FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(MARK ONE)

      [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.

                                       OR

      [_]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

          FOR THE TRANSITION PERIOD FROM _____________ TO ____________


                         COMMISSION FILE NUMBER: 0-21663

                     OFFSHORE ENERGY DEVELOPMENT CORPORATION
             (Exact name of registrant as specified in its charter)

                  DELAWARE                              76-0509791     
       (State or other jurisdiction of               (I.R.S. Employer  
        incorporation or organization)              Identification No.)
                                                                      
           1400 WOODLOCH FOREST DRIVE, SUITE 200
                  THE WOODLANDS, TEXAS                      77380
         (Address of principal executive offices)         (Zip Code)

                                 (281) 364-0033
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes  [X]     No  [_]

As of August 14, 1997, there were 8,701,885 shares of the registrant's Common
Stock, par value $.01 per share, outstanding.
================================================================================
<PAGE>
                         PART I -- FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS.

                     OFFSHORE ENERGY DEVELOPMENT CORPORATION

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                    December 31,      June 30,      
                                                                        1996            1997    
                                                                                    (Unaudited)    
                                                                    ------------    ------------
<S>                                                                 <C>             <C>         
Assets
  Current Assets:
     Cash and cash equivalents ..................................   $ 18,407,768    $  1,605,792
     Accounts receivable - trade, net ...........................      2,308,439       2,011,939
     Accounts receivables - affiliate ...........................         87,979         290,135
     Accounts receivable - other ................................      1,788,284       1,351,597
     Prepaids and other assets ..................................         45,491         204,524
                                                                    ------------    ------------
          Total current assets ..................................     22,637,961       5,463,987


     Oil and gas properties - at cost (successful efforts method)     36,769,166      51,247,895
     Other property and equipment ...............................        372,946         647,687
     Accumulated depreciation, depletion and amortization .......    (11,439,301)    (13,684,180)
                                                                    ------------    ------------
                                                                      25,702,811      38,211,402
     Investments in affiliates and others .......................        729,784       1,612,815
     Investments in certificates of deposits, restricted ........      1,445,442       1,780,973
     Deferred and other assets ..................................        424,855         297,893
                                                                    ------------    ------------
          Total Assets ..........................................   $ 50,940,853    $ 47,367,070
                                                                    ============    ============

Liabilities and Stockholders' Equity (Deficit)
  Current Liabilities:
     Accounts payable ...........................................   $  6,392,031    $  6,802,158
     Capital lease payable - current ............................        187,444         176,505
     Accrued liabilities ........................................        404,138            --   
                                                                    ------------    ------------
          Total current liabilities .............................      6,983,613       6,978,663

  Deferred tax liability ........................................      1,442,844         233,028
  Capital lease payable - noncurrent ............................        462,380         397,130
  Reserve for abandonment .......................................        480,906         535,608
                                                                    ------------    ------------
          Total Liabilities .....................................      9,369,743       8,144,429


  Stockholders' Equity:
     Preferred stock, $.01 par value, authorized 1,000,000
       shares, none issued or outstanding .......................           --              --   
     Common stock - Offshore Energy Development Corporation
       $.01 par value; authorized 10,000,000 shares; issued
       and outstanding 8,701,885 at December 31, 1996 and
       June 30, 1997 ............................................         87,019          87,019
     Additional paid-in capital .................................     42,645,778      42,645,778
     Accumulated deficit ........................................     (1,161,687)     (3,510,156)
                                                                    ------------    ------------
          Total stockholders' equity ............................     41,571,110      39,222,641

  Commitments and contingencies
  Total Liabilities and Stockholders' Equity ....................   $ 50,940,853    $ 47,367,070
                                                                    ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      -2-
<PAGE>
                     OFFSHORE ENERGY DEVELOPMENT CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                       Three Months Ended               Six Months Ended
                                                                  ---------------------------     ---------------------------
                                                                    June 30,        June 30,        June 30,        June 30, 
                                                                      1996            1997            1996            1997
                                                                 (Predecessors)    (Company)     (Predecessors)    (Company)
                                                                  (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)
                                                                  ------------    ------------    ------------    ------------
<S>                                                               <C>             <C>             <C>             <C>         
Income:
        Exploration and production ............................   $  2,261,542    $  2,165,793    $  5,548,829    $  4,352,041
        Pipeline operating and marketing ......................        227,736         258,927         493,750         543,522
        Equity in earnings of equity investments ..............         19,405          29,750          23,171          40,722
        Gain (loss) on sales of oil and gas properties
                 or partnership investments, net ..............        (25,190)            123      10,661,433           3,383
                                                                  ------------    ------------    ------------    ------------
                    Total Income ..............................      2,483,493       2,454,593      16,727,183       4,939,668
                                                                  ------------    ------------    ------------    ------------


Expenses:
        Operations and maintenance ............................        550,060         524,538       1,025,003       1,037,363
        Exploration charges ...................................        331,422         642,383         421,368       4,574,717
        Depreciation, depletion and amortization ..............      1,326,500       1,128,727       2,876,566       2,159,489
        Abandonment expense ...................................         34,322          98,125         216,121         134,238
        General and administrative ............................        613,370         786,572       1,154,915       1,552,543
                                                                  ------------    ------------    ------------    ------------
                   Total Expenses .............................      2,855,674       3,180,345       5,693,973       9,458,350
                                                                  ------------    ------------    ------------    ------------

Earnings (loss) before interest and taxes .....................       (372,181)       (725,752)     11,033,210      (4,518,682)


