<PAGE>
 
          Gas gathering is the collection of natural gas from various individual
wells, combining it into a single gas stream and delivering it into a major
transmission line for transportation to market.  A gathering system sometimes
includes an associated processing plant for the removal of gas liquids,
depending on the content of liquefiable hydrocarbons in the gas streams and the
capabilities of transmission lines.

          In September 1993, Cimarron significantly expanded its natural gas
gathering and processing activities by acquiring approximately 350 miles of
natural gas gathering systems in West Texas and Oklahoma and a gas processing
plant in Sutton County, Texas.  A comparison of average daily volumes of gas,
measured in thousands of cubic feet, gathered and processed during the third
quarter of fiscal 1994 and 1993 is shown below.

<TABLE>
<CAPTION>
 
                             1994    1993
                            ------  ------
<S>                         <C>     <C>
               Gathering    47,700  10,220
               Processing   25,000   9,398
</TABLE>

     For the nine months ended June 30, 1994, revenues totalled $120.5 million
with an operating loss of $696,000 as compared to revenues of $148.7 million and
an operating loss of $158,000 in the corresponding fiscal 1993 period reflecting
a decrease in marketing activity and the effect of continued lower prices for
natural gas liquids on processing margins.

OIL AND GAS -  Reflecting the $18.8 million property valuation provision, as
well as lower prices for U.S. natural gas and lower U.S. natural gas production,
revenues of $3.0 million and an operating loss of $18.7 million for the third
quarter of fiscal 1994 compared unfavorably to the fiscal 1993 third quarter
revenues of $4.2 million and operating income of $1.2 million.  The valuation
provision was the result of several factors:  lower natural gas prices,
additional capitalized costs incurred recently in connection with several
workover wells at the Company's Wisdom gas field and an increase in estimated
future costs.

     The Bolivian operations contributed approximately $500,000 to operating
income in the third quarters of 1994 and 1993; likewise, year-to-date, fiscal
1994 and 1993 Bolivian operations contributed approximately $2.4 million in each
period.

     Zapata's domestic natural gas production for the third quarter of fiscal
1994 was 25% lower than the fiscal 1993 period's level of production. The
decline in production was due to production difficulties encountered during 1993
at the Wisdom gas field, the Company's most significant oil and gas property.
 
     Efforts to restore production commenced in February 1994 and the
workover/recompletion of the first two wells successfully restored production of
these wells to acceptable levels.  The Company has undertaken the recompletion
of an additional well in the Wisdom gas field which the Company currently
estimates will cost approximately $1.8 million.

     Until such time that repairs to additional wells in the Wisdom gas field
can be effected and production restored, revenues from domestic oil and gas
operations will be based on lower production quantities than in prior years.

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