UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549
                                    FORM 10-Q

(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, 1999

                                       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      1-7179

                                   SONAT INC.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                          63-0647939
(State or other jurisdiction of                           (I.R.S. Employer
 incorporation or organization)                          Identification No.)

           AMSOUTH-SONAT TOWER
           BIRMINGHAM, ALABAMA                                  35203
(Address of principal executive offices)                     (Zip Code)

Registrant's telephone number:                             (205) 325-3800


                                   NO CHANGE
(Former name, former address and former fiscal year, if changed since last
report)


        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 _

        Indicate  the  number  of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.

                         COMMON STOCK, $1.00 PAR VALUE:

                 110,072,057 SHARES OUTSTANDING ON JULY 31, 1999



<PAGE>


                           SONAT INC. AND SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>
                                                                                          Page No.

PART I.    Financial Information

           Item 1.    Financial Statements

                      Condensed Consolidated Balance Sheets
<S>                                                                                       <C>
                          (Unaudited)--June 30, 1999 and December 31, 1998                 1

                      Condensed Consolidated Statements of Operations
                          (Unaudited)--Three Months and Six Months Ended
                          June 30, 1999 and 1998                                           2

                      Condensed Consolidated Statements of Cash Flows
                          (Unaudited)--Six Months Ended June 30, 1999 and 1998             3

                      Notes to Condensed Consolidated Financial
                          Statements (Unaudited)                                           4 - 15

           Item 2.    Management's Discussion and Analysis of Financial
                          Condition and Results of Operations                             16 - 30

           Item 3.    Quantitative and Qualitative Disclosure About
                          Market Risk                                                     31

PART II.   Other Information

           Item 4.    Submission of Matters to a Vote of Security Holders                 32

           Item 6.    Exhibits and Reports on Form 8-K                                    32
</TABLE>





<PAGE>

                                  PART I. FINANCIAL INFORMATION
Item 1.  Financial Statements
                                   SONAT INC. AND SUBSIDIARIES
                              CONDENSED CONSOLIDATED BALANCE SHEETS
                                           (Unaudited)
<TABLE>
<CAPTION>
                                                                  June 30,             December 31,
                                                                    1999                   1998
                                                                          (In Thousands)
                                              ASSETS
Current Assets:
<S>                                                               <C>                   <C>
   Cash and cash equivalents                                      $    1,467            $    7,104
   Notes receivable from affiliates                                   46,732                50,359
   Accounts receivable                                               356,039               388,075
   Inventories                                                        59,863                69,093
   Income tax refund receivable                                       77,933                 1,714
   Gas imbalance receivables                                           8,050                 7,673
   Assets from trading activities                                    164,423               229,801
   Other                                                              15,324                46,690
                                                                  ----------            ----------
      Total Current Assets                                           729,831               800,509
                                                                  ----------            ----------

Investments in Unconsolidated Affiliates and Other                   690,390               671,263
                                                                  ----------            ----------

Plant, Property and Equipment                                      8,382,646             8,425,679
   Less accumulated depreciation, depletion
      and amortization                                             5,884,243             5,703,767
                                                                  ----------            ----------
                                                                   2,498,403             2,721,912
                                                                  ----------            ----------
Deferred Charges and Other:
   Assets from trading activities                                     58,472                25,694
   Other                                                             171,396               141,716
                                                                  ----------            ----------
                                                                     229,868               167,410
                                                                  ----------            ----------

Total Assets                                                      $4,148,492            $4,361,094
                                                                  ==========            ==========

                               LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Long-term debt due within one year                             $  104,839            $  109,835
   Unsecured notes                                                   899,432               720,361
   Accounts payable                                                  320,143               401,357
   Accrued income taxes                                               12,080                21,700
   Accrued interest                                                   51,348                47,864
   Gas imbalance payables                                             11,046                11,497
   Liabilities from trading activities                               141,596               223,628
   Other                                                              49,705                40,357
                                                                  ----------            ----------
      Total Current Liabilities                                    1,590,189             1,576,599
                                                                  ----------            ----------

Long-Term Debt                                                     1,094,338             1,099,484
                                                                  ----------            ----------

Deferred Credits and Other:
   Deferred income taxes                                             138,841               163,964
   Liabilities from trading activities                                46,502                12,564
   Other                                                             187,137               179,232
                                                                  ----------            ----------
                                                                     372,480               355,760
                                                                  ----------            ----------
Commitments and Contingencies

Stockholders' Equity:
   Common stock and other capital                                    179,048               180,192
   Retained earnings                                                 971,519             1,209,527
                                                                  ----------            ----------
                                                                   1,150,567             1,389,719
   Less treasury stock                                                59,082                60,468
                                                                  ----------            ----------
      Total Stockholders' Equity                                   1,091,485             1,329,251
                                                                  ----------            ----------

Total Liabilities and Stockholders' Equity                        $4,148,492            $4,361,094
                                                                  ==========            ==========
</TABLE>

                                     See accompanying notes.

<PAGE>


                           SONAT INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                        Three Months                 Six Months
                                                       Ended June 30,              Ended June 30,
                                                  1999           1998*         1999          1998*
                                                      (In Thousands, Except Per-Share Amounts)

<S>                                               <C>         <C>            <C>           <C>
Revenues                                          $849,421    $  925,132     $1,623,161    $2,034,275
                                                  --------    ----------     ----------    ----------

Costs and Expenses:
   Natural gas cost                                518,760       551,734      1,006,675     1,315,217
   Electric power cost                             103,888       115,421        179,890       180,612
   Operating and maintenance                        34,932        39,246         74,614        79,730
   General and administrative                       41,528        28,506         78,772        58,652
   Depreciation, depletion
      and amortization                              66,872        95,806        142,197       192,875
   Ceiling test charges                               -          540,459        351,500       580,151
   Restructuring costs                                -           15,017          -            15,017
   Taxes, other than income                         11,798        13,831         23,764        27,435
                                                  --------    ----------     ----------    ----------
                                                   777,778     1,400,020      1,857,412     2,449,689
                                                  --------    ----------     ----------    ----------

Operating Income (Loss)                             71,643      (474,888)      (234,251)     (415,414)

Other Income, Net:
   Equity in earnings of
      unconsolidated affiliates                      7,809        17,527         15,528        27,180
   Minority interest                                   244        (1,089)        (1,100)       (1,631)
   Other income, net                                 1,944         1,251          4,100         1,964
                                                  --------    ----------     ----------    ----------
                                                     9,997        17,689         18,528        27,513
                                                  --------    ----------     ----------    ----------

Earnings (Loss) Before Interest
   and Taxes                                        81,640      (457,199)      (215,723)     (387,901)
                                                  --------    ----------     ----------    ----------

Interest:
   Interest income                                   1,652         1,063          3,591         3,263
   Interest expense                                (35,846)      (34,792)       (71,153)      (66,922)
   Interest capitalized                              3,825         1,448          7,245         2,872
                                                  --------    ----------     ----------    ----------
                                                   (30,369)      (32,281)       (60,317)      (60,787)
                                                  --------    ----------     ----------    ----------

Income (Loss) Before Income Taxes                   51,271      (489,480)      (276,040)     (448,688)

Income Tax Expense (Benefit)                        17,631      (174,184)       (97,464)     (161,342)
                                                  --------    ----------     ----------    ----------

Net Income (Loss)                                 $ 33,640    $ (315,296)    $ (178,576)   $ (287,346)
                                                  ========    ==========     ==========    ==========

Earnings (Loss) Per Share of
   Common Stock                                   $    .31    $    (2.87)    $    (1.62)   $    (2.61)
                                                  ========    ==========     ==========    ==========

Earnings (Loss) Per Share of
   Common Stock-Assuming Dilution                 $    .30    $    (2.87)    $    (1.62)   $    (2.61)
                                                  ========    ==========     ==========    ==========

Weighted Average Shares Outstanding                110,062       110,049        110,054       110,008
                                                  ========    ==========     ==========    ==========

Weighted Average Shares Outstanding-
   Assuming Dilution                               110,960       110,049        110,054       110,008
                                                  ========    ==========     ==========    ==========

Cash Dividends Paid Per Share                     $    .27    $      .27     $      .54    $      .54
                                                  ========    ==========     ==========    ==========
</TABLE>


*Restated, see Note 1


                             See accompanying notes.