Interest Income (Expense) and Other:
        Interest expense ......................................       (261,767)        (14,283)       (622,132)        (86,154)
        Interest income and other, net ........................        (69,878)        846,589         (64,823)      1,046,551
                                                                  ------------    ------------    ------------    ------------
                   Total Interest Income (Expense) and Other ..       (331,645)        832,306        (686,955)        960,397
                                                                  ------------    ------------    ------------    ------------

Income (Loss) Before Income Taxes .............................       (703,826)        106,554      10,346,255      (3,558,285)
Income Tax Benefit (Expense) ..................................            893         (36,229)        (13,130)      1,209,816
                                                                  ------------    ------------    ------------    ------------
Net Income (Loss) .............................................       (702,933)         70,325      10,333,125      (2,348,469)
        Preference unit payments and accretion of discount ....       (446,619)           --          (893,238)           --   
                                                                  ------------    ------------    ------------    ------------
Income (loss) available to common unit holders and
        stockholders ..........................................   $ (1,149,552)   $     70,325    $  9,439,887    $ (2,348,469)
                                                                  ============    ============    ============    ============
Income (loss) available to common unit holders and
        stockholders per common share .........................   $      (0.23)   $       0.01    $       1.87    $      (0.27)
                                                                  ============    ============    ============    ============
Weighted average number of common shares and
        common share equivalents outstanding ..................      5,051,882       8,701,885       5,051,882       8,701,885
                                                                  ============    ============    ============    ============
</TABLE>
See accompanying notes to consolidated financial statements.

                                      -3-
<PAGE>
                     OFFSHORE ENERGY DEVELOPMENT CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                     Six Months Ended Six Months Ended
                                                      June 30, 1996    June 30, 1997 
                                                      (Predecessors)     (Company)
                                                        (Unaudited)     (Unaudited)
                                                       ------------    ------------
<S>                                                    <C>             <C>          
Operating Activities
  Net income (loss) ................................   $ 10,333,125    $ (2,348,469)
  Adjustments to reconcile net income (loss) to
     cash provided by (used in) operations
     Depreciation, depletion and amortization ......      2,954,580       2,199,130
     Abandonment expense ...........................         68,944          44,761
     Gain on sales, net ............................    (10,661,433)          3,383
     Dry hole expense ..............................           --         3,770,997
     Equity in earnings of equity investments ......        (23,171)        (40,722)
     Change in interest of oil and gas partnerships          (1,269)      4,294,446
     Deferred taxes ................................         13,130      (1,209,816)
     Changes in assets and liabilities:
       Accounts receivable .........................        464,203          46,535
       Deferred and other assets ...................     (1,528,034)        275,001
       Accounts payable ............................     (1,220,361)        714,661
       Accrued liabilities .........................        568,788        (384,740)
                                                       ------------    ------------
          Total adjustments ........................     (9,364,623)      9,713,636
                                                       ------------    ------------

            Net cash provided by
               operating activities ................        968,502       7,365,167

Investing Activities
  Investment in equity interests ...................       (252,678)       (842,309)
  Repayments from equity investees .................        512,640            --   
  Proceeds from the sales of properties and other
     investments ...................................     11,340,093          50,000
  Restricted investments in certificates of deposit        (560,349)       (335,531)
  Sale of property and equipment ...................           --              --   
  Capital expenditures for property and equipment ..       (758,292)    (22,963,114)
                                                       ------------    ------------
            Net cash provided by (used in)
               investing activities ................     10,281,414     (24,090,954)

Financing Activities
  Principal payments on borrowings .................     (9,760,962)           --   
  Preference unit payments .........................       (540,000)           --   
  Principal payments on capital lease ..............        (81,805)        (76,189)
                                                       ------------    ------------
            Net cash used in financing
               activities ..........................    (10,382,767)        (76,189)

            Increase (decrease) in cash and
               cash equivalents ....................        867,149     (16,801,976)
  Cash and cash equivalents balance,
     beginning of period ...........................        710,306      18,407,768
                                                       ------------    ------------
  Cash and cash equivalents balance,
     end of period .................................   $  1,577,455    $  1,605,792
                                                       ------------    ------------

  Supplemental disclosures of cash flow information:
     Cash paid during the period for interest ......   $    307,762    $     36,881
                                                       ============    ============
     Cash paid during the period for income taxes ..   $       --      $       --   
                                                       ============    ============

  Supplemental disclosure of non-cash activity:
     Accretion of discount on preference units .....   $    353,238    $       --   
</TABLE>
           See accompanying notes to consolidated financial statements

                                      -4-
<PAGE>
                     OFFSHORE ENERGY DEVELOPMENT CORPORATION
              Notes to Unaudited Consolidated Financial Statements

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      The accompanying unaudited consolidated financial statements include, in
the opinion of management, all adjustments necessary to present fairly the
consolidated financial position of Offshore Energy Development Corporation
("OEDC" or the "Company") at June 30, 1997 and its results of operations and
cash flows for the three and six months ended June 30, 1997 and 1996. The
financial statements should be read in conjunction with the historical financial
statements and notes to the consolidated historical financial statements of
Offshore Energy Development Corporation as of and for the period ended December
31, 1996.

2.    PRINCIPLES OF PRESENTATION AND ORGANIZATION

      OEDC is a Delaware corporation formed on July 24, 1996 for the purpose of
acquiring the common stock of OEDC, Inc. and the partners' interest in OEDC
Partners, L.P. (the "Combination"). At formation, OEDC issued a share of stock
to three of its officers.

      The Combination was consummated on November 6, 1996 and OEDC issued
5,051,882 shares of common stock to the stockholders of OEDC, Inc. ("Inc.") and
the partners of OEDC Partners, L.P. ("Partners"), collectively (the
"Predecessors). The Combination was accounted for by assigning the Predecessors'
carryover basis to the acquired assets. In conjunction with the Combination, the
Company completed a public issuance of 3,650,000 shares of common stock.

