NOTES TO CONSOLIDATED FINANCIAL STATEMENTS









1.   COMPANY ORGANIZATION:


Inland Resources Inc. (the "Company") is an independent energy company with
substantially all of its producing oil and gas property interests located
in the Monument Butte Field within the Uinta Basin of Northeastern Utah
(the "Field"). The Company also operated a crude oil refinery located in
Woods Cross, Utah (the "Woods Cross Refinery") until it was sold on January
31, 2000. The refinery had a processing capacity of approximately 10,000
barrels per day and tankage capacity of 485,000 barrels.


2.   BASIS OF PRESENTATION:


The preceding financial information has been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") and, in the opinion of the Company, includes all normal
and recurring adjustments necessary for a fair statement of the results of
each period shown. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
SEC rules and regulations. Management believes the disclosures made are
adequate to ensure that the financial information is not misleading, and
suggests that these financial statements be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.


3.   ACCOUNTING PRONOUNCEMENT:


In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133") was issued, which establishes
accounting and reporting standards for derivative instruments and hedging
activity. The adoption of SFAS No. 133 was deferred to all fiscal quarters
of all fiscal years beginning after June 15, 2000, by SFAS No. 137
"Accounting for Derivative Instruments and Hedging activities -Deferral of
the Effective Date of FASB Statement No. 133 - an Amendment of FASB
Statement No. 133. SFAS No. 133 requires recognition of all derivative
instruments on the balance sheet as either assets or liabilities and
measurement of fair value. Changes in the derivative's fair value will be
recognized currently in earnings unless specific hedge accounting criteria
are met. Gains and losses on derivative hedging instruments must be
recorded in either other comprehensive income or current earnings,
depending on the nature and designation of the instrument. The Company is
currently assessing the effect of adopting SFAS No. 133 and plans to adopt
the statement on January 1, 2001.


FIN No. 44 "Accounting for Certain Transactions Involving Stock
Compensation - an Interpretation of APB Opinion No. 25" was issued in April
2000. As a result, the Company will be required to account for certain
stock options as variable option grants, based on the market price on July
1, 2000. These options will be marked-to-market with gains and losses
recorded in income for each reporting period subsequent to July 1, 2000,
but only to the extent there are increases in the Company's stock price
above the market price of the stock on July 1, 2000.


4.   DISCONTINUED OPERATIONS:


Pursuant to a decision by the Company's board of directors on December 10,
1999 to dispose of the Company's refinery operations, 100% of the stock in
Inland Refining, Inc., a wholly owned subsidiary, was sold on January 31,
2000 to Silver Eagle Refining, Inc. ("Silver Eagle"). This subsidiary owned
the Woods Cross Refinery and a nonoperating refinery located in Roosevelt,
Utah. The Woods Cross Refinery was originally purchased on December 31,
1997 for $22.9 million and the Roosevelt refinery was originally purchased
on September 16, 1998 for $2.25 million. The sales price was $500,000
together with the assumption by Silver Eagle of refinery assets,
liabilities and obligations including all environmental related
liabilities. Prior to the sale, the Company transferred the existing
inventory, cash, accounts receivable and a note receivable to another
wholly owned subsidiary of the Company. This subsidiary also agreed to
satisfy various accounts payable and accrued liabilities not assumed by
Silver Eagle. The assets and liabilities retained will be disposed of
within one year of December 10, 1999.



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Due to this sale, the Company is no longer involved in the refining of
crude oil or the sale of refined products. As a result, all refining
operations have been classified as discontinued operations in the
accompanying consolidated financial statements. To account for the sale,
the Company recorded a loss on sale of discontinued operations of $14.5
million at December 31, 1999. In addition, certain prior year amounts were
reclassified as discontinued operations, with no net effect on net loss or
accumulated deficit as previously reported. Revenue from discontinued
operations was $0 and $32.6 million during the six-month periods ended June
30, 2000 and 1999; and $0 and $18.0 million during the three-month periods
ended June 30, 2000 and 1999, respectively. The net current assets of
discontinued operations of $473,000 at June 30, 2000 consist primarily of
accounts receivable and a note receivable.


5.   LETTER OF INTENT WITH FLYING J INC.:


On May 25, 2000, the Company entered into a non-binding letter of intent
with Flying J Inc. ("Flying J") regarding the acquisition of certain assets
by the Company from Flying J. The acquisition includes a 25,000 barrel per
day refinery located in North Salt Lake, nine Flying J gasoline stations
located primarily in the Salt Lake City area and Idaho and all oil and gas
reserves owned by Flying J in the Uinta Basin, fifteen miles north of the
Field. The purchase price is $50.0 million in cash and the assumption of
$5.8 million in debt, plus the issuance of approximately 8.9 million shares
of the Company's common stock, par value $0.001 per share, which is equal
to approximately 75.5% of the shares outstanding after the acquisition. The
transaction would be accounted for as a reverse merger. A restructuring of
the Company's capital and debt structure may be required to effectuate the
acquisition. Management anticipates that if the transaction is consummated,
it will close during the third quarter of 2000. The acquisition is
contingent on preparation of definitive documents, financing, due diligence
procedures, receipt of an acceptable fairness opinion and approval by
regulatory agencies, the Company's lenders and the Board of Directors of
each company. The failure of any one of these events could prevent the
consummation of the acquisition.



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INLAND RESOURCES INC.