes          --          (952)         9,071
       Changes in rates of
         production and other           2,075        (2,880)        (5,354)
                                   -----------   -----------    -----------
         Balance, end of year      $    5,460    $      472     $   13,575
                                   ===========   ===========    ===========

16.  Subsequent Events:

     On January 25,  2000, the  Company announced that  the Wilga  2, the  fifth
     exploratory well drilled under terms of the Apache Exploration Program, was
     an exploratory success after initial test results indicated a combined flow
     rate of 16.9  Mmcf of gas  and 570 Bbls  of condensate per  day from  three
     intervals in a  Carboniferous Horizon  at a  depth between  7,732 feet  and
     8,550 feet.   The Wilga 2  is located approximately  25 miles southeast  of
     Warsaw and approximately 12 miles from an existing pipeline.  In accordance
     with terms  of  the  Apache Exploration  Program,  Apache  will  cover  the
     Company's 45.0% share of  drilling and completion  costs pertaining to  the
     Wilga 2.  The Company will pay for its 45.0% share of costs thereafter. The
     Company and its partners  plan an appraisal  well immediately, followed  by
     additional development drilling  and facilities construction  later in  the
     year, with initial production expected to  commence during early 2001.   In
     addition, the Company will promptly begin seismic acquisition in the  Wilga
     area to identify a target near the Wilga discovery to be drilled later this
     year to  test the  possibility of  additional  reserves outside  the  Wilga
     structure.

                                      F-33