<PAGE>


                                   SONAT INC. AND SUBSIDIARIES
                         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           (Unaudited)
<TABLE>
<CAPTION>
                                                                            Six Months
                                                                          Ended June 30,
                                                                    1999                 1998*
                                                                          (In Thousands)
Cash Flows from Operating Activities:
<S>                                                                <C>                   <C>
   Net loss                                                        $(178,576)            $(287,346)
   Adjustments to reconcile net loss to net
      cash provided by operating activities:
         Depreciation, depletion and amortization,
           including ceiling test charges                            493,697               773,026
         Deferred income taxes                                       (25,123)             (138,507)
         Equity in earnings of unconsolidated
           affiliates, less distributions                             (7,719)              (20,663)
         Change in:
           Accounts receivable                                        32,036               188,074
           Inventories                                                 9,230                 2,140
           Accounts payable                                          (81,214)             (133,913)
           Accrued interest and income taxes, net                    (82,355)              (26,027)
           Accrued long-term compensation                               -                  (73,799)
           Other current assets and liabilities                       39,886               (29,283)
           Net change from trading activities                        (15,494)               (3,458)
         Net change in restricted cash                                  -                  115,956
         Other, net                                                  (15,739)               12,435
                                                                   ---------             ---------

           Net cash provided by operating activities                 168,629               378,635
                                                                   ---------             ---------

Cash Flows from Investing Activities:
   Plant, property and equipment additions                          (293,435)             (493,033)
   Net proceeds from disposal of assets                               19,323                14,479
   Investments in unconsolidated affiliates and other                 (9,984)              (88,518)
                                                                   ---------             ---------

           Net cash used in investing activities                    (284,096)             (567,072)
                                                                   ---------             ---------

Cash Flows from Financing Activities:
   Proceeds from issuance of long-term debt                             -                  400,000
   Payments of long-term debt                                        (10,360)             (540,834)
   Changes in short-term borrowings                                  179,071               370,188
                                                                   ---------             ---------
      Net changes in debt                                            168,711               229,354
   Dividends paid                                                    (59,429)              (59,408)
   Treasury stock purchases                                             -                   (1,289)
   Other equity                                                          548                 3,641
                                                                   ---------             ---------

           Net cash provided by financing activities                 109,830               172,298
                                                                   ---------             ---------

Net Decrease in Cash and Cash Equivalents                             (5,637)              (16,139)

Cash and Cash Equivalents at Beginning of Period                       7,104                27,278
                                                                   ---------             ---------

Cash and Cash Equivalents at End of Period                         $   1,467             $  11,139
                                                                   =========             =========

Supplemental Disclosures of Cash Flow Information
Cash Paid for:
   Interest (net of amount capitalized)                            $  57,598             $  58,270
   Income taxes paid, net                                             11,616                 7,395
</TABLE>

*Restated, see Note 1


                                     See accompanying notes.


<PAGE>


                                   SONAT INC. AND SUBSIDIARIES
                       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                           (Unaudited)

1.      Basis of Presentation

        The accompanying  condensed  consolidated  financial statements of Sonat
Inc. (Sonat) and its subsidiaries (the Company) have been prepared in accordance
with the  instructions  to Form 10-Q and include the  information  and footnotes
required by such  instructions.  In the opinion of management,  all  adjustments
including those of a normal  recurring  nature have been made that are necessary
for a fair  presentation  of the results of operations  for the interim  periods
presented herein.

        The 1998 periods have been restated for a change to the full cost method
of accounting for the Company's oil and gas operations. Certain other amounts in
the 1998  condensed  consolidated  financial  statements  and  notes  have  been
reclassified to conform with the 1999 presentation.

2.      Proposed Merger

        On March  13,  1999,  Sonat  and El Paso  Energy  Corporation  (El Paso)
entered into an Agreement and Plan of Merger, as amended (the Merger Agreement),
providing for, among other things, the merger of El Paso and the Company.  Under
the terms of the Merger Agreement,  the Company's  stockholders will receive one
share of El Paso common stock (El Paso Common  Stock),  for each share of common
stock of the Company  (Company  Common Stock),  they own. The merger,  which has
been approved by the Company's and El Paso's stockholders, is subject to certain
customary  conditions,  including,  among  others,  receipt of certain  required
government approvals.

        In connection with the Merger Agreement,  on March 13, 1999, the Company
and El Paso also entered into cross option agreements,  pursuant to which, among
other  things,  (i) El Paso has been  granted an option to  purchase  up to 19.9
percent of the Company's  Common Stock,  exercisable if the Merger  Agreement is
terminated under certain circumstances as set forth therein and (ii) the Company
has been  granted an option to purchase up to 19.9 percent of the El Paso Common
Stock,   exercisable  if  the  Merger  Agreement  is  terminated  under  certain
circumstances as set forth therein.



<PAGE>


3.      Trading Activities and Derivative Financial Instruments

Derivative Commodity Instruments Held or Issued for Trading Purposes

        The Company  maintains  active  trading  positions  in energy  commodity
futures,  swap and option  contracts.  The Company manages its trading positions
with strict  policies and procedures and limits its risk to changes in the value
of its  outstanding  positions  through  the use of policy  limits on  portfolio
Value-at-Risk, the establishment of offsetting positions, and other methods. The
trading  operation  also  enters  into  natural  gas and  electricity  commodity
purchase and sale commitments.  These activities constitute its trading business
and are  essential  to provide  customers  with market  products at  competitive
prices.

        At June 30, 1999, the Company's trading portfolio had outstanding energy
commodity  futures,  swaps  and  options.  In the  table  below,  buys of  swaps
represent  either 1) payment of a fixed price and receipt of a variable NYMEX or
index price;  or 2) payment of a variable  NYMEX or index price and receipt of a
variable index price. The absolute notional volumes and terms are:

                                             Notional Volume            Maximum
Commodity                                   Buy           Sell           Term
---------                                   ---           ----        -------
Natural Gas (Thousands of Btu)             1,245         1,436        60 months
Crude Oil (Thousands of Barrels)           5,640         4,086        60 months
Electricity (Thousands of MWh)                10            10         2 months

        The 60-month term deals begin in 2002 and end in 2006.

        The amounts disclosed in the following table represent the end-of-period
fair value and the average fair value of the trading portfolio.

                                      Fair Value             Average Fair Value
                                   (Carrying Amount)        for the Three Months
                                     as of 6/30/99              Ended 6/30/99
                                                  (In Thousands)

        Assets                         $222,895                       $231,729
        Liabilities                     188,098                        197,903

     Net trading gains for the three-month and six-month periods ending June 30,
1999 are $10.2 million and $24.8 million, respectively.

Derivative Commodity Instruments Held or Issued for Purposes Other Than Trading

     In certain cases,  derivative  positions are taken specifically to mitigate
market price risk  associated with  significant  physical  transactions  and are
accounted  for  using  hedge  accounting  provided  they meet  hedge  accounting
criteria.  Sonat Exploration Company (Sonat Exploration) hedges a portion of its
production by entering into intercompany swaps with Sonat Marketing Company L.P.
(Sonat  Marketing).  The  exposure  that  Sonat  Marketing  assumes  from  Sonat
Exploration is then hedged by entering into  derivative  instruments  with third
parties. Sonat Marketing also hedges third-party purchases and sales by entering
into commodity futures, swaps and options.


<PAGE>

3.      Trading Activities and Derivative Financial Instruments (Cont'd)

        At June 30, 1999, the Company had outstanding  energy commodity futures,
swaps and options for purposes other than trading.  In the table below,  buys of
swaps  represent  either 1) payment of a fixed  price and  receipt of a variable
NYMEX or index  price;  or 2)  payment of a  variable  NYMEX or index  price and
receipt of a variable index price. The absolute notional volumes and terms are:

                                          Notional Volume            Maximum
Commodity                                Buy           Sell           Term
---------                                ---           ----        -------
Natural Gas (Thousands of Btu)            47           255         18 months
Crude Oil (Thousands of Barrels)           -         3,698         18 months

        The deals end in 2000.

        The information in the following table  represents the fair value, as of
June 30, 1999, of outstanding  financial  derivative positions held for purposes
other than trading.  Not included are the related physical  positions that these
derivative positions hedge.
                                                           Fair Value
                                                         (In Thousands)
        Natural Gas:
           Futures                                          $  1,601
           Swaps                                             (28,983)

        Deferred amounts on open futures positions will mature through 2000.

Credit Risk from Derivative Activities

        NYMEX traded futures are guaranteed by the NYMEX and have nominal credit
risk.  On all other  transactions  described  above,  the  Company is exposed to
credit risk in the event of  nonperformance by the  counterparties.  The Company
has established policies and procedures to evaluate potential counterparties for
creditworthiness   before  entering  into   over-the-counter   swap  and  option
agreements.  The credit risk resulting from in-the-money swaps is monitored on a
regular basis  against  established  collateralization  limits and credit limits
established  by the  Company.  Due to changes in market  conditions,  the market
value  of  swaps  and  options  and the  associated  credit  exposure  with  the
counterparties can change  significantly.  At June 30, 1999, the market value of
the  Company's  in-the-money  swaps  and  options  was  $19.4  million,  and one
counterparty  posted  collateral  in the amount of $2.5  million.  Reserves  for
credit risk are established as necessary.



<PAGE>


4.      Unconsolidated Affiliates

        The  following  table  presents the  components of equity in earnings of
unconsolidated affiliates.

<TABLE>
<CAPTION>
                                                      Three Months                  Six Months
                                                     Ended June 30,               Ended June 30,
                                                 1999          1998           1999          1998
                                                                 (In Thousands)

Company's Share of Reported Earnings (Losses):

<S>                                             <C>           <C>           <C>            <C>
   Exploration and Production                   $  125        $   177       $   226        $   321
                                                ------        -------       -------        -------

   Natural Gas Transmission:
      Citrus Corp.                               5,357         10,482        11,619         14,993
      Amortization of Citrus basis
         difference                                346            346           692            692
      Bear Creek Storage                         2,802          2,446         5,565          4,535
      Destin Pipeline                             (344)         3,074          (721)         5,134
      Other                                        (33)            91             6             67
                                                ------        -------       -------        -------
                                                 8,128         16,439        17,161         25,421
                                                ------        -------       -------        -------

   Energy Services                                (910)           556        (2,745)           781
                                                ------        -------       -------        -------

   Other                                           466            355            886           657
                                                ------        -------        -------       -------

                                                $7,809        $17,527       $15,528        $27,180
                                                ======        =======       =======        =======
</TABLE>


        Natural Gas  Transmission  Affiliates  - Sonat owns 50 percent of Citrus
Corp. (Citrus), the parent company of Florida Gas Transmission Company. Southern
Natural Gas Company  (Southern)  owns a  one-third  interest in Destin  Pipeline
Company,  L.L.C.  (Destin) and a subsidiary  of Southern owns 50 percent of Bear
Creek Storage Company (Bear Creek).