      The Predecessors were formed on August 31, 1992 for the purpose of
investing in certain partnerships involved in drilling, producing, marketing,
gathering and storing oil and gas. Upon completion of the Combination, all of
Partners' assets and liabilities were transferred to OEDC, the partners of
Partners were issued common stock in exchange for their interests and Partners
was dissolved. The shareholders of Inc. exchanged their Inc. common stock for
OEDC common stock and Inc. became a wholly-owned subsidiary of OEDC.

                                      -5-
<PAGE>
                     OFFSHORE ENERGY DEVELOPMENT CORPORATION
              Notes to Unaudited Consolidated Financial Statements

Prior to the Combination, Partners was a limited partnership. As such, it was
not subject to federal income taxes; the taxable income or loss was passed
through to the partners.

      PRINCIPLES OF CONSOLIDATION

      The Company's investments in associated oil and gas partnerships are
accounted for using the proportionate consolidation method, whereby the
Company's proportionate share of each oil and gas partnerships' assets,
liabilities, revenues, and expenses is included in the appropriate
classifications in the Company's financial statements. Investments in non-oil
and gas partnerships where the Company has ownership interest of less than 50%
are accounted for on the equity method, and all investments with an ownership
interest of less than 20% are accounted for on the cost method. All of the
Company's material intercompany accounts and transactions have been eliminated
in the consolidation.

      The consolidated financial statements include the consolidated accounts of
Inc. and Partners prior to the Combination. The consolidated financial
statements are presented due to Inc.'s sole general partner interest in and
control over Partners.

3.    CREDIT FACILITY

      In 1996, the Company entered into a two-year $10,000,000 line of credit
with Union Bank of California, N.A. At June 30, 1997, the borrowing base was
$3,125,500 with no amounts outstanding under this facility. The borrowing base
is reduced by $312,500 per month through August 31, 1997, by $250,000 per month
for the succeeding six months and by $166,667 per month for the final six months
of the agreement, unless changed by the bank at the time of a borrowing base
redetermination. The borrowing base is to be redetermined every six months.
Borrowings under this facility bear interest at a rate equal to, at the
Company's option, either the bank's reference rate plus 1% or LIBOR plus 2.5%.

      Subsequent to June 30, 1997, the line of credit agreement was restated,
raising the borrowing base to $11,000,000 and extending the commitment period of
the agreement to September 30, 1999. The borrowing base is reduced by $550,000
for the first twelve months after September 30, 1997, by $440,000 per month for
the succeeding six months and by

                                       -6-
<PAGE>
                     OFFSHORE ENERGY DEVELOPMENT CORPORATION
              Notes to Unaudited Consolidated Financial Statements

$293,333 for the final six months of the agreement, unless changed by the bank
at the time of a borrowing base redetermination. The borrowing base is to be
redetermined every three months.

4.    SALE OF INVESTMENT IN PARTNERSHIP AND OIL AND GAS PROPERTIES

      During the six months ended June 30, 1996, the Company sold approximately
96% of its interest in Dauphin Island Gathering Partners ("DIGP") to a
subsidiary of MCN Investment Corporation ("MCN"). The Company received net
proceeds of approximately $10,800,000 from MCN resulting in a gain of
approximately $10,800,000. The Company continues to operate DIGP and retained a
1% ownership interest.

      Also, during the first half of 1996, the Company sold its interest in a
non-producing oil and gas property for approximately $500,000 resulting in a
loss of $166,000.

5.    ABANDONMENT OF OIL AND GAS PROPERTIES

      The Company's oil and gas properties are accounted for on the successful
efforts method. The successful efforts method requires that exploratory dry
holes be expensed as incurred. During the six months ended June 30, 1997,
approximately $3,800,000 was charged to operations for exploratory dry holes; no
such charge was recorded for the six months ended June 30, 1996.

6.    NATURAL GAS HEDGING ACTIVITIES

      The Company periodically enters into natural gas price swaps with third
parties to hedge against potential adverse effects of fluctuations in future
prices for the Company's anticipated production volumes based on current
engineering estimates. At June 30, 1997, the Company had commitments under
natural gas price swaps for volumes of 1.8 Bcf at prices from $2.01 to $2.23 per
mmbtu. Such commitments expire periodically through December 1997. At June 30,
1997, the Company estimates the cost of unwinding these positions to be
$197,000.

7.    OTHER INCOME

      As a result of a settlement over disputed mineral rights with a third
party, the Company recorded a settlement of $734,000 during the second quarter
of 1997. The amount was paid to the Company in July 1997.

                                       -7-
<PAGE>
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
            RESULTS OF OPERATIONS.

OVERVIEW

      Offshore Energy Development Corporation ("Company") was formed for the
purpose of becoming the holding company for OEDC, Inc. and OEDC Partners, L.P.
pursuant to the terms of an Agreement and Plan of Reorganization dated August
30, 1996 (the "Combination"). Under the terms of the Combination, which was
consummated on November 6, 1996, the Company (i) acquired all of the outstanding
capital stock of OEDC, Inc. previously owned by Company management and by
Natural Gas Partners, L.P. ("NGP"), (ii) acquired by merger 50% of the common
limited partnership units of OEDC Partners, L.P. from the Texas corporation
having the same name as the company, and (iii) acquired 50% of the common units
of OEDC Partners, L.P. held by NGP and certain of its employees. The Company
completed an initial public offering (the "Offering") of shares of its common
stock contemporaneously with the consummation of the Combination.

