Second Quarter 1997
For the period ended June 30, 1997

Building for long term growth

Message to Shareholders
We are pleased to report on the operations and financial performance of Morrison Middlefield Resources Limited for the three and six month periods ending June 30, 1997.

The Company recorded the highest level of production in its history in the second quarter of 1997. Cash flow in the latest quarter was higher than in the comparable period of 1996 although, due to lower commodity prices, was less than achieved in the prior two quarters.

A significant portion of MMRL's efforts this year has been geared towards building its exploration and development prospects in order to provide a solid base for long term growth. These activities continued through the second quarter with the commencement of our UK exploration drilling program, completion of the Croft acquisition, undertaking of two major 3D seismic surveys and negotiation for new undeveloped acreage positions in the UK.

To improve their liquidity, the Company's common shares were split 2 for 1 on June 6, 1997. All per share data quoted in this report is based on the post split number of shares.

Financial
Increased production volumes contributed to oil and gas revenues reaching $17.3 million in the second quarter of 1997, an increase of $4.7 million over the corresponding period a year earlier. In the first half of 1997, total production revenues reached $35.6 million versus $22.7 million in 1996.

Production expenses also increased with the higher level of output. They were $3.9 million and $7.0 million for the three and six month periods ending June 30, 1997, compared to $2.3 million and $4.2 million for the same periods a year earlier.

Cash flow from operations totalled $9.7 million in the second quarter or $0.52 per share fully diluted versus $8.1 million or $0.45 per share fully diluted a year earlier. In the first half of 1997, cash flow reached $20.7 million or $1.12 per share fully diluted compared to $14.3 million or $0.79 per share fully diluted in the first six months of 1996. Net earnings were $2.1 million in the second quarter or $0.12 per share fully diluted compared to $2.9 million last year. Year to date earnings were $6.0 million or $0.33 per share fully diluted compared to $5.2 million in 1996.

A quarterly dividend of $0.05 per share was declared payable on September 30, 1997 to shareholders of record at the close of business on September 23, 1997.

Production
Total production averaged 8,296 boe/d in the second quarter up 10% from the first quarter and 41% from a year earlier. Oil and natural gas liquids averaged 6,735 bbls/d in the second quarter of 1997 as compared to 4,983 bbls/d a year earlier. Natural gas production averaged 15.6 mmcf/d in the second quarter of 1997 versus 9.0 mmcf/d in 1996.

Drilling
During the first six months of 1997, MMRL participated in the drilling of 43 wells which resulted in 11 oil wells, 15 gas wells, one service well and 16 wells that were abandoned for an overall success ratio of 63%.

On an industry wide basis, drilling activities this year have been affected by a continuing shortage of available drilling rigs and wet spring conditions.

During the second quarter, a total of seven wells were drilled on our Mountain Energy properties in Central Alberta which resulted in four oil wells and three dry holes. Six of the wells were drilled in the Halkirk area (two exploration and four development) and one exploration well was drilled at Red Willow.

At Gull Lake in Alberta, two wells were drilled, one a successful gas well and one which was abandoned.

In the UK, a total of four wells were drilled, which resulted in two oil wells and two dry holes. At Welton a new productive zone was discovered during the quarter which resulted in initial production of 300 bopd from a vertical section of a well bore. This zone covers the Company's Welton, Nettleham and Scampton fields and has the potential to add significantly to the Company's reserves.

Exploration
Towards the end of the second quarter, the Company commenced drilling an exploration well at Sculpholme in the UK. This well subsequently tested 20 metres of light oil in a relatively tight sand. The productive capability of this well will be dependent on the results of further testing which is currently taking place.

At this time, MMRL has a unique opportunity to provide for potential growth in the future. Its extensive undeveloped land holdings contain significant exploration potential. The favourable land system in the UK affords further opportunities to expand the Company's undeveloped land base without having to tie up large amounts of capital. To take advantage of these opportunities, a major effort is being made by the Company's technical staff to evaluate its opportunities and to prepare for the upcoming onshore licencing round scheduled for October, 1997.

In addition, the Company has entered into agreements in principle for two transactions in the UK, one an acquisition and the other a farm-in opportunity, which if completed, will add approximately 150,000 acres of undeveloped land to its inventory.

North Sea
As reported in our first quarter report, MMRL completed the acquisition of Croft Oil & Gas plc in May 1997. This acquisition has given MMRL a small working interest in three producing fields in the North Sea, a 12.5% working interest in the Kyle North Sea oil field being developed by Ranger Oil (UK) Ltd. as operator and an interest in a number of other offshore exploration licenses. Negotiations are proceeding to finalize the purchase and sale agreement for the acquisition of three oil fields and one gas condensate field in the North Sea. The Company plans to develop these fields in series using floating production and storage offtake vessels ("FPSO") through a joint project with Petrobras (UK) called Dolphin. The purchase of an interest in another North Sea field has also been agreed to in principle. This acquisition is also a candidate to be developed using a FPSO format on the same basis as the other fields planned for the Dolphin project.

Outlook
We continue to be very encouraged by the future prospects for MMRL. Initial indications of success at Sculpholme along with the discovery of the new zone over our producing licences are expected to add to the Company's reserves in the UK this year. Moreover, the current agreements in principle over additional lands in the UK will add development and exploration prospects to our 1998 drilling program.