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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM
10-K/A
 AMENDMENT NO. 2
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 001-11899
 
 THE HOUSTON EXPLORATION COMPANY
 (Exact name of registrant as specified in its charter)
 Delaware
    
    22-2674487(State or Other Jurisdiction of
    
    (IRS EmployerIncorporation or Organization)
    
    Identification No.)1100 Louisiana, Suite 2000Houston, Texas
    
    77002-5215(Address of Principal Executive Offices)
    
    (Zip Code)
 (713) 830-6800
(Registrants Telephone Number, including Area Code)
 
 Securities Registered Pursuant to Section 12(b) of the Act:
 Name of EachTitle of Each Class
    
    Exchange on Which RegisteredCommon Stock, $0.01 par value
    
    New York Stock ExchangeSeries A Junior Participating Preferred Stock, $0.01 par value
    
    New York Stock Exchange
 Securities Registered Pursuant to Section 12(g) of the Act: None
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EXPLANATORY NOTE
   Available Information
 www.sec.gov
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TABLE OF CONTENTS
 Part III.
    
    
    3Item 10. Directors, Executive Officers and Corporate Governance
    
    
    3Item 11. Executive Compensation
    
    
    10Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    36Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    41Item 14. Principal Accountant Fees and Services
    
    
    43Part IV.
    
    
    44Item 15.Exhibits and Financial Statement Schedules
    
    
    44Signatures
    
    
    50Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302
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Part III.
 
 Item 10. Directors, Executive Officers and Corporate Governance
 Directors of Houston Exploration
  Name
    
    Age
    
    Director SinceRobert B. Catell
    
    70
    
    1986John U. Clarke
    
    54
    
    2003David G. Elkins
    
    65
    
    1999William G. Hargett
    
    57
    
    2001Harold R. Logan, Jr.
    
    62
    
    2002Thomas A. McKeever
    
    63
    
    2005Stephen W. McKessy
    
    69
    
    2003Donald C. Vaughn
    
    71
    
    1997
 
 Robert B. Catell
 John U. Clarke
 David G. Elkins
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William G. Hargett
 Harold R. Logan, Jr
 Thomas A. McKeever
 Stephen W. McKessy
 Donald C. Vaughn
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Executive Officers of Houston Exploration
  Name
    
    Age
    

ExecutiveSince
    
    OfficeWilliam G. Hargett
    
    57
    
    2001
    
    Chairman, President and Chief Executive OfficerSteven L. Mueller
    
    54
    
    2001
    
    Executive Vice President and Chief Operating OfficerRobert T. Ray
    
    46
    
    2006
    
    Senior Vice President and Chief Financial OfficerRoger B. Rice
    
    62
    
    2002
    
    Senior Vice President  AdministrationJeffrey B. Sherrick
    
    52
    
    2005
    
    Senior Vice President  Business DevelopmentCarolyn M. Campbell
    
    45
    
    2006
    
    Senior Vice President and General CounselJohn E. Bergeron, Jr.
    
    49
    
    2005
    
    Vice President and General Manager Southern DivisionJoanne C. Hresko
    
    45
    
    2004
    
    Vice President and General Manager  Northern DivisionJames F. Westmoreland
    
    51
    
    1986
    
    Vice President and Chief Accounting Officer
 
 William G. Hargett
 Steven L. Mueller
 Robert T. Ray
 Roger B. Rice
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Carolyn M. Campbell
 Jeffrey B. Sherrick
 John E. Bergeron Jr
 Joanne C. Hresko
 James F. Westmoreland
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Section
16(a) Beneficial Ownership Reporting Compliance
   Code of Ethics
  
    
    Conflicts of interest
    
    Customer relationships
    
    Insider trading of our securities
    
    Financial disclosure
    
    Protection of confidential information
    
    Strict legal and regulatory compliance.
   www.houstonexploration.com
 Procedures for Nominating Directors
 Qualifications for Nominations to the Board of Directors
 www.houstonexploration.com
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Audit Committee
  www.houstonexploration.com
  
    
    Maintaining our compliance with legal and regulatory requirements relating to financial
reporting accounting and controls
    
    Overseeing our whistleblower procedures
    
    Overseeing the pre-approval of audit fees
    
    Appointing and overseeing our independent public accountants
    
    Overseeing our internal audit function
    
    Overseeing the integrity of our financial reporting processes, including the Companys internal controls
    
    Assessing the effect of regulatory and accounting initiatives, as well as any
off-balance sheet structures, on our financial statements
    
    Reviewing our earnings press releases, guidance and SEC filings
    
    Overseeing our risk analysis and risk management procedures
    
    Resolving any disagreements between management and the independent public accountants
regarding financial reporting
    
    Overseeing our business practices and ethical standards
    
    Preparing an audit committee report to be included in our public filings pursuant to
applicable rules and regulations of the SEC.
  Report of The Audit Committee of The Board of Directors
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www.houstonexploration.com
      
 The foregoing report of the Audit Committee will not be deemed to be soliciting material or
to be incorporated by reference by any general statement incorporating this Form 10-K/A (Amendment
No. 2) by reference into any filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that we specifically incorporate the Audit
Committee Report by reference, and will not otherwise be deemed filed under those Acts.
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Item 11. Executive Compensation
 Compensation Discussion and Analysis
   Compensation Program Objectives
  
    
    Attract and retain key executives responsible for our continued growth and profitability;
    
    Motivate management to enhance long-term stockholder value; and
    
    Correlate a substantial portion of managements compensation to measurable performance,
including specific financial and operating goals.
  
    
    Providing competitive levels of total compensation when compared to the companies with
whom we compete for executive talent;
    
    Providing approximately half of each executives cash compensation in the form of
performance-based components (annual incentives);
    
    Providing a significant portion of each executives compensation in the form of equity
incentives (stock options and restricted stock);
    
    Requiring that executives maintain meaningful levels of share ownership as described on
page 16 under the heading Stock Ownership Guidelines.
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Components of Compensation
  Component
    
    Attributes
    
    RationaleBase Salary
    
    Fixed compensation, eligible for
annual merit increases, and payable
semi-monthly
    
    
    
    Standard market practice
    
    Compensation for day-to-day
responsibilities of position
    
    Reflects the experience,
responsibilities and contribution of
each individual executive officerAnnual Incentive
    
    Variable cash compensation earned
only when established annual
performance goals are achieved
    
    
    
    Standard market practice
    
    Reduces fixed compensation cost
    
    Motivates and rewards executives for
achievement of meaningful performance
goals on an annual basisStock Options
    
    Right to purchase Houston
Exploration stock at a fixed price
at some date in the future (not to
exceed 10 years from the date of
grant), earned contingent upon
continued employment.
Awarded at the closing price on the
date of grant.
Awards vest in equal portions over
a three-year period.
    
    
    
    Provision of some form of long-term
incentive is standard market practice
    
    Motivates and rewards executives for
company performance over a multi-year
period
    
    Enhances retention of executives by
vesting awards over a three-year period
    
    Ties executive rewards to stockholder
interestsRestricted Stock
    
    Actual shares of Houston
Exploration stock, earned
contingent upon continued
employment.
Awards vest on the third
anniversary of the date of grant.
    
    
    
    Provision of some form of long-term
incentive is standard market practice
    
    Motivates and rewards executives for
company performance over a multi-year
period
    
    Enhances retention of executives by
vesting awards at the end of a
three-year period
    
    Ties executive rewards to stockholder
interestsRetirement Benefits
    
    401(k) Defined Contribution Plan
    
    
    
    Standard market practice
    
    Provides a form of benefits offered to all employeesSupplemental Executive Retirement
Plan (SERP)
    
    
    
    Restores certain benefits that are limited by
the Internal Revenue Code (the Code)Other Benefits
    
    Fixed component,
comprised of health
insurance, life insurance, vision,
deferred compensation, long-term
disability
    
    
    
    Provides form of benefits offered to
all employees
    
    Provides for basic life and income
security needs
    
    Provides supplemental benefits to
assist in executives roles as
representatives of Houston ExplorationSeverance Benefits
    
    Multiple of salary and bonus,
continuation of benefits, and
vesting of outstanding equity
incentive awards in the case of
certain qualifying terminations,
including termination following a
change-in-control
    
    
    
    Provides a bridge to future employment
in the event an executive is terminated
under certain circumstances
    
    Provides additional security to allow
executives to focus on issues critical
to the success of Houston Exploration
even in the face of uncertainty (e.g.,
a sale of the company)
 Compensation Element Details
 
    
    Base Salary
 
    
    Base compensation is initially established for each executive through negotiation
and is reflected in the executives employment agreement. Thereafter, salaries are
reviewed annually, based on a number of factors, both quantitative, including
detailed organizational and competitive analyses performed by Towers Perrin, an
independent consultant engaged by the Compensation Committee, and qualitative,
including the Compensation Committees perception of the executives experience,
performance and contribution.
The Compensation Committee typically follows a practice of maintaining base salaries at approximately the level
constituting the fiftieth percentile of our peer group, and deviates from this practice in individual cases
when market conditions or other factors warrant. The Compensation Committee does not assign any
pre-determined weight to any factors in its annual review process.
    
    Based on a review of executive pay conducted in October 2006 by the consultant,
salaries for all of the NEOs were within 10% of the market median.
    
    The average salary increase for the NEOs overall during 2006 was 7.9%. The Chief
Operating Officer received a 14.29% salary increase and the Chief Executive Officer
received an 11.11% salary increase in October of 2006, in order to better align
salaries with peer companies.
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
    
    Annual Incentive
 
    
    Under our annual incentive compensation program, each executive has the
opportunity to earn an additional cash incentive compensation bonus based on the
achievement of pre-determined operating and financial performance measures
established annually by the Compensation Committee.
    
    Each executives bonus opportunity is initially reflected in the executives
employment agreement and subsequently reviewed annually. Currently, the
Compensation Committee has set annual bonus opportunities as a percentage of base
salary as follows:
 
    
    CEO
    
    85% of annual earned salary
    
    COO
    
    65% of annual earned salary
    
    Other executives
    
    55% of annual earned salary
 
    
    Each of these bonus opportunities reflects the percentage of salary each executive could
expect to earn in the form of an incentive bonus, if the Company and the executive
achieve target performance under all performance measures established for the year.
Depending upon actual performance, each executive may earn between 0% and 200% of
his or her bonus opportunity.
    
    During 2006, the following measures determined the size of bonus awards earned by
employees, including all NEOs, classified in the corporate group of the program:
Cash Flow, Reserve Additions, and Finding Costs. The measures are each significant
measures of our business success and are weighted equally. For purposes of the annual incentive compensation program, Cash Flow is defined as cash
provided by operating activities (per our audited consolidated statement of cash flows)
before the effect of any changes in operating assets and liabilities. Reserve Additions is the net
amount of additions from all sources to our oil and gas reserve base at the beginning of the year
as determined by our independent, outside reserve engineering consultants. Finding Cost is the
total amount of capital expended on exploration, development, and acquisitions compared to the
total amount of reserves booked during the year (expressed as $/Mcfe).
    
    The targets for these measures are derived from our 2006 business
plan as approved by the Board and are set at or above the levels set within the
business plan. Achievement over and above the targets can occur only when the
annual business plan is exceeded. Inasmuch as the annual business plan is our
estimate of maximum expected achievement for the year, exceeding the
targets for the three measures is unusual and difficult.
    
    Under our annual incentive compensation program, the Compensation Committee has discretion to
adjust targets, as well as individual awards, either positively or
negatively. The Compensation Committee did not exercise discretion in the determination of
individual awards to the NEOs for the year ended December 31, 2006. However, the Board noted that
the targets established by the Compensation Committee in January 2006 were
predicated upon the sale of our offshore assets and the successful redeployment of the proceeds in
new properties and that the Board had continued to reevaluate its strategic alternatives throughout
the year, resulting in a decision not to make any significant acquisitions of assets. Accordingly,
in determining incentive compensation for 2006, the Compensation Committee took into account the
impact on its previously established targets of this course of events, which was beyond the ability of the
employees to control, and adjusted the target associated with one of the measures applicable to
employees, including all NEOs, classified within the corporate group of the plan.
    
    Actual
achievement levels for 2006 are highlighted in the table below:
 Measure
    
    Weight
    
    Threshold
    
    Target
    
    Maximum
    
    2006 ActualCash Flow
    
    
    33
    %
    
    
    70
    %
    
    
    100
    %
    
    
    200
    %
    
    
    108
    %Reserve Additions
    
    
    33
    %
    
    
    70
    %
    
    
    100
    %
    
    
    200
    %
    
    
    122
    %Finding Costs
    
    
    33
    %
    
    
    70
    %
    
    
    100
    %
    
    
    200
    %
    
    
    0
    %Estimated Payout
Earned at Each
Level of
Performance
    
    
    
    
    
    
    50
    %
    
    
    100
    %
    
    
    200
    %Total Percent of Individual
Target Award Earned at Each Level of Performance
    
    
    
    
    
    
    
    
    
    
    76.6
    %
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
    
    Long-Term Incentives
 Under our Amended and Restated 2004 Long-Term Incentive Plan (the LTIP), approved by
stockholders in 2004, the Compensation Committee has the ability to make long-term
incentive awards to NEOs in a variety of forms, including stock options and restricted
stock.
 
    
    Stock Options
 Stock options represent rights to purchase shares of Houston Exploration stock at
a set price at some date in the future, not to exceed ten years from the date of
grant. Stock options are granted with an exercise price equal to the closing
stock price on the date of grant.In October 2006, stock options were awarded to all NEOs. Consistent with market
practice, assuming continued employment with the Company, these stock option
awards vest in three equal installments on the first, second, and third
anniversary of the date of grant, subject to acceleration in the event of a change
of control, such as our pending merger with Forest, and expire ten years from the
date of grant. Stock option awards for 2006 represented approximately 50% of the
value of all long-term incentive awards provided to each of the NEOs.We believe that awards of stock options provide a significant incentive for
executives to remain employed in order to achieve and maintain high levels of
performance over multi-year periods, and strengthen the connection between
executive and stockholder interests. Although no performance-vesting criteria are
applied to our stock option awards, we believe that stock options represent a
powerful performance-based incentive, as the options become valuable only to the
extent that our stock price increases following the date of grant.
 
    
    Restricted Stock
 Restricted stock awards represent awards of actual shares of our common stock,
earned contingent upon continued employment.In October 2006, restricted stock was awarded to each of the NEOs. Consistent
with market practice, these awards vest in their entirety upon the third
anniversary of the date of grant, subject to acceleration in the event of a change
of control, such as our pending merger with Forest. For 2006, restricted stock
awards represented approximately 50% of the total long-term incentive value
provided to each NEO.We believe that awards of restricted stock provide a significant incentive for
executives to achieve and maintain high levels of performance over multi-year
periods, and strengthen the connection between executive and stockholder
interests. We believe that restricted shares are a powerful tool for helping us
retain executive talent. The higher value of a share of restricted stock in
comparison to a stock option allows us to use fewer total shares in order to
arrive at a competitive total long-term incentive award value, thereby reducing
dilution of stockholder value. Furthermore, we believe that the use of restricted
stock reflects competitive practice among other independent exploration and
production companies with whom we compete for executive talent.
 