      This report contains certain forward-looking statements regarding the
Company's future financial condition, results of operations, liquidity and
prospects and the Company's business operations. The words "expect," "estimate,"
"anticipate," "predict" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
indicated in a forward- looking statement. Such risks and uncertainties include,
but are not limited to, those relating to: (i) the speculative nature of the
assumptions underlying the forward-looking statements, (ii) the volatility of
natural gas and oil prices, (iii) the Company's ability to replace its reserves,
(iv) the costs and uncertainties relating to oil and gas exploration and
development, (v) the substantial capital requirements associated with the
Company's business strategy, and (vi) the other risks and uncertainties
described herein and in the other documents filed by the Company with the
Securities and Exchange Commission.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997.

                                       -8-
<PAGE>
      INCOME. Total Income for the Company decreased slightly by $28,000 (1%)
from $2,483,000 in the three months ended June 30, 1996 to $2,455,000 in the
three months ended June 30, 1997. The relatively comparable income was primarily
the result of increased natural gas prices received by the Company offset by
declines in natural gas volumes produced.

      Exploration and production revenue decreased $96,000 (4%) from $2,262,000
in the three months ended June 30, 1996 to $2,166,000 in the three months ended
June 30, 1997. Production volumes decreased from 1.19 Bcf to 1.07 Bcf (a 10%
decrease) in the three months ended June 30, 1996 and 1997, respectively. The
production decrease was attributable to expected production declines at the
Company's Mobile area 959 cluster and South Timbalier 162 B7 well, which were
partially offset by increased production volumes from the Company's successful
Viosca Knoll block 24 sidetrack drilling operation in the fourth quarter of 1996
and initial production from the Company's successful drilling efforts at South
Timbalier 161 and North Padre Island A59. The South Timbalier 161 D5 well (100%
working interest) commenced production in late April 1997 and the North Padre
Island A59 A4 well (60.6% working interest) commenced production in early June
1997. The decrease in production volumes was offset by higher natural gas
prices. Average natural gas prices received (inclusive of hedging) were $1.90
per Mcf in the three months ended June 30, 1996 compared to $2.03 per Mcf in the
three months ended June 30, 1997, respectively (a 7% increase).

      Pipeline operating and marketing income increased by $31,000 (14%) from
$228,000 for the three month period ended June 30, 1996 to $259,000 for the
three month period ended June 30, 1997. The Company receives a management fee of
$188,000 per quarter for operating the Dauphin Island Gathering System (the
"DIGS"). The Company also markets third-party gas on a limited basis. Marketing
revenue received in the second quarter of 1997 was $71,000.

      EXPENSES. Total expenses increased by $324,000 (11%) from $2,856,000 for
the second quarter of 1996 compared to $3,180,000 for the second quarter of
1997.

      Operations and maintenance expense remained relatively stable for the
second quarter of 1997 at $525,000 compared to $550,000 for the second quarter
of 1996 (a 5% decrease). In general, a significant portion of operations expense
is fixed and, therefore, does not fluctuate from period to period as changes
occur in production volume and prices received for those volumes. However,
operation expenses are expected to increase as a result of the South Timbalier
161 D5 well and the North Padre A59 platform coming online in the second quarter
of 1997 as noted above.

      Exploration charges increased $311,000 from $331,000 in the second quarter
of 1996 to $642,000 in the second quarter of 1997. The increase was primarily
attributable to seismic related charges of $494,000 in the second quarter of
1997 compared to seismic charges of $229,000 in the comparable quarter in 1996.
The 1997 expenditures consisted of geological consulting, seismic data and
processing for areas offshore Louisiana covering blocks recently acquired by the
Company in

                                       -9-
<PAGE>
a recent Federal lease sale and areas offshore Texas. As a result of the
Company's use of the successful efforts method of accounting, the Company
expenses rather than capitalizes geological and seismic costs. The Company also
incurred $114,000 of dry hole cost in the second quarter of 1997 associated with
the South Timbalier 162 dry hole that was drilled in the first quarter of 1997,
as additional charges related to the drilling of that well were received in the
second quarter of 1997.

      As a result of natural gas production volumes decreasing by 10% for the
three months ended June 30, 1997 compared to the same period in 1996, the
Company's depreciation, depletion and amortization ("DD&A") decreased by
$198,000 (15%). The Company's average DD&A rates per Mcf of production were
$1.12 per Mcf and $1.06 per Mcf for the second quarter of 1996 and 1997,
respectively. The decline in average DD&A rate per Mcf was due to decreased
production as a result of expected production decline from the Company's Mobile
Area 959 cluster, which had a high finding cost per Mcf as compared to other
Company production.

      Abandonment expense increased 188% from $34,000 in the second quarter of
1996 to $98,000 in the second quarter of 1997. The Company incurred cash
abandonment expense of $89,000 relating to a previous abandonment of the
Company's Eugene Island 163 block and abandonment accruals of $9,000 in the
second quarter of 1997 compared to abandonment accruals of $34,000 in the second
quarter of 1996.

      General and administrative expenses increased $174,000 (28%) from $613,000
for the three months ended June 30, 1996 to $787,000 for the three months ended
June 30, 1997. The increase was attributable to additional staffing in
anticipation of increased exploration and development activities combined with
annual compensation increases.

      INTEREST INCOME (EXPENSE). The Company incurred net interest expense (net
of interest income) of $225,000 for the second quarter of 1996 compared to net
interest income of $98,000 for the second quarter of 1997. The net interest
expense in the second quarter of 1996 primarily represented interest paid to an
affiliate of Enron Corp. ("Enron") relating to borrowings utilized for working
capital and hedging needs. The reason the Company received net interest income
in the second quarter of 1997 compared to a net interest expense in the second
quarter of 1996 was the result of paying off all outstanding debt after the
Offering in November, 1996 coupled with increased interest income from increased
cash balances following the Offering.

