---

Securities and Exchange CommissionWashington, D.C. 20549

# Form 10Q

(Mark One)

XQUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE             
            

SECURITIES EXCHANGE ACT OF 1934

For
the Quarter Ended September 30, 2002

OR

__TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE                        
SECURITIES EXCHANGE ACT OF 1934

Commission file number: 18094

Ocean Energy, Inc.(Exact name of registrant as specified in its charter)

Delaware                     
               741764876(State or other jurisdiction of               
                (I.R.S. Employerincorporation or organization)      
                       Identification No.)

1001 Fannin Street, Suite 1600, Houston, Texas
770026794(Address of principal executive offices)
                   
   (Zip code)(713) 2656000(Registrants telephone number, including area code)

None(Former name, former address and former fiscal year, if changed since last report)

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

As
of November 6, 2002, 176,289,076 shares of Common Stock, par value $0.10 per share, were
outstanding.

---

Ocean
Energy, Inc.

Index

|                                                                           | Page Number
|-------------------------------------------------------------------------- | -----------
|Part I. Financial Information                                              |            
|                                                                          
|Item 1. Unaudited Consolidated Financial Statements                        |            
|                                                                          
|Consolidated Statements of Operations for the Three Months and Nine Months |            
|Ended September 30, 2002 and 2001                                          |            
|                                                                          
|Consolidated Balance Sheets  September 30, 2002 and December 31, 2001     |            
|                                                                          
|Consolidated Statements of Cash Flows for the Nine Months Ended            |            
|September 30, 2002 and 2001                                                |            
|                                                                          
|Consolidated Statements of Comprehensive Income for the Three              |            
|Months and Nine Months Ended September 30, 2002 and 2001                   |            
|                                                                          
|Notes to Consolidated Financial Statements                                 |            
|                                                                          
|Item 2. Managements Discussion and Analysis of Financial Condition        |            
|and Results of Operations                                                  |            
|                                                                          
|Item 3. Quantitative and Qualitative Disclosures about Market Risks        |            
|                                                                          
|Item 4. Controls and Procedures                                            |            
|                                                                          
|Part II. Other Information                                                 |            
|                                                                          
|Signatures                                                                 |            
|                                                                          
|Certifications                                                             |            
|                                                                          
|Index to Exhibits                                                          |            

(i)

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Item 1.
Unaudited Consolidated Financial Statements

Ocean Energy, Inc.Consolidated Statements of Operations(Amounts in Thousands Except Per Share Data)(Unaudited)

|                                                      | Three Months Ended | Nine Months Ended
|----------------------------------------------------- | ------------------ | -----------------
|
|                                                     
|
|                                                     
|Revenues                                              |                    |                  
|                                                      |                    |                  
|Costs of Operations:                                  |                    |                  
|Operating expenses                                    |                    |                  
|Depreciation, depletion and amortization              |                    |                  
|Impairment of oil and gas properties                  |                    |                  
|General and administrative                            |                    |                  
|                                                     
|                                                      |                    |                  
|                                                     
|Operating Profit                                      |                    |                  
|Other Expense (Income):                               |                    |                  
|Interest expense                                      |                    |                  
|Interest income and other                             |                    |                  
|                                                     
|Income Before Income Taxes                            |                    |                  
|Income Tax Expense                                    |                    |                  
|                                                     
|Income Before Extraordinary Loss                      |                    |                  
|Extraordinary Loss, Net of Income Taxes               |                    |                  
|                                                     
|Net Income (Loss)                                     |                    |                  
|Preferred Stock Dividends                             |                    |                  
|                                                     
|Net Income (Loss) Available to Common Stockholders    |                    |                  
|                                                     
|                                                      |                    |                  
|Basic Earnings (Loss) Per Common Share:               |                    |                  
|Income Before Extraordinary Loss                      |                    |                  
|Extraordinary Loss, Net of Income Taxes               |                    |                  
|                                                     
|Net Income (Loss) to Common Stockholders              |                    |                  
|                                                     
|                                                      |                    |                  
|Diluted Earnings (Loss) Per Common Share:             |                    |                  
|Income Before Extraordinary Loss                      |                    |                  
|Extraordinary Loss, Net of Income Taxes               |                    |                  
|                                                     
|Net Income (Loss)                                     |                    |                  
|                                                     
|                                                      |                    |                  
|Cash Dividends Declared Per Common Share              |                    |                  
|                                                     
|                                                      |                    |                  
|Weighted Average Number of Common Shares Outstanding: |                    |                  
|Basic                                                 |                    |                  
|                                                     
|Diluted                                               |                    |                  
|                                                     

See
accompanying Notes to Consolidated Financial Statements.

1

---

Ocean
Energy, Inc.Consolidated Balance Sheets(Amounts in Thousands Except Share
Data)(Unaudited)

|                                                                                     | September 30, | December 31,
|------------------------------------------------------------------------------------ | ------------- | ------------
|
|                                                                                    
|Assets                                                                               |               |             
|Current Assets:                                                                      |               |             
|Cash and cash equivalents                                                            |               |             
|Accounts receivable, net                                                             |               |             
|Other current assets                                                                 |               |             
|                                                                                    
|Total Current Assets                                                                 |               |             
|Property, Plant and Equipment, at cost, full cost method for oil and gas properties: |               |             
|Proved oil and gas properties                                                        |               |             
|Oil and gas properties excluded from amortization                                    |               |             
|net of impairment                                                                    |               |             
|Other                                                                                |               |             
|                                                                                    
|                                                                                     |               |             
|Accumulated Depreciation, Depletion and Amortization                                 |               |             
|                                                                                    
|                                                                                     |               |             
|Other Assets                                                                         |               |             
|                                                                                    
|Total Assets                                                                         |               |             
|                                                                                    
|                                                                                     |               |             
|Liabilities and Stockholders Equity                                                 |               |             
|Current Liabilities:                                                                 |               |             
|Accounts and notes payable                                                           |               |             
|Accrued liabilities                                                                  |               |             
|                                                                                    
|Total Current Liabilities                                                            |               |             
|                                                                                     |               |             
|LongTerm Debt                                                                       |               |             
|Deferred Revenue                                                                     |               |             
|Deferred Income Taxes                                                                |               |             
|Other Noncurrent Liabilities                                                         |               |             
|Stockholders Equity:                                                                |               |             
|Preferred stock, $1.00 par value; authorized 10,000,000 shares;                      |               |             
|issued 50,000 shares                                                                 |               |             
|Common stock, $0.10 par value; authorized 520,000,000 shares;                        |               |             
|issued 178,786,956 and 174,936,240 shares, respectively                              |               |             
|Additional paidin capital                                                           |               |             
|Accumulated deficit                                                                  |               |             
|Less  treasury stock, at cost; 2,562,430                                            |               |             
|and 2,641,640 shares, respectively                                                   |               |             
|Deferred compensation and other                                                      |               |             
|Accumulated other comprehensive income (loss)                                        |               |             
|                                                                                    
|Total Stockholders Equity                                                           |               |             
|                                                                                    
|Total Liabilities and Stockholders Equity                                           |               |             
|                                                                                    

See
accompanying Notes to Consolidated Financial Statements.

2

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Ocean
Energy, Inc.Consolidated Statements of Cash Flows(Amounts
in Thousands)(Unaudited)

|                                                                  | Nine Months EndedSeptember 30,
|----------------------------------------------------------------- | ------------------------------
|                                                                 
|
|                                                                 
|Operating Activities:                                             |                               
|Net income                                                        |                               
|Adjustments to reconcile net income to net cash provided by       |                               
|operating activities:                                             |                               
|Depreciation, depletion and amortization                          |                               
|Impairment of oil and gas properties                              |                               
|Deferred income taxes                                             |                               
|Tax benefit from stock option exercises                           |                               
|Extraordinary loss, net of taxes                                  |                               
|Other                                                             |                               
|Changes in operating assets and liabilities, net of acquisitions: |                               
|Decrease (increase) in accounts receivable                        |                               
|Increase in other current assets                                  |                               
|Decrease in accounts payable                                      |                               
|Amortization of deferred revenue                                  |                               
|Decrease  in accrued expenses and other                           |                               
|                                                                 
|Net Cash Provided by Operating Activities                         |                               
|                                                                 
|Investing Activities:                                             |                               
|Oil and gas capital expenditures                                  |                               
|Acquisition costs, net of cash acquired                           |                               
|Proceeds from sales of property, plant and equipment              |                               
|Other                                                             |                               
|                                                                 
|Net Cash Used in Investing Activities                             |                               
|                                                                 
|Financing Activities:                                             |                               
|Proceeds from debt                                                |                               
|Principal payments on debt                                        |                               
|Proceeds from issuance of common stock                            |                               
|Dividends paid                                                    |                               
|Premiums paid on debt buy back                                    |                               
|Purchase of treasury stock                                        |                               
|Other                                                             |                               
|                                                                 
|Net Cash Provided by Financing Activities                         |                               
|                                                                 
|Increase in Cash and Cash Equivalents                             |                               
|Cash and Cash Equivalents at Beginning of Period                  |                               
|                                                                 
|Cash and Cash Equivalents at End of Period                        |                               
|                                                                 

See
accompanying Notes to Consolidated Financial Statements.