    
    Retirement Benefits
 
    
    Qualified:
 We maintain a 401(k) plan for our employees. Under the 401(k) plan, eligible
employees may elect to contribute up to 12.5% of their compensation on a pre-tax
basis in accordance with the limitations imposed under the Code. We match 100% of
each employees deferrals in accordance with the limitations imposed by the 401(k)
plan and the Code. The cash amounts contributed under the 401(k) plan are held in
a trust and invested among various investment funds in accordance with the
directions of each participant. An employees salary deferral contributions under
the 401(k) plan are 100% vested. Our matching contributions vest at the rate of
20% per year of service subject to acceleration in the event of a change of
control, such as our pending merger with Forest. Participants are entitled to
payment of their vested account balances upon termination of employment. On
January 7, 2007, the 401(k) plan was amended to provide for the full vesting of
all plan account balances at the effective time of the proposed merger with Forest
Oil with respect to plan participants who are employed by Houston Exploration
immediately prior to the effective time of the merger.
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
    
    Non-Qualified:
 Effective January 1, 2006, we adopted a Supplemental Executive Retirement Plan
(SERP) to provide retirement benefits to certain management level or other
highly compensated employees. The SERP is an unfunded, non-qualified defined
benefit pension plan. Participation in the SERP is currently limited to our
executive officers. Participants in the SERP will be entitled to a retirement
benefit payable monthly for life. The annual amount of this retirement benefit is
equal to 2.5% times final average compensation, times years of service with
Houston Exploration (not to exceed 20 years), reduced by an annuity based on a
hypothetical account that is credited with 6% of the participants compensation
during each year of employment and investment returns as defined in the plan (we
refer to this reduction as the offset). Participants are fully vested in their
benefits after five years of plan participation or age 65, whichever is earlier.
If a vested participant retires prior to age 65, then the monthly retirement
benefit as described above (before reduction for the offset) will be reduced by 5%
for each year that retirement precedes age 65. In the event a participant is
terminated for cause, all benefits under the SERP will be forfeited. All benefits
become fully vested upon a change of control (as defined in the plan), including
our pending merger with Forest, and may become payable in a lump-sum if a
participants employment is terminated by us without cause or the participant
resigns for good reason within two years following a change of control.Since November 2002, we have maintained a deferred compensation plan for the
benefit of our employees. We have two such plans that are substantially
identical, except for differences attributable to Section 409A of the Code and the
regulations and/or guidance promulgated thereunder (collectively Section 409A),
covering two separate time periods. On July 25, 2006, we amended the 2002
deferred compensation plan to prohibit deferrals or contributions to the plan
after December 31, 2004 and to transfer to the 2005 deferred compensation plan all
amounts not vested as of December 31, 2004, effectively grandfathering within the
2002 plan all participant deferrals and company matching contributions that were
vested as of December 31, 2004, as well as the earnings and losses on those
amounts. On July 25, 2006, we also adopted the 2005 deferred compensation plan,
which covers all participant deferrals and company matching contributions from and
after January 1, 2005, as well as any contributions made prior to such date that
were not vested as of December 31, 2004, and the earnings or losses on such
amounts. The deferred compensation plan is intended to supplement our 401(k) plan
by allowing highly compensated employees to save on a tax deferred basis a portion
of their eligible compensation subject to limitations imposed by the plan. Under
the terms of the plan, employees who have made the maximum allowable contribution
to their 401(k) accounts for any year ($15,000, $14,000 and $13,000 per year,
respectively, for 2006, 2005, and 2004, with an additional one-time contribution
of $5,000 in 2006, $4,000 in 2005, and $3,000 in 2004 for employees 50 years of
age or older) may elect to defer an additional portion of their compensation into
the deferred compensation plan. We match 100% of each employees deferral up to
an aggregate contribution of 12.5% under both the 401(k) plan and the deferred
compensation plan. Employer contributions vest 20% per year and become fully
vested after a five-year period, subject to acceleration in the event of a change
of control, including our pending merger with Forest. All cash contributions to
the plan are held in trust and invested, at the direction of the employee, in
various investment funds. Participants are entitled to distribution of their
deferrals and the vested portion of our matching contributions at predetermined
future dates or upon termination of their employment.
 
    
    Other Benefits
 
    
    NEOs are eligible to participate in other benefit plans, which provide
for basic health and welfare needs, on an equal basis with our other employees. In
addition, NEOs are eligible for certain perquisites which are provided in order to
assist NEOs in their roles as representatives of the company. Perquisites offered
to executives include a car allowance and luncheon club memberships. See the 2006
Perquisites and Other Personal Benefits table on page 20 for further details.
 
    
    Severance Benefits
 
    
    We provide for severance benefits to provide a bridge to future
employment in the event the executives job is terminated under a variety of
scenarios. Change of control severance benefits are subject to a double trigger
(i.e., both a change of control and termination of employment must occur for
severance benefits to be paid). We believe it is in the best interest of our
stockholders to provide a reasonable degree of economic protection in the event of a
change of control to assure that management makes decisions that are in the best
interest of stockholders.
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Setting the Level of Compensation
       Element
 
    CEO
 
    Other NEOs  AverageBase Salary
    
    
    19
    %
    
    
    32
    %Annual Incentive (actual)
    
    
    12
    %
    
    
    14
    %Long-term Incentives
(grant date fair value)
    
    
    69
    %
    
    
    54
    %
 Companies Used for Defining Competitive Compensation
  
    
    Proxy statement compensation data for a peer group of similarly sized and positioned
independent exploration and production companies are used for comparison to that of Houston
Explorations most senior executives including NEOs. The data from this analysis are
valuable in that they provide a summary of competitive practice among companies with
similar operations and business challenges with whom we compete most directly for talent.
The peer group reviewed in 2006 is set forth below:
 Cabot Oil & Gas
    
    Plains Exploration & Production CompanyCimarex Energy Co.
    
    Pogo Producing CompanyForest Oil Corporation
    
    Southwestern Energy CompanyNewfield Exploration Company
    
    Stone Energy CorporationNoble Energy, Inc.
    
    XTO Energy, Inc.
 
    
    Data from other Towers Perrin compensation surveys are used to supplement the peer group proxy analysis. Compensation survey data
reflect practices among independent exploration and production companies as well as among
similarly sized companies in a broader general industry sample. By considering
compensation survey data, we are able to review pay data for positions not captured in our
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peer group proxy compensation analysis, and we are able to consider practices across a
broader market sample, gaining additional perspective.
 Option Pricing and Timing With Respect to Material Non-Public InformationWe generally grant stock option awards in the fourth quarter of each year, following a review of
competitive market data by the Compensation Committee, as described below under the heading
Compensation Policies. Stock options are granted with an exercise price equal to the closing
price of a share of our common stock on the date of grant (at the money). We do not engage and
have not engaged in the practice of backdating options, nor do we have any official policy
regarding the timing of option awards to coincide with the release of material non-public
information.Review of Tally Sheets and Termination ProvisionsThe Compensation Committee and management analyzed tally sheets, with the assistance of the
Compensation Committees independent advisor, in the course of compensation-related deliberations.
Tally sheet analyses consider current and historical base salaries, annual incentive compensation,
long-term incentive compensation, perquisites, and retirement benefits, as well as the potential
cost impact of contractual post-termination payments in the event of a change of control, such as
our pending merger with Forest. While historical compensation practices (including past awards of
equity incentives) are considered in the course of pay-related deliberations, we have no formal
policy or formulaic approach regarding the determination of actual levels of current compensation
with respect to past compensation or levels of past wealth accumulation.Stock Ownership GuidelinesWhile continuing its policy of annual grants of options and restricted stock, in 2006 the
Compensation Committee developed stock ownership guidelines for all executive officers. Restricted
stock, stock owned outright and stock held in company savings plans, if any, apply toward the
target levels of ownership. Under these newly established guidelines, individuals have a five-year
period to achieve ownership of stock valued at the recommended target ownership levels as outlined
below:
 
    
    CEO
    
    5 timescurrent salary
    
    Executive Vice Presidents & COO
    
    3 timescurrent salary
    
    Senior Vice Presidents
    
    2 timescurrent salary
    
    Vice Presidents
    
    1 timescurrent salary
 Compensation Policies
 Stock Option Granting Policy
 
    
    Our policy is to grant all stock options and other equity awards annually, following the
regularly scheduled fourth quarter Board meeting, except that newly hired employees may be granted stock
options and other equity awards as of the date of initial employment.
 Securities Trading Policy
 
    
    We have a policy that executive officers and directors may not purchase or sell exchange
traded options to sell or buy Houston Exploration stock (puts and calls), engage in
short sales with respect to Houston Exploration stock or otherwise hedge equity positions
in Houston Exploration (e.g., by buying or selling straddles, swaps or other derivatives).
 Recall of Incentive Payments
 
    
    We do not have an executive compensation recovery policy. However, Houston Exploration
may seek to recover incentive compensation that was based on achievement of financial
results if a subsequent restatement of financial results indicates that the executive would
not have been entitled to such incentive compensation. To date, there has been no such
event.
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Deductibility of Compensation
  Stock Compensation Expense
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2006 Summary Compensation Table
  Change inpension valueand non-Non-equity
    
    qualifiedincentive
    
    deferredStock
    
    Option
    
    plan
    
    compensation
    
    All otherawards
    
    awards
    
    compensation
    
    earnings
    
    compensationName and principal
    
    
    
    
    
    Salary
    
    Bonus
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    Totalposition
    
    Year
    
    ($)
    
    ($)
    
    (1)
    
    (1)
    
    (2)
    
    (3)
    
    (4)
    
    ($)William G. Hargett
    
    
    2006
    
    
    $
    531,250
    
    
    $
    
    
    
    $
    553,336
    
    
    $
    1,003,920
    
    
    $
    345,897
    
    
    $
    145,000
    
    
    $
    90,731
    
    
    $
    2,670,134Chairman, President
and Chief Executive
OfficerSteven L. Mueller
    
    
    2006
    
    
    $
    362,500
    
    
    $
    
    
    
    $
    262,269
    
    
    $
    475,949
    
    
    $
    180,489
    
    
    $
    74,200
    
    
    $
    76,252
    
    
    $
    1,431,659Executive Vice
President and Chief
Operating OfficerRobert T. Ray
    
    
    2006
    
    
    $
    310,625
    
    
    $
    85,000
    (6)
    
    $
    166,675
    
    
    $
    116,467
    
    
    $
    130,866
    
    
    $
    12,600
    
    
    $
    30,854
    
    
    $
    853,087Senior Vice
President and Chief
Financial OfficerJeffrey B. Sherrick
    
    
    2006
    
    
    $
    292,500
    
    
    $
    100,000
    (7)
    
    $
    172,450
    
    
    $
    133,993
    
    
    $
    123,230
    
    
    $
    27,100
    
    
    $
    60,532
    
    
    $
    909,805Senior Vice
President -
Corporate
DevelopmentRoger B. Rice
    
    
    2006
    
    
    $
    255,250
    
    
    $
    
    
    
    $
    165,958
    
    
    $
    270,057
    
    
    $
    107,537
    
    
    $
    102,300
    
    
    $
    56,661
    
    
    $
    957,763Senior Vice
President -
Administration
 
 (1)
    
    Amounts reflect the dollar amount recognized for financial
statement reporting purposes for the fiscal year ended December 31, 2006, in accordance with
SFAS 123(R), of awards pursuant to the officers existing employment agreement, and thus
include amounts from awards granted in and prior to 2006. A discussion of the valuation
assumptions used for purposes of the SFAS 123(R) calculation is included under Note 4 to the
Companys 2006 Consolidated Financial Statements set forth in the Companys Annual Report on
Form 10-K, as amended, for the year ended December 31, 2006.(2)
    
    Amounts reflect the cash awards to the named individuals under the
Companys annual incentive compensation program, which is discussed in further detail on page
12 under the heading Compensation Element Details  Annual Incentive.(3)
    
    Amounts reflect the actuarial increase in the present value of the named
executive officers benefits under our pension plan (the SERP) and include amounts which the
NEO may not currently be entitled to receive because such amounts are not vested (although they would vest upon
a change of control, including our pending merger with Forest). The change
in pension value shows the difference in the present value of accumulated benefits determined
as of December 31, 2006 and December 31, 2005 for the SERP. Earnings from the non-qualified
deferred compensation plan are not above-market, and therefore are not included in this
column. The change in pension value shows the impact of a variety of factors, including: 
       
  - 18 -




---



##### Table of Contents



Measurement
    
    DateAssumption
    
    12/31/2005
    
    12/31/2006Discount Rate
    
    5.50%
    
    5.75%30-year Treasury Rate
    
    4.50%
    
    4.75%Form of Payment
    
    Life Annuity
    
    Life AnnuityPreretirement Turnover
    
    None
    
    NoneMortality
Assumption:4Preretirement4Postretirement
    
    NoneRP 2000*
    
    NoneRP 2000*Assumed Retirement Age (earliest unreduced age):
    
    Age 65
    
    Age 65
 
 *
    
    with projected mortality improvements to 2010 (sex distinct, healthy, no collar adjustment)(4)
    
    Includes (i) matching contributions for each NEO under our 401(k) plan and
deferred compensation plan, (ii) car allowances, and (iii) perquisites and other personal
benefits for each NEO, as more fully described in the 2006 Perquisites and Other Personal
Benefits table on page 20.(5)
    
    Mr. Ray commenced his employment with the Company effective January 18,
2006 and received a sign-on bonus of $85,000.(6)
    
    On September 19, 2006, the Board approved a discretionary bonus in the
amount of $100,000 for Mr. Sherrick during 2006, awarded in recognition of his significant
contribution to completing the divestiture of substantially all of our offshore Gulf of Mexico
assets as part of our strategic restructuring. - 19 -




---



##### Table of Contents



2006 Perquisites and Other Personal Benefits
 Matching
    
    Matching
    
    Life InsuranceContributions
    
    Contributions Under
    
    and Long-TermCar
    
    Under 401(k)
    
    Deferred
    
    Disability
    
    ClubAllowance(1)
    
    Savings Plan(2)
    
    Compensation Plan(3)
    
    Premiums(4)
    
    Memberships(5)William G. Hargett
    
    $
    8,400
    
    
    $
    20,000
    
    
    $
    54,977
    
    
    $
    4,272
    
    
    $
    3,082Chairman, President
and Chief Executive
OfficerSteven L. Mueller
    
    $
    8,400
    
    
    $
    20,000
    
    
    $
    45,421
    
    
    $
    2,431
    
    
    $
    Executive Vice
President and Chief
Operating OfficerRobert T. Ray
    
    $
    8,050
    
    
    $
    15,000
    
    
    $
    
    
    
    $
    2,332
    
    
    $
    5,472Senior Vice
President and Chief
Financial OfficerJeffrey B. Sherrick
    
    $
    8,400
    
    
    $
    20,000
    
    
    $
    27,647
    
    
    $
    2,208
    
    
    $
    2,277Senior Vice
President -
Corporate
DevelopmentRoger B. Rice
    
    $
    8,400
    
    
    $
    20,000
    
    
    $
    25,138
    
    
    $
    1,923
    
    
    $
    1,200Senior Vice
President -
Administration
 
 (1)
    
    Reflects $700 monthly car allowance paid to each NEO
pursuant to their employment agreements.(2)
    
    Participants may elect to have us contribute on their behalf up to 12.5% of
their total compensation (subject to limitations imposed under the Code) on a pre-tax basis.
We match 100% of each employees deferral, subject to limitations imposed by the 401(k) plan
and the Code. The amounts contributed under the 401(k) plan are held in a trust and invested
at the direction of each participant among various investment funds. An employees salary
deferral contributions to the 401(k) plan are 100% vested. Our matching contributions vest at
the rate of 20% per year of service, subject to acceleration in the event of a change of
control, such as our pending merger with Forest.(3)
    
    Employees who have made the maximum allowable contribution to their 401(k)
plan accounts for any year may elect to defer an additional portion of their compensation into
the deferred compensation plan. We match 100% of each employees deferral up to an aggregate
contribution of 12.5% of their total compensation under both the 401(k) plan and the deferred
compensation plan. Our matching contributions vest at the rate of 20%
per year of service, subject to acceleration in the event of a change
of control, such as our pending merger with Forest.(4)
    
    We provide life insurance for all employees in the amount of
100% of the employees annual base salary, not to exceed $500,000. In 2006, we paid term life insurance premiums of
$2,832 for Mr. Hargett; $991 for Mr. Mueller; $892 for Mr. Ray; $821 for Mr. Sherrick and $714
for Mr. Rice. In addition, we purchase supplemental long-term
disability insurance to provide salary replacement in the amount of 60%
of annual base salary at the date of disability, not to exceed
$15,000 per month (to continue for the duration of disability until at least age 65, or for
life if reasonably practicable) for our executive officers. In 2006, we paid long-term disability insurance premiums of
$1,440 for Mr. Hargett; $1,440 for Mr. Mueller; $1,440 for
Mr. Ray; $1,387 for Mr. Sherrick;
and $1,209 for Mr. Rice.(5)
    
    Each executive is authorized to incur reasonable business expenses
for promoting the business and reputation of the Company, including luncheon club
memberships. - 20 -




---



##### Table of Contents



2006 Grants of Plan Based Awards
  All OtherAll Other
    
    OptionsStock
    
    Awards:
    