      NET INCOME (LOSS). The Company had a net loss before income taxes of
$704,000 in the second quarter of 1996 compared to net income of $107,000 in the
second quarter of 1997. The net loss for the second quarter of 1996 was
primarily the result of general and administrative expenses at a level that
supported the Company's projected increases in development activities and
partially due to the Company's successful efforts method of accounting that
requires the Company to expense rather than capitalize exploration activities
(dry holes, seismic charges and lease rentals). As a result

                                      -10-
<PAGE>
of a settlement over disputed mineral rights with an oil and gas company, the
Company recorded $734,000 of settlement income during the second quarter of
1997. The $734,000 was paid to the company early in the third quarter of 1997.
Net income (loss) after giving effect to income taxes and tax benefits was a net
loss of $703,000 in the second quarter of 1996 compared to net income of $70,000
for the second quarter of 1997.

      Income (loss) available to common unit holders and stockholders, which
gives effect to preference unit payments and accretion of discount, was a loss
of $1,150,000 in the three month period ended June 30, 1996 compared to net
income of $70,000 in the three month period ended June 30, 1997. In the fourth
quarter of 1996, the Company redeemed all of the outstanding preference units of
OEDC Partners, L.P. with proceeds of the Offering. Therefore, in periods after
the fourth quarter of 1996 all net income will be available to common
stockholders.

      During the second quarter of 1996, the Company made preference payments to
NGP totaling $270,000. The Company began accreting the $2 million discount of
preference units following the purchase of additional preference units by NGP in
1995. The accretion of discount was $177,000 in the second quarter of 1996. As
the Company redeemed all preference units outstanding following the Offering,
the Company will not incur accretion of discount charges nor will preference
payments have to be made.

SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997.

      INCOME. Total income for the Company decreased by $11,787,000 (70%) from
$16,727,000 in the six months ended June 30, 1996 to $4,940,000 in the six
months ended June 30, 1997. The higher income amount in the first two quarters
of 1996 was primarily attributable to the Company's sale of all but a one
percent general partnership interest in Dauphin Island Gathering Partners
("DIGP"), the partnership that owns the DIGS, which resulted in a gain of
$10,827,000.

      Exploration and production revenue decreased $1,197,000 (22%) from
$5,549,000 in the six months ended June 30, 1996 compared to $4,352,000 in the
six months ended June 30, 1997. Production volumes decreased from 2.52 Bcf to
2.12 Bcf (a 16% decrease) in the six months ended June 30, 1996 and 1997,
respectively. The production decrease was attributable to expected production
declines at the Company's Mobile area 959 cluster and South Timbalier 162 B7
well, which were partially offset by increased production volumes from the
Company's successful Viosca Knoll block 24 sidetrack drilling operation in the
fourth quarter of 1996 and initial production from the Company's successful
drilling efforts at South Timbalier 161 and North Padre Island A59. The South
Timbalier 161 D5 well (100% working interest) commenced production in late April
1997 and the North Padre Island A59 A4 well (60.6% working interest) commenced
production in early June 1997. The decrease in production volume was negatively
impacted by lower average natural gas prices. Average natural gas prices
received (inclusive of hedging) were $2.20 per Mcf in the six months

                                      -11-
<PAGE>
ended June 30, 1996 compared to $2.05 per Mcf in the six months ended June 30,
1997 (a 7% decrease).

      Pipeline operating and marketing income increased by $50,000 (10%) from
$494,000 for the six month period ended June 30, 1996 to $544,000 for the six
month period ended June 30, 1997. The Company receives management fees of
$63,000 per month for operating the DIGS. The Company also markets third-party
gas on a limited basis. Marketing revenue received in the first two quarters of
1997 was $169,000.

      EXPENSES. Total expenses increased by $3,764,000 (66%) from $5,694,000 for
the first two quarters of 1996 to $9,458,000 for the first two quarters of 1997.

      Operations and maintenance expense remained relatively stable for the
first two quarters of 1997 at $1,037,000 compared to $1,025,000 for the second
quarter of 1996 (a 1% increase). In general, a significant portion of operations
expense is fixed and, therefore, does not fluctuate from period to period as
changes occur in production volume and prices received for those volumes.
However, operation expenses are expected to increase as a result of the South
Timbalier 161 D5 well and the North Padre A59 platform coming online in the
second quarter of 1997 as noted above.

      Exploration charges increased $4,154,000 from $421,000 in the first two
quarters of 1996 to $4,575,000 in the first two quarters of 1997. The major
component of the 1997 increase was attributable to first quarter 1997 charges
relating to dry hole expenses of $3,675,000, of which $3,473,000 relates to the
Company's unsuccessful attempts to repair and side track out of the existing
South Timbalier 162 B6 non-producing wellbore. An additional $220,000 in dry
hole expense relates to the Viosca Knoll block 80 dry hole that was drilled in
fourth quarter of 1996, as the Company received additional invoices in the first
quarter of 1997 relating to the drilling of that well. Also contributing to the
increase were additional seismic related charges of $762,000 in the first six
months of 1997 compared to seismic charges of $271,000 in the comparable period
in 1996. The 1997 expenditures consisted of geological consulting, seismic data
and processing for areas offshore Louisiana covering blocks recently acquired by
the Company in a recent Federal lease sale and areas offshore Texas. As a result
of the Company's use of the successful efforts method of accounting, the Company
expenses rather than capitalizes geological and seismic costs.