3

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Ocean
Energy, Inc.Consolidated Statements of Comprehensive Income(Amounts in Thousands)(Unaudited)

|                                                 | Three Months Ended | Nine Months Ended
|------------------------------------------------ | ------------------ | -----------------
|
|                                                
|
|                                                
|Net income (loss)                                |                    |                  
|Other comprehensive income (loss), net of tax:   |                    |                  
|Cumulative effect of accounting change for       |                    |                  
|derivative financial instruments                 |                    |                  
|Net change in fair value of derivative financial |                    |                  
|instruments                                      |                    |                  
|Financial derivative settlements taken to income |                    |                  
|Other                                            |                    |                  
|                                                
|                                                 |                    |                  
|                                                
|Comprehensive income (loss)                      |                    |                  
|                                                

See
accompanying Notes to Consolidated Financial Statements.

4

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Ocean
Energy, Inc.Notes to Consolidated Financial Statements(Unaudited)

Note 1.
Presentation of Financial Information

The
consolidated financial statements of Ocean Energy, Inc. (Ocean,
OEI or the Company), a Delaware corporation, included
herein have been prepared, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission (SEC), and, accordingly,
certain information normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
has been condensed or omitted. The financial statements reflect all normal
recurring adjustments that, in the opinion of management, are necessary for a
fair presentation.

The
accompanying consolidated financial statements of the Company should be read in
conjunction with the consolidated financial statements and notes included in the
Companys Annual Report on Form 10K for the year ended December 31, 2001.

Oil
and Gas Properties  The Company uses the full cost method to account
for its oil and gas exploration and production activities. Proved oil and gas
properties include costs accumulated on a countrybycountry basis. Oil and gas
properties excluded from amortization include costs for exploration activities occurring in areas where the existence of proved reserves has not yet been
determined, and portions of costs associated with major development projects where quantities of proved reserves attributable to these projects has not been ascertained. At September 30, 2002 oil and
gas properties excluded from amortization include: United States ($531 million),
Equatorial Guinea ($75 million), Egypt ($16 million), Angola ($77 million),
Brazil ($35 million) and other international locations ($13 million).

During
third quarter 2002, the Company announced that it would discontinue current
exploratory activities in the Arabian Sea offshore Pakistan and on Block 19 in
the Lower Congo Basin offshore Angola. As a result, the Company recognized an
impairment in the amount of $76 million ($50 million, after tax), of which $52
million related to Pakistan and $24 million related to Angola.

The
Company capitalizes interest and certain employeerelated costs that are
directly attributable to capital expenditures for exploration and development
activities. For the three months ended September 30, 2002 and 2001, the Company
capitalized interest in the amount of $10 million and $12 million, respectively,
and certain employeerelated costs in the amount of $15 million and $15 million,
respectively. For the nine months ended September 30, 2002 and 2001, the Company
capitalized interest in the amount of $35 million and $32 million, respectively,
and certain employeerelated costs in the amount of $46 million and $44 million,
respectively.

Revenue
Recognition The Company records revenues from the sales of crude oil
and natural gas when delivery to the customer has occurred and title has
transferred. This occurs when production has been delivered to a pipeline or a
tanker lifting has occurred. The Company may have an interest with other
producers in certain properties. The Company uses the entitlements method to
account for sales of production in these instances. The Company may

5

---

Ocean
Energy, Inc.Notes to Consolidated Financial Statements(Unaudited)

receive more
or less than its entitled share of production. Under the entitlements method, if
the Company receives more than its entitled share of production, the imbalance  is treated as a
liability. If the Company receives less than its entitled share,  the imbalance is
recorded as an asset.

Earnings Per
Share  The following table provides a
reconciliation between basic and diluted earnings (loss) per share (stated in
thousands except per share data):

|                                       | Net Income (Loss) Available | Weighted Average | Earnings (Loss)
|-------------------------------------- | --------------------------- | ---------------- | ---------------
|
|
|                                      
|Three Months Ended September 30, 2002: |                             |                  |                
|Basic                                  |                             |                  | $              
|Effect of dilutive securities:         |                             |                 
|Stock options                          |                             |                  |                
|Convertible preferred stock            |                             |                  |                
|                                      
|Diluted                                |                             |                  | $              
|                                      
|Three Months Ended September 30, 2001: |                             |                 
|Basic                                  |                             |                  | $              
|Effect of dilutive securities:         |                             |                 
|Stock options                          |                             |                  |                
|Convertible preferred stock            |                             |                  |                
|                                      
|Diluted                                |                             |                  | $              
|                                      
|Nine Months Ended September 30, 2002:  |                             |                 
|Basic                                  |                             |                  | $              
|Effect of dilutive securities:         |                             |                 
|Stock options                          |                             |                  |                
|Convertible preferred stock            |                             |                  |                
|                                      
|Diluted                                |                             |                  | $              
|                                      
|Nine Months Ended September 30, 2001:  |                             |                 
|Basic                                  |                             |                  | $              
|Effect of dilutive securities:         |                             |                 
|Stock options                          |                             |                  |                
|Convertible preferred stock            |                             |                  |                
|                                      
|Diluted                                |                             |                  | $              
|                                      

The
preferred stock conversion (approximately 3.5 million shares) was excluded from the computation of diluted earnings
(loss) per share for the three months and nine months ended September 30, 2002
because the effect of adding back the preferred stock dividends when assuming
conversion of the preferred stock was antidilutive. In addition, options to
purchase 3.6 million shares of common stock at $19.98 to $36.54 per share and
3.6 million shares of common stock at $19.75 to $36.54 per share were
outstanding for the three months and nine

6

---

Ocean
Energy, Inc.Notes to Consolidated Financial Statements(Unaudited)

months ended September 30, 2002,
respectively, and weighted average options to purchase 4.3 million shares
of  common stock at $18.81 to $36.54 per share and 4.5 million shares of common  stock at
$18.35 to $36.54 per share were outstanding for the three months and  nine months ended
September 30, 2001, respectively, but were not included in  the computation of diluted
earnings per share because the options exercise  prices were greater than the
average market price of the common shares. These  options expire at various dates through
2012.

The
Companys preferred stock is subject to automatic conversion to shares of
OEI common stock if, and only if, for 20 consecutive trading days the closing
price of OEI common stock equals or exceeds the automatic conversion price which
was $22.08 at September 30, 2002.

Treasury
Stock The Company follows the average cost method of accounting for
treasury stock transactions.

Derivative
Instruments and Hedging Activities From time to time, the Company has
utilized and expects to continue to utilize derivative financial instruments to
hedge cash flow from operations or to hedge the fair value of financial
instruments. The Company accounts for its derivative instruments and hedging
activities in accordance with Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities,as amended. The Company adopted SFAS No. 133 as of January 1,
2001, with deferred hedging losses of $14 million, net of taxes, included in
accumulated other comprehensive income as the effect of the change in accounting
principle.

The
Company uses derivative financial instruments with respect to a portion of its
oil and gas production to achieve a more predictable cash flow by reducing its
exposure to price fluctuations. These transactions generally are swaps, collars
or options, and are entered into with major financial institutions or
commodities trading institutions. These derivative financial instruments are
intended to reduce the Companys exposure to declines in the market prices
of natural gas and crude oil that the Company produces and sells, and to manage
cash flow in support of the Companys annual capital expenditure budget.