    Exercise
    
    GrantEstimated Future
    
    Awards:
    
    Number of
    
    or Base
    
    Date FairEstimated Future Payouts Under
    
    Payouts Under Equity
    
    Number
    
    Securities
    
    Price of
    
    Value ofNon-Equity Incentive Plan Awards
    
    Incentive Plan Awards(4)
    
    of Shares
    
    Underlying
    
    Option
    
    Stock andGrant
    
    Threshold
    
    Target
    
    Maximum
    
    Threshold
    
    Target
    
    Maximum
    
    of Stock
    
    Options
    
    Awards
    
    OptionName
    
    Date
    
    ($)(1)
    
    ($)(2)
    
    ($)(3)
    
    (#)
    
    (#)
    
    (#)
    
    (#)(5)
    
    (#)(6)
    
    ($/Sh)(7)
    
    Awards(8)William G. Hargett
    
    
    10/24/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    54,000
    
    
    $
    55.50
    
    
    $
    1,930,800Chairman, President and 

Chief Executive Officer
    
    
    
    
    
    $
    225,781
    
    
    $
    451,563
    
    
    $
    903,125Steven L. Mueller
    
    
    10/24/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,000
    
    
    
    20,000
    
    
    $
    55.50
    
    
    $
    692,500Executive Vice President
and
 Chief Operating
Officer
    
    
    
    
    
    $
    117,812
    
    
    $
    235,625
    
    
    $
    471,250Robert T. Ray
    
    
    1/18/2006
    (9)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,500
    
    
    
    20,000
    
    
    $
    53.72
    
    
    $
    680,100Senior Vice President and
    
    
    10/24/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,000
    
    
    
    19,000
    
    
    $
    55.50
    
    
    $
    677,300Chief Financial Officer
    
    
    
    
    

    $
    85,422
    
    
    $
    170,844
    
    
    $
    341,687Jeffrey B. Sherrick
    
    
    10/24/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,800
    
    
    
    10,400
    
    
    $
    55.50
    
    
    $
    368,980Senior Vice President -
Corporate Development
    
    
    
    
    
    $
    80,438
    
    
    $
    160,875
    
    
    $
    321,750Roger B. Rice
    
    
    10/24/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,600
    
    
    
    9,800
    
    
    $
    55.50
    
    
    $
    348,760Senior Vice President -
Administration
    
    
    
    
    
    $
    70,194
    
    
    $
    140,388
    
    
    $
    280,775
 
 (1)
    
    Amounts reflect the estimated future payout, which is 50% of the target, at
the minimum achievement level under our annual incentive compensation program.(2)
    
    Amounts reflect the estimated future payout, which is 100% of the target,
at the target achievement level under our annual incentive compensation program.(3)
    
    Amounts reflect the estimated future payout, which is 200% of the target,
at the maximum achievement level under our annual incentive compensation program.(4)
    
    Houston Exploration has never granted equity incentive plan awards.(5)
    
    Amounts reflect the number of shares of restricted stock awarded to each
named executive officer pursuant to the 2004 LTIP. These restricted stock awards vest in
their entirety on the third anniversary of the date of grant.(6)
    
    Amounts reflect the number of stock options granted to each named executive
officer pursuant to the 2004 LTIP. These stock options vest in three equal installments on
the first, second and third anniversary of the date of grant and expire ten years from the
date of grant.(7)
    
    Stock options are granted with an exercise price equal to the closing price
of our common stock on the NYSE on the date of grant.(8)
    
    Grant date fair value of stock awards is equal to the closing price of our
common stock on the NYSE on the date of grant. Grant date fair value of stock options is
calculated using the Black Scholes method of valuing options.(9)
    
    Mr. Ray commenced his employment with the Company effective January 18,
2006 and received restricted stock and stock option awards at that
time. - 21 -




---



##### Table of Contents



Outstanding Equity Awards at 2006 Fiscal Year End
  Option Awards(1)
    
    Stock Awards(2)EquityEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    incentive plan
    
    Equityincentive plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    awards:
    
    incentive planawards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number of
    
    awards:Number of
    
    Number of
    
    Number of
    
    
    
    
    
    
    
    
    
    Number of
    
    
    
    
    
    unearned
    
    Market orsecurities
    
    securities
    
    securities
    
    
    
    
    
    
    
    
    
    shares or
    
    Market value
    
    shares, units
    
    payout value ofunderlying
    
    underlying
    
    underlying
    
    
    
    
    
    
    
    
    
    units of
    
    of shares or
    
    or other
    
    unearnedunexercised
    
    unexercised
    
    unexercised
    
    Option
    
    
    
    
    
    stock that
    
    units of stock
    
    rights that
    
    shares, units oroptions
    
    options
    
    unearned
    
    exercise
    
    Option
    
    have not
    
    that have not
    
    have not
    
    other rights(#)
    
    (#)
    
    options
    
    price
    
    expiration
    
    vested
    
    vested
    
    vested
    
    that have notName
    
    Exercisable
    
    Unexercisable
    
    (#)(3)
    
    ($)
    
    date
    
    (#)
    
    ($)(4)
    
    (#)(3)
    
    vested ($)(3)William G. Hargett
    
    
    7,818
    
    
    
    
    
    
    
    N/A
    
    
    $
    25.58
    
    
    
    4/4/2011
    
    
    
    
    
    
    
    
    
    
    
    N/A
    
    
    
    N/AChairman, President
and
    
    
    20,182
    
    
    
    
    
    
    
    
    
    
    $
    25.58
    
    
    
    4/4/2011Chief Executive Officer
    
    
    35,200
    
    
    
    
    
    
    
    
    
    
    $
    25.48
    
    
    
    9/20/201138,000
    
    
    
    19,000
    (5)
    
    
    
    
    
    $
    30.10
    
    
    
    10/16/201227,160
    
    
    
    27,160
    (5)
    
    
    
    
    
    $
    35.62
    
    
    
    10/21/201310,800
    
    
    
    16,200
    (5)
    
    
    
    
    
    $
    59.16
    
    
    
    10/22/2014
    
    
    
    13,000
    (5)
    
    $
    673,14012,667
    
    
    
    25,333
    (5)
    
    
    
    
    
    $
    54.18
    
    
    
    10/25/2015
    
    
    
    17,000
    (5)
    
    $
    880,260
    
    
    
    54,000
    (5)
    
    
    
    
    
    $
    55.50
    
    
    
    10/24/2016
    
    
    
    20,000
    (5)
    
    $
    1,035,600Steven L. Mueller
    
    
    9,756
    
    
    
    
    
    
    
    N/A
    
    
    $
    30.75
    
    
    
    10/22/2011
    
    
    
    
    
    
    
    
    
    
    
    N/A
    
    
    
    N/AExecutive Vice
President and
    
    
    25,244
    
    
    
    
    
    
    
    
    
    
    $
    30.75
    
    
    
    10/22/2011Chief Operating Officer
    
    
    31,200
    
    
    
    7,800
    (6)
    
    
    
    
    
    $
    30.10
    
    
    
    10/16/201212,180
    
    
    
    8,120
    (6)
    
    
    
    
    
    $
    35.62
    
    
    
    10/21/2013
    
    
    
    4,000
    (6)
    
    $
    207,1203,600
    
    
    
    5,400
    (6)
    
    
    
    
    
    $
    59.16
    
    
    
    10/22/2014
    
    
    
    6,553
    (6)
    
    $
    339,3144,334
    
    
    
    8,666
    (6)
    
    
    
    
    
    $
    54.18
    
    
    
    10/25/2015
    
    
    
    6,000
    (6)
    
    $
    310,680
    
    
    
    20,000
    (6)
    
    
    
    
    
    $
    55.50
    
    
    
    10/24/2016
    
    
    
    7,000
    (6)
    
    $
    362,460Robert T. Ray
    
    
    
    
    
    
    20,000
    (7)
    
    
    N/A
    
    
    $
    53.72
    
    
    
    1/18/2016
    
    
    
    7,500
    (7)
    
    $
    388,350
    
    
    
    N/A
    
    
    
    N/ASenior Vice President
    
    
    
    
    
    
    19,000
    (7)
    
    
    
    
    
    $
    55.50
    
    
    
    10/24/2016
    
    
    
    7,000
    (7)
    
    $
    362,460and Chief
Financial OfficerJeffrey B. Sherrick
    
    
    4,000
    
    
    
    16,000
    (8)
    
    
    N/A
    
    
    $
    55.09
    
    
    
    4/11/2015
    
    
    
    7,500
    (8)
    
    $
    388,350
    
    
    
    N/A
    
    
    
    N/ASenior Vice
President -
    
    
    3,000
    
    
    
    6,000
    (8)
    
    
    
    
    
    $
    54.18
    
    
    
    10/25/2015
    
    
    
    4,000
    (8)
    
    $
    207,120Corporate
Development
    
    
    
    
    
    
    10,400
    (8)
    
    
    
    
    
    $
    55.50
    
    
    
    10/24/2016
    
    
    
    3,800
    (8)
    
    $
    196,764Roger B. Rice
    
    
    5,600
    
    
    
    2,800
    (9)
    
    
    N/A
    
    
    $
    30.95
    
    
    
    3/1/2012
    
    
    
    
    
    
    
    
    
    
    
    N/A
    
    
    
    N/ASenior Vice President -
    
    
    6,690
    
    
    
    3,345
    (9)
    
    
    
    
    
    $
    29.89
    
    
    
    5/17/2012Administration
    
    
    1,710
    
    
    
    855
    (9)
    
    
    
    
    
    $
    29.89
    
    
    
    5/17/20128,000
    
    
    
    4,000
    (9)
    
    
    
    
    
    $
    30.10
    
    
    
    10/16/20125,960
    
    
    
    5,960
    (9)
    
    
    
    
    
    $
    35.62
    
    
    
    10/21/2013
    
    
    
    3,000
    (9)
    
    $
    155,3402,400
    
    
    
    3,600
    (9)
    
    
    
    
    
    $
    59.16
    
    
    
    10/22/2014
    
    
    
    5,266
    (9)
    
    $
    272,6732,334
    
    
    
    4,666
    (9)
    
    
    
    
    
    $
    54.18
    
    
    
    10/25/2015
    
    
    
    3,000
    (9)
    
    $
    155,340
    
    
    
    9,800
    (9)
    
    
    
    
    
    $
    55.50
    
    
    
    10/24/2016
    
    
    
    3,600
    (9)
    
    $
    186,408
 
 (1)
    
    Stock options are granted with an exercise price equal to the closing stock
price on the date of grant, and are subject to either a five-year vesting period, under which
options vest in equal increments of 20% commencing on the first anniversary date of grant, or
a three-year vesting period, under which options vest in equal increments of 33 1/3%
commencing on the first anniversary of the date of grant, as provided in the award agreement.
All stock option awards have a term of ten years. Upon a change of control, such as our
pending merger with Forest, and certain other specified events, all stock options vest in
their entirety. - 22 -




---



##### Table of Contents



(2)
    
    Restricted stock granted to the NEOs vest 100% on either the third or the
fifth anniversary of the date of grant, as provided in the award agreement. Upon a change of
control, such as our pending merger with Forest, and certain other specified events, all
restricted stock vests in its entirety.(3)
    
    Houston Exploration has never granted equity incentive plan awards.(4)
    
    The market value of unvested restricted shares is based on the closing
price of our common stock on the NYSE of $51.78 on December 29, 2006, the last trading day of
the year.(5)
    
    The vesting dates for Mr. Hargetts unvested, unexercised options
outstanding are as follows: options to purchase 19,000 shares vest on October 16, 2007;
options to purchase 13,580 shares vest on October 21 of each of 2007 and 2008; options to
purchase 5,400 shares vest on October 22 of each of 2007, 2008 and 2009; options to purchase
12,666 shares vest on October 25 of 2007 and options to purchase 12,667 shares vest on October
25, 2008; options to purchase 18,000 shares vest on October 24 of each of 2007, 2008 and 2009.
The vesting dates for Mr. Hargetts unvested restricted stock are as follows: 13,000 shares
vest on October 22, 2009; 17,000 shares vest on October 25, 2008; and 20,000 shares vest on
October 24, 2009.(6)
    
    The vesting dates for Mr. Muellers unvested, unexercised options
outstanding are as follows: options to purchase 7,800 shares vest on October 16, 2007; options
to purchase 4,060 shares vest on October 21 of each of 2007 and 2008; options to purchase
1,800 shares vest on October 22 of each of 2007, 2008 and 2009; options to purchase 4,333
shares vest on October 25 of each of 2007 and 2008; options to purchase 6,667 shares vest on
October 24 of each of 2007, 2008 and options to purchase 6,666 shares vest on October 24,
2009. The vesting dates for Mr. Mullers unvested restricted stock are as follows: 4,000
shares vest on October 22, 2009; 6,553 shares vest on February 8, 2010; 6,000 shares vest on
October 25, 2008; and 7,000 shares vest on October 24, 2009.(7)
    
    The vesting dates for Mr. Rays unvested, unexercised options outstanding
are as follows: options to purchase 6,666 shares vest on January 18, 2007 and options to
purchase 6,667 shares vest on January 18 of each of 2008 and 2009; options to purchase 6,334
shares vest on October 24, 2007 and options to purchase 6,333 shares vest on October 24 of
each of 2008 and 2009. The vesting dates for Mr. Rays unvested restricted stock are as
follows: 7,500 shares vest on January 18, 2009 and 7,000 shares vest on October 24, 2009.(8)
    
    The vesting dates for Mr. Sherricks unvested, unexercised options
outstanding are as follows: options to purchase 4,000 shares vest on April 11 of each of 2007,
2008, 2009 and 2010; options to purchase 3,000 shares vest on October 25 of each of 2007 and
2008; options to purchase 3,467 shares vest on October 24, 2007 and options to purchase 3,466
shares vest on October 24, 2008 and options to purchase 3,467 shares on October 24, 2009. The
vesting dates for Mr. Sherricks unvested restricted stock are as follows: 7,500 shares vest
on April 11, 2010; 4,000 shares vest on October 25, 2008; and 3,800 shares vest on October 24,
2009.(9)
    
    The vesting dates for Mr. Rices unvested, unexercised options outstanding
are as follows: options to purchase 2,800 shares vest on March 1, 2007; options to purchase 3,345
shares vest and options to purchase 855 shares vest on May 17, 2007; options to purchase 4,000 shares vest on October
16, 2007; options to purchase 2,980 shares vest on October 21 of each of 2007 and 2008; options to
purchase 1,200 shares vest on October 22 of each of 2007, 2008 and 2009; options to purchase 2,333
shares vest on October 25 of each of 2007 and 2008; options to purchase 3,267 shares vest on
October 24, 2007; options to purchase 3,266 shares vest on October 24, 2008 and options to purchase
3,267 shares vest on October 24, 2009. The vesting dates for Mr. Rices unvested restricted stock
are as follows: 3,000 shares vest on October 22, 2009; 5,266 shares vest on February 8, 2010; 3,000
shares vest on October 25, 2008; and 3,600 shares vest on October 24, 2009. Option Exercises and Stock Vested
  Employee Annual Incentive Compensation Program
  - 23 -




---



##### Table of Contents



401(k) Plan
  Nonqualified Deferred Compensation
  2006 Non-qualified Deferred Compensation Table
 Executive
    
    Registrant
    
    Aggregate
    
    Aggregate
    
    Aggregatecontributions
    
    contributions
    
    earnings
    
    withdrawals/
    
    balance atin last FY
    
    in last FY
    
    in last FY
    
    distributions
    
    last FYEName
    
    ($)
    
    ($)(1)
    
    ($)
    
    ($)
    
    ($)William G. Hargett
    
    $
    54,977
    
    
    $
    54,977
    
    
    $
    134,376
    
    
    $
    
    
    
    $
    1,897,171Chairman, President
and Chief Executive
OfficerSteven L. Mueller
    
    $
    193,585
    
    
    $
    45,421
    
    
    $
    124,511
    
    
    $
    
    
    
    $
    1,133,079Executive Vice
President and Chief
Operating OfficerRobert T. Ray
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Senior Vice
President and Chief
Financial OfficerJeffrey B. Sherrick
    
    $
    60,000
    
    
    $
    27,647
    
    
    $
    9,562
    
    
    $
    
    
    