<PAGE>


4.      Unconsolidated Affiliates (Cont'd)

        The following is summarized income statement information for Citrus:

<TABLE>
<CAPTION>
                                                     Three Months                  Six Months
                                                    Ended June 30,               Ended June 30,
                                                1999          1998           1999          1998
                                                                 (In Thousands)

<S>                                           <C>            <C>           <C>            <C>
Revenues                                      $184,291       $161,981      $331,747       $295,562
Expenses:
   Natural gas cost                            104,644         70,989       174,268        129,603
   Operating expenses                           26,802         20,900        50,332         44,887
   Depreciation and amortization                13,218         13,009        26,030         25,731
   Interest and other                           22,088         23,070        43,118         46,490
   Income taxes                                  6,824         13,049        14,762         18,865
                                              --------       --------      --------       --------

Income Reported                               $ 10,715       $ 20,964      $ 23,237       $ 29,986
                                              ========       ========      ========       ========
</TABLE>

        The following is summarized income statement information for Bear Creek.
No provision for income taxes has been included  since its income taxes are paid
directly by the joint-venture participants.

<TABLE>
<CAPTION>
                                                     Three Months                  Six Months
                                                    Ended June 30,               Ended June 30,
                                                1999          1998           1999          1998
                                                                 (In Thousands)

<S>                                             <C>            <C>          <C>            <C>
Revenues                                        $8,940         $8,821       $18,023        $17,850
Expenses:
   Operating expenses                            1,050          1,452         2,261          3,753
   Depreciation                                  1,362          1,360         2,724          2,719
   Other expenses, net                             923          1,116         1,908          2,308
                                                ------         ------       -------        -------

Income Reported                                 $5,605         $4,893       $11,130        $ 9,070
                                                ======         ======       =======        =======
</TABLE>



<PAGE>


4.      Unconsolidated Affiliates (Cont'd)

        The  following  are  summarized  results of  operations  for Destin.  No
provision  for income  taxes has been  included  since its income taxes are paid
directly by joint venture participants.

<TABLE>
<CAPTION>
                                                     Three Months                  Six Months
                                                    Ended June 30,               Ended June 30,
                                                1999          1998           1999          1998
                                                                 (In Thousands)

<S>                                            <C>            <C>           <C>           <C>
Revenues                                       $ 6,093        $ 2,921       $ 9,926       $  4,793
Expenses:
   Operating expenses                            1,754           -            3,379           -
   Depreciation                                  3,229           -            4,815           -
   Interest and other                            2,141         (6,301)        3,896        (10,608)
                                               -------        -------       -------       --------

Income (Loss) Reported                         $(1,031)       $ 9,222       $(2,164)      $ 15,401
                                               =======        =======       =======       ========
</TABLE>

5.      Debt and Lines of Credit

        Unsecured Notes - Loans under all short-term credit facilities are for a
duration of less than three months.

        At June 30, 1999, Sonat had short-term lines of credit of $900.0 million
available  through April 13, 2000.  Southern had  short-term  lines of credit of
$42.0 million  available  through May 29, 2000.  Borrowings  are available for a
period  of not more  than 364 days and are in the form of  unsecured  promissory
notes  that  bear  interest  at rates  based  on the  banks'  prevailing  prime,
international  or money-market  lending rates. At June 30, 1999, Sonat had $11.9
million  outstanding  under its agreement at a rate of 5.75 percent.  No amounts
were outstanding under Southern's agreement.

        Sonat had $587.5 million in commercial  paper  outstanding at an average
rate of 5.23  percent at June 30, 1999.  In addition,  Sonat had $300 million of
short-term notes borrowed from a bank at an average rate of 5.39 percent at June
30, 1999.

        Long-Term Debt - In July, Sonat issued $600 million of its 7 5/8 percent
Notes due July 15,  2011,  at 98.949  percent to yield  7.761  percent.  The net
proceeds from the offering were used to repay short-term indebtedness.



<PAGE>


6.      Rate Matters and Contingencies

        Periodically,  Southern  makes  general  rate  filings  with the FERC to
provide for the  recovery  of cost of service  and a return on equity.  The FERC
normally allows the filed rates to become effective, subject to refund, until it
rules on the approved level of rates.  Southern  provides  reserves  relating to
such amounts collected subject to refund, as appropriate, and makes refunds upon
establishment  of the  final  rates.  At June 30,  1999,  Southern's  rates  are
established by a settlement  that was approved by FERC orders issued in 1995 and
1996.  All of its  customers are parties to the  settlement,  and all revenue is
based on the final settlement rates and therefore is not being collected subject
to refund.

7.      Comprehensive Income

        Comprehensive income (loss), net of related tax, is as follows:

<TABLE>
<CAPTION>
                                                 Three Months                  Six Months
                                                Ended June 30,               Ended June 30,
                                            ---------------------         -----------------
                                           1999             1998          1999          1998
                                           ----             ----          ----          ----
                                                              (In Thousands)

<S>                                         <C>         <C>             <C>          <C>
Net Income (Loss)                           $33,640     $(315,296)      $(178,576)   $(287,346)
Unrealized Gains (Loss)
   on Securities                               (180)         (411)           (244)         863
Reclassification Adjustment                       4           (27)         (1,158)         (37)
                                            -------     ---------       ---------    ---------
Comprehensive Income (Loss)                 $33,464     $(315,734)      $(179,978)   $(286,520)
                                            =======     =========       =========    =========
</TABLE>

        Common Stock and Other  Capital in the  Condensed  Consolidated  Balance
Sheets  includes $.2 million at June 30, 1999,  and $1.6 million at December 31,
1998, related to other  comprehensive  income,  which is comprised of unrealized
gains on securities.



<PAGE>


8.      Segment Information

        The Company's  consolidated  financial  statements reflect operations in
three segments:  Exploration and Production, Natural Gas Transmission and Energy
Services.  The Company's  revenues and earnings before interest and taxes (EBIT)
by business segment are shown in the following tables.

<TABLE>
<CAPTION>
                                                     Three Months Ended June 30, 1999
                              --------------------------------------------------------------------
                               Exploration        Natural
                                   and              Gas         Energy
                               Production      Transmission    Services       Other        Total
                              ------------     ------------    --------     --------      --------
                                                         (In Thousands)
Revenues from
<S>                             <C>              <C>            <C>         <C>           <C>
   External Customers           $34,061          $87,934        $729,133    $(1,707)      $849,421

Intersegment Revenues            84,135            7,253             150     15,501        107,039

Earnings (Loss) Before
   Interest and Taxes            40,260           48,742          (1,898)    (5,464)        81,640
</TABLE>



<TABLE>
<CAPTION>
                                                     Three Months Ended June 30, 1998
                              --------------------------------------------------------------------
                               Exploration        Natural
                                   and              Gas         Energy
                               Production      Transmission    Services       Other        Total
                              ------------     ------------    --------     --------      --------
                                                         (In Thousands)
Revenues from
<S>                           <C>                <C>            <C>         <C>          <C>
   External Customers         $  42,138          $86,534        $800,164    $(3,704)     $ 925,132

Intersegment Revenues           106,041            8,966            -        13,663        128,670

Earnings (Loss) Before
   Interest and Taxes          (523,358)          63,147           1,644      1,368       (457,199)
</TABLE>



<PAGE>


8.      Segment Information (Cont'd)

<TABLE>
<CAPTION>
                                                      Six Months Ended June 30, 1999
                              --------------------------------------------------------------------
                               Exploration        Natural
                                   and              Gas         Energy
                               Production      Transmission    Services       Other        Total
                              ------------     ------------    --------     --------      --------
                                                         (In Thousands)
Revenues from
<S>                           <C>               <C>           <C>           <C>         <C>
   External Customers         $  53,132         $181,957      $1,390,978    $(2,906)    $1,623,161

Intersegment Revenues           156,755           13,933             150     30,055        200,893

Earnings (Loss) Before
   Interest and Taxes          (310,042)         104,924          (3,490)    (7,115)      (215,723)
</TABLE>



<TABLE>
<CAPTION>
                                                      Six Months Ended June 30, 1998
                              --------------------------------------------------------------------
                               Exploration        Natural
                                   and              Gas         Energy
                               Production      Transmission    Services       Other        Total
                              ------------     ------------    --------     --------      --------
                                                         (In Thousands)
Revenues from
<S>                           <C>               <C>           <C>           <C>         <C>
   External Customers         $ 121,936         $182,138      $1,737,219    $(7,018)    $2,034,275

Intersegment Revenues           188,105           18,863           -         29,352        236,320

Earnings (Loss) Before
   Interest and Taxes          (525,803)         132,062           2,480      3,360       (387,901)
</TABLE>




<PAGE>


8.      Segment Information (Cont'd)

<TABLE>
<CAPTION>
                                                 Three Months                 Six Months
                                                Ended June 30,              Ended June 30,
                                            1999           1998          1999           1998
                                                             (In Thousands)
Total Earnings (Loss) Before
   Interest and Taxes for
<S>                                        <C>          <C>            <C>           <C>
   Reportable Segments                     $ 87,104     $(458,567)     $(208,608)    $(391,261)
Other Earnings (Loss) Before
   Interest and Taxes                        (5,464)        1,368         (7,115)        3,360
Interest Income                               1,652         1,063          3,591         3,263
Interest Expense                            (35,846)      (34,792)       (71,153)      (66,922)
Interest Capitalized                          3,825         1,448          7,245         2,872
                                           --------     ---------      ---------     ---------

Income (Loss) Before Income
   Taxes                                   $ 51,271     $(489,480)     $(276,040)    $(448,688)
                                           ========     =========      =========     =========
</TABLE>


        Assets for the Company's three segments are as follows:

                                                        June 30,
                                                          1999
                                                     (In Thousands)
        Assets by Segment
          Exploration and Production                   $1,367,429
          Natural Gas Transmission                      2,018,529
          Energy Services                                 755,490




<PAGE>


9.      Earnings Per Share

        The  calculation  of earnings per share assuming  dilution  differs from
that of earnings  per share due to the  denominator  for the  assuming  dilution
calculation  including common stock equivalents  applicable to outstanding stock
options.