Derivative
instruments designated as cash flow hedges are reflected at fair value on the
Companys Consolidated Balance Sheets. Changes in fair value, to the extent
the hedge is effective, are recognized in other comprehensive income until the
hedged item is settled and is recognized in earnings. Hedge effectiveness is
measured at least quarterly. Any ineffective portion of the derivative
instruments change in fair value is recognized immediately in revenues.

The
Company may utilize derivative financial instruments that have not been
designated as hedges under SFAS No. 133 even though they protect the Company
from changes in commodity prices. These instruments are marked to market with
the resulting changes in fair value recorded in oil and gas revenues.

The
Company may also utilize derivative financial instruments to hedge exposure to
interest rates. Instruments may include contracts to convert the interest rate
on fixedrate debt to floating,

7

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Ocean
Energy, Inc.Notes to Consolidated Financial Statements(Unaudited)

or contracts to convert the interest
rate on floatingrate debt to fixed. Both types of contracts are reflected at
fair value on the Companys Consolidated Balance Sheets. The  Company currently only
has contracts that convert the interest rates on its  fixed rate debt to floating. These
transactions qualify as fair  value hedges.  Therefore, the related portion of fixedrate
debt being hedged is reflected  at an amount equal to the sum of its carrying value plus
an adjustment  representing the change in its fair value attributable to the interest
rate risk  being hedged. The gains or losses on the derivative financial instrument and
the  hedged item, as well as the settlements on the derivative financial instrument,  are
recognized currently in interest expense. The net effect of this accounting  on the
Companys operating results is that interest expense on the portion  of fixedrate
debt being hedged is generally recorded based on variable interest  rates.

Accounting
Pronouncements In 2001 the Financial Accounting Standards Board
(FASB) issued SFAS No. 143, Accounting for Asset Retirement
Obligations.This statement requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred and a corresponding increase in the carrying amount of the related
longlived asset. The Company will be required to adopt SFAS No. 143 effective
January 1, 2003, using the cumulative effect approach to recognize transition
amounts for asset retirement obligations, asset retirement costs and accumulated
depreciation. The Company currently records estimated costs of dismantlement,
removal, site reclamation and similar activities as part of its depreciation,
depletion and amortization for oil and gas properties without recording a
separate liability for such amounts. The Company has not yet completed its
assessment of the impact of SFAS No. 143 on its financial condition and results
of operations. It expects that adoption of the statement will result in
increases in the capitalized costs of its oil and gas properties and in the
recognition of additional liabilities related to asset retirement obligations.
The Company will recognize the effect of these adjustments as a cumulative
effect of a change in accounting.

During
second quarter 2002 the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections.This statement rescinds SFAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt,and requires that all gains and losses
from extinguishment of debt should be classified as extraordinary items only if
they meet the criteria in APB No. 30. Applying APB No. 30 will distinguish
transactions that are part of an entitys recurring operations from those
that are unusual or infrequent or that meet the criteria for classification as
an extraordinary item. Any gain or loss on extinguishment of debt that was
classified as an extraordinary item in prior periods presented that does not
meet the criteria in APB No. 30 for classification as an extraordinary item must
be reclassified. The Company will adopt the provisions related to the rescission
of SFAS No. 4 on or before January 1, 2003. With the adoption of SFAS No. 145,
the classification of losses associated with extinguishments of debt that were
previously recorded as extraordinary items will be reclassified as other expense
with the related tax benefit reclassified into income tax expense.

The
FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, in June 2002. This statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94

8

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Ocean
Energy, Inc.Notes to Consolidated Financial Statements(Unaudited)

3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS No. 146 applies to costs
incurred in an exit activity, which includes, but is not limited to, a
restructuring, or a disposal activity covered by SFAS No. 144. SFAS No. 146
will be effective for the Company in January 2003. The Company does not believe there is
any current impact of SFAS No. 146. It would instead affect the accounting for future
exit or disposal activities.

Note  2.
Acquisition and Disposition of Assets

Disposition
of Assets During third quarter 2002, the Company closed the
sale of selected royalty, overriding royalty and mineral interests in various
locations throughout the United States and a small working interest package in
the Permian Basin for total net proceeds of $61 million. The
Company received approximately $59 million in proceeds from the sale of certain noncore
properties during third quarter 2001. Under full cost
accounting rules, the proceeds are recorded as a reduction of the U.S. cost pool
and no gain or loss was realized.

Acquisition
of Texoil, Inc.  During March 2001, the Company acquired Texoil, Inc.
(Texoil) for a cash purchase price of $115 million before assumed
bank debt of $15 million. Texoil was an independent oil and gas company engaged
in exploration, development and acquisition of oil and gas reserves in Texas and
Louisiana. No goodwill was recorded in connection with the purchase of Texoil.

Acquisition
of Texas and Louisiana Assets  During April 2001, the Company acquired
certain oil and gas assets from EnSight Resources, L.L.C. for a purchase price
of $118 million. The properties are located primarily in East Texas and North
Louisiana.

Note  3.
Supplemental Disclosures of Cash Flow Information

Supplemental
disclosures of cash flow information (stated in thousands) are as follows:

|                                 | Nine Months Ended September 30,
|-------------------------------- | -------------------------------
|                                
|
|                                
|Cash paid during the period for: |                                
|Interest                         |                                
|Income taxes                     |                                

Note  4.
Financial Instruments

The
Company has the following volumes under derivative contracts related to its oil
and gas producing activities:

9

---

Ocean
Energy, Inc.Notes to Consolidated Financial Statements(Unaudited)

|                           |  |  | Weighted        
|-------------------------- |  |  | ----------------
|
|                          
|Crude Oil:                 |  |  |                 
|October  December 2002    |  |  | Collar          
|January  December 2003    |  |  | 3way Collar (3)
|January  December 2003    |  |  | 3way Collar (3)
|                           |  | 
|Natural Gas:               |  | 
|October 2002               |  |  | Collar          
|October  December 2002    |  |  | Collar          
|January  December 2003    |  |  | 3way Collar (3)
|                           |  | 
|Gas Swap of Related Trust: |  | 
|October  December 2002    |  |  | Swap            
|January  December 2003    |  |  | Swap            
|January  December 2004    |  |  | Swap            
|January  December 2005    |  |  | Swap            

(1) Prices are
based on NYMEX (Henry Hub for gas and West Texas Intermediate for oil).(2) Prices are
based on Brent.(3) A 3way
collar combines a sold call, a purchased put and a sold put. The purchased put and
sold put establish a floating minimum price (floating floor) and the sold
call establishes a maximum price (ceiling price) the Company will receive
for the volumes under contract.

The
change in fair value of derivative financial instruments included in oil and gas
revenues comprises the following (amounts in thousands):

|                                                       | Three Months Ended | Nine Months Ended
|------------------------------------------------------ | ------------------ | -----------------
|
|                                                      
|
|                                                      
|Financial derivative settlements transferred from      |                    |                  
|other comprehensive income                             |                    |                  
|Net change in fair market value of options             |                    |                  
|Ineffective portion of derivative                      |                    |                  
|financial instruments                                  |                    |                  
|                                                      
|Increase (decrease) in revenues from derivative        |                    |                  
|financial instruments qualifying as cash               |                    |                  
|flow hedges                                            |                    |                  
|Increase (decrease) in revenues from other oil and gas |                    |                  
|derivative financial instruments                       |                    |                  
|                                                      
|Increase (decrease) in revenues from oil and gas       |                    |                  
|derivative financial instruments                       |                    |                  
|                                                      

If commodity prices were to stay the same as they were at September 30,
2002, approximately $18 million of net deferred losses related to these fair
values included in accumulated other comprehensive income at September 30, 2002
will be reversed during the next 12 months as the forecasted transactions
actually occur, and settlements will be recorded in

10

---

Ocean
Energy, Inc.Notes to Consolidated Financial Statements(Unaudited)

revenues. All
forecasted  transactions currently being hedged are expected to occur by December 2005.