    $
    120,830Senior Vice
President -
Corporate
DevelopmentRoger B. Rice
    
    $
    45,989
    
    
    $
    25,138
    
    
    $
    49,372
    
    
    $
    
    
    
    $
    446,676Senior Vice
President -
Administration
 
 (1)
    
    All company matching contributions are reflected in the All Other
Compensation column of the 2006 Summary Compensation Table on page 18. - 24 -




---



##### Table of Contents



Supplemental Executive Retirement Plan
     - 25 -




---



##### Table of Contents



2006 Pension Benefits Table
 Number of
    
    Present ValueYears
    
    ofCredited
    
    Accumulated
    
    PaymentsService
    
    Benefit
    
    During LastName
    
    Plan Name
    
    (#)
    
    ($)(1)
    
    Fiscal Year ($)William G. Hargett Chairman, President and Chief
Executive Officer
    
    Supplemental Executive Retirement Plan
    
    
    6
    
    
    $
    649,000
    
    
    $
    Steven L. MuellerExecutive Vice President and Chief
Operating Officer
    
    Supplemental Executive Retirement Plan
    
    
    5
    
    
    $
    252,700
    
    
    $
    Robert T. RaySenior Vice President and Chief
Financial Officer
    
    Supplemental Executive Retirement Plan
    
    
    1
    
    
    $
    12,600
    
    
    $
    Jeffrey B. SherrickSenior Vice President  Corporate
Development
    
    Supplemental Executive Retirement Plan
    
    
    2
    
    
    $
    53,500
    
    
    $
    Roger B. RiceSenior Vice President  Administration
    
    Supplemental Executive Retirement Plan
    
    
    5
    
    
    $
    394,300
    
    
    $
    
 
 (1) The present values shown in the table above were developed using the
assumptions discussed in Footnote (3) to the 2006 Summary Compensation Table on page 18. The
present value is based on the benefit accrued as of December 31, 2006 and does not assume any
future accrual of credited service or compensation increases. The weighted average
assumptions used to determine our benefit obligations at December 31, 2006 were (i) a discount
rate of 5.75%, and (ii) a rate of 5.00% for increases in
compensation.
    Age 65 AccruedName
    
    BenefitWilliam G. Hargett
Chairman, President and Chief Executive Officer
    
    $
    95,700Steven L. Mueller
Executive Vice President and Chief Operating Officer
    
    $
    45,300Robert T. Ray
Senior Vice President and Chief Financial Officer
    
    $
    3,600Jeffrey B. Sherrick
Senior Vice President  Corporate Development
    
    $
    10,500Roger B. Rice
Senior Vice President  Administration
    
    $
    41,600
 -26-




---



##### Table of Contents



Potential Payments Upon Termination or Change of Control
  The Wall Street Journal
 For
    
    
    
    
    
    
    
    
    
    Without
    
    Change ofBenefit
    
    Voluntary(1)
    
    Cause(2)
    
    Death(3)
    
    Disability(4)
    
    Cause(5)
    
    Control(6)William G. HargettCash SeveranceMultiple of Salary
    
    $
    -
    
    
    $
    -
    
    
    $
    500,000
    
    
    $
    180,000
    (7)
    
    $
    1,669,616
    
    
    $
    1,669,616Multiple of Bonus
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    1,397,825
    
    
    $
    1,397,825Stay-on Bonus(8)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    584,375Total
    
    $
    -
    
    
    $
    -
    
    
    $
    500,000
    
    
    $
    180,000
    
    
    $
    3,067,441
    
    
    $
    3,651,816Equity(9)Restricted Stock
    
    $
    -
    
    
    $
    -
    
    
    $
    2,589,000
    
    
    $
    2,589,000
    
    
    $
    2,589,000
    
    
    $
    2,589,000Unexercisable Options
    
    $
    -
    
    
    $
    -
    
    
    $
    850,826
    
    
    $
    850,826
    
    
    $
    850,826
    
    
    $
    850,826Total
    
    $
    -
    
    
    $
    -
    
    
    $
    3,439,826
    
    
    $
    3,439,826
    
    
    $
    3,439,826
    
    
    $
    3,439,826Retirement BenefitsUnvested 401(k) Plan Matching Contributions
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -Unvested Deferred Compensation Plan Matching Contributions
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -SERP(10)
    
    $
    -
    
    
    $
    -
    
    
    
    
    (11)
    
    
    
    (12)
    
    
    
    (12)
    
    $
    759,500Total
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    759,500Other BenefitsHealth & Welfare(13)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    16,500
    
    
    $
    16,500Outplacement(14)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    25,000
    
    
    $
    25,000Tax Gross-Ups(15)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -Total
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    41,500
    
    
    $
    41,500Total Pre-Tax Benefit
    
    $
    -
    
    
    $
    -
    
    
    $
    3,939,826
    
    
    $
    3,619,826
    
    
    $
    6,548,767
    
    
    $
    7,892,642Steven L. MuellerCash SeveranceMultiple of Salary
    
    $
    -
    
    
    $
    -
    
    
    $
    400,000
    
    
    $
    180,000
    (7)
    
    $
    1,221,116
    
    
    $
    1,221,116Multiple of Bonus
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    777,400
    
    
    $
    777,400Stay-on Bonus(8)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    325,000Total
    
    $
    -
    
    
    $
    -
    
    
    $
    400,000
    
    
    $
    180,000
    
    
    $
    1,998,516
    
    
    $
    2,323,516Equity(9)Restricted Stock
    
    $
    -
    
    
    $
    -
    
    
    $
    1,219,574
    
    
    $
    1,219,574
    
    
    $
    1,219,574
    
    
    $
    1,219,574Unexercisable Options
    
    $
    -
    
    
    $
    -
    
    
    $
    300,323
    
    
    $
    300,323
    
    
    $
    300,323
    
    
    $
    300,323Total
    
    $
    -
    
    
    $
    -
    
    
    $
    1,519,897
    
    
    $
    1,519,897
    
    
    $
    1,519,897
    
    
    $
    1,519,897Retirement BenefitsUnvested 401(k) Plan Matching Contributions
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -Unvested Deferred Compensation Plan Matching Contributions
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -SERP(10)
    
    $
    -
    
    
    $
    -
    
    
    
    
    (11)
    
    
    
    (12)
    
    
    
    (12)
    
    $
    309,900Total
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    309,900Other Benefits
    
    
    
    
    
    $
    -
    
    
    $
    -Health & Welfare(13)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    16,500
    
    
    $
    16,500Outplacement(14)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    25,000
    
    
    $
    25,000Tax Gross-Ups(15)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    1,204,485Total
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    41,500
    
    
    $
    1,245,985Total Pre-Tax Benefit
    
    $
    -
    
    
    $
    -
    
    
    $
    1,919,897
    
    
    $
    1,699,897
    
    
    $
    3,559,913
    
    
    $
    5,399,298
 -27-




---



##### Table of Contents



For
    
    
    
    
    
    
    
    
    
    Without
    
    Change ofBenefit
    
    Voluntary(1)
    
    Cause(2)
    
    Death(3)
    
    Disability(4)
    
    Cause(5)
    
    Control(6)Robert T. RayCash SeveranceMultiple of Salary
    
    $
    -
    
    
    $
    -
    
    
    $
    350,000
    
    
    $
    180,000
    (7)
    
    $
    1,071,616
    
    
    $
    1,071,616Multiple of Bonus
    
    $
    -
    
    
    $
    -
    
    
    $
    0
    
    
    $
    -
    
    
    $
    575,575
    
    
    $
    575,575Stay-on Bonus(8)
    
    $
    -
    
    
    $
    -
    
    
    $
    0
    
    
    $
    -
    
    
    $
    -
    
    
    $
    240,625Total
    
    $
    -
    
    
    $
    -
    
    
    $
    350,000
    
    
    $
    180,000
    
    
    $
    1,647,191
    
    
    $
    1,887,816Equity(9)Restricted Stock
    
    $
    -
    
    
    $
    -
    
    
    $
    750,810
    
    
    $
    750,810
    
    
    $
    750,810
    
    
    $
    750,810Unexercisable Options
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -Total
    
    $
    -
    
    
    $
    -
    
    
    $
    750,810
    
    
    $
    750,810
    
    
    $
    750,810
    
    
    $
    750,810Retirement BenefitsUnvested 401(k) Plan Matching Contributions
    
    $
    -
    
    
    $
    -
    
    
    $
    12,889
    
    
    $
    12,889
    
    
    $
    -
    
    
    $
    12,889Unvested Deferred Compensation Plan Matching Contributions
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -SERP(10)
    
    $
    -
    
    
    $
    -
    
    
    
    
    (11)
    
    
    
    (12)
    
    
    
    (12)
    
    $
    18,800Total
    
    $
    -
    
    
    $
    -
    
    
    $
    12,889
    
    
    $
    12,889
    
    
    $
    
    
    
    $
    31,689Other BenefitsHealth & Welfare(13)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    16,500
    
    
    $
    16,500Outplacement(14)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    25,000
    
    
    $
    25,000Tax Gross-Ups(15)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    834,874Total
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    41,500
    
    
    $
    876,374Total Pre-Tax Benefit
    
    $
    -
    
    
    $
    -
    
    
    $
    1,113,699
    
    
    $
    943,699
    
    
    $
    2,439,501
    
    
    $
    3,546,689Jeffrey B. SherrickCash SeveranceMultiple of Salary
    
    $
    -
    
    
    $
    -
    
    
    $
    303,000
    
    
    $
    180,000
    (7)
    
    $
    931,086
    
    
    $
    931,086Multiple of Bonus
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    498,284
    
    
    $
    498,284Stay-on Bonus(8)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    208,313Total
    
    $
    -
    
    
    $
    -
    
    
    $
    303,000
    
    
    $
    180,000
    
    
    $
    1,429,370
    
    
    $
    1,637,683Equity(9)Restricted Stock
    
    $
    -
    
    
    $
    -
    
    
    $
    792,234
    
    
    $
    792,234
    
    
    $
    792,234
    
    
    $
    792,234Unexercisable Options
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -Total
    
    $
    -
    
    
    $
    -
    
    
    $
    792,234
    
    
    $
    792,234
    
    
    $
    792,234
    
    
    $
    792,234Retirement BenefitsUnvested 401(k) Plan Matching Contributions
    
    $
    -
    
    
    $
    -
    
    
    $
    25,646
    
    
    $
    25,646
    
    
    $
    -
    
    
    $
    25,646Unvested Deferred Compensation
Plan Matching Contributions
    
    $
    -
    
    
    $
    -
    
    
    $
    33,889
    
    
    $
    33,889
    
    
    $
    -
    
    
    $
    33,889SERP(10)
    
    $
    -
    
    
    $
    -
    
    
    
    
    (11)
    
    
    
    (12)
    
    
    
    (12)
    
    $
    66,700Total
    
    $
    -
    
    
    $
    -
    
    
    $
    59,535
    
    
    $
    59,535
    
    
    $
    -
    
    
    $
    126,235Other BenefitsHealth & Welfare(13)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    16,500
    
    
    $
    16,500Outplacement(14)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    25,000
    
    
    $
    25,000Tax Gross-Ups(15)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    778,551Total
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    41,500
    
    
    $
    820,051Total Pre-Tax Benefit
    
    $
    -
    
    
    $
    -
    
    
    $
    1,154,769
    
    
    $
    1,031,769
    
    
    $
    2,263,104
    
    
    $
    3,376,203Roger B. RiceCash SeveranceMultiple of Salary
    
    $
    -
    
    
    $
    -
    
    
    $
    265,000
    
    
    
    159,000
    (7)
    
    $
    817,466
    
    
    $
    817,466Multiple of Bonus
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    435,793
    
    
    $
    435,793Stay-on Bonus(8)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    182,188Total
    
    $
    -
    
    
    $
    -
    
    
    $
    265,000
    
    
    $
    159,000
    
    
    $
    1,253,259
    
    
    $
    1,435,447Equity(9)Restricted Stock
    
    $
    -
    
    
    $
    -
    
    
    $
    769,761
    
    
    $
    769,761
    
    
    $
    769,761
    
    
    $
    769,761Unexercisable Options
    
    $
    -
    
    
    $
    -
    
    
    $
    333,296
    
    
    $
    333,296
    
    
    $
    333,296
    
    
    $
    333,296Total
    
    $
    -
    
    
    $
    -
    
    
    $
    1,103,057
    
    
    $
    1,103,057
    
    
    $
    1,103,057
    
    
    $
    1,103,057Retirement BenefitsUnvested 401(k) Plan Matching Contributions
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -Unvested Deferred Compensation
Plan Matching Contributions
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -SERP(10)
    
    $
    -
    
    
    $
    -
    
    
    
    
    (11)
    
    
    
    (12)
    
    
    
    (12)
    
    $
    439,500Total
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    439,500Other BenefitsHealth & Welfare(13)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    16,500
    
    
    $
    16,500Outplacement(14)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    25,000
    
    
    $
    25,000Tax Gross-Ups(15)
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    699,160Total
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    41,500
    
    
    $
    740,660Total Pre-Tax Benefit
    
    $
    -
    
    
    $
    -
    
    
    $
    1,368,057
    
    
    $
    1,262,057
    
    
    $
    2,397,816
    
    
    $
    3,718,664
 -28-




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##### Table of Contents



(1)
    
    Voluntary termination payments shown assume all voluntary termination
scenarios except for good reason. As defined in the executive employment agreements, the
executive shall have good reason to terminate his or her employment within 30 days following
his or her knowledge of any of the events set forth below which have not been cured by us
within 15 days following the executives written notice of the occurrence of any such events:
(A) a material and adverse change in the powers, duties, responsibilities or functions of the
executive; or (B) subject to the following sentence, any material and adverse change in the
executives relative position in our management structure; or (C) without the executives prior
written consent, the relocation of our principal executive offices outside the greater Houston,
Texas metropolitan area or requiring the executive to be based other than at our principal
executive offices; or (D) our failure to obtain any assumption of the employment agreement by
our successor; or (E) any reduction in the level of the executives base salary or target
bonus, or our failure to pay the executive within ten days after a written demand therefor any
installment of any previous award or deferred compensation, if any, which he or she is due and
owing under any employee benefit plan or any deferred compensation program in effect in which
the executive may have participated; or (F) any other material breach by us of the employment
agreement. Notwithstanding the foregoing, no change of the executives relative position in
our management structure (which does not otherwise materially and adversely change the powers,
duties, responsibilities or functions of the executive) shall constitute good reason unless and
until the occurrence of a change of control, which includes our pending merger with Forest, it
being understood that prior to a change of control, the Chief Executive Officer shall have
discretion to make organizational changes affecting the executive in the interest of effective
corporate management as the Chief Executive Officer may determine from time to time.(2)
    
    As defined in the executive employment agreements, cause shall mean (i) any
failure of the executive to (A) perform his or her principal duties in any material respect
(other than any such failure resulting from the executives incapacity due to disability), (B)
comply with any material provision of the executive employment agreement (other than the
confidentiality and noncompetition obligations in the executive employment agreement), or (C)
comply with any material provision of our ethics, code of conduct or other employment
policies, in each case in (A) through (C) above after written notice of such failure has been
given to the executive by the Board and such failure shall have continued for 30 days after
receipt of such notice, (ii) the executives grossly negligent or intentional misconduct which
is either materially detrimental to our financial interests and reputation, or which would
legally prevent the executive from serving in the capacity he or she was hired to serve, (iii)
a material breach by the executive of any material provision of the confidentiality or
noncompetition obligations in the executive employment agreement, or (iv) conviction of or
plea of guilty or no contest by the executive to a felony or any other criminal offense
involving moral turpitude, any of which has or have a material adverse effect on the
executives ability to perform the duties of his or her position or on our financial condition
or profitability.(3)
    
    All employees are provided life insurance in an amount equal to 100% of his or her
salary up to a maximum of $500,000. Circumstances of death within
the parameters of accidental death
and dismemberment coverage provided by us for all employees may
trigger additional benefits.(4)
    
