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Gold/Mining/Energy : MWXI - Mountains West Exploration, Inc.

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To: jmhollen who wrote ()4/17/1998 10:54:00 AM
From: jmhollen  Read Replies (1) of 15

Competitive Factors

The petroleum industry is volatile and highly competitive. Earnings from oil and
gas production are primarily dependent upon prices of crude oil and natural gas.
The costs and prices of crude oil, natural gas and refined products have
fluctuated substantially in recent years, often in a divergent fashion.
Competition exists in every aspect of oil and gas operations, including the
acquisition, exploration, discovery and development of new oil and gas reserves,
as well as purchasing, gathering, transporting, refining and marketing of crude
oil, natural gas and petroleum products.

Many companies and individuals are engaged in the oil and gas business in both
the U.S. and foreign markets. Many such companies are very large and well
established with substantial capabilities and long earnings records. The Company
has, and will continue, to encounter strong competition in acquiring oil and gas
leases, licenses and concessions from these and other companies. In most
instances the Company is not able to compete with these other more adequately
capitalized companies in meeting price, exploration and bonding requirements
established by the land owners or foreign governments. The Company has, however,
had success in acquiring more adequately capitalized partners with whom it has
joined to acquire properties and conduct operations thereon leading to the
discovery of commercial quantities of oil and gas.

The acquisition, exploration, development, production and sale of oil and gas
interests are subject to many factors which are outside the Company's control.
These factors include worldwide and United States economic conditions, oil
import and export quotas, availability of drilling rigs and pipelines, weather
conditions, supply and price of other fuels, and the regulation of production,
transportation and marketing by both domestic and foreign governmental agencies.
Foreign Governmental preferences for major international oil companies over
small independent companies may also have an adverse effect on the Company's
ability to compete with such major companies, even if it otherwise has the
capital to do so.

Environmental Regulations

On a worldwide basis, environmental laws and regulations vary greatly. In the
United States compliance with State and Federal laws may require significant
capital expenditure and will effect decisions regarding acquisition of certain
properties, methods of production and distribution of the oil and gas and the
Company's earning potential from any property. The managing partner of the PPL
56 Joint Venture has not informed the Partners in the Joint Venture of any
environmental laws, rules or regulations established by Papua New Guinea that
might be expected to have any unusual or adverse impact upon the operations of
the Joint Venture or the production of oil and gas from its license interests.

Governmental Regulations

1. United States

In the United States, the production of oil and gas is subject to regulation by
the various state regulatory authorities. In general, these regulatory
authorities are empowered to make and enforce regulations to prevent waste of
oil and gas, and to fix allowable production rates for oil and gas within the
limits of maximum rates of production and reasonable market demands for oil and
gas. In addition, the Company will be required to comply with spacing and other
conservation rules of the various states within which the Company owns oil and
gas leases upon which exploration activities are conducted. Also, with respect
to United States leases, the Company will be required to comply with
requirements established for exploration and development by the United States
Geological Survey and the Bureau of Land Management.

Natural gas production and prices are regulated by the Federal Energy Regulatory
Commission and are subject to the Natural Gas Policy Act. New natural gas, some
onshore gas production and interstate gas were deregulated effective January 1,

The Company will also be subjected to varying taxes that are or may be
established on producers of oil and gas relating to prices received in excess of
certain established norms.

2. Papua New Guinea

The managing partners of the Joint Venture Groups have not informed the Partners
in the Joint Venture of any production limits, pricing procedures or other laws,
rules or regulations established by Papua New Guinea that might be expected to
have any unusual or adverse impact upon the operations of the Joint Venture or
the production of oil and gas from its concession.


The Company has one full time employee, that being its President, Robert A.
Doak, Jr. The Company has retained the services of outside parties for legal,
accounting, drafting, geological, and lease acquisition services to the extent
that it has been able to afford such expenses.

Item 2. Description of Properties.


The Company rents its offices at 616 Central, N.W., Albuquerque, New Mexico
87102, under a month-to-month lease at a monthly rental of $546. The suite
consists of approximately 728 sq. feet, which Management believes will be
adequate for the Company's need for the foreseeable future. Approximately one
half of the space is sub-let to another party for a monthly rent of $245.

Productive Wells and Acreage

The following table reflects the approximate total gross and net productive oil
and gas wells and approximate total gross and net developed acreage at December
31, 1997:

Productive Wells
Oil Wells Gas Wells
Gross (1) Net (2) Gross (1) Net (2)
------ ------ ------ ------
Colorado -- -- 3 .3125
PNG (Unit) 5 .044 -- --
------ ------ ------ ------
Totals 5 .044 3 .3125
====== ====== ====== ======

Developed Acreage Gross Net
------ ------
Colorado 240 30
PNG 2,000 50
(1) Gross well or acres is a well or acre in which a working interest is owned.
Not included are wells in Billings County, North Dakota, in which the
Company holds overriding royalty interest aggregating less than one
(2) A net well or acre is deemed to exist when the sum or the fractional
ownership working interests in gross wells or acres equal one. As a working
interest holder, the Company, along with other working interest holders,
pay 100% of production costs.