The
Company has also entered into interest rate swap agreements relating to its 7
5/8% senior notes due July 2005 and its 7 7/8% senior notes due August 2003.
Under the terms of the agreements, the counterparties pay the Company a weighted
average fixed annual rate of 7.74% on total notional amounts of $225 million,
and the Company pays the counterparties a variable annual rate equal to the
sixmonth LIBOR rate on the respective settlement dates plus a weighted average
rate of 2.73%. At September 30, 2002 the sixmonth LIBOR rate was 1.75%. The
swap agreements remain in effect through the maturity dates of the respective
notes. The swap agreements have been designated as fair value hedges pursuant to
SFAS No. 133. Interest expense for the threemonth period and ninemonth period
ended September 30, 2002 was reduced by $2 million and $5 million, respectively,
as a result of the interest rate swaps.

Note  5. Debt

During
third quarter 2002, the Company issued $400 million of 4 3/8% senior notes due
2007 pursuant to a shelf registration statement. The notes are redeemable at the
Companys option, and upon certain changes in control, the notes would be
subject to a mandatory repurchase offer. The proceeds were used to repay amounts
outstanding under the Companys credit facility which included balances
used to retire debt earlier in third quarter when the Company exercised call
provisions for $175 million of its 8 7/8% senior subordinated notes due July
2007. The Company has also repurchased $25 million of its 8 3/8% senior
subordinated notes due July 2008. In connection with these repurchases, the
Company recorded an aftertax extraordinary loss of $8 million, or ($0.04) per diluted share. The
extraordinary loss was net of a current tax benefit of $4 million.

During
second quarter 2002, the Company entered into a fouryear $1 billion Revolving
Credit Agreement (the credit facility) due May 2006. The credit
facility replaced the Companys previous $500 million facility which was
scheduled to mature in March 2004. The Companys obligations under the
credit facility are unsecured. The credit facility was used to repay existing
indebtedness under the previous facility, and additional borrowings
will be used for working capital and general corporate purposes as needed. The
credit facility bears interest, at the Companys option, at LIBOR or prime
rates plus applicable margins ranging from zero to 1.7% or at a competitive bid.
As of September 30, 2002, the Companys outstanding borrowings under the
credit facility were zero, and letters of credit totaled $28 million, leaving
$972 million of available credit.

During
second quarter 2001, the Company repurchased on the open market $22 million of
its 8 3/8% senior subordinated notes due July 2008 and $25 million of its 8 7/8%
senior subordinated notes due July 2007. In connection with the repurchase, the
Company recorded an aftertax extraordinary loss of $3 million, or ($0.01) per
diluted share. The extraordinary loss was net of a current tax benefit of $1
million. The repurchase of these notes was funded with available cash balances
and borrowings under the Companys then existing credit facility.

11

---

Ocean
Energy, Inc.Notes to Consolidated Financial Statements(Unaudited)

The
Companys 7 7/8% senior notes, in the amount of $100 million, are due in
August 2003. The Company has established the necessary credit capacity, through
its credit facility, to refinance the 7 7/8% senior notes. Therefore, in
accordance with SFAS No. 6, Classification of Shortterm Obligations Expected
to be Refinanced, the notes will continue to be classified as longterm debt
because it is the Companys intent to refinance these obligations on a
longterm basis.

12

---

Ocean
Energy, Inc.

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

The
following discussion is intended to assist in understanding the Companys
financial position, results of operations and cash flows for each of the periods
indicated.

The
Companys accompanying unaudited consolidated financial statements and
notes thereto and the consolidated financial statements and notes thereto
included in the Annual Report on Form 10K for the year ended December 31, 2001
contain detailed information that should be referred to in conjunction with the
following discussion. The Companys Annual Report on Form 10K for the year
ended December 31, 2001 also includes a discussion of the Companys
critical accounting policies and contractual obligations and other commercial
commitments.

Results of
Operations

The
Companys third quarter 2002 performance was positively impacted by strong
commodity prices as well as improved production. The average realized price for
crude oil, excluding the impact of financial derivatives, has increased 10% from
second quarter 2002, although the average realized price for natural gas,
excluding the impact of financial derivatives, has decreased slightly, about 4%,
from second quarter 2002. Third quarter 2002 commodity prices were also higher
than third quarter 2001 commodity prices, with average realized prices,
excluding the impact of financial derivatives, increasing 12% for crude oil and
10% for natural gas.

Average
daily production for third quarter 2002 was 160,000 BOE per day, a 5% increase
from second quarter 2002 and a 6% increase from third quarter 2001. The higher
volumes were primarily attributable to new deepwater production in the Gulf of
Mexico and continued success of the Zafiro field exploitation initiatives in
Equatorial Guinea partially offset by the shutdown of oil and gas facilities in
the Gulf of Mexico due to Hurricane Isidore.

Two
special items affected this quarters results. First, the Company announced
during September that it would discontinue current exploratory activities in the
Arabian Sea offshore Pakistan and on Block 19 in the Lower Congo Basin offshore
Angola. As a result, the Company recognized an impairment in the amount of $76
million ($50 million, after tax). Second, the Company repurchased $175 million
of its 8 7/8% senior subordinated notes due July 2007 and $25 million of its 8
3/8% senior subordinated notes due July 2008. These repurchases resulted in an
extraordinary loss of $8 million. The Company reported a net loss of $1 million,
or $0.01 per diluted share, for third quarter 2002.

Excluding
the effects of these two special items, net income for the quarter was $56
million or $0.31 per diluted share as compared to net income of $48 million or
$0.27 per diluted share for third quarter 2001. The following is a reconciliation of net income
(loss) available to common stockholders to net income excluding special items
(in thousands except per share data):

13

---

Ocean
Energy, Inc.

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

|                                      | Three Months Ended | Nine Months Ended
|------------------------------------- | ------------------ | -----------------
|
|                                     
|
|                                     
|Net Income (Loss) Available to        |                    |                  
|Common Stockholders                   |                    |                  
|Preferred Stock Dividends             |                    |                  
|                                     
|Net Income (Loss)                     |                    |                  
|Effect of Special Items, Net of       |                    |                  
|Income Tax:                           |                    |                  
|Impairment of Oil and Gas             |                    |                  
|Properties                            |                    |                  
|Extraordinary Loss                    |                    |                  
|                                     
|                                      |                    |                  
|                                     
|Net Income (Excluding Special         |                    |                  
|Items)                                |                    |                  
|                                     
|Diluted Earnings (Loss) Per Share     |                    |                  
|                                     
|Diluted Earnings Per Share (Excluding |                    |                  
|Special Items)                        |                    |                  
|                                     
|Weighted Average Number of            |                    |                  
|Common  Shares Outstanding:           |                    |                  
|Diluted (1)                           |                    |                  
|                                     

(1) For
purposes of computing diluted earnings per share for the three and nine months ended
September 30, 2002, the preferred stock conversion (approximately 3.5 million shares)
has been excluded because its effect is antidilutive.

Oil and Gas
Operations(Amounts in Thousands)

|                                         | Three Months Ended | Nine Months Ended
|---------------------------------------- | ------------------ | -----------------
|
|                                        
|
|                                        
|Revenues:                                |                    |                  
|Oil and NGL                              |                    |                  
|Natural gas                              |                    |                  
|                                        
|                                         |                    |                  
|                                        
|Operating expenses                       |                    |                  
|Depreciation, depletion and amortization |                    |                  
|Impairment of oil and gas properties     |                    |                  
|                                        
|Operating profit                         |                    |                  
|Corporate                                |                    |                  
|                                        
|Total operating profit                   |                    |                  
|                                        

14

---

Ocean
Energy, Inc.

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

Oil
Revenues Revenues from sales of crude oil increased $36 million, or
24%, to $184 million for third quarter 2002 compared to $148 million for third
quarter 2001. The change in revenues included:

- An increase in revenues  of $20  million  due to the  increase in crude oil prices.  The average  realized
         price for oil,  excluding the impact of financial  derivatives,  increased 12% to $24.37 for third quarter
         2002 compared to $21.84 for third quarter 2001.

- An increase in revenues of $20 million due to increases in  production.  For third quarter  2002,  average
         daily oil production was 84 MBbl, an increase of 14% from third quarter 2001.  Higher  production  volumes
         were primarily  attributable  to new deepwater  production in the Gulf of Mexico and continued  success of
         Zafiro field exploitation initiatives in Equatorial Guinea.