    Amounts shown in this column assume disability payments for a
12-month period. The disability benefit is salary replacement in the amount of
60% of annual base
salary at the date of disability, not to exceed $15,000 per month.
As defined in the executive employment agreements, disability means any physical
or mental condition of the executive that (i) prevents the executive from being able to
perform the services required under the executive employment agreement, (ii) has continued for
at least 180 consecutive days during any 12-month period and (iii) is reasonably expected to
continue. Our obligation to provide to the executive long-term disability benefits shall be
defined by the long-term disability benefits contract we procure from an unrelated third
party. For that purpose, the definition of disability shall be as stated in the contract. We
and the executive recognize that the definition of disability may differ from the contract
definition, and the benefits payable shall be those as stated in the contract. However, we
agree to use good faith efforts to obtain a long-term disability benefits contract with a
definition of disability as similar as possible to the definition set forth in the executive
employment agreement. Moreover, we and the executive agree that for purposes of the other
provisions of the executive employment agreement, including our right to terminate the
executives employment, the definition of disability set forth in the executive employment
agreement shall control.(5)
    
    Includes post-termination payments provided in the case of a voluntary termination
with good reason by the executive.(6)
    
    For purposes of our broad-based change of control plan, a change of control is
deemed to occur upon the occurrence of any of the following events: 
    
    a person, entity or group other than us acquires 20% or more of the combined voting
power of our then outstanding voting securities;
 -29-




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##### Table of Contents




    
    we consummate a reorganization, merger (including our pending merger with Forest),
consolidation or disposition of all or substantially all of our assets; or
    
    the individuals constituting our Board on October 26, 1999 cease to constitute a
majority of our Board unless the election of each new director was approved by a vote of
at least a majority of the directors then still in office who were directors at the
beginning of the period.
 (7)
    
    Executive employment agreements provide for at least 60% salary replacement, not to exceed $15,000 per month, through
the age 65 in the case of disability, offset by any benefit already provided under our
long-term disability program.(8)
    
    In the event of a change of control, including our pending merger with Forest, each
executive is entitled to a stay-on bonus equal to 1.25 times his or her target bonus under our
broad-based change of control plan.(9)
    
    Value shown for equity awards reflects the full intrinsic value (the amount by which
the market value of the underlying stock at the end of the period exceeds the exercise price
of the option, or the market price of restricted stock at the end of the period) of unvested
options and restricted shares that vest as a result of the termination scenarios shown,
assuming a market value equal to the closing price of our common stock on the NYSE of $51.78
as of December 29, 2006, the last trading day of the year.(10)
    
    Termination following a change of control is the only scenario under which a
lump-sum benefit is payable under the SERP. As a result, this is the only scenario under
which we have included a present value number in the total benefit. Other footnoted scenarios
provide for an annual benefit payable beginning at age 65. See Pension Benefits Upon
Termination or Change of Control on page 34 for additional information.(11)
    
    In the case of death, the executives spouse is due a 50% survivor benefit payable
on the date that the executive would have turned 65. See Pension Benefits Upon Termination
or Change of Control on page 34 for additional information.(12)
    
    In the case of disability, voluntary termination for good reason, or termination by
us without cause, the executive is due an annual benefit payable beginning at age 65. See
Pension Benefits Upon Termination or Change of Control on page 34 for additional
information.(13)
    
    Health & welfare benefit value is equal to our estimated cost of continuing health & welfare
benefit coverage for one year following termination.(14)
    
    Outplacement benefits are provided in certain employment termination scenarios. We
have assumed a total benefit of $25,000, which we believe is a reasonable estimate, although
no specific value is placed on this benefit in our plans and agreements.(15)
    
    A tax gross-up is provided in the case of a change of control only. The gross-up
payment is intended to make each executive whole in respect to excise taxes that might be imposed
if a payment is determined to qualify as a parachute payment under Section 280G of the Code. As
such, the payment is intended to compensate for the excise tax on the parachute payment, as well as
the additional income tax and excise tax due as a result of the gross-up payment itself. Amounts
shown are estimates based on termination at December 31, 2006. -30-




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##### Table of Contents



Pension Information for the Other Potential Post-Employment Payments
      Pension Benefits Upon Termination or Change of Control
  Life annuity payable to
    
    Life annuity benefit
    
    Lump sum benefitsurviving spouse as
    
    payable under the terms
    
    payable under the termsName
    
    described in (a) above
    
    described in (b) above
    
    described in (c) above(1)William G. Hargett
Chairman, President
and Chief Executive
Officer
    
    $43,600 payable on
February 1, 2015
    
    $95,700 payable on
February 1, 2015
    
    $
    759,500Steven L. Mueller
Executive Vice
President and Chief
Operating Officer
    
    $20,600 payable on April
1, 2018
    
    $45,300 payable on
April 1, 2018
    
    $
    309,900Robert T. Ray
Senior Vice President
and Chief Financial
Officer
    
    $1,600 payable on May 1,
2025
    
    $3,600 payable on
May 1, 2025
    
    $
    18,800Jeffrey B. Sherrick
Senior Vice President
- Corporate
Development
    
    $4,800 payable on December
1, 2019
    
    $10,500 payable on
December 1, 2019
    
    $
    66,700Roger B. Rice
Senior Vice President -
 Administration
    
    $19,100 payable on May 1,
2009
    
    $41,600 payable on
May 1, 2009
    
    $
    439,500
 
 (1)
    
    The present value of these lump sum amounts were calculated assuming a 30-year treasury rate of 4.75%. -31-




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##### Table of Contents



Director Compensation
     -32-




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##### Table of Contents



2006 Director Summary Compensation Table
  Change in pensionFees
    
    
    
    
    
    
    
    
    
    Non-equity
    
    value and non-earned or
    
    Stock
    
    Option
    
    incentive plan
    
    qualified deferred
    
    All otherpaid in
    
    awards
    
    Awards
    
    compensation
    
    compensation
    
    compensation
    
    TotalName(1)
    
    cash ($)
    
    ($)(2,4)
    
    ($)(3,4)
    
    ($)
    
    earnings(5)
    
    ($)
    
    ($)Robert B. Catell
    
    $
    61,000
    
    
    $
    65,960
    
    
    $
    
    
    
    
    N/A
    
    
    $
    (52
    )
    
    $
    
    
    
    $
    126,908John U. Clarke
    
    $
    98,000
    
    
    $
    86,956
    
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    $
    
    
    
    $
    184,956David G. Elkins
    
    $
    89,500
    
    
    $
    87,900
    
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    $
    
    
    
    $
    177,400Harold R. Logan, Jr.
    
    $
    94,500
    
    
    $
    87,900
    
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    $
    
    
    
    $
    182,400Thomas A. McKeever
    
    $
    74,500
    
    
    $
    51,100
    
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    $
    
    
    
    $
    125,600Stephen W. McKessy
    
    $
    89,500
    
    
    $
    87,900
    
    
    $
    
    
    
    
    N/A
    
    
    $
    (505
    )
    
    $
    
    
    
    $
    176,895Donald C. Vaughn
    
    $
    90,000
    
    
    $
    87,900
    
    
    $
    
    
    
    
    N/A
    
    
    $
    10,942
    
    
    $
    
    
    
    $
    188,842
 
 (1)
    
    William G. Hargett, our Chief Executive Officer and Chairman of the Board, is
not included in this table as he is an employee and receives no compensation for his services
as a director. The compensation received by Mr. Hargett as an employee is shown in the 2006
Summary Compensation Table on page 18.(2)
    
    Reflects the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2006 in accordance with SFAS 123(R), and thus
includes amounts from awards granted in and prior to 2006. A discussion of the valuation
assumptions used for purposes of the SFAS 123(R) calculation is included under Note 4 to the
Companys 2006 Consolidated Financial Statements set forth in the Companys Annual Report on
Form 10-K, as amended, for the year ended December 31, 2006.(3)
    
    Reflects the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2006 in accordance with SFAS 123(R), and thus
includes amounts from option awards granted in and prior to 2006. Beginning in 2005, our
directors no longer receive stock option awards, and all previous years stock option awards
were expensed in previous years. A discussion of the valuation assumptions used for purposes
of the SFAS 123(R) calculation is included under Note 4 to the Companys 2006 Consolidated
Financial Statements set forth in the Companys Annual Report on Form 10-K, as amended, for
the year ended December 31, 2006.(4)
    
    The following table shows the aggregate number of shares of restricted and
stock options outstanding for each non-employee director as of December 31, 2006, as well as
the grant date fair value of stock awards made during 2006: Grant Date FairAggregate Stock
    
    Aggregate Option
    
    
    
    
    
    Value of StockAwards Outstanding
    
    Awards Outstanding as
    
    Stock Awarded
    
    Awards made duringName
    
    of December 31, 2006
    
    of December 31, 2006
    
    during 2006
    
    2006(6)Robert B. Catell
    
    
    5,788
    
    
    
    21,000
    
    
    
    1,788
    
    
    $
    100,000John U. Clarke
    
    
    7,788
    
    
    
    6,000
    
    
    
    1,788
    
    
    $
    100,000David G. Elkins
    
    
    7,788
    
    
    
    19,000
    
    
    
    1,788
    
    
    $
    100,000Harold R. Logan, Jr.
    
    
    7,788
    
    
    
    11,000
    
    
    
    1,788
    
    
    $
    100,000Thomas A. McKeever
    
    
    3,788
    
    
    
    2,000
    
    
    
    1,788
    
    
    $
    100,000Stephen W. McKessy
    
    
    7,788
    
    
    
    6,000
    
    
    
    1,788
    
    
    $
    100,000Donald C. Vaughn
    
    
    7,788
    
    
    
    23,000
    
    
    
    1,788
    
    
    $
    100,000
 
 (5)
    
    Details on the non-employee director deferred compensation plan are on page 32
under the heading Director Compensation.(6)
    
    The grant date fair value of the stock awards granted in 2006 is based on
the closing price our common stock on the NYSE on April 28, 2006. Stock awards for
non-employee directors are detailed under the heading Director Compensation beginning on
page 32. -33-




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##### Table of Contents



Executive Employment Agreements
      Change of Control Plan
  -34-




---



##### Table of Contents




    
    a person, entity or group other than us acquires 20% or more of the combined voting
power of our then outstanding voting securities;
    
    we consummate a reorganization, merger (including our pending merger with Forest),
consolidation or disposition of all or substantially all of our assets; or
    
    the individuals constituting our Board on October 26, 1999 cease to constitute a
majority of our Board unless the election of each new director was approved by a vote of
at least a majority of the directors then still in office who were directors at the
beginning of the period.
 Compensation Committee Interlocks and Insider Participation
  Report of The Compensation and Management Development Committee of The Board Of Directors
    
 The foregoing report of the Compensation Committee is not deemed to be soliciting material
or to be incorporated by reference by any general statement incorporating this Form 10-K/A
(Amendment No. 2) by reference into any filing under the Securities Act of 1933, as amended, or
under the Securities Exchange Act of 1934, as amended, except to the extent that we specifically
incorporate this information by reference, and is not otherwise deemed filed under these Acts.
 -35-




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 Security Ownership of Certain Beneficial Owners
   Number of Shares
    
    Percentof
    
    ofName of Beneficial Owner
    
    Common Stock
    
    Class(1)JANA Partners LLC(2)
    
    
    4,130,900
    
    
    
    14.6
    %200 Park Avenue, Suite 3300
New York, NY 10166Paulson & Co. Inc.(3)
    
    
    2,750,000
    
    
    
    9. 8
    %590 Madison Avenue
New York, NY 10022FMR Corp.(4)
    
    
    1,564,047
    (5)
    
    
    5.5
    %82 Devonshire Street
Boston, MA 02109
 
 (1)
    
    Based upon 28,214,009 shares outstanding as of March 28, 2007.(2)
    
    Based on Schedule 13D/A (Amendment No. 11) filed on January 9, 2007 by JANA
Partners LLC (JANA) and Schedule 13D filed on January 11, 2007 by Forest. The shares
reflected as beneficially owned are subject to a voting agreement pursuant to which funds
affiliated with JANA agreed, during the term of the voting agreement, to vote their shares of
our common stock in favor of the merger with Forest and the adoption of the merger agreement
and against any transaction that would impede or delay the merger with Forest, and granted to
Forest a proxy to vote their shares at any stockholder meeting convened to consider such
matters. According to the Schedule 13D filed by Forest, Forest has shared voting and
dispositive power over, but expressly disclaims beneficial ownership of, the shares reflected
as beneficially owned.(3)
    
    Based on Schedule 13G filed on February 15, 2007 by Paulson & Co. Inc.
on behalf of itself and its advisory clients.(4)
    
    Based on Schedule 13G/A (Amendment No. 4) filed on February 14, 2007 by FMR
Corp. (FMR) on behalf of itself and its affiliates, Pyramis Global Advisors Trust Company
(PGATC) an indirect wholly-owned subsidiary of FMR; Edward C. Johnson 3D (Mr. Johnson) and
FMR Corp.(5)
    
    Includes 1,555,725 shares beneficially owned by FMR Corp. as to which FMR
Corp., together with Mr. Johnson have sole dispositive power. Mr. Johnson, together with
PGATC, have sole dispositive power over 8,322 shares. -36-




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##### Table of Contents



Security Ownership of Directors and Executive Officers
  OptionsNumber
    
    Currentlyof
    
    Exercisable OrShares of
    
    ExercisableCommon
    
    within 60
    
    Total Beneficial
    
    Percent ofName of Beneficial Owner
    
    Stock(1)
    
    days(2)
    
    Holdings
    
    Class(3)William G. Hargett
    
    
    56,667
    (4)
    
    
    151,827
    
    
    
    208,494Chairman, President and Chief Executive OfficerSteven L. Mueller
    
    
    23,553
    (5)
    
    
    86,314
    
    
    
    109,867Executive Vice President and Chief Operating OfficerRobert T. Ray
    
    
    14,500
    (6)
    
    
    6,667
    
    
    
    21,167Senior Vice President and Chief Financial OfficerJeffrey B. Sherrick
    
    
    17,575
    (7)
    
    
    11,000
    
    
    
    28,575Senior Vice President  Corporate DevelopmentJames F. Westmoreland
    
    
    12,494
    (8)
    
    
    31,497
    
    
    
    43,991Vice President and Chief Accounting OfficerRoger B. Rice
    
    
    14,866
    (9)
    
    
    39,694
    
    
    
    54,560Senior Vice President  AdministrationJoanne C. Hresko
    
    
    4,700
    (10)
    
    
    14,878
    
    
    
    19,578Vice President and General Manager  Northern
DivisionJohn Bergeron, Jr.
    
    
    4,700
    (11)
    
    
    11,667
    
    
    
    16,367Vice President and General Manager  Southern
DivisionCarolyn M. Campbell
    
    
    8,900
    (12)
    
    
    5,000
    
    
    
    13,900Senior Vice President and General CounselDavid G. Elkins
    
    
    12,788
    (13)
    
    
    19,000
    
    
    
    31,788DirectorRobert B. Catell
    
    
    9,788
    (14)
    
    
    21,000
    
    
    
    30,788DirectorDonald C. Vaughn
    
    
    7,788
    (15)
    
    
    23,000
    
    
    
    30,788DirectorHarold R. Logan, Jr.
    