      As a result of natural gas production volumes decreasing by 16% for the
six months ended June 30, 1997 compared to the same period in 1996, the
Company's DD&A decreased by $717,000 (25%). The Company's average DD&A rates per
Mcf of production were $1.14 per Mcf and $1.02 per Mcf for the first two
quarters of 1996 and 1997, respectively. The decline in average DD&A rate per
Mcf was due to decreased production as a result of expected production decline
from the Company's Mobile Area 959 cluster, which had a high finding cost per
Mcf as compared to other Company production.

                                      -12-
<PAGE>
      Abandonment expense decreased 38% from $216,000 in the first six months of
1996 to $134,000 in the first six months of 1997. The Company incurred cash
abandonment expense of $89,000 relating to the previous abandonment of the
Company's Eugene Island 163 block platform and abandonment accruals of $45,000
in the first two quarters of 1997. This compares to actual cash abandonment
expense of $147,000 relating to the above noted Eugene Island 163 platform and
abandonment accruals of $69,000 in the first two quarters of 1996.

      General and administrative expenses increased $397,000 (34%) from
$1,155,000 for the six months ended June 30, 1996 to $1,552,000 for the six
months ended June 30, 1997. The increase was attributable to additional staffing
in anticipation of increased exploration and development activities combined
with annual compensation increases.

      INTEREST INCOME (EXPENSE). The Company incurred net interest expense (net
of interest income) of $556,000 for the first two quarters of 1996 compared to
net interest income of $226,000 for the comparable period in 1997. The net
interest expense in the first two quarters of 1996 primarily represented
interest paid to an affiliate of Enron relating to borrowings utilized for
working capital and hedging needs. The reason the Company received net interest
income in the first two quarters of 1997 compared to a net interest expense in
the first two quarters of 1996 was the result of paying off all outstanding debt
after the Offering in November, 1996 coupled with increased interest income from
increased cash balances following the Offering.

      NET INCOME (LOSS). The Company had net income before income taxes of
$10,346,000 in the first two quarters of 1996 compared to a net loss of
$3,558,000 in the first two quarters of 1997. The net loss in the 1997 period
was primarily the result of the above noted dry hole cost during the first
quarter of 1997. Net income (loss) after giving effect to income taxes and tax
benefits was net income of $10,333,000 in the first two quarters of 1996
compared to a net loss of $2,348,000 for the first two quarters of 1997.

      Income (loss) available to common unit holders and stockholders, which
gives effect to preference unit payments and accretion of discount, was net
income of $9,440,000 in the six month period ended June 30, 1996 compared to a
net loss of $2,348,000 in the six month period ended June 30, 1997. In the
fourth quarter of 1996, the Company redeemed all of the outstanding preference
units of OEDC Partners, L.P. with proceeds of the Offering. Therefore, in
periods after the fourth quarter of 1996 all net income will be available to
common stockholders.

      During the first two quarters of 1996, the Company made preference
payments to NGP totaling $540,000. The Company began accreting the $2 million
discount of preference units following the purchase of additional preference
units by NGP in 1995. The accretion of discount was $353,000 in the six months
ended June 30, 1996. As the Company redeemed all preference

                                      -13-
<PAGE>
units outstanding following the Offering, the Company will not incur accretion
of discount charges nor will preference payments have to be made.

LIQUIDITY AND CAPITAL RESOURCES

SUMMARY

      The Company's cash position decreased by $16,802,000 during the first two
quarters of 1997. This decrease is primarily the result of the Company's ongoing
investment in oil and gas drilling and development activities.

      Net cash provided by operating activities was $7,365,000 for the six
months ended June 30, 1997, as compared to $969,000 for the same period in 1996.
The cash provided by operating activities was significantly higher in the first
two quarters of 1997 as compared to the first two quarters of 1996 as a result
of ordinary changes in current assets and liabilities creating a source of
$651,000, a change in oil and gas partnership interest, primarily the South
Dauphin II Limited Partnership, providing a source of $4,294,000 (which was
offset by a similar amount as investment in oil and gas properties) and
$3,771,000 in dry hole expense, primarily relating to the Company's South
Timbalier 162 B-6 well, which is added back to net income for purposes of
calculating cash provided by operating activities, but is ultimately a use of
cash as dry hole expense is considered a capital expenditure.

      Net cash utilized by investing activities was $24,091,000 in the six
months ended June 30, 1997 compared to $10,281,000 of cash that was provided for
investing activities in the six months ended June 30, 1996. The first two
quarters of 1997 use of cash represents the Company's continued investment in
various oil and gas projects. The cash provided in the first two quarters of
1996 was the result of selling all but one percent of the Company's general
partnership interest in DIGP and selling a non-strategic lease block and
generating $11,340,000 from these transactions.

      Financing activities utilized $76,000 of cash in the first six months of
1997 as a result of principal payments on a leased compressor utilized by the
Company. During the comparable period in 1996, the Company utilized $10,383,000
which primarily consisted of principal repayment to Enron on outstanding loans.

      In the event the cash flows from the Company's operating activities and
credit available under its credit facility described below are not sufficient to
fund development costs, or results from drilling are not as successful as
anticipated, the Company will either curtail its drilling or seek additional
financing to assist in its drilling activities. No assurance may be given that
the Company will be able to obtain such additional financing. If the Company is
required to curtail its drilling

                                      -14-
<PAGE>
activities, its ability to develop and expand its prospect inventory, as well as
its earnings and cash flow from exploration and production activities, will be
adversely affected.

      The Company intends to continue its efforts to acquire additional acreage
if and when these opportunities become available. Any such acquisition or
related drilling on such acquisition could require additional borrowings under
the Company's credit facility or additional debt or equity financing. No
assurance may be given that the Company will be able to obtain such additional
funds.