- A negative net  quarteroverprioryear  quarter  change of $4 million  relating to the  Companys  use of
         crude oil  derivative  financial  instruments.  The  effect of  derivative  financial  instruments  on oil
         revenues  was a decrease of $5 million for third  quarter 2002 as compared to a decrease of $1 million for
         third quarter 2001.

For
the nine months ended September 30, 2002, oil revenues increased $43 million, or
10%, to $479 million as compared to $436 million for the nine months ended
September 30, 2001. The change in revenues included:

- A reduction  in revenues  of $29  million  due to the  decline in crude oil prices.  The average  realized
         price for oil,  excluding the impact of financial  derivatives,  decreased 6% to $21.70 for the first nine
         months of 2002 compared to $23.04 for the same period in 2001.

- An  increase in revenues of $43 million due to  increases  in  production.  Average  daily oil  production
         increased  9% to 82 MBbl for the first nine  months of 2002 as  compared to 75 MBbl for the same period in
         2001. Higher  production  volumes were primarily  attributable to new deepwater  production in the Gulf of
         Mexico and continued success of Zafiro field exploitation initiatives in Equatorial Guinea.

- A  positive  net  yearoveryear  change  of $29  million  relating  to the  Companys  use of  crude  oil
         derivative financial  instruments.  The effect of derivative  financial  instruments on oil revenues was a
         decrease  of $4 million for the first nine months of 2002 as compared to a decrease of $33 million for the
         first nine months of 2001.

Oil
prices have continued a steady upward trend during 2002. The Company expects
that oil prices will fluctuate significantly in the future as a result of
actions of OPEC and its maintenance of production constraints, and continued
tension in the Middle East, as well as other economic, political and
environmental factors.

15

---

Ocean
Energy, Inc.

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

Gas
Revenues Revenues from sales of natural gas have remained flat at
$131 million for third quarter 2002 and third quarter 2001. The change in
revenues included:

- An increase in revenues of $11 million due to the increase in gas prices.  The average  realized price for
         natural gas,  excluding  the impact of  financial  derivatives,  increased  10% to $3.06 per Mcf for third
         quarter 2002 as compared to $2.79 for third quarter 2001.

- A decrease in revenues of $1 million due to a slight decrease in  production.  Average  daily  production
         for third quarter 2002 totaled 458 MMcf, as compared to third quarter 2001 volumes of 464 MMcf.

- A negative net quarteroverprioryear quarter  change of $10 million  relating to the  Company's use of
         natural gas derivative financial  instruments.  The effect of derivative financial  instruments on natural
         gas  revenues  was an  increase  of $1 million for third  quarter  2002 as compared to an increase of $11
         million for third quarter 2001.

Revenues from sales of natural gas decreased $258 million, or 43%, to $344
million for the nine months ended September 30, 2002, from $602 million for the
nine months ended September 30, 2001. The change in revenues included:

- A reduction in revenues of $211 million due to the decline in gas prices.  The average  realized price for
         natural gas, excluding the impact of financial  derivatives,  decreased 39% to $2.91 per Mcf for the first
         nine months of 2002 as compared to $4.74 for the first nine months of 2001.

- A decrease in revenues of $44 million due to an 8% decrease in production. Average daily natural gas production for
         the first nine months of 2002 was 421 MMcf as compared to 456 MMcf per day for the first nine months of
         2001. The production decline was due primarily to the curtailment of drilling expenditures beginning
         second quarter 2001 in response to high drilling costs and declining market prices of natural gas in
         North America.

- A  negative  net  yearoveryear  change of $3  million  relating  to the  Companys  use of  natural  gas
         derivative financial  instruments.  The effect of derivative financial instruments on natural gas revenues
         was an  increase  of $9 million  for the first  nine  months of 2002 as  compared  to an  increase  of $12
         million for the first nine months of 2001.

Natural
gas prices fluctuate significantly in response to numerous factors such as
supply and demand, weather and inventory levels. Currently, the supply of
natural gas has declined but storage levels remain high. Economic recovery and
winter heating needs will affect the prices the Company will receive for its
future natural gas production.

16

---

Ocean
Energy, Inc.

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

Operating
Data

|                                                | Three Months EndedSeptember 30, | Nine Months EndedSeptember 30,
|----------------------------------------------- | ------------------------------- | ------------------------------
|                                               
|
|                                               
|Net Daily Oil and NGL Production (MBbl):        |                                 |                               
|Domestic                                        |                                 |                               
|Equatorial Guinea                               |                                 |                               
|Egypt                                           |                                 |                               
|Other International                             |                                 |                               
|                                               
|Total                                           |                                 |                               
|                                               
|Average Oil and NGL Prices ($ per Bbl)(*):      |                                 |                               
|Domestic                                        |                                 |                               
|Equatorial Guinea                               |                                 |                               
|Egypt                                           |                                 |                               
|Other International                             |                                 |                               
|Weighted Average                                |                                 |                               
|Average Oil and NGL Prices Including the Impact |                                 |                               
|of Financial Derivatives ($ per Bbl)            |                                 |                               
|                                                |                                 |                               
|Net Daily Natural Gas Production (MMcf):        |                                 |                               
|Domestic                                        |                                 |                               
|International                                   |                                 |                               
|                                               
|Total                                           |                                 |                               
|                                               
|Average Natural Gas Prices ($ per Mcf)(*):      |                                 |                               
|Domestic                                        |                                 |                               
|International                                   |                                 |                               
|Weighted Average                                |                                 |                               
|Average Natural Gas Prices Including the Impact |                                 |                               
|of Financial Derivatives ($ per Mcf)            |                                 |                               
|                                                |                                 |                               
|Wells Drilled:                                  |                                 |                               
|Gross                                           |                                 |                               
|Net                                             |                                 |                               
|Success Rate                                    |                                 |                               

(*)All price information excludes the impact of financial derivatives, unless
otherwise stated.

Average
daily production was 160,000 BOE per day for third quarter 2002 and 152,000 BOE
per day for the first nine months of 2002. Despite the recent hurricane effects
on production and well completion timing, continued development of the Nansen
and Boomvang fields and exploitation in the Zafiro field in Equatorial Guinea
should allow production to continue at a steady increase for the rest of the
year.

17

---

Ocean
Energy, Inc.

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

Operating
Expenses  Total operating expenses increased $4 million, or 5%, to $86
million for third quarter 2002 as compared to $82 million for third quarter 2001
primarily due to the 6% increase in production. Increasing deepwater production
has resulted in higher transportation and lease operating expenses (including
lease expense related to the Nansen and Boomvang spars). Activity levels led to
a reduction in production workover and maintenance expenses during the quarter.
Operating expenses were $5.86 per BOE for third quarter 2002 and 2001.

Total
operating expenses increased $12 million, or 5%, to $247 million for the first
nine months of 2002 as compared to $235 million for the comparable 2001 period.
The increase was due to transportation and lease operating expenses (including
lease expense related to the Nansen and Boomvang spars) associated with
increasing deepwater production and increased workover and maintenance expenses,
offset by lower production taxes which declined as a result of lower commodity
prices during the first half of 2002. Operating expenses per BOE have increased
4% to $5.96 per BOE for the first nine months of 2002 compared to $5.71 per BOE
for the comparable 2001 period. A portion of lease operating expenses is fixed
and should decline on a per BOE basis as production increases.

Depreciation,
Depletion and Amortization Expense  Total depreciation, depletion and
amortization (DD&A) expense for oil and gas operations increased 7%, or $6
million, to $94 million for third quarter 2002 as compared to $88 million for
third quarter 2001. This increase was primarily due to an increase in
production. For the first nine months of 2002, DD&A expense remained
relatively flat at $263 million as compared to $260 million for the same period
in 2001.

On
a BOE basis, DD&A expense was $6.39 per BOE for third quarter 2002 as
compared to $6.31 per BOE for third quarter 2001. For the first nine months of
2002, DD&A was $6.34 per BOE as compared to $6.33 per BOE for the comparable
period in 2001.