        The following  table  presents the  computation  of earnings  (loss) per
share of common stock and earnings (loss) per share-assuming dilution:

<TABLE>
<CAPTION>
                                                     Three Months                 Six Months
                                                    Ended June 30,              Ended June 30,
                                                1999          1998           1999          1998
                                                              (In Thousands, Except
                                                               Per-Share Amounts)

Numerator:
<S>                                           <C>           <C>           <C>            <C>
   Net income (Loss)                          $ 33,640      $(315,296)    $(178,576)     $(287,346)
                                              ========      =========     =========      =========

Denominator:

   Denominator for Earnings Per Share:

   Weighted average number of
      shares of common stock
      outstanding                              110,062        110,049       110,054        110,008

   Effect of Dilutive Securities:

   Common stock equivalents
      applicable to outstanding
      stock options                                898           -             -              -
                                              --------      ---------     ---------      ---------

   Denominator for Earnings Per
      Share-Assuming Dilution:

   Adjusted weighted average
      shares using treasury
      stock method for assumed
      conversions                              110,960        110,049       110,054        110,008
                                              ========      =========     =========      =========


Earnings (Loss) Per Share of
   Common Stock                               $    .31      $   (2.87)    $   (1.62)     $   (2.61)
                                              ========      =========     =========      =========

Earnings (Loss) Per Share of
   Common Stock-Assuming Dilution             $    .30      $   (2.87)    $   (1.62)     $   (2.61)
                                              ========      =========     =========      =========
</TABLE>




<PAGE>


10.     Subsequent Event

        The Company has agreed with AGL Resources, Inc. (AGL) to purchase the 35
percent  interest  held  by AGL in each  of  Sonat  Marketing  and  Sonat  Power
Marketing.  The purchase  price for both interests will be $65 million in total.
Completion of both  transactions is subject to, among other things,  termination
of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976. Additionally, completion of the purchase of AGL's interest in Sonat
Power  Marketing  is subject to  approval  of the FERC under  Section 203 of the
Federal Power Act. The Company  expects to close the purchase of AGL's  interest
in Sonat Marketing sometime during the third quarter of 1999, while the purchase
of AGL's  interest in Sonat Power  Marketing  is expected to close by the end of
1999.




<PAGE>



Item 2.  Management's  Discussion  and  Analysis  of  Financial  Condition  and
         Results of Operations

RESULTS OF OPERATIONS

        Business segment  operating  results for Sonat Inc. and its subsidiaries
(the  Company) are  presented in the table below.  The table also shows  unusual
items that  affect  earnings  before  interest  and taxes  (EBIT) and net income
comparisons. The table is presented because management believes this information
enhances the analysis of results of operations.

<TABLE>
<CAPTION>
                                                     Three Months                  Six Months
                                                    Ended June 30,               Ended June 30,
                                                 1999         1998           1999          1998
                                                                  (In Millions)
Earnings (Loss) Before Interest and Taxes:
<S>                                            <C>          <C>            <C>           <C>
   Exploration and production                  $ 40.3       $(523.4)       $(310.0)      $(525.8)
   Natural gas transmission                      48.7          63.1          104.9         132.0
   Energy services                               (1.9)          1.7           (3.5)          2.5
   Other                                         (5.5)          1.4           (7.1)          3.4
                                                ------      -------        -------       -------
                                                 81.6        (457.2)        (215.7)       (387.9)
Adjustment for Unusual Items:
   Exploration and Production
      Ceiling test charges                        -          (540.5)        (351.5)       (580.2)
      Restructuring costs                         -           (15.0)           -           (15.0)
                                               ------       -------        -------       -------
Earnings Before Interest and Taxes
   Excluding Unusual Items                     $ 81.6       $  98.3        $ 135.8       $ 207.3
                                               ======       =======        =======       =======


Net Income (Loss) As Reported                  $ 33.6       $(315.3)       $(178.6)      $(287.3)
Adjustment for Unusual Items:
   Exploration and Production
      Ceiling test charges                        -          (351.4)        (228.5)       (377.1)
      Restructuring costs                         -            (9.7)           -            (9.7)
                                               ------       -------        -------       -------
Net Income Excluding Unusual Items             $ 33.6       $  45.8        $  49.9       $  99.5
                                               ======       =======        =======       =======

Earnings (Loss) Per Share of
   Common Stock-Assuming Dilution              $  .30       $ (2.87)       $ (1.62)      $ (2.61)
                                               ======       =======        =======       =======

Earnings Per Share of Common Stock
   Excluding Unusual Item-
   Assuming Dilution                           $  .30       $   .41        $   .46       $   .91
                                               ======       =======        =======       =======
</TABLE>



<PAGE>


EXPLORATION AND PRODUCTION

        The  Company  is  engaged in the  exploration  for and the  acquisition,
development  and  production of oil and natural gas in the United States through
Sonat Exploration Company and Sonat Exploration GOM (Sonat Exploration). Most of
Sonat  Exploration's  natural gas production is sold to Sonat Marketing  Company
L.P. (Sonat Marketing),  the Company's majority-owned affiliate operating in the
Energy Services segment.


EXPLORATION AND PRODUCTION OPERATIONS

<TABLE>
<CAPTION>
                                                     Three Months                  Six Months
                                                    Ended June 30,               Ended June 30,
                                                 --------------------         -----------------
                                               1999           1998          1999           1998
                                               ----           ----          ----           ----
                                                                  (In Millions)

<S>                                            <C>          <C>            <C>           <C>
Revenues                                       $118.2       $ 148.1        $ 209.9       $ 310.0
                                               ------       -------        -------       -------

Costs and Expenses:
   Operating and maintenance                     14.2          19.2           31.7          38.6
   General and administrative                    10.3           9.2           19.2          18.3
   Depreciation, depletion and
      amortization                               48.4          80.0          106.3         168.9
   Ceiling test charges                           -           540.5          351.5         580.2
   Restructuring costs                            -            15.0            -            15.0
   Taxes and other                                6.1           7.9           12.3          15.3
                                               ------       -------        -------       -------
                                                 79.0         671.8          521.0         836.3
                                               ------       -------        -------       -------
Operating Income (Loss)                          39.2        (523.7)        (311.1)       (526.3)
Other Income                                      1.1            .3            1.1            .5
                                               ------       -------        -------       -------

Earnings (Loss) Before Interest
   and Taxes                                   $ 40.3       $(523.4)       $(310.0)      $(525.8)
                                               ======       =======        =======       =======


Net Sales Volumes:
   Gas (Bcf)                                       47            60             93           123
   Oil and condensate (MBbls)                   1,141         1,784          2,399         3,734
   Natural gas liquids (MBbls)                    200           591            402         1,175
------------------------------------------------------------------------------------------------

Average Sales Prices:
   Gas ($/Mcf)                                 $ 2.02       $  2.00         $ 1.84       $  2.01
   Oil and condensate ($/Bbl)                   16.00         13.00          13.40         13.92
   Natural gas liquids ($/Bbl)                   8.30          8.81           7.80          9.27
------------------------------------------------------------------------------------------------
</TABLE>




<PAGE>


Second Quarter 1999 to Second Quarter 1998 Analysis

        EBIT  increased  $8.2 million after  excluding  ceiling test charges and
restructuring  costs of $555.5  million in the second  quarter of 1998 primarily
due to lower  costs and  expenses  partly  offset by lower  revenues  from lower
production volumes.  Production volumes decreased approximately 18 billion cubic
feet equivalent (Bcfe) due to property sales in 1998.

        Natural gas and oil and condensate  production  decreased 22 percent and
36  percent,  respectively,  from the second  quarter of 1998  primarily  due to
property sales in 1998.  Realized oil and condensate prices increased 23 percent
to an average of $16.00 per barrel  from  $13.00 per barrel in the 1998  period.
Average  realized  natural gas prices were  relatively flat compared to the 1998
period.

        Costs and expenses  were $37.3 million lower than the prior period after
excluding the ceiling test charges and  restructuring  costs discussed  earlier.
Depreciation,  depletion and  amortization  expense  decreased 40 percent due to
lower  production  and a lower  amortization  rate  ($.88  for the  1999  period
compared  to $1.08  for the 1998  period).  Operating  and  maintenance  expense
decreased 26 percent primarily due to property sales in 1998 and early 1999.

Six Months 1999 to Six Months 1998 Analysis

        EBIT  decreased  $27.9  million after  excluding the $351.5  million and
$580.2 million of ceiling test charges  recognized in the 1999 and 1998 periods,
respectively, and the $15.0 million restructuring charge, discussed earlier. The
decline is due primarily to lower  production  volumes and lower energy  prices,
partly  offset  by  lower  costs  and  expenses.  Production  volumes  decreased
approximately 38 Bcfe due to property sales in 1998 and early 1999.