    
    9,788
    (16)
    
    
    11,000
    
    
    
    20,788DirectorJohn U. Clarke
    
    
    10,788
    (17)
    
    
    6,000
    
    
    
    16,788DirectorStephen W. McKessy
    
    
    7,788
    (18)
    
    
    6,000
    
    
    
    13,788DirectorThomas A. McKeever
    
    
    3,788
    (19)
    
    
    2,000
    
    
    
    5,788DirectorAll directors and executive officers as a group
    
    
    220,471
    
    
    
    446,544
    
    
    
    667,015
    
    
    
    2.3
    %
 
 (1)
    
    Includes shares held directly or indirectly by directors and executive officers
over which they have voting power and/or the power to dispose of such shares. Unless
otherwise noted, each individual or member of the group has the sole power to vote and the
sole power to dispose of the shares listed as beneficially owned.(2)
    
    To reflect beneficial ownership as defined in Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, this column includes shares as to which each individual has
the right to acquire within sixty days, other than upon consummation of our pending merger
with Forest. -37-




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##### Table of Contents



(3)
    
    Based upon 28,214,009 shares outstanding as of March 28, 2007. Percent of class is
shown only for holdings of 1% or more.(4)
    
    Includes 50,000 shares of restricted stock subject to transfer restrictions expiring
as follows: 17,000 shares in 2008; and 33,000 shares in 2009.(5)
    
    Includes 23,553 shares of restricted stock subject to transfer restrictions expiring
as follows: 6,000 shares in 2008; 11,000 shares in 2009; and 6,553 shares in 2010.(6)
    
    Includes 14,500 shares of restricted stock subject to transfer restrictions expiring
in 2009.(7)
    
    Includes 275 shares owned in a custodial account for Mr. Sherricks son and 15,300
shares of restricted stock subject to transfer restrictions expiring as follows: 4,000 shares
in 2008; 3,800 shares in 2009 and 7,500 shares in 2010.(8)
    
    Includes 12,294 shares of restricted stock subject to transfer restrictions expiring
as follows: 2,000 shares in 2008; 4,900 shares in 2009; and 5,394 shares in 2010.(9)
    
    Includes 14,866 shares of restricted stock subject to transfer restrictions expiring
as follows: 3,000 shares in 2008; 6,600 shares in 2009; and 5,266 shares in 2010.(10)
    
    Includes 4,700 shares of restricted stock subject to transfer restrictions expiring
as follows: 2,000 shares in 2008; and 2,700 shares in 2009.(11)
    
    Includes 4,700 shares of restricted stock subject to transfer restrictions expiring
as follows: 2,000 shares in 2008; and 2,700 shares in 2009.(12)
    
    Includes 8,900 shares of restricted stock subject to transfer restrictions expiring
in 2009.(13)
    
    Includes 7,788 shares of restricted stock subject to transfer restrictions expiring
as follows: 2,000 shares in 2008; 3,788 shares in 2009; and 2,000 shares in 2010.(14)
    
    Includes 5,788 shares of restricted stock subject to transfer restrictions expiring
as follows: 2,000 shares in 2008; 1,788 shares in 2009; and 2,000 shares in 2010.(15)
    
    Includes 7,788 shares of restricted stock subject to transfer restrictions expiring
as follows: 2,000 shares in 2008; 3,788 shares in 2009; and 2,000 shares in 2010.(16)
    
    Includes 7,788 shares of restricted stock subject to transfer restrictions expiring
as follows: 2,000 shares in 2008; 3,788 shares in 2009; and 2,000 shares in 2010.(17)
    
    Includes 7,788 shares of restricted stock subject to transfer restrictions expiring
as follows: 2,000 shares in 2008; 3,788 shares in 2009; and 2,000 shares in 2010.(18)
    
    Includes 7,788 shares of restricted stock subject to transfer restrictions expiring
as follows: 2,000 shares in 2008; 3,788 shares in 2009; and 2,000 in shares 2010.(19)
    
    Includes 3,788 shares of restricted stock subject to transfer restrictions expiring
as follows: 1,788 shares in 2009; and 2,000 shares in 2010. -38-




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##### Table of Contents



Equity Compensation Plan Information
  Number of securitiesto be issued upon
    
    
    Weighted averageexercise of
    
    
    exercise price of
    
    
    Number of securitiesoutstanding options,
    
    
    outstanding options,
    
    
    remaining availablePlan Category
    
    warrants and rights(1)
    
    
    warrants and rights
    
    
    for future issuance(2)Equity compensation plans
approved by stockholders
    
    
    1,536,876
    
    
    $
    44.79
    
    
    
    362,877Equity compensation plans not
approved by stockholders
    
    
    161,558
    (3)
    
    $
    27.64
    
    
    
    3⁄4Total
    
    
    1,698,434
    
    
    $
    43.16
    
    
    
    362,877
    (4)
 
 (1)
    
    Does not include (i) 41,882 outstanding restricted stock units awarded to Company
employees in July 2005, one-half of which vested in January 2007 and the remaining one-half
of which vest in July 2008, or (ii) restricted stock awarded to the Companys non-employee
directors and executive officers.(2)
    
    Upon approval of the 2004 LTIP, existing ungranted shares from the 1996 Stock
Option Plan, the 1999 Non-Qualified Stock Option Plan and the Amended and Restated 2002
Long-Term Incentive Plan were cancelled. All outstanding awards under those prior plans
will remain outstanding in accordance with their terms.(3)
    
    Includes options granted under our 1999 Non-Qualified Stock Option Plan.(4)
    
    Also accounts for (i) 53,818 restricted stock units awarded to Company employees
in July 2005, and (ii) restricted stock awarded to the Companys non-employee directors and
executive officers.    -39-




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##### Table of Contents



Amended and Restated 2004 Long-Term Incentive Plan
    1999 Non-Qualified Stock Option Plan
   -40-




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##### Table of Contents



Pending Merger with Forest Oil Corporation
      
 Item 13. Certain Relationships and Related Transactions, and Director Independence
 Related Party Transactions
   (1)
    
    all officers of Houston Exploration;(2)
    
    directors and director nominees;(3)
    
    5% shareholders;
 -41-




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##### Table of Contents



(4)
    
    immediate family members of the foregoing individuals (broadly defined to include
any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law);(5)
    
    any entity controlled by any of the individuals in (1), (2), (3) or (4) above
(whether through ownership, management authority or otherwise); and(6)
    
    certain entities at which any of the individuals in (1), (2), (3) or (4) above is
employed (generally, if the individual employed is directly involved in the negotiation of
the transaction, has or shares responsibility at such entity for such transaction, or
might receive compensation tied to such transaction).
  Independence of Board Members
  www.houstonexploration.com
   -42-




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##### Table of Contents



Item 14. Principal Accountant Fees and Services
  Fees Billed by Independent Public Accountants
  Fees Billed
    
    
    Fees BilledServices Rendered
    
    2006
    
    
    2005Audit fees
    
    $
    920,720
    (1)
    
    $
    693,750
    (1)Audit related fees
    
    
    27,600
    (2)
    
    
    126,103
    (3)Tax fees
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    Total
    
    $
    948,320
    
    
    $
    819,853
 
 (1)
    
    Includes our annual financial statement audit, including our Sarbanes-Oxley
Section 404 Certification.(2)
    
    Includes the audit of our 401(k) plan.(3)
    
    Includes (i) the review of our annual incentive compensation program calculation -
$18,500; (ii) the audit of our 401(k) plan  $22,000, (iii) review of a derivative
transaction  $46,515; and (iv) review of various potential acquisitions and dispositions -
$39,088.   Pre-Approval Policies and Procedures
 www.houstonexploration.com
 -43-




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##### Table of Contents



Part IV.
 
 Item 15 . Exhibits and Financial Statement Schedules
 1. Financial Statements:
  PAGEIndex to Financial Statements
    
    F-1Managements Report on Internal Controls Over Financial Reporting
    
    F-2Report of Independent Registered Public Accounting Firm
    
    F-3Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    F-4Consolidated Statements of Operations for the Years Ended December 31, 2006, 2005 and 2004
    
    F-5Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) for the PeriodJanuary 1, 2004 to December 31, 2006
    
    F-6Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004
    
    F-7Notes to Consolidated Financial Statements
    
    F-8Supplemental Information on Natural Gas and Oil Exploration, Development and
Production Activities (unaudited)
    
    F-31Quarterly Financial Information (Unaudited)
    
    F-35
  2. Exhibits:
 EXHIBITS
    
    DESCRIPTION2.1
    
    
    
    Agreement and Plan of Merger dated as of January 7, 2007 by and among the Company, Forest
Oil Corporation and MJCO Corporation (filed as exhibit 2.1 to our Current Report on Form
8-K dated January 7, 2007 (file No. 001-11899) and incorporated by reference herein).3.1
    
    
    
    Restated Certificate of Incorporation, as amended, including the Certificate of Amendment
thereto dated April 26, 2005 (filed as exhibit 3.1 to our Quarterly Report on Form 10-Q for
the period ended March 31, 2005 (file No. 001-11899) and incorporated by reference herein).3.2
    
    
    
    Restated Bylaws of The Houston Exploration Company (filed as Exhibit 3.2 to our Annual
Report on Form 10-K for the year ended December 31, 2005 (File No.001-11899) and
incorporated by reference).4.1
    
    
    
    Indenture, dated as of June 10, 2003, between The Houston Exploration Company and the Bank
of New York, as Trustee, with respect to the 7% Senior Subordinated Notes due 2013 (filed
as Exhibit 4.2 to our Registration Statement on Form S-4 (Registration No. 333-106836) and
incorporated by reference).4.2
    
    
    
    Rights Agreement, dated as of August 12, 2004, between The Houston Exploration Company and
The Bank of New York, as Rights Agent (filed as Exhibit 4.1 to our Current Report on Form
8-K dated August 13, 2004 (File No. 001-11899) and incorporated by reference).4.3
    
    
    
    First Amendment dated as of May 2, 2005, to the Rights Agreement dated as of August 12,
2004 between The Houston Exploration Company and The Bank of New York, as Rights Agent
(filed as exhibit 4.1 to our Quarterly Report on Form 10-Q for the period ended March 31,
2005 (file No. 001-11899) and incorporated by reference herein).4.4
    
    
    
    Second Amendment to Rights Agreement dated as of January 7, 2007 between The Houston
Exploration Company and The Bank of New York, as Rights Agent (filed as exhibit 4.1 to our
Current Report on Form 8-K dated January 7, 2007 (file No. 001-11899) and incorporated by
reference herein).
 -44-




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##### Table of Contents



EXHIBITS
    
    DESCRIPTION4.5
    
    
    
    Form of Certificate of Designation of Series A Junior Participating Preferred Stock of The
Houston Exploration Company (filed as Exhibit 4.2 to our Current Report on Form 8-K dated
August 13, 2004 (File No. 001-11899) and incorporated by reference).10.1
    
    
    
    Amended and Restated Credit Agreement dated November 30, 2005 among The Houston Exploration
Company and Wachovia Bank, National Association, as Issuing Bank and Administrative Agent;
The Bank of Nova Scotia and Bank of America as Co-Syndication Agents; and BNP Paribas and
Comerica Bank as Co-Documentation Agents (filed as exhibit 99.1 to our Current Report on
Form 8-K dated November 30, 2005 (File No. 001-11899) and incorporated by reference).10.2
    
    
    
    First Amendment to Amended and Restated Credit Agreement effective May 31, 2006 among The
Houston Exploration Company and Wachovia Bank, National Association, as Issuing Bank and
Administrative Agent; The Bank of Nova Scotia and Bank of America as Co-Syndication Agents;
and BNP Paribas and Comerica Bank as Co-Documentation Agents (filed as Exhibit 10.1 to our
Quarterly Report on Form 10-Q for the period ended June 30, 2006 (File No. 001-11899) and
incorporated by reference).10.3
    
    
    
    Purchase and Sale Agreement, dated September 3, 2003, by and among Transworld Exploration
and Production, Inc., as Seller, and The Houston Exploration Company, as Buyer (filed as
Exhibit 2.1 to our Current Report on Form 8-K dated October 15, 2003 (file No. 001-11899)
and incorporated by reference).10.4
    
    
    
    Asset Contribution Agreement dated June 2, 2004 between The Houston Exploration Company and
Seneca-Upshur Petroleum, Inc. (filed as Exhibit 99.3 to our Current Report on Form 8-K
dated June 30, 2004 (File No. 001-11899) and incorporated by reference).10.5
    
    
    
    Tax Matters Agreement dated as of June 2, 2004 by and among The Houston Exploration
Company, Seneca-Upshur Petroleum, Inc., THEC Holdings Corp., and KeySpan Corporation (filed
as Exhibit 99.4 to our Current Report on Form 8-K dated June 30, 2004 (File No. 001-11899)
and incorporated by reference).10.6
    
    
    
    Distribution Agreement dated as of June 2, 2004 by and among The Houston Exploration
Company, Seneca-Upshur Petroleum, Inc., THEC Holdings Corp. and KeySpan Corporation (filed
as Exhibit 99.2 to our Current Report on Form 8-K dated June 30, 2004 (File No. 001-11899)
and incorporated by reference).10.7
    
    
    
    Purchase and Sale Agreement, dated September 17, 2004, between The Houston Exploration
Company and Orca Energy, L.P. (filed as Exhibit 2.1 to our Current Report on Form 8-K dated
November 1, 2004 (File No. 001-11899) and incorporated by reference).10.8
    
    
    
    Purchase and Sale Agreement dated October 21, 2005 by and between Kerr-McGee Oil & Gas
Onshore LP D/B/A KMOG Onshore LP and Westport Oil and Gas Company, L.P., as sellers, and
The Houston Exploration Company, as buyer (filed as exhibit 99.2 to our Current Report on
Form 8-K dated November 30, 2005 (File No. 001-11899) and incorporated by reference).10.9
    
    
    
    Purchase and Sale Agreement dated February 28, 2006 between The Houston Exploration
Company, as seller, and Merit Management Partners I, L.P., Merit Management Partners II,
L.P., Merit Management Partners III, L.P., Merit Energy Partners III, L.P., Merit Energy
Partners D-III, L.P., Merit Energy Partners E-III, L.P. and Merit Energy Partners F-III,
L.P., collectively, as buyer (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q
for the period ended March 31, 2006 (File No. 001-11899) and incorporated by reference).10.10
    
    
    
    Purchase and Sale Agreement dated April 7, 2006 between The Houston Exploration Company, as
seller, and Merit Management Partners I, L.P., Merit Management Partners II, L.P., Merit
Management Partners III, L.P., Merit Energy Partners III, L.P., Merit Energy Partners
D-III, L.P., Merit Energy Partners E-III, L.P. and Merit Energy Partners F-III, L.P.,
collectively, as buyer (filed as Exhibit 99.1 to our Current Report on Form 8-K dated June
2, 2006 (File No. 001-11899) and incorporated by reference).
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EXHIBITS
    
    DESCRIPTION10.11(2)
    
    
    
    Deferred Compensation Plan for Non-Employee Directors (filed as Exhibit 10.24 to our Annual
Report on Form 10-K for the year ended December 31, 1997 (File No. 001-11899) and
incorporated by reference).10.12(2)
    
    
    
    Amendment dated April 26, 2005, but effective as of December 31, 2004, to The Houston
Exploration Company Non-Employee Director Deferred Compensation Plan (filed as Exhibit 10.4
to our Current Report on Form 8-K dated July 31, 2006 (File No. 001-11899) and incorporated
by reference).10.13(2)
    
    
    
    The Houston Exploration Company Post-2004, AJCA Compliant Deferred Compensation Plan for
Non-Employee Directors dated April 26, 2005, effective as of January 1, 2005 (filed as
Exhibit 10.5 to our Current Report on Form 8-K dated July 31, 2006 (File No. 001-11899) and
incorporated by reference).10.14(2)
    
    
    
    Compensation Table for Non-Employee Directors, effective January 1, 2006 (filed as exhibit
99.2 to our Current Report on Form 8-K dated January 6, 2006).10.15(2)
    
    
    
    Amended and Restated 1996 Stock Option Plan (filed as Exhibit 10.1 to our Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998 (File No. 001-11899) and incorporated by
reference).10.16(2)
    
    
    
    1999 Non-Qualified Stock Option Plan dated October 26, 1999 (filed as Exhibit 10.24 to our
Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 001-11899) and
incorporated by reference).10.17(2)
    
    
    
    Amended and Restated 2002 Long-Term Incentive Plan effective May 17, 2002, adopted October
26, 2003 (filed as Exhibit 10.31 to our Annual Report on Form 10-K for the year ended
December 31, 2003 (File No. 001-11899) and incorporated by reference).10.18(2)
    
    
    
    Amended and Restated 2004 Long Term Incentive Plan (filed as exhibit 99.1 to our Current
Report on Form 8-K dated January 31, 2006 (File No. 001-11899) and incorporated by
reference).10.19(2)
    
    
    
    Supplemental Executive Pension Plan dated May 1, 1996 (filed as exhibit 10.23 to our
Registration Statement on Form S-1/A (Amendment No. 2) (Registration No. 333-4437) and
incorporated by reference).10.20(2)
    
    
    
    The Houston Exploration Company Supplemental Executive Retirement Plan (Amended and
Restated on July 25, 2006) (filed as Exhibit 10.1 to our Current Report on Form 8-K dated
July 31, 2006 (File No. 001-11899) and incorporated by reference).10.21(2)
    
    
    