Impairment
of Oil and Gas Properties  As noted above, during third quarter 2002,
the Company announced that it would discontinue current exploratory activities
in Pakistan and on Block 19 offshore Angola. As a result, the Company recognized
an impairment in the amount of $76 million ($50 million, after tax). The Company
plans to continue activities on its other blocks in Angola, including the
drilling of an exploratory well on Block 24 later in fourth quarter 2002 or
early 2003 and acquisition of seismic data on Block 10 in early 2003.

Corporate

Corporate
expenditures are comprised of general and administrative expenses and DD&A
expense for nonoil and gas assets.

General
and Administrative Expenses  General and administrative expenses
increased $1 million, or 13%, to $9 million for third quarter 2002 compared to
$8 million for third quarter 2001. General and administrative expenses increased
$5 million, or 23%, to $27 million for the

18

---

Ocean
Energy, Inc.

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

nine months
ended September 30, 2002  from $22 million for the same period in 2001. The increases
were due primarily  to increases in employeerelated compensation costs, insurance
and  transportation expenses.

DD&A
DD&A expense for nonoil and gas assets was $3 million and $1
million for third quarter 2002 and 2001, respectively, and was $9 million and $5
million for the first nine months of 2002 and 2001, respectively.

Other

Interest
Expense Interest expense for third quarter 2002 increased $1 million,
or 7%, to $15 million from $14 million for third quarter 2001. This increase was
due to lower capitalized interest ($10 million for third quarter 2002 as
compared to $12 million for third quarter 2001) as a result of reduced
exploratory activities, and an increase in fixedrate debt from two new debt
issuances, $350 million at 7 1/4% in September 2001 and $400 million at 4 3/8%
in September 2002. These increases were offset somewhat by lower interest costs
associated with lower borrowing activity against the credit facility and
generally lower interest rates on the credit facility. Settlements on interest
rate swaps reduced interest expense by $2 million for third quarter 2002 and $1
million for third quarter 2001.

For
the first nine months of 2002, interest expense decreased $4 million, or 8%, to
$44 million from $48 million in the comparable 2001 period. This decrease was
due to higher capitalized interest for the period ($35 million for the first
nine months of 2002 as compared to $32 million for the first nine months of
2001) and lower interest rates, which was partially offset by additional
interest expense related to increased fixedrate debt. Settlements on interest
rate swaps reduced interest expense by $5 million and $1 million during the
first nine months of 2002 and 2001, respectively.

Income
Tax Expense  Income tax expense was $24 million and $39 million,
respectively, for third quarter 2002 and 2001 and was $80 million and $212
million, respectively, for the nine months ended September 30, 2002 and 2001.
The effective income tax rate during the first two quarters of 2002 was 45%. For
the third quarter of 2002, the Company applied an effective income tax rate of
approximately 46% to recurring items, and an effective income tax rate of 35% to
the impairment, yielding a net effective rate of 78%. The income tax rate was
45% for both the third quarter and first nine months of 2001.

Extraordinary
Losses on Early Extinguishment of Debt As discussed above, the
Company recorded an aftertax extraordinary loss of $8 million, or ($0.04) per
diluted share during the quarter ending September 30, 2002 as a result of debt
repurchases.

During
second quarter 2001, the Company repurchased on the open market $22 million of
its 8 3/8% senior subordinated notes due July 2008 and $25 million of its 8 7/8%
senior

19

---

Ocean
Energy, Inc.

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

subordinated
notes due July 2007. The repurchase of these notes resulted  in an aftertax
extraordinary loss of $3 million, or ($0.01) per diluted share.

Upon
the adoption of SFAS No. 145, which is required by January 1, 2003, the Company
will reclassify these extraordinary losses as other expense with the related tax
benefit reclassified into income tax expense.

Liquidity
and Capital Resources

Liquidity The Companys primary sources of liquidity are its cash on hand,
cash flow from operations and available borrowing capacity under its credit
facility. During the second and third quarters of 2002, the Company entered into
a new revolving credit facility, took advantage of current low interest rates to
refinance a significant portion of its debt by issuing low interest rate debt
and sold certain noncore assets. As a result of these transactions and due to
the timing of capital expenditures, the Company ended the third quarter with
$131 million in cash.

New
Revolving Credit Agreement During second quarter 2002 the Company
entered into a fouryear $1 billion Revolving Credit Agreement (the credit
facility) due May 2006. The credit facility replaced the Companys
previous $500 million facility which was scheduled to mature in March 2004. The
Companys obligations under the credit facility are unsecured. The credit
facility was used to repay existing indebtedness under the previous facility and
additional borrowings will be used for working capital and general corporate
purposes as needed. The credit facility bears interest, at the Companys
option, at LIBOR or prime rates plus applicable margins ranging from zero to
1.7% or at a competitive bid. As of September 30, 2002, the Companys
outstanding borrowings under the credit facility were zero, and letters of
credit totaled $28 million, leaving $972 million of available credit.

Issuance
of Lower Interest Rate Debt The Company took advantage of current low
interest rates to refinance a significant portion of its debt during third
quarter 2002 by issuing $400 million of 4 3/8% senior notes due 2007. The
proceeds were used to repay amounts outstanding under the credit facility which
included balances used to retire debt earlier in the third quarter when the
Company exercised call provisions for $175 million of its 8 7/8% senior
subordinated notes due July 2007. In addition, the Company purchased $25 million
of its 8 3/8% senior subordinated notes due July 2008. The 4 3/8% notes are
redeemable at the Companys option, and upon certain changes in control,
the notes would be subject to a mandatory repurchase offer.

The
Companys longterm debt totaled $1.4 billion and its debt to total
capitalization ratio was 49% at September 30, 2002. This ratio does not take
into consideration the Companys positive cash balance of $131 million at
September 30, 2002, which, if used to reduce debt, would result in a net debt to
capitalization ratio of 46%.

20

---

Ocean
Energy, Inc.

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

Asset
Sales During third quarter 2002, the Company closed the sale of
selected royalty, overriding royalty and mineral interests in various locations
throughout the United States and a small working interest package in the
Permian Basin for total net proceeds of $61 million. The Company currently
expects additional sales of domestic oil and gas assets totaling approximately
$15 million during the fourth quarter 2002.

Operating
Leases At December 31, 2001, the Company was a party to
constructionperiod lease agreements in which the lessors agreed to construct
and lease to the Company two spars that would be used in the development of the
Nansen and Boomvang fields in the Gulf of Mexico. The spars were completed and
installed during first and second quarters of 2002 and the Company has entered
into 20year operating leases with the spar owners. The operating leases contain
various options whereby the Company may purchase the lessors interests in
the spars.

Prepaid
Commodity Transactions In 1999 and 2000, the Company entered into two
standard prepaid commodity transactions, one for crude oil and one for natural
gas. The prepaid crude oil sales contract provides that the Company delivers
approximately 5.6 MBbl per day of crude oil for the period February 2000 through
May 2003. In exchange for the crude oil to be provided, the Company received an
advance payment of approximately $100 million. The prepaid natural gas sales
contract is a marketsensitive contract which, as amended, provides that the
Company deliver 53,500 MMBtu per day of natural gas for 2003 and 55,600 MMBtu
per day for 2004. In exchange for the natural gas to be provided, the Company
received an advance payment of approximately $75 million.

The
obligations associated with the future delivery of the crude oil and natural gas
have been recorded as deferred revenue in the Companys accompanying
Consolidated Balance Sheets, and the remaining unamortized balance was
approximately $94 million as of September 30, 2002. The prepaid proceeds were
shown as a component of cash flows from financing activities in the
Companys Consolidated Statements of Cash Flows in the years in which they
were received. The contracts are being amortized into revenue as scheduled
deliveries of natural gas and crude oil are made.

These
transactions are reflected in Note 11 to the Companys Consolidated
Financial Statements, as well as in Managements Discussion and Analysis,
included in the Companys Annual Report on Form 10K for the year ended
December 31, 2001.

21

---

Ocean
Energy, Inc.