        Natural gas and oil and condensate  production  decreased 24 percent and
36 percent,  respectively,  from the 1998 period primarily due to property sales
in 1998 and early 1999.  Average realized natural gas prices decreased 8 percent
to $1.84 per  thousand  cubic feet (Mcf) for the 1999  period from $2.01 per Mcf
for the 1998 period.

        Costs and expenses  were $71.6 million lower than the prior period after
excluding the ceiling test charges and  restructuring  costs discussed  earlier.
Depreciation,  depletion and  amortization  expense  decreased 37 percent due to
lower  production  and a lower  amortization  rate  ($.97  for the  1999  period
compared  to $1.11  for the 1998  period).  Operating  and  maintenance  expense
decreased  18 percent  primarily  due to property  sales in 1998 and early 1999.
Taxes and other expense  decreased 20 percent due to lower  severance taxes from
lower volumes.


<PAGE>

Hedging Activities

        Sonat Exploration,  through Sonat Marketing,  uses derivative  financial
instruments  to manage  the  risks  associated  with  price  volatility  for its
production,  which it sells in the spot  market.  (See Market Risk and Note 3 of
the  Notes to  Condensed  Consolidated  Financial  Statements.)  Gains or losses
experienced on Sonat  Exploration's  hedging  transactions offset the changes in
revenue recognized on the sale of the commodity.  Natural gas revenues decreased
by $.5 million and  increased by $.2 million in the  three-month  and  six-month
periods  ended June 30, 1999 and  decreased  by $3.1 million and $1.9 million in
the three-month and six-month  periods ended June 30, 1998,  respectively,  as a
result of hedging activities.  There were no oil hedging activities reflected in
either period.

        A portion of Sonat Exploration's future gas production is hedged through
the year 2012. Sonat Exploration's  hedged gas production at June 30, 1999 is as
follows:

                                                               Weighted
                                                                Average
                                          Volumes                Price
                                           (Bcf)               (per Mcf)
Remainder of 1999                          87.7                  $2.10
2000                                      163.0                   2.15
2001                                        4.4                   2.30
2002                                        4.4                   2.34
2003-2012                                  41.3                   3.39
----------------------------------------------------------------------
                                          300.8                  $2.31
======================================================================

        Oil  production of 880 thousand  barrels and 2,818  thousand  barrels is
hedged for the remainder of 1999 and 2000,  respectively,  at a weighted average
price per barrel of $18.42 and $17.76, respectively.

NATURAL GAS TRANSMISSION

        The Company is engaged in the natural gas transmission  business through
Southern Natural Gas Company and its subsidiaries (Southern) and Citrus Corp. (a
50  percent-owned  company).  Southern  and Citrus  Corp.  (Citrus) are actively
pursuing  opportunities  to expand their pipeline  systems in their  traditional
market areas and to connect new gas supplies.

        Units of Shell Oil Company  (Shell) and BP Amoco  Corporation (BP Amoco)
are equal  partners with Southern in the ownership of Destin  Pipeline  Company,
L.L.C. (Destin). Destin owns a 223-mile, 1 billion cubic feet per day interstate
pipeline  system that  transports  natural gas from the growing  eastern Gulf of
Mexico  production  area,  which was placed  fully in service in March 1999.  An
additional 31-mile extension was placed in service in May 1999.

        Construction  is  progressing on Southern's  expansion  project to North
Alabama. The 122-mile, 78 million-cubic-foot-per-day expansion is expected to be
in service in late 1999.

        Southern LNG Inc., a subsidiary of Southern,  filed an application  with
the FERC in July 1999 to  reactivate  its  liquefied  natural  gas (LNG)  marine
receiving  terminal  located on Elba Island,  near Savannah,  Georgia.  The Elba
Island  terminal has been out of service since 1982.  Sonat Energy Services Inc.
(Sonat Energy Services), another Sonat subsidiary, was awarded a 22-year service
agreement  for all of  Elba  Island's  terminaling,  storage,  and  vaporization
capacity. The Elba Island terminal is capable of achieving a peak sendout of 540
million cubic feet of natural gas per day and a baseload  sendout of 330 million
cubic  feet of  natural  gas per day.  Sonat  estimates  that the  capital  cost
associated with  recommissioning  the Elba Island terminal will be approximately
$26 million.


<PAGE>

        Sonat Energy Services plans to import LNG from Trinidad through the Elba
Island  terminal.  Shipment  of the LNG to Elba  Island  will be arranged by the
sellers of the LNG, who are a group of producers led by British Gas Trinidad and
Tobago  Limited.  Deliveries  are  estimated  to commence  in mid-2002  and will
provide  approximately  80 Bcf of natural  gas per year  through the Elba Island
terminal  for a  primary  term of 17  years.  The  supply  arrangement  could be
extended for an  additional  term of five years.  Depending  upon  operating and
market  conditions,  Sonat Energy  Services can handle  additional  volumes from
Trinidad or other sources  through its  contracted  capacity in the  reactivated
facility.  Because of growing  natural  gas  demand in the  Southeast,  Southern
expects to initiate  several pipeline  expansion  projects over the next several
years.  The Elba Island  terminal  is located on the  eastern end of  Southern's
service  territory,  making it a  strategically  valuable  source of natural gas
supply.  Not only is the terminal's  reactivation  expected to serve  expansions
within its current  service  territory,  but it is also offers the  potential to
expand the Southern pipeline system to new markets.

        Southern's  Elba  Island   reactivation   and  Sonat  Energy   Services'
importation  project  are  subject to several  conditions,  including  U.S.  and
Trinidadian  governmental  approvals,  the  execution of final  agreements,  the
finalization  of  plans  relating  to  shipping,  and the  expansion  of its LNG
facility in Trinidad by Atlantic LNG Company of Trinidad and Tobago.

        Southern had  previously  announced  plans to form a 50/50 joint venture
with  Carolina  Power & Light Company  (CP&L) to  construct,  own, and operate a
natural gas  pipeline,  to be known as the Palmetto  Interstate  Pipeline,  from
Southern's  pipeline system to a delivery point in North  Carolina.  The planned
in-service date of the Palmetto Interstate Pipeline has been delayed in order to
allow CP&L time to analyze two other competing pipeline proposals that have been
announced.  Consequently, all ongoing survey, environmental, and route selection
activities  for this  project  have been  suspended.  The  Company  is unable to
predict whether or at what time this project may go forward.

        Florida Gas had previously  filed an  application  with the FERC seeking
approval of a Phase IV expansion  project  pursuant to which it would expand its
pipeline  system  by  272,000  MMBtu/day  at a cost of  $351  million  to  serve
additional   demand  in  its  market  area,   principally  for  gas-fired  power
generation. The expansion is fully subscribed under contracts with primary terms
of 20 years. In July 1999 the FERC granted a preliminary determination approving
the Phase IV project on nonenvironmental issues, endorsing a settlement that had
been reached by Florida Gas and its shippers that includes a rate cap.



<PAGE>


SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                     Three Months                  Six Months
                                                    Ended June 30,               Ended June 30,
                                                1999          1998           1999          1998
                                                                  (In Millions)
Revenues:
   Market transportation and
<S>                                             <C>           <C>           <C>           <C>
      storage                                   $79.6         $77.9         $165.8        $161.4
   Supply transportation                         11.1          12.1           21.5          23.7
   Other                                          4.5           5.5            8.6          15.9
                                                -----         -----         ------        ------
      Total Revenues                             95.2          95.5          195.9         201.0
                                                -----         -----         ------        ------

Costs and Expenses:
   Operating and maintenance                     18.5          19.0           38.0          38.6
   General and administrative                    16.0          12.2           31.6          27.7
   Depreciation and amortization                 14.9          13.1           28.9          18.6
   Taxes, other than income                       5.7           5.4           11.7          10.7
                                                -----         -----         ------        ------
                                                 55.1          49.7          110.2          95.6
                                                -----         -----         ------        ------

Operating Income                                 40.1          45.8           85.7         105.4
                                                -----         -----         ------        ------
Other Income:
   Equity in Earnings of
      Unconsolidated Affiliates                   2.5           5.6            4.9           9.7
   Other                                          1.0           1.1            2.9           1.8
                                                -----         -----         ------        ------
                                                  3.5           6.7            7.8          11.5
                                                -----         -----         ------        ------

Earnings Before Interest and Taxes              $43.6         $52.5         $ 93.5        $116.9
                                                =====         =====         ======        ======

                                                              (Billion Cubic Feet)
Volumes:
   Market transportation                          135           137            312           322
   Supply transportation                           90           103            179           198
                                                -----         -----         ------        ------
      Total Volumes                               225           240            491           520
                                                =====         =====         ======        ======
</TABLE>


CITRUS CORP.

<TABLE>
<CAPTION>
                                                     Three Months                  Six Months
                                                    Ended June 30,               Ended June 30,
                                                1999          1998           1999          1998
                                                                  (In Millions)
Equity in Earnings of
<S>                                             <C>          <C>            <C>           <C>
   Citrus Corp.                                 $ 5.7        $ 10.8         $ 12.3        $ 15.7
                                                =====        ======         ======        ======

                                                              (Billion Cubic Feet)
Florida Gas Volumes (100%):
   Market transportation                          123           109            215           204
   Supply transportation                           12             9             25            16
                                                -----        ------         ------        ------
      Total Volumes                               135           118            240           220
                                                =====        ======         ======        ======
</TABLE>



<PAGE>

Second Quarter 1999 to Second Quarter 1998 Analysis

        Southern  Natural  Gas Company  and  Subsidiaries  - EBIT for the second
quarter  of 1999  decreased  $8.9  million  compared  with the prior  year.  The
decrease was primarily due to higher  general and  administrative  expenses as a
result of higher  stock-based  compensation  expense  in the 1999  period and an
insurance cost adjustment in the 1998 period,  higher depreciation  expense as a
result  of  higher  plant  balances  in 1999 and lower  equity  in  earnings  of
unconsolidated affiliates.

