Third Quarter 1997
For the period ended September 30, 1997

Encouraging exploration results in the UK

Message to Shareholders

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

The Company's exploration program in the UK got into full gear during the third quarter. One significant oil pool discovery was made and indications are positive for confirming a large reservoir compartment adjacent to the Saltfleetby gas discovery. Another exploration prospect is currently being drilled and three more will be spudded prior to year end. MMRL also made an application on October 2, 1997 for additional onshore exploration licences in the UK totalling over three quarters of a million acres in and around its existing East Midlands and Yorkshire licences.

Financial

Oil and gas revenues were $16.6 million in the third quarter of 1997, an increase of $3.0 million over the corresponding period a year earlier. This increase was due to higher production volumes which also offset a $1.14 per barrel decline in average liquids prices over the period. In the first nine months of 1997, total production revenues reached $52.2 million versus $36.2 million in 1996. Production expenses increased for the three and nine month periods ending September 30, 1997 to $3.6 million and $10.6 million respectively compared to $2.6 million and $6.8 million for the same periods a year earlier.

Cash flow from operations totalled $10.4 million in the third quarter or $0.57 per share fully diluted versus $8.7 million or $0.48 per share fully diluted in 1996. For the nine months of 1997, cash flow reached $31.1 million or $1.69 per share fully diluted compared to $23.0 million or $1.27 per share fully diluted in the first nine months of 1996. Net earnings were $3.2 million in the third quarter or $0.18 per share fully diluted compared to $3.5 million last year. Year to date earnings were $9.2 million or $0.51 per share fully diluted compared to $8.7 million in 1996.

A quarterly dividend of $0.05 per share was declared payable on December 30, 1997 to shareholders of record at the close of business on December 16, 1997.

Exploration

In October 1997, MMRL successfully completed the drilling of an oil discovery on its Cold Hanworth exploration prospect which is located about 10 miles north of the Company's Welton operation in the UK. The well has flowed at an average rate of 500 bbls/d under its own pressure and is currently being put on pump. This discovery represents a significant new pool for MMRL. The Company will shoot a 3D seismic program this winter over the discovery and drilling of development wells is scheduled to commence in the second quarter of 1998.

At Saltfleetby, the Company has drilled an extended horizontal well into a new and potentially large fault compartment. Gas shows and log results indicate that this will be a successful gas well. Development of the Saltfleetby discovery is being planned with first production expected at the end of 1998.

The second quarter report to shareholders indicated that drilling of the Scupholme prospect yielded encouraging reservoir characteristics. Testing of this well continues; however, it has yet to generate economic results.

Another exploration prospect is currently being drilled at Keddington on MMRL's East Linc's licence to the west of Saltfleetby and three more exploration wells are planned to be spudded onshore in the UK prior to year end: one at Nettleham on the Welton licence; one at Stoupe Beck on the North Yorkshire licence; and one at Glanford on the East Lincs licence.

North Sea

The Company is completing the purchase of a 13.75% working interest in the Chestnut Field in the North Sea being developed by Premier Oil plc as operator. Originally considered by MMRL as a candidate for the Dolphin Project, the operator has re-estimated upwards the field reserves and is now considering it for "fast track" development on a stand alone basis. Development drilling may commence early in the new year which could lead to production in late 1998. An appraisal well in the Kyle field is scheduled for drilling in February, 1998 with production testing to follow later in the year. The operator, Ranger Oil (UK) Limited, is also evaluating another large structural exploration prospect on a separate location in the licence area.

Production

Total production averaged 7,756 boe/d in the third quarter up 24% from a year earlier but down 6.5% from the second quarter. Production levels have not met full expectations this year due in part to development drilling difficulties in the UK and lower than expected Canadian production. However, there is approximately 500 boe/d of shut-in production capacity from the Company's Halkirk properties in Alberta which is waiting for "good production" status. This should be on stream by the end of the first quarter of 1998. Oil and natural gas liquids averaged 6,443 bbls/d in the third quarter of 1997 as compared to 5,381 bbls/d a year earlier. Natural gas production averaged 13.1 mmcf/d in the third quarter of 1997 versus 8.7 mmcf/d in 1996.

Drilling

During the three month period ended September 30, 1997, MMRL participated in the drilling of 12 wells which resulted in seven oil wells, three gas wells and two wells that were abandoned for an overall success ratio of 83%.

During the third quarter, a total of one exploration well and five development wells were drilled on our Mountain Energy properties in the Halkirk area of Alberta. All of these wells were successful, resulting in four oil wells and two gas wells.

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

In the UK two wells were completed, which resulted in one oil well and one that was unsuccessful. In addition, three other wells drilled during the quarter encountered completion problems. These wells are currently being worked over and their results will be recorded in the fourth quarter.

Corporate Developments

On October 14, 1997, MMRL completed the sale of two million common shares on a "bought deal" basis at a price of $14.00 per share. Northstar Energy Corporation, the Company's largest shareholder, purchased 25% of the issue thereby maintaining its percentage interest in MMRL. Effective November 13, 1997, Peter A. Braaten, President of the Company, has been appointed Chief Executive Officer. A. Gordon Stollery continues as Chairman of the Company.

MMRL's UK operations, both onshore and offshore, are now generating capital spending investment opportunities beyond the Company's ability to finance them from its own internally generated cash flow. Moreover, in light of the high prices being paid for oil and gas properties, it will be more difficult for MMRL to find acquisition opportunities in Canada that meet its criteria. As a result, MMRL has agreed to relinquish its right of first refusal on future acquisitions made by Northstar Energy Corporation in Western Canada in exchange for a 32% reduction in Northstar's management fee, effective August 15, 1997.

Outlook

MMRL has embarked on a number of projects which are designed to have a meaningful impact on the long term growth of the Company. Success at Saltfleetby and our many other onshore exploration prospects, combined with progress in the Company's offshore Kyle and Chestnut developments are expected to provide significant additions to MMRL's production in 1999. In the interim, bringing on stream the Halkirk production, the development of Cold Hanworth and additional development drilling onshore in the UK will be the primary source of growth for the Company in 1998.