WORKING CAPITAL

      The Company had a working capital deficit of $1,515,000 as of June 30,
1997. The June 30, 1997 working capital deficit is primarily the result of
increased investment in drilling projects and oil and gas leases. The Company
periodically has experienced substantial working capital deficits. The Company
has incurred substantial expenditures for the acquisition and development of
capital assets either on vendor open accounts payable or under short-term
financings. The Company has been able to refinance the accounts payable balances
by including them in line of credit and longer-term project financings.
Generally, capital investments in properties have converted to cash or generated
borrowing capacity rapidly enough to finance the Company's working capital
deficits. At June 30, 1997, the Company had no amounts outstanding under its
credit facility. As of July 8, 1997, the Company increased its lines of credit
to $11,000,000 (as detailed below).

FINANCING ACTIVITIES

      The Company budgeted a total of $38.6 million for capital expenditures in
1997. During the first six months of 1997, the Company made capital expenditures
of approximately $23.0 million. Given the dynamic nature of the Company's
business, management considers it possible that actual capital expenditures in
1997 could exceed the previously budgeted amount. The Company believes that
borrowings under the existing credit facility described below and cash flows
generated from operations will be sufficient to fund these expenditures.
However, no assurance may be given as to the adequacy of these sources.

      CREDIT FACILITY. On July 8, 1997, the Company increased its existing line
of credit. The new credit facility is a 27 month line of credit with Union Bank
of California, N.A.. Borrowing under the line of credit may not exceed at any
time the lesser of $30 million or the borrowing base (computed with reference to
the Company's oil and gas reserves and other assets) as determined by the bank
in its sole discretion. The borrowing base will be determined at least
quarterly. On July 8, 1997, the borrowing base was $11,000,000 and there were no
outstanding amounts under this facility as of that date. The credit facility
will be interest only for the first three months, and then the borrowing base
will be reduced by $550,000 per month for the next 12 months, then by $440,000

                                      -15-
<PAGE>
per month for the succeeding six months and by $293,000 per month for the final
six months of the agreement, unless changed by the bank at the time of a
borrowing base redetermination. Borrowings under this facility bear interest at
a rate equal to, at the Company's option, either the bank's reference rate plus
(.25% to 2.5% depending on amounts outstanding) or LIBOR plus (1.75% to 4.0%
depending on amounts outstanding). There were no amounts outstanding under the
credit agreement as of June 30, 1997.

      The credit facility contains restrictive covenants imposing limitations of
the incurrence of indebtedness, the sale of properties, payment of dividends,
mergers or consolidations, capital expenditures, transactions with affiliates,
making loans, and investments outside the ordinary course of business. The
facility requires that the Company maintain at the subsidiary level certain
minimum financial ratios, including a current ratio of at least 1:1 and interest
coverage ratio on 2.5:1. In addition, the weighted average maturity of
indebtedness incurred on ordinary terms to vendors, suppliers and others
supplying goods and services to the Company in the ordinary course of business
may not exceed 60 days. The credit facility requires the Company to maintain a
certain volume of hedging contracts in effect during the term of the credit
facility.

      Indebtedness under the credit facility is secured by a first lien upon
substantially all of the properties owned by OEDC Exploration and Production,
L.P. and by the pledge of the Company's limited partnership interests in South
Dauphin II Limited Partnership ("SDPII") and its general partnership interest in
DIGP. All assets not subject to a lien in favor of the lender are subject to a
negative pledge, with certain exceptions.

      SOUTH DAUPHIN II LIMITED PARTNERSHIP The Company and an affiliate of Enron
("ECT affiliate") formed SDPII to fund drilling and development, with the
Company generally responsible for costs in excess of budgeted amounts. The
financing of SDPII is non-recourse to the Company's other assets. Pursuant to
the terms of the partnership agreement, the ECT Affiliate receives 85% of the
net cash flows from the subject wells (provided a minimum payment schedule is
met) until it has been repaid all of its original investment plus a 15% pre-tax
rate of return ("Payout"). Once Payout has occurred, the ECT Affiliate's
interest will decrease to 25% and the Company's interest will increase to 75%.
SDPII has the option to prepay the ECT Affiliate's investment and accelerate the
ownership change. If such prepayment is from financing activities instead of
cash flow from operations, the Company is required to make an additional payment
to the ECT Affiliate equal to 10% of the ECT Affiliate's net investment (funds
advanced less distributions received) and five percent of the unfunded portion
of the ECT Affiliate's commitment. During July, 1997 the Company and its Board
of Directors elected to not prepay the ECT affiliate investment and accelerate
the SDPII payout as previously planned. The Board of Directors concluded such an
investment by the Company would be imprudent and a potential waste of the
Company's assets unless substantial production history indicates that the
acceleration of SDPII payout is financially attractive.

                                      -16-
<PAGE>
HEDGING ACTIVITIES

      The Company continues to utilize financial futures to hedge its natural
gas production. In the first six months of 1996, total natural gas revenue
decreased by $822,000 compared to a decrease of $563,000 for the first six
months of 1997 as a result of the Company's hedging position. As of June 30,
1997, the Company had 1.80 Bcf hedged from July, 1997 through December, 1997 at
an average price of $2.08 per Mcf. The Company estimates that as of June 30,
1997, the cost to unwind its hedged position was approximately $197,000.
Although hedging reduces the Company's susceptibility to declines in the sales
prices of its natural gas production, it also prevents the Company from
receiving the full benefit of any increases in the sales prices of such
production. Further, significant reductions in production at times when the
Company's production is hedged could require the Company to make payments under
the hedge agreements in the absence of offsetting income.