        Market  transportation  revenues  increased  due to  recent  expansions.
Supply  transportation  revenues  declined  due to lower  volumes  at Sea  Robin
Pipeline  Company.  Equity in earnings of  unconsolidated  affiliates  decreased
primarily due to lower earnings at Destin  Pipeline as a result of allowance for
funds used during construction (AFUDC) capitalized in the 1998 period.

        Citrus - Equity in earnings  of Citrus  decreased  $5.1  million to $5.7
million.  The decrease is primarily due to the  recognition  of credits on a gas
supply agreement in 1998 and higher operating expenses,  partly offset by higher
utilization and prices for firm  transportation  capacity held by Citrus Trading
and lower interest expense due to lower debt levels.

Six Months 1999 to Six Months 1998 Analysis

        Southern  Natural Gas Company and  Subsidiaries - EBIT  decreased  $23.4
million for the six months  ending June 30, 1999  compared with the 1998 period.
The decrease was primarily due to higher depreciation and amortization  expense,
the  recognition  of a royalty  reserve  reversal  of $4.2  million  in the 1998
period, higher general and administrative expenses, and lower equity in earnings
of unconsolidated  affiliates.  Depreciation and amortization expenses increased
primarily  due to a $7.0  million  pretax  adjustment  of the  salvage  value on
certain  fixed  assets in the 1998  period and higher  plant  balances  in 1999.
General and  administrative  expenses increased in the 1999 period primarily due
to higher stock-based  compensation  expense in the 1999 period and an insurance
reserve  reversal  in the 1998  period.  Equity in  earnings  of  unconsolidated
affiliates  decreased  primarily due to lower  earnings at Destin  Pipeline as a
result of higher AFUDC capitalized in the 1998 period.

        Partially  offsetting  the  decrease  was the  effect of  higher  market
transportation revenues due to recent expansions. Supply transportation revenues
declined  due to lower  volumes  at Sea Robin  Pipeline  Company.  Other  income
increased due to higher AFUDC equity and the sale of certain facilities.

        Citrus - Equity in earnings of Citrus  decreased  $3.4  million to $12.3
million.  The decrease is primarily due to the  recognition  of credits on a gas
supply agreement in 1998 and higher operating expenses,  partly offset by higher
utilization and prices for firm  transportation  capacity held by Citrus Trading
and lower interest expense due to lower debt levels.



<PAGE>


Natural Gas Sales and Supply

        Sales by Southern of natural gas are  anticipated to continue only until
Southern's  remaining supply contracts expire, are terminated,  or are assigned.
As a result of its  restructuring  pursuant  to FERC  directives  in past years,
Southern  terminated or renegotiated to market pricing  virtually all of its gas
supply contracts  through which it had  historically  obtained its long-term gas
supply.  Pending the  termination  or  expiration  of the few  remaining  supply
contracts,  Southern's  remaining  gas supply is being sold on a  month-to-month
basis.  Because  Southern is  primarily a gas  transporter  and does not realize
significant  margins on gas sales, the net of gas sales revenues and natural gas
cost is included in other revenue.

        Except  for the  sale  of its  remaining  gas  supply  described  above,
Southern's  participation  in gas  supply  activities  will  be  limited  to the
purchase  and  sale of gas  from  time to time  as may be  required  for  system
management purposes.

        Southern's  annual purchase  commitments total less than $21 million per
year for 1999 and subsequent  years.  Based on Southern's  current  expectations
with  respect  to  natural  gas  prices  in 1999  and the  years  following,  an
immaterial volume of gas is expected to be at prices above market.

Rate Matters

        Under  terms of a  settlement  approved  by the  FERC,  all of  Southern
Natural Gas' previously  pending rate proceedings and proceedings to recover gas
supply realignment and other transition costs associated with the implementation
of FERC Order No. 636 were resolved.  The settlement  requires  Southern Natural
Gas to file a new rate case no later than  September 1, 1999.  Southern  expects
the rates filed in that rate case to become effective after normal suspension by
the FERC on March 1, 2000,  subject to refund upon settlement or final litigated
conclusion of the rate case.

        In September  1997,  the FERC  approved a rate case  settlement  between
Florida Gas and its customers.  The terms of the  settlement  provide for tiered
rates effective  beginning March 1, 1997, which, for a two-year period,  reflect
an increase over the rates in effect prior to the rate filing for transportation
through both the pre-expansion and Phase III expansion  systems.  The settlement
resolved all issues related to Phase III construction and the construction  cost
audit.  The  settlement  terms  required  Florida Gas to file a new rate case no
later than  October 1, 2001,  but a subsequent  settlement  in  connection  with
Florida Gas' Phase IV expansion  application provides that Florida Gas will file
a general  rate case on or before  October  1, 2003,  but not before  October 1,
2001.

        In June  1999,  in a case on  remand  from the  Fifth  Circuit  Court of
Appeals and in response to an  application  filed earlier by  Southern's  wholly
owned  subsidiary,  Sea Robin Pipeline Company (Sea Robin),  the FERC determined
that Sea Robin  performs a  nonjurisdictional  gathering  function in part and a
jurisdictional  transmission function in part. Specifically,  the FERC concluded
that the two legs of Sea Robin's inverted  Y-shaped  pipeline system in the Gulf
of Mexico  upstream of the Vermilion  Block 149  compressor  station  constitute
gathering  facilities,  while a 66.3-mile,  36-inch pipeline downstream from the
Vermilion 149 station to Erath,  Louisiana is a  transmission  facility.  In the
order, the FERC required Sea Robin to file tariff sheets with separate gathering
rates for the gathering services to be provided on the gathering segments of Sea
Robin's system. Sea Robin has filed for an extension of time to make this tariff
filing until the FERC makes a decision on rehearing.


<PAGE>

ENERGY SERVICES

     Sonat  Energy  Services,  through its  majority-owned  subsidiaries,  Sonat
Marketing  and Sonat Power  Marketing  L.P.  (Sonat Power  Marketing),  conducts
marketing activities in the natural gas and electric  industries,  respectively.
Sonat Marketing  purchases and resells  substantially all of Sonat Exploration's
natural  gas  production,  as well as  purchasing  and  reselling  gas for other
customers. Sonat Power Marketing has executed electric power purchase, sales and
transmission  agreements with numerous companies and is focused on expanding its
wholesale electric marketing business. Both of these subsidiaries use derivative
instruments.  (See Market Risk and Note 3 of the Notes to Condensed Consolidated
Financial Statements).

        Sonat Energy  Services has reached  agreement with AGL  Resources,  Inc.
(AGL) to purchase AGL's 35 percent  interest in Sonat  Marketing and Sonat Power
Marketing  L.P.  for $65  million.  These  transactions  are  subject to certain
customary  conditions,  including,  among  others,  receipt of certain  required
government  approvals.  These  transactions  are expected to close by the end of
1999.  (See  Note  10 of the  Notes  to  the  Condensed  Consolidated  Financial
Statements).

        In July 1999, Sonat Energy Services was awarded a service agreement by a
wholly owned  subsidiary of Southern in connection with the  reactivation of the
Elba Island LNG marine receiving  terminal.  The service agreement is for all of
Elba Island's terminaling,  storage and vaporization capacity.  (See the related
discussion in the Natural Gas Transmission section).



<PAGE>


ENERGY SERVICES
<TABLE>
<CAPTION>
                                                     Three Months                  Six Months
                                                    Ended June 30,               Ended June 30,
                                                1999          1998           1999          1998
                                                                  (In Millions)

<S>                                            <C>           <C>           <C>            <C>
Revenues                                       $729.3        $800.2        $1,391.1       $1,737.2
                                               ======        ======        ========       ========

Operating Margin                               $ 13.4        $ 14.3        $   30.8       $   27.4
                                               ======        ======        ========       ========

Operating Income (Loss)                        $ (1.3)       $  2.2        $    1.8       $    3.3
                                               ======        ======        ========       ========

Earnings (Loss) Before Interest
   and Taxes                                   $ (1.9)       $  1.7        $   (3.5)      $    2.5
                                               ======        ======        ========       ========

                                                              (Billion Cubic Feet)
Sonat Marketing Gas Sales
   Volumes (100%)                                 263           284             553            644
                                               ======        ======        ========       ========

                                                          (Thousands of Megawatt Hours)
Sonat Power Marketing Sales
   Volumes (100%)                               3,060         2,729           6,069          5,899
                                               ======        ======        ========       ========

                                                              (Billion Cubic Feet)
Financial Volumes Notional
   Settlements Third Parties-
   Natural Gas                                  1,182           688           3,057          1,316
                                               ======        ======        ========       ========
</TABLE>


Second Quarter 1999 to Second Quarter 1998 Analysis

        EBIT for the second quarter of 1999 was a loss of $1.9 million  compared
with income of $1.7 million in 1998 primarily due to higher  operating  expenses
and lower margins.  Sonat Marketing's  physical sales volumes were lower in 1999
compared  to  1998.  However,  notional  volumes  from  natural  gas  derivative
settlements  increased  significantly  in 1999  compared to 1998,  reflecting an
increase in Sonat Marketing's financial  transactions on behalf of customers and
an increase in market making of  derivative  products for its own account and to
manage  its basis  positions.  Other  income was  slightly  lower than the prior
period  primarily due to an operating loss at the 50  percent-owned  Mid-Georgia
Cogen L.P. power plant,  partially offset by lower minority  interest expense in
the current period.