Oil and Gas Properties

Capitalized costs related to the Company's oil and gas activities as of December
31, 1997 were as follows:

Oil and Gas Properties $ 3,986,918
Mineral Interests 50,683
$ 4,037,601

In 1984, the Company acquired a 2-1/2% interest in the Petroleum Prospecting
License #56 in Papua, New Guinea. In 1991 and 1992, three wells were completed
and shut in pending availability of gathering system, pipeline and processing
facilities. In 1996, the license was reissued as one production license (PDL#3)
and two new exploration licenses (PPL 189 and PPL 190). Also during 1996, the
Government exercised its option to acquire a 22 % interest in PDL#3 and repaid
certain of the Company's costs in that portion of the license. As a result of
the election and the inclusion of the PDL in a unitized program with the Main
Gobe Oil Field, the Company's interest in the fields became a net 0.8718%. The
Company's share of costs in the Venture has been loaned to the Company by its
partners, including interest at 8%, to be repaid from the proceeds of
production. accordingly, the Company has recorded the liability to its partners
and the related asset at December 31, 1997, in the amount of $3,889,971.

1997 Production
Avg. Sales Avg. Lifting

Oil (Bbls) Price (Bbl) Costs (Bbl)
------ ----------- -----------
122 $18.00 $6.30

Gas (MCF) Price (MCF) Costs (MCF)
------ ----------- -----------
32,938 $ 1.01 $0.45

Drilling Activities
Productive Dry
------------- -------------
Gross Net Gross Net
----- ----- ----- -----
Exploratory Wells:

1996 -- -- 1 .025
1997 -- -- -- --
----- ----- ----- -----
Totals -- -- 1 .025
===== ===== ===== =====

Development Wells:

1996 -- -- -- --
1997 -- -- -- --
----- ----- ----- -----
Totals -- -- -- --
===== ===== ===== =====

Undeveloped Properties

(1) At December 31, 1997, the Company held approximately the following gross
and net undeveloped oil and gas acreage:

Leases Gross Acres Net Acres (1)
------ ----------- -------------
Colorado Mineral Interests 2,494 2,072
PNG PDL #3 23,000 437
PNG PPL 189 480,000 24,245
PNG PPL 190 460,000 17,309
PNG PPL 203 276,000 13,800
--------- ------
Totals 1,241,494 57,863
========= ======
Computed using the Company's net revenue interest. Net Acres include working
interests and overriding royalty interests.


The Company has not filed any reports containing oil or gas reserves estimates
with any Federal or foreign government or authority or agency within the past 12
months. The Company has not prepared or had prepared for it any reserve reports
related to the properties discussed herein except those that are included with
this Report.

Item 3. Legal Proceedings.

Insofar as is known to the Company's management, there are no legal proceedings
now pending, threatened, or contemplated, or unsatisfied judgments outstanding
which have not been provided for in any court or agency to which the Company or
any of its officers or directors, in such capacity, are or may be a party,
except as discussed below.

In 1987, the Company's former independent auditors, Arthur Andersen obtained a
judgment against the Company for unpaid audit fees in the amount of
approximately $6,000. This judgment remains outstanding at the date of this

Item 4. Submission of Matters to a Vote of Securities Holders.

No matters were submitted to a vote of shareholders during the fourth quarter
quarter of the Company's fiscal year.


Item 5. Market for Common Equity and Related Stockholder Matters.

The Company's common stock is traded over-the-counter. Prior to November 1983,
the Company's common stock was traded on the Bulletin Board system under the
symbol MWEX. Since that time, the Company's common stock has been listed by the
National Daily Quotation Bureau, Inc. in its Pink Sheets and the OTC Bulletin
Board. The high and low bid prices during each quarter of 1996 and 1997 are as

Bid Prices Bid Prices
---------- ----------
High Low High Low
---- --- ---- ---

March 31, 1996 .07 .0625 March 31, 1997 .03 .02
June 30, 1996 .0625 .03125 June 30, 1997 .025 .025
September 30, 1996 .0625 .03125 September 30, 1997 .075 .025
December 31, 1996 .0625 .03 December 31, 1997 .10 .055

There were approximately 2,000 holders of the Company's common stock on March
15, 1998.

The Company has never paid dividends on its common stock.


Plan of Operations

During the year ended December 31, 1997, oil and gas sales were $41,912,
compared to $24,129 during the same period in the prior year. Increases in such
revenues are expected to increase significantly upon production being
established from PDL#3, which is expected to commence in April, 1998. All of the
Company's revenue from that license will be devoted to repaying the Company's
debts to its partners for its share of the costs of establishing the production,
which at December 31, 1997, were approximately $3,889,871. Management
anticipates that the Company's share of the production from this license
initially will be approximately 200 barrels per day. As the development of the
license continues, Management anticipates that the production from the license
will increase as will the Company's share of the revenue from the production.

At the time production commences from the property, the Company will be
obligated to pay its share of all costs incurred on any license in which it
holds an interest. The Company owns interests in the following licenses:

a) The three oil wells in which the Company has an interest have been included
in Petroleum Development License #3 (PDL#3). As stated earlier, these oil
wells and certain other lands included within PDL#3 have been unitized with
Chevron Oil Company's existing PDL to the north. The two new PDLs will be
developed into the Southeast Gobe Oil and Main Gobe Fields. First
production is scheduled for mid-April, 1998. The Company's interest in the
unitized PDLs, after exercise by the government of its right to acquire a
22 1/2% interest in the fields, is a net 0.8718% interest which will result
in the anticipated initial production discussed above. The Company's
expenses in this unit is to be carried until production is sold. T
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