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

Capital
Expenditures(Amounts in Thousands)

|                           | Three Months Ended | Nine Months Ended
|-------------------------- | ------------------ | -----------------
|
|                          
|
|                          
|Oil and Gas Operations:    |                    |                  
|Leasehold acquisitions     |                    |                  
|Exploration costs          |                    |                  
|Development costs          |                    |                  
|                          
|                           |                    |                  
|Other                      |                    |                  
|                          
|Total Capital Expenditures |                    |                  
|                          
|                           |                    |                  
|Acquisitions               |                    |                  
|                          

The
Companys capital expenditures totaled $489 million for the first nine
months of 2002. Due to the timing of the Companys 2002 work program, a
significant portion of the Companys capital expenditure budget will be
used during the fourth quarter. The Company currently expects capital
expenditures to total approximately $725 to $775 million for the year.

Acquisitions
for the first nine months of 2001 totaled $305 million and included the purchase
of all outstanding shares of stock of Texoil, Inc., an independent oil and gas
company, for a cash purchase price of $115 million plus assumed bank debt of $15
million. The Company also purchased oil and gas assets located primarily in East
Texas and North Louisiana from EnSight Resources, L.L.C. for a purchase price of
$118 million. In addition, the Company recognized a deferred tax liability of
$50 million due to the excess of book over tax basis of the oil and gas
properties acquired in the purchase of Texoil.

The
Company makes, and will continue to make, substantial capital expenditures for
the acquisition, exploration, development, production and abandonment of its
crude oil and natural gas reserves and continues to look for opportunities
to strengthen and diversify its domestic and international position. The Company has historically funded its
expenditures through cash flows from operating activities, bank borrowings,
sales of equity and debt securities, sales of nonstrategic crude oil and
natural gas properties, sales of partial interests in exploration concessions
and project finance borrowings.

The
Company expects to fund its expenditures from cash flows from operations based
on anticipated commodity prices. Currently anticipated expenditures are subject
to change if market conditions shift or new opportunities are identified. The
revised 2002 capital expenditure budget was developed using certain assumed
price levels for the sales of crude oil and natural gas. Changes in commodity
prices could impact the Companys cash flow from operations and funds
available for reinvestment. For example, shortfalls in estimated cash flows from
operations could result in the reduction of the Companys capital spending
program, increases in borrowing under the credit facility or divestments of
properties. The Company will continue to evaluate its level of capital spending
for the remainder of the year based upon drilling results, commodity

22

---

Ocean
Energy, Inc.

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

prices and
cash flows from operations. The Company has not yet finalized its capital  expenditure
budget for 2003.

Dividends
On September 25, 2002, the Companys Board of Directors
announced a quarterly common stock dividend of four cents per share payable on
October 24, 2002. The amount of future dividends on OEI common stock will be
determined on a quarterly basis by the Companys Board of Directors and
will depend on earnings, financial condition, capital requirements and other
factors.

Accounting
Pronouncements

In 2001 the Financial Accounting Standards Board (FASB) issued
SFAS No. 143, Accounting for Asset Retirement Obligations.This statement
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred and a corresponding
increase in the carrying amount of the related longlived asset. The Company
will be required to adopt SFAS No. 143 effective January 1, 2003, using the
cumulative effect approach to recognize transition amounts for asset retirement
obligations, asset retirement costs and accumulated depreciation. The Company
currently records estimated costs of dismantlement, removal, site reclamation
and similar activities as part of its depreciation, depletion and amortization
for oil and gas properties without recording a separate liability for such
amounts. The Company has not yet completed its assessment of the impact of SFAS
No. 143 on its financial condition and results of operations. It expects that
adoption of the statement will result in increases in the capitalized costs of
its oil and gas properties and in the recognition of additional liabilities
related to asset retirement obligations. The Company will recognize the effect
of these adjustments as a cumulative effect of a change in accounting.

During
second quarter 2002 the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections.This statement rescinds SFAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt,and requires that all gains and losses
from extinguishment of debt should be classified as extraordinary items only if
they meet the criteria in APB No. 30. Applying APB No. 30 will distinguish
transactions that are part of an entitys recurring operations from those
that are unusual or infrequent or that meet the criteria for classification as
an extraordinary item. Any gain or loss on extinguishment of debt that was
classified as an extraordinary item in prior periods presented that does not
meet the criteria in APB No. 30 for classification as an extraordinary item must
be reclassified. The Company will adopt the provisions related to the rescission
of SFAS No. 4 on or before January 1, 2003. With the adoption of SFAS No. 145,
the classification of losses associated with extinguishments of debt that were
previously recorded as extraordinary items will be reclassified as other expense
with the related tax benefit reclassified into income tax expense.

The
FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, in June 2002. This statement addresses financial
accounting and reporting for costs

23

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Ocean
Energy, Inc.

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

associated with
exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 943, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs incurred in a Restructuring). SFAS No. 146 applies
to costs incurred in an exit activity,  which includes, but is not limited
to, a restructuring, or a disposal activity covered by SFAS No. 144. SFAS
No. 146 will be effective for the Company in January 2003. The Company does not believe
there is any current impact of SFAS No. 146. It would instead affect the accounting for
future exit or disposal activities.

Environmental

Compliance
with applicable environmental and safety regulations by the Company has not
required any significant capital expenditures or materially affected its
business or earnings. The Company believes it is in substantial compliance with
environmental and safety regulations and foresees no material expenditures in
the future; however, the Company is unable to predict the impact that compliance
with future regulations may have on capital expenditures, earnings and
competitive position.

Defined Terms

Oil,
condensate and natural gas liquids (NGL) are stated in barrels
(Bbl) or thousand barrels (MBbl). Natural gas is stated
herein in billion cubic feet (Bcf), million cubic feet
(MMcf) or thousand cubic feet (Mcf). Oil, condensate and
NGL are converted to gas at a ratio of one barrel of liquids per six Mcf of gas.
MMBOE, MBOE and BOE represent one million barrels, one thousand barrels and one
barrel of oil equivalent, respectively, with six Mcf of gas converted to one
barrel of liquid. MMBtu represents one million British Thermal
Units.

ForwardLooking
Statements May Prove Inaccurate

This
document contains forwardlooking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, and information that is based on managements belief
and assumptions based on currently available information. All statements other
than statements of historical fact included in this document are forwardlooking
statements. When used in this document, words such as anticipate,
believe, estimate, expect,
forecast, intend, project and similar
expressions serve to identify forwardlooking statements. Although we believe
that the expectations reflected in our forwardlooking statements are
reasonable, we can give no assurance that these expectations will prove correct.
Our forwardlooking statements are subject to risks, uncertainties and
assumptions. Should one of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, our actual results may vary materially
from those expected. Among the key factors that may have a direct bearing on our
results of operations and financial condition are:

- competitive practices in the oil and gas industry;

24

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Ocean
Energy, Inc.

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

- geological,  mechanical  and  economic  risk  inherent in the drilling and  operation of  exploratory  and
         development wells;
- risk of noncash  writedown of unproved  property  costs in countries  where proved  reserves have not yet been established;
- risk of noncash  writedown  of proved  property  costs due to declines in prices,  downward  revisions in
         reserves or significant increases in finding and development costs;
- volatility of energy commodity prices,  generally,  and fluctuations in the commodity prices for crude oil
         and natural gas that have not been properly hedged;
- general economic and capital markets conditions, including fluctuations in interest rates;
- the  impact  of  current  and  future  laws  and  governmental  regulations,   particularly  environmental
         regulations, affecting the energy industry in general, and our oil and gas operations, in particular;
- environmental liabilities that are not covered by insurance or indemnity;
- the political and economic  climate in the foreign or domestic  jurisdictions  in which we conduct oil and
         gas operations, including potential adverse results of military or terrorist actions in those areas; and
- the effect on our results of operations  and financial  condition  associated  with  implementing  various
         accounting rules and regulations.

25

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Ocean
Energy, Inc.

Item
3. Quantitative and Qualitative Disclosures About Market Risks

The
Company experiences market risk primarily in the area of commodity prices. To
mitigate a portion of its exposure to fluctuations in commodity prices, the
Company has entered into various oil and gas derivative financial instruments
for its oil and gas production. (See Notes 1 and 4 to the Companys
Consolidated Financial Statements for a discussion of activities involving
derivative financial instruments during 2002.) To calculate the potential effect
of the derivatives contracts on future revenues, the Company applied the average
New York Mercantile Exchange (NYMEX) or Brent, as applicable, oil
and gas strip prices as of September 30, 2002 to the quantity of the
Companys oil and gas production covered by those derivative contracts as
of that date. The following table shows the estimated potential effects of the
derivative financial instruments on future revenues (in millions):

|                          |  | Estimated Increase | Estimtaed Decrease
|------------------------- |  | ------------------ | ------------------
|
|
|
|                         
|Oil collars               |  |                    | $                 
|Gas collars               |  |                    | $                 
|Gas swap of related trust |  |                    | $                 

Item  4.
Controls and Procedures

Within
90 days prior to the filing date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chief Executive Officer
and Chief Financial Officer, of the Companys disclosure controls and
procedures (as defined in Rule 13a14(c) of the Securities Exchange Act of
1934). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that the Companys disclosure controls and
procedures are effective.