Six Months 1999 to Six Months 1998 Analysis

        EBIT  for  the  first  six  months  of 1999  was a loss of $3.5  million
compared to income of $2.5  million in 1998  primarily  due to higher  operating
expenses,  lower other income,  and lower margins at Sonat Marketing,  partially
offset by higher margins at Sonat Power Marketing.  Sonat  Marketing's  physical
sales  volumes were 14 percent lower in 1999.  Margins on notional  volumes from
natural gas  derivative  settlements  were also lower in 1999  compared to 1998.
Sonat Power  Marketing's  1999 margins were  substantially  higher than the 1998
period.  Other  income was $4.5  million  lower than the prior  period due to an
operating loss at the 50 percent-owned  Mid-Georgia Cogen L.P. power plant and a
write down of the carrying value of certain investments.






<PAGE>

Other Income Statement Items

<TABLE>
<CAPTION>
                                                     Three Months                  Six Months
                                                    Ended June 30,               Ended June 30,
                                                1999          1998           1999          1998
                                                                  (In Millions)

<S>                                             <C>         <C>             <C>          <C>
Interest Expense, Net                           $30.4       $  32.3         $ 60.3       $  60.8
</TABLE>

     Net  interest  expense  decreased  in both the  three-month  and  six-month
periods  of 1999  compared  to the same  periods  of 1998  due to lower  average
interest  rates in both periods,  which was partly offset by higher average debt
levels in both periods.  Interest capitalized  increased in both periods of 1999
due to increased  interest  capitalized  at Sonat  Exploration  and Sonat Energy
Services.

<TABLE>
<S>                                             <C>         <C>             <C>          <C>
Income Tax Expense (Benefit)                    $17.6       $(174.2)        $(97.5)      $(161.3)
</TABLE>

     Income tax expense  increased in the second  period of 1999 compared to the
same period of 1998 due to ceiling test charges and restructuring costs recorded
at Sonat Exploration in 1998. Greater ceiling test charges in the 1998 six-month
period  resulted in a decrease  in income tax  benefit in the current  six-month
period.  Absent the ceiling test charges and restructuring charge, the effective
tax rate  increased  in the 1999  periods  due to a decrease  in tax  preference
items.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows
<TABLE>
<CAPTION>
                                                                                   Six Months
                                                                                 Ended June 30,
                                                                             1999          1998
                                                                                 (In Millions)

<S>                                                                        <C>           <C>
Operating Activities                                                       $ 168.6       $ 378.6
</TABLE>

        Cash flow from operations  decreased $210.0 million compared to the 1998
period primarily due to lower operating results, which were discussed earlier in
the individual segment discussions.

        Depreciation,  depletion,  and  amortization  and deferred  income taxes
include  a  charge  of  $351.5   million  and  a  benefit  of  $123.0   million,
respectively, in the 1999 period and a charge of $580.2 million and a benefit of
203.1 million, respectively, in the 1998 period for ceiling test charges related
to Sonat Exploration's oil and gas properties.  Absent the ceiling test charges,
the change in  deferred  income  taxes and  accrued  interest  and income  taxes
primarily  reflects  a tax  loss  on the  sale  of  certain  properties  and the
deduction of intangible  drilling  costs for income tax purposes,  both of which
occurred  in the  current  period at Sonat  Exploration.  The change in accounts
receivable  and  accounts  payable is primarily  attributable  to the effects of
decreasing  natural  gas  prices in the prior  period  and lower  volumes in the
current period. The change in restricted cash,  accrued long-term  compensation,
and other  current  assets and  liabilities  primarily  represent the payment of
certain  expenses  associated  with the merger  between  the  Company and Zilkha
Energy in January 1998. A decrease in broker  deposits also  contributed  to the
change in other current assets and  liabilities.  The change in Other  primarily
reflects the amortization of prepaid revenue at Sonat Exploration.


<PAGE>

<TABLE>
<CAPTION>
                                                                                   Six Months
                                                                                 Ended June 30,
                                                                             1999          1998
                                                                                 (In Millions)

<S>                                                                        <C>           <C>
Investing Activities                                                       $(284.1)      $(567.1)
</TABLE>

        Net cash used in investing  activities  was $283.0 million lower in 1999
compared to 1998. The change was primarily due to lower capital  expenditures at
Sonat  Exploration  partly due to lower  developmental  drilling  in the current
period and property  sales during 1998.  In addition,  the 1998 period  included
higher  investments  in the Destin  Pipeline  and the  Mid-Georgia  cogen  joint
ventures.

        Capital  expenditures  for the Company's  business  segments  (excluding
unconsolidated affiliates) were as follows:

<TABLE>
<S>                                                                        <C>           <C>
        Exploration and Production                                         $ 179.5       $ 401.8
        Natural Gas Transmission                                              63.0          82.2
        Energy Services                                                       49.6           6.0
        Other                                                                  1.3           3.0
                                                                           -------       -------

        Total                                                              $ 293.4       $ 493.0
                                                                           =======       =======
</TABLE>

        The  Company's  investments  in  unconsolidated  affiliates  were  $11.7
million  and  $83.9   million  in  the  first  six  months  of  1999  and  1998,
respectively.

<TABLE>
<S>                                                                         <C>          <C>
Financing Activities                                                        $109.8       $ 172.3
</TABLE>

        Net cash  provided  by  financing  activities  decreased  $62.5  million
compared  to the 1998  period.  The  change  was  primarily  due to  lower  cash
requirements for various corporate expenditures.


<PAGE>

CAPITAL RESOURCES

        At June 30,  1999,  the Company had bank lines of credit and a revolving
credit agreement with banks with a total capacity of $942 million. The Company's
bank and  commercial  paper  borrowings in the  aggregate are not  authorized to
exceed the  maximum  amount  available  under its lines of credit and  revolving
credit  agreement.  As a result,  after giving  effect to the $587.5  million of
commercial  paper and $11.9 million of borrowings  from the short-term  lines of
credit outstanding at June 30, 1999, $342.6 million was available to the Company
under such lines of credit and revolving credit agreement at June 30, 1999.

        In July,  1999 Sonat issued $600 million of its 7 5/8 percent  Notes due
July 15, 2011, at 98.949 percent to yield 7.761  percent.  The net proceeds from
the offering were used to repay short-term indebtedness.

        Southern has a shelf  registration  statement  with the  Securities  and
Exchange  Commission  which  provides  for the issuance of up to $500 million in
debt  securities.  Southern issued $100.0 million in debt under its registration
statement in 1998.

        The Company's capital expenditures and other investing  requirements for
1999 are expected to total $477 million.  This amount  reflects  investments  in
unconsolidated  affiliates  and proposed  expenditures  for oil and gas property
acquisitions,   exploration  and  development,   pipeline  expansion  and  other
projects.

        The Company  believes that cash flow from  operations  and borrowings in
either the private or public  market will  provide the Company with the means to
fund operations and currently planned investment and capital expenditures.

YEAR 2000 PROJECT

        The  following  disclosure  contains  forward-looking   statements.  The
Company's  ability to meet its  objectives  identified  below is dependent  upon
several factors that could cause actual results to differ  materially from those
set forth  below,  including  the timely  provision  of  necessary  upgrades and
modifications by suppliers. In addition, the Company cannot guarantee that third
parties on whom it depends for essential  services  will convert their  critical
systems and  processes in a timely  manner.  Each of the phases of the Company's
Year 2000 project is progressing and the Company  believes that it is taking all
reasonable  and  appropriate  steps  necessary to be able to operate in the Year
2000 and beyond.

        To answer the Year 2000 challenge, the Sonat Board of Directors directed
that a corporate-wide initiative be undertaken. A consulting firm was engaged to
assist in this  effort.  The  Company has  divided  its Year 2000  project  into
assessment,  remediation,  testing, and contingency planning phases.  During the
assessment phase, the Company completed a comprehensive inventory of IT systems,
embedded  systems,  equipment,  computer  hardware,  and software that rely on a
computer  chip as well as service  providers  that could be impacted by the Year
2000 problem.  For vendor-supplied  items, the Company has contacted its vendors
seeking written  verification of Year 2000 readiness.  In addition,  the Company
continues  to  communicate  with its  critical  service  providers  and business
partners  such  as  natural  gas  suppliers,   pipelines,   electric  utilities,
telecommunication  service  providers,  banks,  and other suppliers of goods and
services,  to  determine  the extent to which the Company is  vulnerable  to the
failure of those third-parties to remediate their Year 2000 issues.


<PAGE>

        The remediation  phase includes  completing the replacement of mainframe
systems with Year 2000-ready vendor packages on new client/server  platforms and
performing  any  required  modifications  and  upgrades  identified  during  the
assessment  phase.  The testing  phase  involves  testing  systems for Year 2000
readiness.  The Company has  completed  remediation  and testing of its critical
systems  and  has  substantially   completed  remediation  and  testing  of  its
non-critical systems.

