<PAGE>
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 14. OIL AND GAS OPERATIONS (UNAUDITED)--(CONTINUED)
 
 Oil and gas reserves
 
  During fiscal 1994, the Company recorded a $29.2 million pretax writedown of
its oil and gas properties in the Gulf of Mexico. The writedown 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.
 
  Zapata's domestic natural gas production for fiscal 1994 was approximately
one half of the fiscal 1993 period's level of production which was 31% lower
than the fiscal 1992 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.
 
  In late April 1993, one of the oil and gas division's wells in the Wisdom gas
field was shut-in when the well began producing sand. Prior to the failure,
this well was capable of producing 6.5 MMcf per day. After some minor repairs,
the well was returned to production at a significantly reduced level. Efforts
to restore production from this well have been deferred.
 
  In early September 1993 an additional well in the Wisdom gas field ceased
production as a result of an influx of sand and water. Immediately prior to the
time the well ceased producing, this well was capable of producing
approximately 5.5 MMcf per day. After some minor repairs, the well was returned
to production at a significantly reduced level. Efforts to restore production
commenced in February 1994 and the workover/recompletion of this well and one
additional well successfully restored production of these wells to acceptable
levels. The Company undertook the recompletion of an additional well in the
Wisdom gas field which was abandoned after a series of mechanical failures. The
Wisdom gas field was producing 10.8 MMcf per day in August 1994 before
curtailing production in September due to low gas prices.
 
  The following table contains estimates of proved oil and gas reserves
attributable to Zapata's interest in oil and gas properties which were prepared
primarily by independent petroleum reserve engineers (Huddleston & Co., Inc.).
Proved reserves are the estimated quantities of natural gas and liquids (crude
oil and condensate) which, based upon analysis of geological and engineering
data, appear 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. Reservoirs are considered proved
if economic productivity is supported by actual production or conclusive
formation testing. Proved developed reserves are reserves that can be expected
to be recovered through existing wells with existing equipment and operating
methods.
 
  These reserve quantities are estimates and may be subject to substantial
upward or downward revisions as indicated by past experience. The estimates are
based on the most current and reliable information available; however,
additional information obtained through future production experience and
additional development of existing reservoirs may significantly alter previous
estimates of proved reserves. Future changes in the level of hydrocarbon prices
relative to the costs to develop and produce reserves can also result in
substantial revisions to proved reserve estimates.
 
  These estimates relate only to those reserves which meet the SEC's definition
of proved reserves and do not consider probable reserves and the likelihood of
their recovery which, if considered, could result in substantial increases in
reported reserves. Future secondary recovery efforts could also yield
additional reserves.
 
                                       56