There
have been no significant changes in the Companys internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Part  II.
Other Information

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

None
during third quarter 2002.

26

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Ocean
Energy, Inc.

Item  6.
Exhibits and Reports on Form 8K

(a)  Exhibits:

|#10.1 |  | Seventh Amendment to the Ocean Energy, Inc. Long Term Incentive Plan for
NonExecutive Employees, incorporated by reference to Exhibit 99.1 to the
Companys Registration Statement on Form S8 (No. 333100903), filed with the SEC on October
31, 2002.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*99.1 |  | Certification
of Chief Executive Officer of Ocean Energy, Inc. pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the SarbanesOxley Act of 2002.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*99.2 |  | Certification
of Chief Financial Officer of Ocean Energy, Inc. pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the SarbanesOxley Act of 2002.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

*  Filed
herewith.

#  Identifies
management contracts and compensatory plans or arrangements.

(b)  Reports on
Form 8K:

On
August 1, 2002, the Company filed a Current Report on Form 8K dated August 1,
2002 containing sworn statements of the Companys principal executive
officer and principal financial officer as required by SEC Order 4460 (dated
June 27, 2002). The item reported in such Current Report was Item 9 (Regulation
FD Disclosure).

On
September 20, 2002, the Company filed a Current Report on Form 8K dated
September 17, 2002 concerning the issue and sale by the Company of $400 million
aggregate principal amount of 4 3/8% senior notes due October 2007. The items
reported in such Current Report were Item 5 (Other Events) and Item 7 (Financial
Statements and Exhibits).

27

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Ocean
Energy, Inc.

# Signatures

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

| | Ocean Energy, Inc.
| | ------------------

| | By:  
/s/ William L. Transier       William L. Transier 
       Executive Vice President and       Chief Financial Officer
       (Principal Financial Officer)
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Date: November 12, 2002
| | -----------------------

| | By:  
/s/ Robert L. Thompson       Robert L. Thompson 
       Vice President and Controller
       (Principal Accounting Officer)
| | ---------------------------------------------------------------------------------------------------------------------------------

| | Date: November 12, 2002
| | -----------------------

28

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Ocean
Energy, Inc.

# Certifications

I, James T.
Hackett, certify that:

|1. |  | I
have reviewed this quarterly report on Form 10Q of Ocean Energy, Inc.;
|-- |  | -------------------------------------------------------------------------

|2. |  | Based
on my knowledge, this quarterly report does not contain any untrue  statement of a
material fact or omit to state a material fact necessary to make  the statements made, in
light of the circumstances under which such statements  were made, not misleading with
respect to the period covered by this quarterly  report;
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Based
on my knowledge, the financial statements, and other financial information  included in
this quarterly report, fairly present in all material respects the  financial condition,
results of operations and cash flows of the registrant as  of, and for, the periods
presented in this quarterly report;
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | The registrants other certifying officer and I are responsible for  establishing and
maintaining disclosure controls and procedures (as defined in  Exchange Act Rules 13a14
and 15d14) for the registrant and we have:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) |  | designed such disclosure controls and procedures to ensure that material  information relating to
the registrant, including its consolidated subsidiaries,  is made known to us by others
within those entities, particularly during the  period in which this quarterly report is
being prepared;
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | evaluated
the effectiveness of the registrants disclosure controls and  procedures as of a
date within 90 days prior to the filing date of this  quarterly report (the Evaluation
Date); and
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) |  | presented in this quarterly report our conclusions about the effectiveness of  the disclosure
controls and procedures based on our evaluation of the Evaluation  Date;
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | The registrants other certifying officer and I have disclosed, based on  our most
recent evaluation, to the registrants auditors and the audit  committee of
registrants board of directors (or persons performing the  equivalent function):
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) |  | all significant deficiencies in the design or operation of internal controls  which could
adversely affect the registrants ability to record, process,  summarize and report
financial data and have identified for the  registrants auditors any material
weaknesses in internal controls; and
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | any fraud, whether or not material, that involves management or other employees  who have a
significant role in the registrants internal controls; and
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | The registrants other certifying officer and I have indicated in this  quarterly report
whether or not there were significant changes in internal  controls or in other factors
that could significantly affect internal controls  subsequent to the date of our most
recent evaluation, including any corrective  actions with regard to significant
deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November
12, 2002

| | By:  \s\ James T. Hackett       James T. Hackett 
       Chairman of the Board, President
       and Chief Executive Officer
| | ----------------------------------------------------------------------------------------------------------------------------

29

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Ocean
Energy, Inc.

# Certifications

I, William L.
Transier, certify that:

|1. |  | I have reviewed this quarterly report on Form 10Q of Ocean Energy, Inc.;
|-- |  | -------------------------------------------------------------------------

|2. |  | Based on my knowledge, this quarterly report does not contain any untrue  statement of a
material fact or omit to state a material fact necessary to make  the statements made, in
light of the circumstances under which such statements  were made, not misleading with
respect to the period covered by this quarterly  report;
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Based on my knowledge, the financial statements, and other financial information  included in
this quarterly report, fairly present in all material respects the  financial condition,
results of operations and cash flows of the registrant as  of, and for, the periods
presented in this quarterly report;
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | The registrants other certifying officer and I are responsible for  establishing and
maintaining disclosure controls and procedures (as defined in  Exchange Act Rules 13a14
and 15d14) for the registrant and we have:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) |  | designed such disclosure controls and procedures to ensure that material  information relating to
the registrant, including its consolidated subsidiaries,  is made known to us by others
within those entities, particularly during the  period in which this quarterly report is
being prepared;
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | evaluated the effectiveness of the registrants disclosure controls and  procedures as of a
date within 90 days prior to the filing date of this  quarterly report (the Evaluation
Date); and
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) |  | presented in this quarterly report our conclusions about the effectiveness of  the disclosure
controls and procedures based on our evaluation of the Evaluation  Date;
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | The registrants other certifying officer and I have disclosed, based on  our most
recent evaluation, to the registrants auditors and the audit  committee of
registrants board of directors (or persons performing the  equivalent function):
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) |  | all significant deficiencies in the design or operation of internal controls  which could
adversely affect the registrants ability to record, process,  summarize and report
financial data and have identified for the  registrants auditors any material
weaknesses in internal controls; and
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | any fraud, whether or not material, that involves management or other employees  who have a
significant role in the registrants internal controls; and
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | The registrants other certifying officer and I have indicated in this  quarterly report
whether or not there were significant changes in internal  controls or in other factors
that could significantly affect internal controls  subsequent to the date of our most
recent evaluation, including any corrective  actions with regard to significant
deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November
12, 2002

| | By:  \s\ William L. Transier       William L. Transier
       Executive Vice President
       and Chief Financial Officer
| | -------------------------------------------------------------------------------------------------------------------------

30

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Ocean
Energy, Inc.

Index To Exhibits

|#10.1 |  | Seventh
Amendment to the Ocean Energy, Inc. Long Term Incentive Plan for NonExecutive
Employees, incorporated by reference to Exhibit 99.1 to the Companys Registration Statement on Form S8 (No. 333100903)
filed with the  SEC on October 31, 2002.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*99.1 |  | Certification
of Chief Executive Officer of Ocean Energy, Inc. pursuant to 18 U.S.C. Section 1350,  as
adopted pursuant to Section 906 of the SarbanesOxley Act of 2002.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*99.2 |  | Certification
of Chief Financial Officer of Ocean Energy, Inc. pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the SarbanesOxley Act of 2002.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

*  Filed
herewith.

#  Identifies
management contracts and compensatory plans or arrangements.

31

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