        The Company  relies on producers of natural gas,  natural gas pipelines,
natural gas distribution companies, natural gas marketing companies and electric
transmission providers to conduct its basic operations. External infrastructure,
such as electric,  telecommunication and water service is also necessary for the
Company's basic operations.  Should any third party with which the Company has a
material  relationship fail, the impact could become a significant  challenge to
the Company's ability to perform its basic operations.  Due to the nature of the
Company's  business,   contingency  plans  are  already  in  place  for  certain
conditions,  including plans to provide pipeline system reliability. The company
has  reviewed  these  existing  plans  and has  developed  additional  plans  as
practicable for critical  systems,  service providers and business  partners.  A
consulting  firm was  engaged  to assist in this  effort.  These  plans  involve
contingencies  for  failures  that may result  from the Year 2000  problem,  and
include plans to establish  control centers to facilitate  communications in the
event of a telecommunications  failure and staffing at selected locations on the
Company's pipeline system.

        The  estimated  cost to the Company of the Year 2000 project for capital
as well as general and administrative  costs has been revised,  due primarily to
its contingency planning activities,  and is not expected to exceed $14 million.
As of June 30, 1999,  the Company has incurred  approximately  $10.6  million in
Year 2000 project costs. The Company expects to fund Year 2000 expenditures from
normal  operations.  The timing of  expenditures  is not indicative of readiness
efforts or progress to date.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

        This  Quarterly  Report  contains  certain  forward-looking   statements
regarding  the  Company's  business  plans  and  prospects,  objectives,  future
drilling plans,  expansion projects,  proposed capital expenditures and expected
performance  or  results.   These   forward-looking   statements  are  based  on
assumptions that the Company believes are reasonable,  but are subject to a wide
range of risks and uncertainties and, as a result, actual results and experience
may  differ  materially  from the  anticipated  results  or  other  expectations
expressed  in such  forward-looking  statements.  Such  statements  are  made in
reliance on the safe harbor  provisions  of the  Private  Securities  Litigation
Reform Act of 1995.

        Important  factors  that could cause  actual  results to differ  include
changes  in oil and  gas  prices  and  underlying  demand,  which  would  affect
profitability  and might  cause the  Company to alter its plans;  the timing and
success of the Company's  exploration and development  drilling programs,  which
would  affect  production  levels and  reserves;  the  results of the  Company's
hedging activities;  risks incident to the drilling and operation of oil and gas
wells; future drilling, production and development costs, including drilling rig
rates;  the  success  of  the  Company's  cost-reduction   activities;  and  the
requirements to receive various governmental approvals to proceed with pipeline,
storage,  LNG,  and  power  generation  projects,  and the  execution  of  final
agreements  and  unanticipated  construction  delays  in  connection  with  such
projects.  Realization of the Company's  objectives and expected performance can
also be adversely affected by the actions of customers and competitors,  changes
in governmental  regulation of the Company's businesses,  and changes in general
economic conditions and the state of domestic capital markets.



<PAGE>


Item 3.        Quantitative and Qualitative Disclosure About Market Risk

        Financial  instruments of the Company expose it to both commodity  price
risk and interest rate risk.

        Commodity Price Risk - The Company's primary market risk exposure is the
volatility of energy commodity prices, relating to the portfolio position of its
financial instruments and physical  commitments,  which can affect the operating
results  of Sonat  Exploration  and Sonat  Energy  Services.  The  Company  uses
commodity  futures  contracts,  options  and price  swap  agreements  as well as
offsetting  physical  positions to hedge its commodity  price risk on crude oil,
natural gas and electricity. Sonat Energy Services performs all hedging activity
(non-trading)  for  both  its own  operations  and for the  operations  of Sonat
Exploration.  Sonat Energy Services,  through its subsidiaries,  Sonat Marketing
and Sonat Power  Marketing,  also uses derivative  instruments as a market maker
(trading  activity)  by  maintaining  active  trading  positions in natural gas,
electricity,  and crude oil commodity futures, swap and option contracts.  Sonat
Marketing and Sonat Power  Marketing limit their risk to changes in the value of
their   outstanding   positions   through  the  use  of  Value-at-Risk   models,
establishment of offsetting positions, and limit and monitoring procedures.

        The  Company's   non-trading   (hedging)  and  trading   activities  are
implemented  under  a set of  policies  approved  by  the  Board  of  Directors.
Established  procedures  and  processes are employed to manage and monitor these
activities  and all  derivative  activities  are  internally  reviewed by a Risk
Oversight Committee to ensure compliance with all policies. The Company's use of
derivative instruments to reduce the effect of market volatility is described in
Note 3 of the Notes to the Condensed Consolidated Financial Statements.

        Interest  Rate Risk - The  Company's  entire  portfolio of interest rate
risk instruments is classified as non-trading. The Company's interest income and
expense are  sensitive to changes in the level of short-term  interest  rates in
the  United  States.  In  general,  the  Company  uses  excess  funds to  reduce
short-term debt levels and therefore has minimal cash equivalent investments. To
mitigate the impact of fluctuations in interest rates,  the Company  maintains a
balance among components of its capital structure, providing a mix of maturities
and pricing methods for its debt  obligations.  In the past the Company has used
derivative  instruments to aid in its management of interest rate risk, although
it is not currently doing so.






<PAGE>


                           PART II. OTHER INFORMATION


Item 4. Submission of Matters to a Vote of Security Holders

        On June 10, 1999, at a special meeting of the stockholders of Sonat Inc.
(the "Company"),  the  stockholders  approved and adopted the Second Amended and
Restated  Agreement  and Plan of  Merger,  dated as of March  13,  1999,  by and
between El Paso Energy  Corporation  ("El Paso") and the  Company  (the  "Merger
Agreement")  under which,  among other  things,  the Company will merger into El
Paso (the  "Merger").  Approximately  85  percent of the  Company's  outstanding
shares were voted in favor of the Merger Agreement.  On June 10, 1999, El Paso's
stockholders also approved the Merger Agreement.  Accordingly, the consideration
to be received by the Company's stockholders on completion of the Merger will be
one share of El Paso common stock for each share of the  Company's  common stock
to be exchanged in the Merger.

        The Company  expects the regulatory  review of the proposed merger to be
completed  during the third or fourth  quarter of the year.  The Merger  will be
consummated as soon as all necessary regulatory approvals have been obtained.

        The vote on the Merger Agreement was as follows:

         ---------------- ------------------- -----------------
         For              Against             Abstained
         ---------------- ------------------- -----------------
         ---------------- ------------------- -----------------
             94,068,773          723,225            521,814
         ---------------- ------------------- -----------------

        There were no broker non-votes with respect to the vote on the merger.


Item 6. Exhibits and Reports on Form 8-K

(a)     Exhibits1

Exhibit
Number                              Exhibits

4*      Credit Agreement dated as of April 15, 1999, among Sonat Inc., the Banks
        named therein,  The Chase Manhattan Bank, as Administrative  Agent; Bank
        of America National Trust and Savings Association, as Syndication Agent;
        and SunTrust Bank, Atlanta, as Documentation Agent

12*     Computation of Ratio of Earnings to Fixed Charges

27*     Financial Data Schedule for the period ended June 30, 1999
--------------
*       Filed herewith







1 The Company will furnish to requesting  security  holders the exhibits on this
list upon the  payment  of a fee of $.10 per page up to a  maximum  of $5.00 per
exhibit.  Requests  must be in writing  and should be  addressed  to Beverley T.
Krannich Secretary, Sonat Inc., P. O. Box 2563, Birmingham, Alabama 35202-2563.

<PAGE>

(b)     Reports on 8-K

        The  Company  filed a report  on Form 8-K on April 22,  1999,  reporting
certain  information under Item 5 relating to the Company's  announcement of its
results of operations for the first quarter of 1999, which included, among other
things,  the effect of a $228.5  million,  after tax,  ceiling test charge under
full cost  accounting  provisions for its  exploration  and production  business
segment.

        The  Company  filed a report  on Form 8-K on June  10,  1999,  reporting
certain  information  under Item 5 regarding  the Company's  Special  Meeting of
Shareholders where approximately 85 percent of the Company's  outstanding shares
were voted to approve and adopt the Second  Amended and Restated  Agreement  and
Plan of Merger,  by and between the Company and El Paso Energy  Corporation ("El
Paso"),  dated as of March 13,  1999,  whereby  the  Company  will,  among other
things, merger into El Paso.

        The  Company  filed a  report  on Form  8-K on July 7,  1999,  reporting
certain  information  under Item 5 relating  to the merger of the Company and El
Paso and to place on file for  incorporation  into its  Registration  Statements
under  the  Securities  Act of 1933  certain  pro  forma  financial  information
concerning  the  merger  and El Paso's  Annual  Report on Form 10-K for the year
ended December 31, 1998 and quarterly  report on Form 10-Q for the quarter ended
March 31, 1999.

        The  Company  filed a report  on Form 8-K on July  12,  1999,  reporting
certain  information under Item 5 relating to the Company's issuance and sale of
$600,000,000  aggregate  principal amount of its 7 5/8% Notes due July 15, 2011,
registered  under its  Registration  Statements on Form S-3 (Nos.  333-62383 and
333-82385).


<PAGE>



                           SONAT INC. AND SUBSIDIARIES




                                   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.




                                                 SONAT INC.



Date:       August 11, 1999                 By:    /s/ James E. Moylan, Jr.
       -------------------------                 --------------------------
                                                 James E. Moylan, Jr.
                                                 Senior Vice President and
                                                 Chief Financial Officer





Date:       August 11, 1999                 By:    /s/ Thomas W. Barker, Jr.
       -------------------------                 ---------------------------
                                                 Thomas W. Barker, Jr.
                                                 Vice President-Finance