    First Amendment to The Houston Exploration Company Supplemental Executive Retirement Plan
(filed as exhibit 10.3 to our Current Report on Form 8-K dated
January 7, 2007 (File No.
001-11899) and incorporated by reference herein).10.22(2)
    
    
    
    Executive Deferred Compensation Plan dated January 1, 2002 (filed as Exhibit 10.28 to our
Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-11899) and
incorporated by reference).10.23(2)
    
    
    
    Amendment [No. 1] to The Houston Exploration Company Executive Deferred Compensation Plan
(filed as exhibit 99.2 to our Current Report on Form 8-K dated January 31, 2006 (File No.
001-11899) and incorporated by reference).10.24(2)
    
    
    
    Amendment No. 2 dated July 25, 2006, but effective as of December 31, 2004, to The Houston
Exploration Company Executive Deferred Compensation Plan (filed as Exhibit 10.2 to our
Current Report on Form 8-K dated July 31, 2006 (File No. 001-11899) and incorporated by
reference).10.25(2)
    
    
    
    The Houston Exploration Company 2005 Executive Deferred Compensation Plan (filed as Exhibit
10.3 to our Current Report on Form 8-K dated July 31, 2006 (File No. 001-11899) and
incorporated by reference).10.26(2)
    
    
    
    Amended and Restated Employment Agreement dated February 8, 2005 between The Houston
Exploration Company and William G. Hargett (filed as Exhibit 10.1 to our Current Report on
Form 8-K dated February 8, 2005 (File No. 001-11899) and incorporated by reference).
 -46-




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##### Table of Contents



EXHIBITS
    
    DESCRIPTION10.27(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Amended and Restated Employment Agreement
dated February 8, 2005 between The Houston Exploration Company and William G. Hargett
(filed as Exhibit 10.1 to our Current Report on Form 8-K dated October 27, 2006 (File No.
001-11899) and incorporated by reference).10.38(2)
    
    
    
    Amended and Restated Employment Agreement between The Houston Exploration Company and
Steven L. Mueller dated February 8, 2005 (filed as Exhibit 10.19 to our Annual Report on
Form 10-K for the year ended December 31, 2004 (File No. 001-11899) and incorporated by
reference).10.29(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Amended and Restated Employment Agreement
dated February 8, 2005 between The Houston Exploration Company and Steven L. Mueller (filed
as Exhibit 10.2 to our Current Report on Form 8-K dated October 27, 2006 (File No.
001-11899) and incorporated by reference).10.30(2)
    
    
    
    Amended and Restated Employment Agreement between The Houston Exploration Company and John
H. Karnes dated February 8, 2005 (filed as Exhibit 10.20 to our Annual Report on Form 10-K
for the year ended December 31, 2004 (File No. 001-11899) and incorporated by reference).10.31(2)
    
    
    
    Separation Agreement and General Release dated December 8, 2005 between The Houston
Exploration Company and John H. Karnes (filed as exhibit 99.1 to our Current Report on Form
8-K dated December 12, 2005 (File No. 001-11899) and incorporated by reference).10.32(2)
    
    
    
    Amended and Restated Employment Agreement between The Houston Exploration Company and James
F. Westmoreland dated February 8, 2005 (filed as Exhibit 10.21 to our Annual Report on Form
10-K for the year ended December 31, 2004 (File No. 001-11899) and incorporated by
reference).10.33(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Amended and Restated Employment Agreement
dated February 8, 2005 between The Houston Exploration Company and James F. Westmoreland
(filed as Exhibit 10.7 to our Current Report on Form 8-K dated October 27, 2006 (File No.
001-11899) and incorporated by reference).10.34(2)
    
    
    
    Amended and Restated Employment Agreement between The Houston Exploration Company and Roger
B. Rice dated February 8, 2005 (filed as Exhibit 10.22 to our Annual Report on Form 10-K
for the year ended December 31, 2004 (File No. 001-11899) and incorporated by reference).10.35(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Amended and Restated Employment Agreement
dated February 8, 2005 between The Houston Exploration Company and Roger B. Rice (filed as
Exhibit 10.5 to our Current Report on Form 8-K dated October 27, 2006 (File No. 001-11899)
and incorporated by reference).10.36(2)
    
    
    
    Employment Agreement dated February 10, 2005 between The Houston Exploration Company and
Joanne C. Hresko (filed as Exhibit 10.3 to our Current Report on Form 8-K dated February 8,
2005 (File No. 001-11899) and incorporated by reference).10.37(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Employment Agreement dated February 10,
2005, between The Houston Exploration Company and Joanne C. Hresko (filed as Exhibit 10.8
to our Current Report on Form 8-K dated October 27, 2006 (File No. 001-11899) and
incorporated by reference).10.38(2)
    
    
    
    Employment Agreement effective March 10, 2005, between The Houston Exploration Company and
John E. Bergeron, Jr. (filed as exhibit 99.2 to our Current Report on Form 8-K dated March
10, 2005 (File No. 001-11899) and incorporated by reference).10.39(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Employment Agreement dated March 10, 2005,
between The Houston Exploration Company and John E. Bergeron, Jr. (filed as Exhibit 10.9 to
our Current Report on Form 8-K dated October 27, 2006 (File No. 001-11899) and incorporated
by reference).
 -47-




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##### Table of Contents



EXHIBITS
    
    DESCRIPTION10.40(2)
    
    
    
    Employment Agreement effective April 13, 2005, between The Houston Exploration Company and
Jeffrey B. Sherrick (filed as exhibit 99.2 to our Current Report on Form 8-K dated April
13, 2005 (File No. 001-11899) and incorporated by reference).10.41(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Employment Agreement dated April 13, 2005,
between The Houston Exploration Company and Jeffrey B. Sherrick (filed as Exhibit 10.6 to
our Current Report on Form 8-K dated October 27, 2006 (File No. 001-11899) and incorporated
by reference).10.42(2)
    
    
    
    Employment Agreement dated January 18, 2006 between The Houston Exploration Company and
Robert T. Ray (filed as exhibit 99.1 to our Current Report on Form 8-K dated January 18,
2006 (File No. 001-11899) and incorporated by reference).10.43(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Employment Agreement dated January 18,
2006, between The Houston Exploration Company and Robert T. Ray (filed as Exhibit 10.3 to
our Current Report on Form 8-K dated October 27, 2006 (File No. 001-11899) and incorporated
by reference).10.44(2)
    
    
    
    Employment Agreement dated March 27, 2006 between The Houston Exploration Company and
Carolyn M. Campbell (filed as Exhibit 99.1 to our Current Report on Form 8-K dated March
27, 2006 (File No. 001-11899) and incorporated by reference).10.45(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Employment Agreement dated March 27, 2006,
between The Houston Exploration Company and Carolyn M. Campbell (filed as Exhibit 10.4 to
our Current Report on Form 8-K dated October 27, 2006 (File No. 001-11899) and incorporated
by reference).10.46(2)
    
    
    
    Form of Amendment No. 2 to [Amended and Restated] Employment Agreement entered into by and
between The Houston Exploration Company and each of William G. Hargett, Steven L. Mueller,
James F. Westmoreland, Roger B. Rice, Joanne C. Hresko, John E. Bergeron Jr., Jeffrey B.
Sherrick, Robert T. Ray and Carolyn M. Campbell (filed as Exhibit 10.1 to our Current
Report on Form 8-K dated January 7, 2007 (file No. 001-11899) and incorporated by reference
herein).10.47(2)
    
    
    
    Change of Control Plan dated October 26, 1999 (filed as Exhibit 10.25 to our Annual Report
on Form 10-K for the year ended December 31, 1999 (File No. 001-11899) and incorporated by
reference).10.48(2)
    
    
    
    First Amendment to The Houston Exploration Company Change of Control Plan dated May 17,
2002 (filed as Exhibit 10.48 to our Annual Report on Form 10-K for the year ended December
31, 2006 (File No. 001-11899) and incorporated by reference).10.49(2)
    
    
    
    Second Amendment to The Houston Exploration Company Change of Control Plan (filed as
exhibit 10.4 to our Current Report on Form 8-K dated January 7, 2007 (file No. 001-11899)
and incorporated by reference herein).10.50(2)
    
    
    
    Form of Indemnification Agreement for Directors and Executive Officers (filed as Exhibit
10.8 to our Quarterly Report on Form 10-Q for the period ended June 30, 2006 (File No.
001-11899) and incorporated by reference).10.51(2)
    
    
    
    Form of Non-Qualified Stock Option Agreement (filed as Exhibit 10.9 to our Quarterly Report
on Form 10-Q for the period ended June 30, 2006 (File No. 001-11899) and incorporated by
reference).10.52(2)
    
    
    
    Form of Director Restricted Stock Award Agreement (filed as Exhibit 10.10 to our Quarterly
Report on Form 10-Q for the period ended June 30, 2006 (File No. 001-11899) and
incorporated by reference).10.53(2)
    
    
    
    Form of Employee Restricted Stock Award Agreement (filed as Exhibit 10.11 to our Quarterly
Report on Form 10-Q for the period ended June 30, 2006 (File No. 001-11899) and
incorporated by reference).12.1
    
    
    
    Computation of ratio of earnings to fixed charges (filed as Exhibit 10.48 to our Annual
Report on Form 10-K for the year ended December 31, 2006 (File No. 001-11899) and
incorporated by reference).21.1
    
    
    
    Subsidiaries of The Houston Exploration Company (filed as Exhibit 10.48 to our Annual
Report on Form 10-K for the year ended December 31, 2006 (File No. 001-11899) and
incorporated by reference).
 -48-




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##### Table of Contents



EXHIBITS
    
    DESCRIPTION23.1
    
    
    
    Consent of Deloitte & Touche LLP (filed as Exhibit 23.1 to our Annual Report on Form 10-K
for the year ended December 31, 2006 (File No. 001-11899) and incorporated by reference).23.2
    
    
    
    Consent of Netherland, Sewell & Associates (filed as Exhibit 23.2 to our Annual Report on
Form 10-K for the year ended December 31, 2006 (File No. 001-11899) and incorporated by
reference).23.3
    
    
    
    Consent of Miller and Lents (filed as Exhibit 23.3 to our Annual Report on Form 10-K for
the year ended December 31, 2006 (File No. 001-11899) and incorporated by reference).31.1(1)
    
    
    
    Certification of William G. Hargett, Chief Executive Officer, as required pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2(1)
    
    
    
    Certification of Robert T. Ray, Chief Financial Officer, as required pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    
    Certification of William G. Hargett, Chief Executive Officer, as required pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed as Exhibit 32.1 to our Annual Report
on Form10-K/A (Amendment No. 1) for the year ended December 31, 2006 (File No. 001-11899)
and incorporated by reference).32.2
    
    
    
    Certification of Robert T. Ray, Chief Financial Officer, as required pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (filed as Exhibit 32.2 to our Annual Report on
Form10-K/A (Amendment No. 1) for the year ended December 31, 2006 (File No. 001-11899) and
incorporated by reference).
 
 (1)   Filed herewith.(2)   Management contract or compensation plan. -49-




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##### Table of Contents



SIGNATURES
  THE HOUSTON EXPLORATION COMPANYBy:
    /s/ William G. HargettWilliam G. HargettDate: April 2, 2007
    
    President and Chief Executive Officer -50-




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##### Table of Contents



POWER OF ATTORNEY
  Signature
    
    Title
    
    Date/s/ William G. Hargett
    
    Chairman of the Board of Directors,
    
    April 2, 2007William G. Hargett
    
    President and Chief Executive Officer
(Principal Executive Officer)/s/ Robert T. Ray
    
    Senior Vice President and Chief Financial Officer
    
    April 2, 2007Robert T. Ray
    
    (Principal Financial Officer)/s/ James F. Westmoreland
    
    Vice President and Chief Accounting Officer
    
    April 2, 2007James F. Westmoreland
    
    (Principal Accounting Officer)*
    
    Director
    
    April 2, 2007Robert B. Catell*
    
    Director
    
    April 2, 2007John U. Clarke*
    
    Director
    
    April 2, 2007David G. Elkins*
    
    Director
    
    April 2, 2007Harold R. Logan, Jr.*
    
    Director
    
    April 2, 2007Thomas A. McKeever*

Stephen W. McKessy
    
    Director
    
    April 2, 2007*
    
    Director
    
    April 2, 2007Donald C. Vaughn*By: /s/ James F. WestmorelandJames F. WestmorelandAttorney-in-Fact




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##### Table of Contents



INDEX TO EXHIBITS
 EXHIBITS
    
    DESCRIPTION2.1
    
    
    
    Agreement and Plan of Merger dated as of January 7, 2007 by and among the Company, Forest
Oil Corporation and MJCO Corporation (filed as exhibit 2.1 to our Current Report on Form
8-K dated January 7, 2007 (file No. 001-11899) and incorporated by reference herein).3.1
    
    
    
    Restated Certificate of Incorporation, as amended, including the Certificate of Amendment
thereto dated April 26, 2005 (filed as exhibit 3.1 to our Quarterly Report on Form 10-Q for
the period ended March 31, 2005 (file No. 001-11899) and incorporated by reference herein).3.2
    
    
    
    Restated Bylaws of The Houston Exploration Company (filed as Exhibit 3.2 to our Annual
Report on Form 10-K for the year ended December 31, 2005 (File No.001-11899) and
incorporated by reference).4.1
    
    
    
    Indenture, dated as of June 10, 2003, between The Houston Exploration Company and the Bank
of New York, as Trustee, with respect to the 7% Senior Subordinated Notes due 2013 (filed
as Exhibit 4.2 to our Registration Statement on Form S-4 (Registration No. 333-106836) and
incorporated by reference).4.2
    
    
    
    Rights Agreement, dated as of August 12, 2004, between The Houston Exploration Company and
The Bank of New York, as Rights Agent (filed as Exhibit 4.1 to our Current Report on Form
8-K dated August 13, 2004 (File No. 001-11899) and incorporated by reference).4.3
    
    
    
    First Amendment dated as of May 2, 2005, to the Rights Agreement dated as of August 12,
2004 between The Houston Exploration Company and The Bank of New York, as Rights Agent
(filed as exhibit 4.1 to our Quarterly Report on Form 10-Q for the period ended March 31,
2005 (file No. 001-11899) and incorporated by reference herein).4.4
    
    
    
    Second Amendment to Rights Agreement dated as of January 7, 2007 between The Houston
Exploration Company and The Bank of New York, as Rights Agent (filed as exhibit 4.1 to our
Current Report on Form 8-K dated January 7, 2007 (file No. 001-11899) and incorporated by
reference herein).
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##### Table of Contents



EXHIBITS
    
    DESCRIPTION4.5
    
    
    
    Form of Certificate of Designation of Series A Junior Participating Preferred Stock of The
Houston Exploration Company (filed as Exhibit 4.2 to our Current Report on Form 8-K dated
August 13, 2004 (File No. 001-11899) and incorporated by reference).10.1
    
    
    
    Amended and Restated Credit Agreement dated November 30, 2005 among The Houston Exploration
Company and Wachovia Bank, National Association, as Issuing Bank and Administrative Agent;
The Bank of Nova Scotia and Bank of America as Co-Syndication Agents; and BNP Paribas and
Comerica Bank as Co-Documentation Agents (filed as exhibit 99.1 to our Current Report on
Form 8-K dated November 30, 2005 (File No. 001-11899) and incorporated by reference).10.2
    
    
    
    First Amendment to Amended and Restated Credit Agreement effective May 31, 2006 among The
Houston Exploration Company and Wachovia Bank, National Association, as Issuing Bank and
Administrative Agent; The Bank of Nova Scotia and Bank of America as Co-Syndication Agents;
and BNP Paribas and Comerica Bank as Co-Documentation Agents (filed as Exhibit 10.1 to our
Quarterly Report on Form 10-Q for the period ended June 30, 2006 (File No. 001-11899) and
incorporated by reference).10.3
    
    
    
    Purchase and Sale Agreement, dated September 3, 2003, by and among Transworld Exploration
and Production, Inc., as Seller, and The Houston Exploration Company, as Buyer (filed as
Exhibit 2.1 to our Current Report on Form 8-K dated October 15, 2003 (file No. 001-11899)
and incorporated by reference).10.4
    
    
    