EFFECTS OF INFLATION

      The Company's results of operations and cash flow are affected by changing
oil and gas prices. Increases in oil and gas prices often result in increased
drilling activity, which in turn increases the demand for and cost of
exploration and development. Thus, increased prices may generate increased
revenue without necessarily increasing profitability. These industry market
conditions have been far more significant determinants of Company earnings than
have macroeconomic factors such as inflation, which has had only minimal impact
on Company activities in recent years. While it is impossible to predict the
precise effect of changing prices and inflation on future Company operations,
the short-lived nature of the Company's gas reserves makes it more possible to
match development costs with predictable revenue streams than would long-lived
reserves. No assurance can be given as to the Company's future success at
reducing the impact of price changes on the Company's operating results.

RECENT ACCOUNTING PRONOUNCEMENTS

      Effective December 1997, the Company will be required to adopt Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
SFAS 128 introduces the concept of basic earnings per share, which represents
net income divided by the weighted average common shares outstanding without the
dilutive effects of common stock equivalents (options, warrants, etc.). Diluted
earnings per share, giving effect for common stock equivalents, will be reported
when SFAS 128 is adopted in the fourth quarter of 1997. The impact of adopting
SFAS 128 is anticipated to be immaterial.

      Effective December 1997, the Company will be required to adopt Statement
of Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure" ("SFAS 129").

                                      -17-
<PAGE>
SFAS 129 requires that all entities disclose in summary form within the
financial statements the pertinent rights and privileges of the various
securities outstanding. An entity is to disclose within the financial statements
the number of shares issued upon conversion, exercise or satisfaction of
required conditions during at least the most recent annual fiscal period and any
subsequent interim period presented. Other special provisions apply to preferred
and redeemable stock. The Company's adoption of SFAS 129 in the fourth quarter
of 1997 is not expected to have a material impact on reported results.

      In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which establishes standards for reporting and display of
comprehensive income and its components. The components of comprehensive income
refer to revenues, expenses, gains and losses that are excluded from net income
under current accounting standards, including unrecognized foreign currency
translation items, minimum pension liability adjustments and unrealized gains
and losses on certain investments in debt and equity securities. SFAS 130
requires that all items that are recognized under accounting standards as
components of comprehensive income be reported in a financial statement
displayed in equal prominence with the other financial statements; the total of
other comprehensive income for a period is required to be transferred to a
component of equity that is separately displayed in a statement of financial
position at the end of an accounting period. SFAS 130 is effective for both
interim and annual periods beginning after December 15, 1997, at which time the
Company will adopt the provisions. The Company does not expect SFAS 130 to have
a material effect on reported results.

      In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way public enterprises are
to report information about operating segments in annual financial statements
and requires the reporting of selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. SFAS 131 is effective for periods beginning after December 15, 1997,
at which time the Company will adopt the provisions. The Company does not expect
SFAS 131 to have a material effect on its reported results.

                                      -18-
<PAGE>
                          PART II -- OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS.

      Not applicable.

ITEM 2.     CHANGES IN SECURITIES.

      (a)   Not applicable.

      (b)   Not applicable.

      (c)   Not applicable.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES.

      Not applicable.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      The Company held its 1997 annual meeting of stockholders on May 29, 1997
to elect two directors to serve until the Company's 2000 annual meeting of
stockholders and to consider and act upon a proposal to ratify the appointment
of KPMG Peat Marwick LLP as the Company's independent auditors for the year
ending December 31, 1997. With respect to the election of directors, of the
6,900,134 shares present at the meeting, (i) 6,845,899 shares were voted for the
election of David B. Strassner and authority to vote for Mr. Strassner was
withheld with respect to 54,235 shares, and (ii) 6,845,699 shares were voted for
the election of R. Gamble Baldwin and authority to vote for Mr. Baldwin was
withheld with respect to 54,435 shares. With respect to the proposal to ratify
the appointment of KPMG Peat Marwick LLP as the Company's independent auditors,
6,853,649 shares were voted for approval of such proposal, 28,635 shares were
voted against approval of such proposal and 17,850 shares abstained. There were
no broker nonvotes with respect to such proposal.

ITEM 5.     OTHER INFORMATION.

      Not applicable.

                                      -19-
<PAGE>
ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K.

      (a)   The following exhibits are filed with this report:

Exhibit
Number      Description of Exhibit
------      ----------------------

   10       -  First Restated Credit Agreement dated July 8, 1997 by and among
               OEDC Exploration and Production, L.P., Offshore Energy
               Development Corporation, OEDC, Inc., OEDC Partners, L.P., Dauphin
               Island Gathering Company, L.P., OEDC Processing, L.P. and Union
               Bank of California, N.A.

   27       -  Financial Data Schedule.

      (b)   The Company did not file any reports on Form 8-K during the
            quarterly period ended June 30, 1997.

                                      -20-
<PAGE>
                                   SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                     OFFSHORE ENERGY DEVELOPMENT
                                           CORPORATION

Date: August 14, 1997                By: /s/ DOUGLAS H. KIESEWETTER
                                         Douglas H. Kiesewetter
                                         Executive Vice President and Chief
                                         Operating Officer (for the registrant
                                         and as its principal financial officer)

                                      -21-
<PAGE>
                                 EXHIBIT INDEX


Exhibit
Number      Description of Exhibit
------      ----------------------
   10       -  First Restated Credit Agreement dated July 8, 1997 by and among
               OEDC Exploration and Production, L.P., Offshore Energy
               Development Corporation, OEDC, Inc., OEDC Partners, L.P., Dauphin
               Island Gathering Company, L.P., OEDC Processing, L.P. and Union
               Bank of California, N.A.

   27       -  Financial Data Schedule.

                                      -22-