    Asset Contribution Agreement dated June 2, 2004 between The Houston Exploration Company and
Seneca-Upshur Petroleum, Inc. (filed as Exhibit 99.3 to our Current Report on Form 8-K
dated June 30, 2004 (File No. 001-11899) and incorporated by reference).10.5
    
    
    
    Tax Matters Agreement dated as of June 2, 2004 by and among The Houston Exploration
Company, Seneca-Upshur Petroleum, Inc., THEC Holdings Corp., and KeySpan Corporation (filed
as Exhibit 99.4 to our Current Report on Form 8-K dated June 30, 2004 (File No. 001-11899)
and incorporated by reference).10.6
    
    
    
    Distribution Agreement dated as of June 2, 2004 by and among The Houston Exploration
Company, Seneca-Upshur Petroleum, Inc., THEC Holdings Corp. and KeySpan Corporation (filed
as Exhibit 99.2 to our Current Report on Form 8-K dated June 30, 2004 (File No. 001-11899)
and incorporated by reference).10.7
    
    
    
    Purchase and Sale Agreement, dated September 17, 2004, between The Houston Exploration
Company and Orca Energy, L.P. (filed as Exhibit 2.1 to our Current Report on Form 8-K dated
November 1, 2004 (File No. 001-11899) and incorporated by reference).10.8
    
    
    
    Purchase and Sale Agreement dated October 21, 2005 by and between Kerr-McGee Oil & Gas
Onshore LP D/B/A KMOG Onshore LP and Westport Oil and Gas Company, L.P., as sellers, and
The Houston Exploration Company, as buyer (filed as exhibit 99.2 to our Current Report on
Form 8-K dated November 30, 2005 (File No. 001-11899) and incorporated by reference).10.9
    
    
    
    Purchase and Sale Agreement dated February 28, 2006 between The Houston Exploration
Company, as seller, and Merit Management Partners I, L.P., Merit Management Partners II,
L.P., Merit Management Partners III, L.P., Merit Energy Partners III, L.P., Merit Energy
Partners D-III, L.P., Merit Energy Partners E-III, L.P. and Merit Energy Partners F-III,
L.P., collectively, as buyer (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q
for the period ended March 31, 2006 (File No. 001-11899) and incorporated by reference).10.10
    
    
    
    Purchase and Sale Agreement dated April 7, 2006 between The Houston Exploration Company, as
seller, and Merit Management Partners I, L.P., Merit Management Partners II, L.P., Merit
Management Partners III, L.P., Merit Energy Partners III, L.P., Merit Energy Partners
D-III, L.P., Merit Energy Partners E-III, L.P. and Merit Energy Partners F-III, L.P.,
collectively, as buyer (filed as Exhibit 99.1 to our Current Report on Form 8-K dated June
2, 2006 (File No. 001-11899) and incorporated by reference).
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##### Table of Contents



EXHIBITS
    
    DESCRIPTION10.11(2)
    
    
    
    Deferred Compensation Plan for Non-Employee Directors (filed as Exhibit 10.24 to our Annual
Report on Form 10-K for the year ended December 31, 1997 (File No. 001-11899) and
incorporated by reference).10.12(2)
    
    
    
    Amendment dated April 26, 2005, but effective as of December 31, 2004, to The Houston
Exploration Company Non-Employee Director Deferred Compensation Plan (filed as Exhibit 10.4
to our Current Report on Form 8-K dated July 31, 2006 (File No. 001-11899) and incorporated
by reference).10.13(2)
    
    
    
    The Houston Exploration Company Post-2004, AJCA Compliant Deferred Compensation Plan for
Non-Employee Directors dated April 26, 2005, effective as of January 1, 2005 (filed as
Exhibit 10.5 to our Current Report on Form 8-K dated July 31, 2006 (File No. 001-11899) and
incorporated by reference).10.14(2)
    
    
    
    Compensation Table for Non-Employee Directors, effective January 1, 2006 (filed as exhibit
99.2 to our Current Report on Form 8-K dated January 6, 2006).10.15(2)
    
    
    
    Amended and Restated 1996 Stock Option Plan (filed as Exhibit 10.1 to our Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998 (File No. 001-11899) and incorporated by
reference).10.16(2)
    
    
    
    1999 Non-Qualified Stock Option Plan dated October 26, 1999 (filed as Exhibit 10.24 to our
Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 001-11899) and
incorporated by reference).10.17(2)
    
    
    
    Amended and Restated 2002 Long-Term Incentive Plan effective May 17, 2002, adopted October
26, 2003 (filed as Exhibit 10.31 to our Annual Report on Form 10-K for the year ended
December 31, 2003 (file No. 001-11899) and incorporated by reference).10.18(2)
    
    
    
    Amended and Restated 2004 Long Term Incentive Plan (filed as exhibit 99.1 to our Current
Report on Form 8-K dated January 31, 2006 (File No. 001-11899) and incorporated by
reference).10.19(2)
    
    
    
    Supplemental Executive Pension Plan dated May 1, 1996 (filed as exhibit 10.23 to our
Registration Statement on Form S-1/A (Amendment No. 2) (Registration No. 333-4437) and
incorporated by reference).10.20(2)
    
    
    
    The Houston Exploration Company Supplemental Executive Retirement Plan (Amended and
Restated on July 25, 2006) (filed as Exhibit 10.1 to our Current Report on Form 8-K dated
July 31, 2006 (File No. 001-11899) and incorporated by reference).10.21(2)
    
    
    
    First Amendment to The Houston Exploration Company Supplemental Executive Retirement Plan
(filed as exhibit 10.3 to our Current Report on Form 8-K dated January 7, 2007 (file No.
001-11899) and incorporated by reference herein).10.22(2)
    
    
    
    Executive Deferred Compensation Plan dated January 1, 2002 (filed as Exhibit 10.28 to our
Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-11899) and
incorporated by reference).10.23(2)
    
    
    
    Amendment [No. 1] to The Houston Exploration Company Executive Deferred Compensation Plan
(filed as exhibit 99.2 to our Current Report on Form 8-K dated January 31, 2006 (File No.
001-11899) and incorporated by reference).10.24(2)
    
    
    
    Amendment No. 2 dated July 25, 2006, but effective as of December 31, 2004, to The Houston
Exploration Company Executive Deferred Compensation Plan (filed as Exhibit 10.2 to our
Current Report on Form 8-K dated July 31, 2006 (File No. 001-11899) and incorporated by
reference).10.25(2)
    
    
    
    The Houston Exploration Company 2005 Executive Deferred Compensation Plan (filed as Exhibit
10.3 to our Current Report on Form 8-K dated July 31, 2006 (File No. 001-11899) and
incorporated by reference).10.26(2)
    
    
    
    Amended and Restated Employment Agreement dated February 8, 2005 between The Houston
Exploration Company and William G. Hargett (filed as Exhibit 10.1 to our Current Report on
Form 8-K dated February 8, 2005 (File No. 001-11899) and incorporated by reference).
 -53-




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##### Table of Contents



EXHIBITS
    
    DESCRIPTION10.27(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Amended and Restated Employment Agreement
dated February 8, 2005 between The Houston Exploration Company and William G. Hargett
(filed as Exhibit 10.1 to our Current Report on Form 8-K dated October 27, 2006 (File No.
001-11899) and incorporated by reference).10.38(2)
    
    
    
    Amended and Restated Employment Agreement between The Houston Exploration Company and
Steven L. Mueller dated February 8, 2005 (filed as Exhibit 10.19 to our Annual Report on
Form 10-K for the year ended December 31, 2004 (File No. 001-11899) and incorporated by
reference).10.29(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Amended and Restated Employment Agreement
dated February 8, 2005 between The Houston Exploration Company and Steven L. Mueller (filed
as Exhibit 10.2 to our Current Report on Form 8-K dated October 27, 2006 (File No.
001-11899) and incorporated by reference).10.30(2)
    
    
    
    Amended and Restated Employment Agreement between The Houston Exploration Company and John
H. Karnes dated February 8, 2005 (filed as Exhibit 10.20 to our Annual Report on Form 10-K
for the year ended December 31, 2004 (File No. 001-11899) and incorporated by reference).10.31(2)
    
    
    
    Separation Agreement and General Release dated December 8, 2005 between The Houston
Exploration Company and John H. Karnes (filed as exhibit 99.1 to our Current Report on Form
8-K dated December 12, 2005 (File No. 001-11899) and incorporated by reference).10.32(2)
    
    
    
    Amended and Restated Employment Agreement between The Houston Exploration Company and James
F. Westmoreland dated February 8, 2005 (filed as Exhibit 10.21 to our Annual Report on Form
10-K for the year ended December 31, 2004 (File No. 001-11899) and incorporated by
reference).10.33(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Amended and Restated Employment Agreement
dated February 8, 2005 between The Houston Exploration Company and James F. Westmoreland
(filed as Exhibit 10.7 to our Current Report on Form 8-K dated October 27, 2006 (File No.
001-11899) and incorporated by reference).10.34(2)
    
    
    
    Amended and Restated Employment Agreement between The Houston Exploration Company and Roger
B. Rice dated February 8, 2005 (filed as Exhibit 10.22 to our Annual Report on Form 10-K
for the year ended December 31, 2004 (File No. 001-11899) and incorporated by reference).10.35(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Amended and Restated Employment Agreement
dated February 8, 2005 between The Houston Exploration Company and Roger B. Rice (filed as
Exhibit 10.5 to our Current Report on Form 8-K dated October 27, 2006 (File No. 001-11899)
and incorporated by reference).10.36(2)
    
    
    
    Employment Agreement dated February 10, 2005 between The Houston Exploration Company and
Joanne C. Hresko (filed as Exhibit 10.3 to our Current Report on Form 8-K dated February 8,
2005 (File No. 001-11899) and incorporated by reference).10.37(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Employment Agreement dated February 10,
2005, between The Houston Exploration Company and Joanne C. Hresko (filed as Exhibit 10.8
to our Current Report on Form 8-K dated October 27, 2006 (File No. 001-11899) and
incorporated by reference).10.38(2)
    
    
    
    Employment Agreement effective March 10, 2005, between The Houston Exploration Company and
John E. Bergeron, Jr. (filed as exhibit 99.2 to our Current Report on Form 8-K dated March
10, 2005 (File No. 001-11899) and incorporated by reference).10.39(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Employment Agreement dated March 10, 2005,
between The Houston Exploration Company and John E. Bergeron, Jr. (filed as Exhibit 10.9 to
our Current Report on Form 8-K dated October 27, 2006 (File No. 001-11899) and incorporated
by reference).
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##### Table of Contents



EXHIBITS
    
    DESCRIPTION10.40(2)
    
    
    
    Employment Agreement effective April 13, 2005, between The Houston Exploration Company and
Jeffrey B. Sherrick (filed as exhibit 99.2 to our Current Report on Form 8-K dated April
13, 2005 (File No. 001-11899) and incorporated by reference).10.41(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Employment Agreement dated April 13, 2005,
between The Houston Exploration Company and Jeffrey B. Sherrick (filed as Exhibit 10.6 to
our Current Report on Form 8-K dated October 27, 2006 (File No. 001-11899) and incorporated
by reference).10.42(2)
    
    
    
    Employment Agreement dated January 18, 2006 between The Houston Exploration Company and
Robert T. Ray (filed as exhibit 99.1 to our Current Report on Form 8-K dated January 18,
2006 (File No. 001-11899) and incorporated by reference).10.43(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Employment Agreement dated January 18,
2006, between The Houston Exploration Company and Robert T. Ray (filed as Exhibit 10.3 to
our Current Report on Form 8-K dated October 27, 2006 (File No. 001-11899) and incorporated
by reference).10.44(2)
    
    
    
    Employment Agreement dated March 27, 2006 between The Houston Exploration Company and
Carolyn M. Campbell (filed as Exhibit 99.1 to our Current Report on Form 8-K dated March
27, 2006 (File No. 001-11899) and incorporated by reference).10.45(2)
    
    
    
    Amendment No. 1, dated October 24, 2006, to the Employment Agreement dated March 27, 2006,
between The Houston Exploration Company and Carolyn M. Campbell (filed as Exhibit 10.4 to
our Current Report on Form 8-K dated October 27, 2006 (File No. 001-11899) and incorporated
by reference).10.46(2)
    
    
    
    Form of Amendment No. 2 to [Amended and Restated] Employment Agreement entered into by and
between The Houston Exploration Company and each of William G. Hargett, Steven L. Mueller,
James F. Westmoreland, Roger B. Rice, Joanne C. Hresko, John E. Bergeron Jr., Jeffrey B.
Sherrick, Robert T. Ray and Carolyn M. Campbell (filed as Exhibit 10.1 to our Current
Report on Form 8-K dated January 7, 2007 (file No. 001-11899) and incorporated by reference
herein).10.47(2)
    
    
    
    Change of Control Plan dated October 26, 1999 (filed as Exhibit 10.25 to our Annual Report
on Form 10-K for the year ended December 31, 1999 (File No. 001-11899) and incorporated by
reference).10.48(2)
    
    
    
    First Amendment to The Houston Exploration Company Change of Control Plan dated May 17,
2002 (filed as Exhibit 10.48 to our Annual Report on Form 10-K for the year ended December
31, 2006 (File No. 001-11899) and incorporated by reference).10.49(2)
    
    
    
    Second Amendment to The Houston Exploration Company Change of Control Plan (filed as
exhibit 10.4 to our Current Report on Form 8-K dated January 7, 2007 (file No. 001-11899)
and incorporated by reference herein).10.50(2)
    
    
    
    Form of Indemnification Agreement for Directors and Executive Officers (filed as Exhibit
10.8 to our Quarterly Report on Form 10-Q for the period ended June 30, 2006 (File No.
001-11899) and incorporated by reference).10.51(2)
    
    
    
    Form of Non-Qualified Stock Option Agreement (filed as Exhibit 10.9 to our Quarterly Report
on Form 10-Q for the period ended June 30, 2006 (File No. 001-11899) and incorporated by
reference).10.52(2)
    
    
    
    Form of Director Restricted Stock Award Agreement (filed as Exhibit 10.10 to our Quarterly
Report on Form 10-Q for the period ended June 30, 2006 (File No. 001-11899) and
incorporated by reference).10.53(2)
    
    
    
    Form of Employee Restricted Stock Award Agreement (filed as Exhibit 10.11 to our Quarterly
Report on Form 10-Q for the period ended June 30, 2006 (File No. 001-11899) and
incorporated by reference).12.1
    
    
    
    Computation of ratio of earnings to fixed charges (filed as Exhibit 10.48 to our Annual
Report on Form 10-K for the year ended December 31, 2006 (File No. 001-11899) and
incorporated by reference).21.1
    
    
    
    Subsidiaries of The Houston Exploration Company (filed as Exhibit 10.48 to our Annual
Report on Form 10-K for the year ended December 31, 2006 (File No. 001-11899) and
incorporated by reference).
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##### Table of Contents



EXHIBITS
    
    DESCRIPTION23.1
    
    
    
    Consent of Deloitte & Touche LLP (filed as Exhibit 23.1 to our Annual Report on Form 10-K
for the year ended December 31, 2006 (File No. 001-11899) and incorporated by reference).23.2
    
    
    
    Consent of Netherland, Sewell & Associates (filed as Exhibit 23.2 to our Annual Report on
Form 10-K for the year ended December 31, 2006 (File No. 001-11899) and incorporated by
reference).23.3
    
    
    
    Consent of Miller and Lents (filed as Exhibit 23.3 to our Annual Report on Form 10-K for
the year ended December 31, 2006 (File No. 001-11899) and incorporated by reference).31.1(1)
    
    
    
    Certification of William G. Hargett, Chief Executive Officer, as required pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2(1)
    
    
    
    Certification of Robert T. Ray, Chief Financial Officer, as required pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    
    Certification of William G. Hargett, Chief Executive Officer, as required pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed as Exhibit 32.1 to our Annual Report
on Form10-K/A (Amendment No. 1) for the year ended December 31, 2006 (File No. 001-11899)
and incorporated by reference).32.2
    
    
    
    Certification of Robert T. Ray, Chief Financial Officer, as required pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (filed as Exhibit 32.2 to our Annual Report on
Form10-K/A (Amendment No. 1) for the year ended December 31, 2006 (File No. 001-11899) and
incorporated by reference).
 
 (1)   Filed herewith.(2)   Management contract or compensation plan. -56-